Transcript FASB's Accounting Standards Updates 2011

FASB’s Accounting Standards Updates
ASUs issued during 2011 effective for annual periods ending 2012
with permission of the Financial Accounting Foundation for use of FASB material
Drs. Narwin Doekhi CPA, CMA, CGMA
Course Objectives
 High Level Review of FASB Accounting
Standards Updates (ASUs) issued during 2011
and effective for annual periods ending 2012
The main provisions
 Update preparers of US GAAP financials, and
get them up to speed
 Encourage preparers to perform further research
2
on the new accounting standards
 Informing what we do
2
Disclaimer
 The contents of this coursework provided have been
prepared with reasonable care, that means the author
has made every attempt to provide the most accurate
information available using internal and external
resources to prepare this course but he makes no
representations, warranties, or guarantees regarding the
accuracy, correctness or completeness of any opinions,
advice, statements, instructions or other information
provided in or by the material or the other contents and
features of the course
 It is your responsibility to investigate and evaluate the
3
accuracy, correctness, reliability or completeness of any
opinions, advice, statements, instructions or request
further clarification from the author
3
Introduction
 Effective July 1, 2009, changes to the source of
authoritative U.S. GAAP, the FASB Accounting
Standards Codification™ (FASB Codification), are
communicated through an Accounting Standards Update
(Update). Updates are published for all authoritative U.S.
GAAP promulgated by the FASB, regardless of the form
in which such guidance may have been issued prior to
release of the FASB Codification (e.g., FASB
Statements, EITF Abstracts, FASB Staff Positions, etc.)
Updates are also issued for amendments to the SEC
4
content in the FASB Codification as well as for editorial
changes
4
Introduction
An Update is a transient document that
 summarizes the key provisions of the project
that led to the Update,
details the specific amendments to the FASB
Codification, and
explains the basis for the Board's decisions
Although ASUs will update the FASB
5
Codification, the FASB does not consider
Updates as authoritative in their own right
5
Introduction
1XX
2XX
General Principles
Presentation
8XX
Broad Transactions
805
810
Business Combinations
Consolidation
280
Segment Reporting
3XX
Assets
815
820
825
Derivatives and Hedging
Fair Value Measurements and Disclosures
Financial Instruments
350
360
Intangibles - Goodwill and Other
Property, Plant, and Equipment
4XX
Liabilities
Deferred Revenue
850
852
Related Party Disclosures
Reorganizations
430
5XX
Equity
855
Subsequent Events
505
Equity
9XX
Industry
6XX
Revenue
605
Revenue Recognition
930
932
Extractive Activities - Mining
Extractive Activities - Oil and Gas
7XX
Expenses
730
740
Research and Development
Income Taxes
940
946
Financial Services - Broker and Dealers
6
Financial Services - Investment Companies
6
Introduction
1XX
2XX
210
220
C
3XX
305
310
A
330
350
E
360
4XX
5XX
General Principles
Presentation
Balance Sheet
Comprehensive Income
ASU 2011-05 Presentation of Comprehensive Income
ASU 2011-12 Deferral of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05 Presentation of Comprehensive Income
Assets
Cash and Cash Equivalents
Receivables
2011-01 Deferral of the Effective Date of Disclosures about Troubled Debt
Restructurings in Update No. 2010-21
2011-02 A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt
Restructuring
Inventory
Intangibles-Goodwill and Other
ASU 2011-08 Testing Goodwill for Impairment
Property, Plant, and Equipment
7
Liabilities
Equity
7
Introduction
6XX
7XX
710
715
F
730
740
8XX
Revenue
Expenses
Compensation-General
Compensation-Retirement Benefits
ASU 2011-09 Disclosures about an Employer's Participation in a Multiemployer Plan
Research and Development
Income Taxes
Broad Transactions
805
810
820
825
Business Combinations
Consolidation
Fair Value Measurements
Financial Instruments
855
860
Subsequent Events
Transfers and Servicing
B
9XX
940
954
D
ASU 2011-03 Reconsideration of Effective Control for Repurchase Agreements
Industry
8
Financial services
Health care entities
ASU 2011-07 Presentation and Disclosure of Patient Service Revenue, Provision for
Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities (a
consensus of the FASB Emerging Issues Task Force)
8
The FASB Numbering System
FASB ASC XXX-YY-ZZ-PP
For example, one of the classification
codes for Derivatives and Hedging is:
815 = Derivatives and Hedging (Topic)
815-25 = Fair Value Hedges (Subtopic)
 815-25-35 = Subsequent Measurement (Section)
 815-25-35-1 = General (Subsection paragraph 1)
9
9
A: ASU 2011-01/2
 Update No. 2011-01, Receivables (Topic 310):
Deferral of the Effective Date of Disclosures about
Troubled Debt Restructurings (TDR) in Update No.
2010-20.
 Update No. 2011-02, Receivables (Topic 310):
A Creditor's Determination of Whether a Restructuring
Is a Troubled Debt.
