SEC Trends & Developments - Spring 2012 - Accounting Standards Update

(ASU 2011-12)

In June 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The International Accounting Standards Bureau ("IASB") issued a separate amendment to its respective guidance that was convergent in many aspects. The Boards agreed that items of other comprehensive income (“OCI”) need to be more prominently presented and decided to permit the option to present the components of comprehensive income in one or two statements. ASU 2011-05 removed the previous option under U.S. GAAP to present other comprehensive income and its components in the statement of changes in stockholders' equity. Additionally, ASU 2011-05 required entities to present reclassification adjustments to show the effect of reclassifications on both the components of OCI and the components of net income in interim and annual financial statements. After the issuance of ASU 2011-05, concerns were raised about the difficulty of gathering the information necessary to present the impact of reclassification adjustments of OCI, particularly from a balance sheet account and subsequently reclassified to net income. Additionally, the guidance may not have been clear as to the level of detail required for interim financial statements. On December 23, 2011, the Board issued the ASU 2011-12 to defer the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. The Board will reconsider the presentation requirements in 2012.
However, the Board did not defer the requirement to report comprehensive income either in a single continuous statement or in two separate but consecutive financial statements. This requirement included in ASU 2011-05 is effective for public entities for fiscal years and interim periods within those years beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Early adoption is permitted.


Both the FASB and the IASB undertook projects to provide guidance on the criteria that would determine when offsetting in the balance sheet is appropriate. The projects were aimed to create a converged offsetting model that would eliminate a significant quantitative difference between balance sheets prepared under U.S. GAAP and IFRS. However, after some preparers and regulators expressed concerns, the Boards decided to pursue separate standard settings. Companies in the U.S. will continue the existing practice to offset certain financial instruments subject to a master netting arrangement or other industry-specific offsetting guidance.  In addition, the FASB issued ASU 2011-11 which introduces new disclosure requirements for companies in order to provide information to help reconcile differences in the offsetting requirements. The new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. The ASU will be effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, and must be shown for all periods presented on the balance sheet (i.e., applied retrospectively).


The FASB issued ASU 2011-10 which applies to transactions involving the loss of control of a subsidiary that is considered in-substance real estate, as a result of default on the debt secured by the real estate. In that case, a reporting entity must apply the accounting guidance for real estate sales in ASC 360-20, Property, Plant, and Equipment -- Real Estate Sales, when evaluating the subsidiary for deconsolidation. The amendments in this ASU should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. The amendments are effective for public companies for fiscal years and interim periods within those years beginning on or after June 15, 2012. For nonpublic companies, the amendments are effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted.

SEC Trends & Developments - Spring 2012 Issue 

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