Monday, 18 March 2013

2012 FASB Accounting Standard Updates You Probably Missed

 

We are approaching the end of the 2012, have been busy, and there is no way to stay updated with the constant changes in the accounting standard time-by-time. If you are a U.S. entity or work for one or use the US-GAAP, FASB have made at least six important accounting standard updates during the 2012 that you probably missed. Do not worry though; I made the “2012 FASB Accounting Standard Updates” that summarizes the updates.
Here are accounting standard updates made by the FASB, during the 2012, that surely affect your practice in implementing the U.S. Generally Accepted Accounting Principles (GAAP)

Updates#1. Health Care Entities: Continuing Care Retirement Communities—Refundable Advance Fees (ASC 954)

Release Time: July 2012.
Effective Date: Fiscal periods beginning after December 15, 2012 for public entities (including conduit bond obligors), and fiscal periods beginning after December 15, 2013 for nonpublic entities. Early adoption is permitted.
Application Note: The amendments in this update should be applied retrospectively by recording a cumulative-effect adjustment to opening retained earnings (or unrestricted net assets) as of the beginning of the earliest period presented.
Am I affected? If you are a care retirement community and have resident contracts that provide for a payment of a refundable advance fee upon reoccupancy of that unit by a subsequent resident, then this accounting standard update is important.
Under the ASC 954 “Health Care Entities”, particularly subtopic 954-430 “Deferred Revenue”, continuing health care retirement communities is required to recognize deferral of revenue when a contract between the community and a resident stipulates that:
(1) a portion of the advanced fee is refundable if the contract holder’s unit is reoccupied by a subsequent resident;
(2) the refund is limited to the proceeds of reoccupancy; and
(3) the legal environment and the entity’s management policy and practice support the withholding of refunds under condition (2).
The update clarifies that:
  • An entity should classify an advance fee as deferred revenue when a continuing care retirement community has a resident contract that provides for payment of the refundable advance fee upon reoccupancy by a subsequent resident, which is limited to the proceeds of reoccupancy.
  • Refundable advance fees that are contingent upon reoccupancy by a subsequent resident but are not limited to the proceeds of reoccupancy should be accounted for and reported as a liability.

Update#2. Intangibles, Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment (ASC 350)

Release Time: July 2012.
Effective Date: For annual and interim impairment tests performed for fiscal years beginning after September 15, 2012
Application Note: Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.
Am I affected? Either you are a public or non public entity, if you have indefinite-lived intangible assets, other than goodwill, reported on your financial statements, then this update is important.
The update, according to the FASB, answers many financial statements preparers’ concern about the recurring cost and complexity of performing a quantitative impairment test for indefinite-lived intangible assets other than goodwill, especially when the facts and circumstances indicated a low likelihood of impairment.
In addition, the board explains:
Many stakeholders noted that as a result of the recent amendments to the guidance on testing goodwill for impairment, indefinite-lived intangible assets would be the only category of long-lived assets subject to an annual quantitative impairment testing requirement, which would be inconsistent with that of goodwill and other long-lived assets.
Previous guidance, in Subtopic 350-30, required an entity to test indefinite-lived intangible assets for impairment, on at least an annual basis, by comparing the fair value of the asset with its carrying amount; If the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess.
In accordance with this update:
1. An entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired.
  • If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action.
  • If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Subtopic 350-30.
2. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period.
3. In conducting a qualitative assessment, an entity should consider the extent to which relevant events and circumstances, both individually and in the aggregate, could have affected the significant inputs used to determine the fair value of the indefinite-lived intangible asset since the last assessment.
4. An entity also should consider whether there have been changes to the carrying amount of the indefinite-lived intangible asset when evaluating whether it is more likely than not that the indefinite-lived intangible asset is impaired.
5. An entity should consider positive and mitigating events and circumstances that could affect its determination of whether it is more likely than not that the indefinite-lived intangible asset is impaired.
6. An entity should refer to the examples in paragraph 350-30-35-18B(a) through (f) for guidance about the types of events and circumstances that it should consider in evaluating whether it is more likely than not that an indefinite-lived intangible asset is impaired. If an entity has made a recent fair value calculation that indicated a difference between the fair value and the then carrying amount of an indefinite-lived intangible asset, that difference also should be included as a factor in considering whether it is more likely than not that the indefinite-lived intangible asset is impaired.

Update#3. Technical Corrections and Improvements

Release Time: October 2012.
Effective Date: Fiscal periods beginning after December 15, 2012 for public entities (the amendments that are subject to the transition guidance); and Fiscal periods beginning after December 15, 2013 for nonpublic entities (the amendments that are subject to the transition guidance)
Application Note: The amendments in this Update that will not have transition guidance will be effective upon issuance for both public entities and nonpublic entities.
Am I affected? As the title of the update it says, this update affects almost all of reporting entities under the U.S. Jurisdiction. This update contains amendments that affect a wide variety of Topics, such as:
  • Balance Sheet—Offsetting
  • Receivables—Nonrefundable Fees and Other Costs
  • Investments—Debt and Equity Securities—Overall
  • Debt—Overall
  • Debt—Debt with Conversion and Other Options
  • Consolidation—Overall
  • Derivatives and Hedging—Overall
  • Derivatives and Hedging—Hedging—General
  • Derivatives and Hedging—Net Investment Hedges
  • Derivatives and Hedging—Contracts in Entity’s Own Equity
  • Transfers and Servicing—Sales of Financial Assets
  • Financial Services—Insurance—Acquisition Costs
  • Financial Services—Investment Companies—Balance Sheet
  • Health Care Entities—Other Expenses
  • Not-for-Profit Entities—Investments—Debt and Equity Securities
  • Not-for-Profit Entities—Debt
  • Not-for-Profit Entities—Consolidation
  • Plan Accounting—Defined Contribution Pension Plans—Presentation of Financial Statements
  • Plan Accounting—Defined Contribution Pension Plans—Investments—Other
  • And many more…
This is a big update. In general, the updates represent changes to clarify the standard, correct unintended application of guidance, or make minor improvements to the standard that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Additionally, the amendments is believed will make the standard easier to understand and the fair value measurement guidance easier to apply by eliminating inconsistencies and providing needed clarifications.
For futher detail, visit the FASB website and download PDF file