10
10
A: ASU 2011-01/2
In evaluating whether restructuring
constitutes a Troubled Debt
Restructurings, a creditor must separately
conclude that both of the following exist:
The restructuring constitutes a concession.
The debtor is experiencing financial
difficulties.
11
This update provides additional guidance
11
A: ASU 2011-01/2
IFRS does not have guidance on troubled
debt restructurings.
IFRS 7, Financial Instruments:
Disclosures, requires the disclosure of the
carrying amount of renegotiated debt,
which is defined as debt whose terms
were renegotiated that otherwise would be
12
past due or impaired without that
renegotiation.
12
B: ASU 2011-03
 ASU No. 2011-03, Transfers and Servicing
(Topic 860):
Reconsideration of Effective Control for Repurchase
Agreements
 When transferor is deemed to have maintained
effective control over the financial assets
transferred it must account for the transaction as
a secured borrowing
13
13
B: ASU 2011-03
The amendments remove the following
from the assessment of effective control:
The criterion requiring the transferor to have
the ability to repurchase or redeem the
financial assets on substantially the agreed
upon terms, even in the event of default by
the transferee, and
The collateral maintenance implementation14
guidance related to that criterion
14
B: ASU 2011-03
 The IASB’s derecognition guidance is provided
under IAS 39, Financial Instruments:
Recognition and Measurement.
 The consideration of a transferor’s ability to
repurchase or redeem financial assets
transferred on substantially agreed terms, even
in the event of default by the transferee, is not
required under IFRS.
15
 The amendments in this Update improve
convergence by eliminating from U.S. GAAP the
need to consider this criterion.
15
C: ASU 2011-05/12
Update No. 2011-05, Comprehensive
Income (Topic 220):
Presentation of Comprehensive Income
Update No. 2011-12, Comprehensive
Income (Topic 220):
Deferral of the Effective Date for
Amendments to the Presentation of
Reclassifications of Items Out of Accumulated
16
Other Comprehensive Income in Update No.
2011-05
16
C: ASU 2011-05/12
 Entities have the option to present the total of
comprehensive income, the components of net income,
and the components of other comprehensive income
either in a single continuous statement of comprehensive
income or in two separate but consecutive statements.
 The previously allowed option of showing the
components of OCI in the statement of changes in equity
is no longer allowed.
 These amendments do not change the items that must
be reported in OCI or when an item of OCI must be 17
reclassified to net income
 To be applied retrospectively
17
C: ASU 2011-05/12
 IFRS currently permits components of other
comprehensive income to be presented either in
a single statement or in two consecutive
statements. Therefore, the amendments will
result in more converged guidance on how
comprehensive income is presented under both
U.S. GAAP and IFRS.
 Minor other differences in reporting
18
comprehensive income between U.S. GAAP and
IFRS will remain
18
D: ASU 2011-07
Update No. 2011-07, Health Care Entities
(Topic 954):
Presentation and Disclosure of Patient
Service Revenue, Provision for Bad Debts,
and the Allowance for Doubtful Accounts for
Certain Health Care Entities (a consensus of
the FASB Emerging Issues Task Force)
Increase transparency about a health care
19
entity's net patient service revenue and the
related allowance for doubtful accounts.
19
D: ASU 2011-07
 Certain health care entities will need to change the
presentation of their statement of operations by
reclassifying the provision for bad debts associated with
patient service revenue from an operating expense to a
deduction from revenue.
 Additionally, these entities are required to provide
enhanced disclosures about their policies for recognizing
revenues and assessing bad debts.
 This change in presentation will result in the presentation
of net patient service revenue which is closer to the
amount that the health care entity expects to collect. The
20
new disclosures will assist users in better understanding
how health care entities recognize patient service
revenue and assess bad debts
20
D: ASU 2011-07
 The amendments relating to the presentation of
revenue should be applied retrospectively to all
prior periods presented. The disclosure
amendments should be provided for the period
of adoption and subsequent reporting periods.
 IFRS does not currently require similar
presentation or disclosures as set forth in the
amendments in this Update.
21
21
E: ASU 2011-08
 Update No. 2011-08, Intangibles - Goodwill and
Other (Topic 350):
 Testing Goodwill for Impairment
 Reducing the cost and complexity of performing
the required annual tests for impairment of
goodwill.
ASC 350 requires that all companies which have
goodwill on their books test it for impairment annually
This test is a two-step process. The first step is to 22
determine the fair value of the reporting unit, which
can be both cumbersome and expensive
22
E: ASU 2011-08
 An entity now has the option to first assess qualitative
factors to determine if it is" more likely than not" that the
fair value of a reporting unit is less than its carrying
value. If it is NOT more likely than not, then performing
the two-step impairment test is not required.
