SEC Trends & Developments - Winter 2011 - Accounting Standards Update

Disclosures About an Employer's Participation in Multiemployer Plan (ASU 2011-09)

In September 2011, the FASB issued Accounting Standards Update (ASU) No. ASU 2011-09, Compensation - Retirement Benefits - Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer's Participation in a Multiemployer Plan. The Update is intended to enhance the disclosure requirements and provide for more information about an employer's financial obligations to multiemployer plans. Multiemployer pension plans commonly are used by an employer to provide benefits to union employees who may work for many employers during their working life, thereby enabling them to accrue benefits in a single pension plan for their retirement. A unique characteristic of a multiemployer plan is that assets contributed by one employer may be used to provide benefits to employees of other participating employers. This is because the assets contributed by an employer are not specifically earmarked only for its employees. If a participating employer fails to make its required contributions, the unfunded obligations of the plan may be borne by the remaining participating employers. Previously, disclosures were limited primarily to the historical contributions made to the plans. The amendments in this Update require that employers provide additional separate disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans. For employers that participate in multiemployer pension plans, the amendments in this Update require an employer to provide additional quantitative and qualitative disclosures and therefore help users of financial statements assess the potential future cash flow implications and the commitments and risks involved with participating in multiemployer pension plans.  

The amendments in this Update apply to nongovernmental entities that participate in multiemployer plans. While the majority of the amendments in this Update apply only to multiemployer pension plans, there also are amendments that require changes in disclosures for multiemployer plans that provide postretirement benefits other than pensions. 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. The amendments should be applied retrospectively for all prior periods presented.

Testing Goodwill for Impairment (ASU 2011-08) 

The FASB issued ASU No. 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment in September 2011. The revised accounting standard can simplify how an entity tests goodwill for impairment. Under the revised standard, an entity will first assess qualitative factors and those factors will determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Entities are no longer required to calculate the fair value of reporting units unless they determine, based on the qualitative assessment, that it is more likely than not that the fair value is less than its carrying amount. Current literature requires entities to perform the goodwill impairment test at least annually, by first comparing the fair value of a reporting unit with its carrying amount, including goodwill.  If the fair value is less than its carrying amount, the second step of the test is required to be performed to measure the amount of impairment loss, if any.  The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. For more details, see related article on page xx, “FASB's Recent Guidance Simplifies Testing Goodwill for Impairment”.

Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities (ASU 2011-07)

Accounting Standards Update (ASU) 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)) issued by the FASB will require a change in how certain health care entities present the provision for bad debts associated with patient service revenue in their statement of operations.  The ASU will require entities to reflect these bad debt provisions as a reduction in patient service revenue rather than as an operating expense.  According to the ASU, under current practice some health care entities recognize patient service revenue when services are rendered regardless of whether the entity expects to collect that amount.  The changes will require enhanced disclosure about policies for recognizing revenue and assessing bad debts. The amendment will also require disclosures of patient service revenue (net of contractual allowances and discounts) and qualitative and quantitative information about changes in the allowance for doubtful accounts. For public entities, the amendment is effective for fiscal years and interim periods within those fiscal years beginning after Dec. 15, 2011, with early adoption permitted. The amendment to the presentation of the provision for bad debts related to patient service revenue in the statement of operations should be applied retrospectively for all prior periods presented and disclosures required by the amendments should be provided for the period of adoption and subsequent reporting periods.


New Exposure Draft on Revenue Recognition 

On November 14, 2011, the FASB and the IASB released a revised exposure draft on revenue from contracts with customers.   The concept that an entity would recognize revenue from contracts with customers when it transfers promised goods or services to the customer, which is the core principle of the previous draft, remains the same.  The revisions to the original proposal are based on the numerous responses received on that proposal.  The changes made by the FASB and the IASB include adding guidance on how to determine when a good or service is transferred over time, simplifying the proposals on warranties, simplifying the determination of the transaction price (including collectability, time value of money, and variable consideration), modifying the scope of the test for long-term services, adding the ability to recognize an expense for the cost of obtaining a contract (if one year or less), and providing exemption from some disclosures for non-public entities that apply U.S. GAAP. Comments of the revised exposure drafts are now due in March 2012.