Update#4. “Statement of Cash Flows – Not-for-Profit Entities”, “Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows” (ASC 230)

Release Time: October 2012.
Effective Date: Beginning after June 15, 2013 (prospectively for fiscal years and interim periods within those years).
Application Note: Retrospective application to all prior periods presented upon the date of adoption is permitted. Early adoption from the beginning of the fiscal year of adoption is permitted. For fiscal years beginning before October 22, 2012, early adoption is permitted only if an NFP’s financial statements for those fiscal years and interim periods within those years have not yet been made available for issuance.
Am I affected? If you are a not-for-profit entity and accepts donated financial assets, then this update is important to you.
Some not-for-profit entities (NFPs) classify the cash receipts arising from the sale of donated financial assets in the statement of cash flows as investing cash inflows. Other entities classify the cash receipts from the sale of donated financial assets as either operating cash inflows or financing cash inflows, consistent with their treatment of inflows arising from cash contributions.
This update aims to address the diversity in practice about how to classify cash receipts arising from the sale of certain donated financial assets, such as securities, in the statement of cash flows of NFPs.
The update requires NFPs to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash.
Accordingly, the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities, unless the donor restricted the use of the contributed resources to long-term purposes, in which case those cash receipts should be classified as cash flows from financing activities. Otherwise, cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities by the NFP.

Update#5. Business Combinations – Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (ASC 805)

Release Time: October 2012.
Effective Date: beginning on or after December 15, 2012 for public and nonpublic entities (for fiscal years and interim periods within those years)
Application Note: Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution.
Am I affected? If you recognize an indemnification asset as a result of a government-assisted acquisition of a financial institution, in your financial statements, then this update affects you.
In general, accounting for a business combination requires that at each subsequent reporting date, an acquirer measure an indemnification asset on the same basis as the indemnified liability or asset, subject to any contractual limitations on its amount, and, for an indemnification asset that is not subsequently measured at its fair value, management’s assessment of the collectibility of the indemnification asset.
The objective of this update is to address the diversity in practice about how to interpret the terms on the same basis and contractual limitations when subsequently measuring an indemnification asset recognized in a governmentassisted (FDIC or NCUA) acquisition of a financial institution that includes a loss-sharing agreement (indemnification agreement).
When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should:
Subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification.
Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets).

Update#6. Entertainment – Films, Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs (ASC 926)

Release Time: October 2012.
Effective Date: For SEC filers, the amendments are effective for impairment assessments performed on or after December 15, 2012. For all other entities, the amendments are effective for impairment assessments performed on or after December 15, 2013.
Application Note: The amendments resulting from this Issue should be applied prospectively. In addition, earlier application is permitted, including for impairment assessments performed as of a date before October 24, 2012, if, for SEC filers, the entity’s financial statements for the most recent annual or interim period have not yet been issued or, for all other entities, have not yet been made available for issuance.
Am I affected? If you are a film maker/producer and perform impairment assessments of unamortized film costs, in accordance with ASC 926, then you are affected by this update—thus it is important.
Under the ASC 926, “Entertainment—Films”, a film maker/producer entity is required that if evidence of a possible need for a write-down of unamortized film costs occurs after the date of the balance sheet but before the financial statements are issued, a rebuttable presumption exists that the conditions leading to the writeoff existed at the balance sheet date.
The update eliminates the rebuttable presumption that the conditions leading to the writeoff of unamortized film costs after the balance sheet date existed as of the balance sheet date. It also eliminates the requirement that an entity incorporate into fair value measurements used in the impairment tests the effects of any changes in estimates resulting from the consideration of subsequent evidence if the information would not have been considered by market participants at the measurement date.
It also notes that because fair value (as defined by ASC 820) is the measurement basis that is used to assess impairment of unamortized film costs, an entity should include, in a valuation model, assumptions that market participants would have made about uncertainty in timing and amount of cash flows as of the measurement date.
To the extent that uncertainties are resolved or other information becomes known after the balance sheet date, but before the financial statements are issued or available to be issued, such effects should not be incorporated with certainty into the fair value measurement as of the balance sheet date unless market participants would have made such assumptions.
This update, however, does not change an entity’s responsibility to analyze and consider any relevant subsequent events and information to assess whether the fair value measurement reflects all relevant information and assumptions that market participants would have considered under the current conditions at the measurement date.

Important Notes

This “2012 FASB Accounting Standard Updates You Probably Missed” is a summary of a year update, in much more detail manner, made by the FASB. Therefore you won’t rely on this alone; visit the FASB’s site and download specific update you need (in PDF files).

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