 In making this qualitative assessment, an entity shall
assess relevant events and circumstances. Examples of
such events and circumstances include the following:
 Macroeconomic conditions
 such as a deterioration in general economic conditions, limitations
on accessing capital, fluctuations in foreign exchange rates, or23
other
developments in equity and credit markets
23
E: ASU 2011-08
 Industry and market considerations
 such as a deterioration in the environment in which an entity
operates, an increased competitive environment, a decline
in market-dependent multiples or metrics (consider in both
absolute terms and relative to peers), a change in the
market for an entity's products or services, or a regulatory or
political development
 Cost factors
 such as increases in raw materials, labor or other costs that
have a negative effect on earnings and cash flows
 Overall financial performance
24
 such as negative or declining cash flows or a decline in
actual or planned revenue or earnings compared with actual
and projected results of relevant prior periods
24
E: ASU 2011-08
Other relevant entity-specific events
 such as changes in management, key personnel, strategy, or
customers; contemplation of bankruptcy; or litigation
Events affecting a reporting unit
 such as a change in the composition or carrying amount of its
net assets; a "more likely than not" expectation of selling or
disposing all, or a portion, of a reporting unit; the testing for
recoverability of a significant asset group within a reporting
unit; or recognition of a goodwill impairment loss in the
financial statements of a subsidiary that is a component of a
reporting unit
If applicable, a sustained decrease in share price
(consider in both absolute terms and relative to
peers).
25
25
E: ASU 2011-08
 If a company determines that facts and circumstances
indicate that the fair value may be less than the carrying
value, then the full two-step impairment test is required.
 In making the qualitative assessment, management
should consider the extent to which each of the adverse
events or circumstances identified could affect the
comparison of the reporting unit's fair value with its
carrying value.
 More weight should be placed on those events which are
more likely to affect either fair value or carrying value26
than those that would not affect these values. An entity
should also consider positive or mitigating circumstances
that might limit the potential impairment.
26
E: ASU 2011-08
 International Accounting Standard 36,
Impairment of Assets, requires an entity to test
goodwill for impairment using a single-step
quantitative test performed at the level of a cashgenerating unit or group of cash-generating
units.
 The test must be performed at least annually
and between annual tests whenever there is an
indication of impairment. IAS 36 requires an 27
entity to compare the carrying amount of a cashgenerating unit with its recoverable amount.
27
F: ASU 2011-09
 Update No. 2011-09, Compensation Retirement Benefits - Multi-Employer Plans
(Subtopic 715-80):
Disclosures about an Employer's Participation in a
Multiemployer Plan
 Disclosures to increase awareness of the
commitments and risks involved with
participating in multiemployer pension plans
 Applies to nongovernmental entities that
participate in multiemployer plans
28
28
F: ASU 2011-09
Requirement of additional quantitative and
qualitative disclosures, including:
The significant multiemployer plans in which
an employer participates,
The level of an employer's participation in the
significant multiemployer plans,
The financial health of the significant
multiemployer plans,
29
The nature of the employer commitments to
the plan
29
F: ASU 2011-09
 For plans for which users are unable to obtain additional
publicly available information outside the employer's
financial statements, the employer is required to make
additional disclosures, including the following:
 A description of the nature of the plan benefits
 A qualitative description of the extent to which the employer
could be responsible for the obligations of the plan, including
benefits earned by employees during employment with another
employer
 Other quantitative information, to the extent available, as of the
most recent date available, to help users understand the 30
financial information about the plan, such as total plan assets,
actuarial present value of accumulated plan benefits, and total
contributions received by the plan.
30
F: ASU 2011-09
 For public entities, the amendments in this
Update are effective for annual periods for fiscal
years ending after December 15, 2011, with
early adoption permitted
 For nonpublic entities, the amendments are
effective for annual periods for fiscal years
ending after December 15, 2012, with early
adoption permitted.
 Retrospective application for all prior periods 31
presented.
31
Effective for 2013: ASU 2011-10
 ASU 2011-10: Property, Plant, and Equipment (Topic
360):
 Derecognition of in Substance Real Estate - a Scope
Clarification (a consensus of the FASB Emerging Issues Task
Force
 Resolving the diversity in practice about whether the
guidance in Subtopic 360-20 applies to a parent that
ceases to have a controlling financial interest (as
described in Subtopic 810-10) in a subsidiary that is in
substance real estate as a result of default on the 32
subsidiary’s nonrecourse debt.
32
Effective for 2013: ASU 2011-11
 ASU 2011-11: Balance Sheet (Topic 210):
Disclosures about Offsetting Assets and Liabilities
 Entities will be required to disclose both gross
information and net information about financial
instruments and transactions eligible for offset in
the statement of financial position and
instruments and transactions subject to an
33
agreement similar to a master netting
arrangement.
33
May we give you more
information?





Amsterdam US CPA Solutions
Phone (+31) 20 600 20 40
Fax (+31) 20 600 20 41
[email protected]
Amsterdam, The Netherlands
Expert international financial
solutions in accounting,
controlling, business, US
auditing and US tax for34
entrepreneurial business
leaders and investors
34