Proposal to Defer the Effective Date for New Presentation Requirement for OCI

On November 8, the FASB issued a proposal to defer the amendments to the presentation of reclassification of items out of accumulated other comprehensive income (OCI) in previously issued ASU No. 2011-05. Concerns were raised on the application of ASU 2011-05 that the reclassifications of items out of accumulated OCI would be too costly for preparers and may add unnecessary complexity to financial statements. The Board agreed, at a minimum, to defer the effective date pertaining to reclassification adjustments contemplated in the original ASU. Comments on this exposure draft are due on November 23, 2011.

Proposed Amendments to Consolidation Standards - Principal vs. Agent

On November 3, 2011, the FASB issued a proposal to make targeted amendments to the consolidation model for variable interest entities (VIEs) and limited partnerships. The proposal would introduce a new requirement to assess whether the party with the power to direct the most significant activities of the entity is using that power in an agent or principal capacity. A party acting in an agency capacity would not consolidate the entity. The proposed guidance would require an assessment of whether a decision maker is acting in a principal or agent capacity. The analysis would require a holistic qualitative assessment based on the overall relationship between the decision-maker, the entity, and other interest holders. In addition, the proposal would rescind the indefinite deferral in ASU No. 2010-10 for the application of FAS 167 on certain investment funds. Comments on this proposal are due on January 17, 2012.

Proposed Accounting Standards on Real Estate - Investment Property Entities (Topic 973)

On October 21, 2011, the FASB issued a proposed accounting standard for investment property entities, which could fundamentally change financial reporting for many owners and investors in rental real estate. The proposals could impact not only traditional real estate investors, including real estate investment trusts (“REITs”) and real estate investment funds, but also non-traditional real estate and/or integral equipment owners. The proposed standard would require investment property to be recorded at fair value with changes in value recorded in earnings. For some entities within the scope of the proposal, the requirement to measure investment properties at fair value will represent a significant change from the existing practice. In addition, the proposed amendments would also require an investment property entity to consolidate another investment property entity or an investment company if it holds a controlling financial interest in the subsidiary entity. The proposal does not yet have an effective date, and the Board plans to consider the effective date together with the proposals on the investment companies (Topic 946) and leases (Topic 840). Comments on this proposal are due January 5, 2012.

Proposed Accounting Standards on Investment Company Guidance (Topic 946)

On October 21, 2011, the FASB also issued a proposal to amend the criteria for defining an investment company under U.S. GAAP and address when an investment company would apply consolidation accounting. The amendments in this proposed Update would affect the scope, measurement, presentation, and disclosure requirements for investment companies in the U.S.  In addition, an entity that invests in real estate properties and meets the criteria to be an investment property entity under the proposed Accounting Standards Update, Real Estate--Investment Property Entities (Topic 973), would not be considered an investment company. The proposed amendments would require that an investment company account for its controlling financial interests in other investment companies and investment property entities in a fund-of-funds structure in accordance with Topic 810 on consolidation. In addition, the proposal continues the current requirement for the parent of an investment company to retain the specialized accounting for the underlying portfolio investments in consolidation. The proposed amendments also include additional disclosure requirements and changes to the financial highlights requirements that would provide financial statement users with additional useful information about an investment company's activities and obligations. The effective date will be determined after the Board considers the feedback on the amendments in this proposed Update. Comments on this proposal are due January 5, 2012.

EITF Agenda Item on Cumulative Translation Adjustment 

The EITF has added an item to its agenda, “Parent's Accounting for the Cumulative Translation Adjustment (CTA) upon the Sale or Transfer of a Group of Assets within a Foreign Subsidiary That Meets the Definition of a Business.” This issue addresses a situation when a foreign subsidiary disposes of a group of assets that meets the definition of a business. Currently, there is a question as to whether the parent should apply the guidance in Subtopic 810-10 and recognize a portion of the CTA associated with the disposed group of assets in earnings or apply the guidance in paragraph 830-30-40-1 and recognize the CTA in earnings if the sale or transfer of the group of assets constitutes a complete or substantially complete liquidation of the foreign entity.

SEC Trends & Developments - Winter 2011 Issue  


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