SEC Trends & Developments - Summer 2011 - SEC Staff Observations from Review of Interactive Data Financial Statements (XBRL)
Transfers and Servicing – Repurchase Agreements (ASU 2011-03) The guidance in this ASU is intended to improve the accounting for repurchase transactions ("repos") and other similar agreements, currently addressed within Transfers and Serving (Topic 860). One of the amendments in this ASU removes 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 terms, even in the event of default by the transferee. This modification makes the level of cash or other collateral received by the transferor in a repo or similar agreements irrelevant in determining how it should be accounted for as a sale. As a result, more repos will be accounted for as financings (secured borrowings or lending agreements) as opposed to sales with commitments to repurchase. The new guidance applies to both public and nonpublic entities and is effective prospectively for new transfers and existing transactions that are modified in the first interim or annual period beginning on or after December 15, 2011. Early adoption is not permitted.
Troubled Debt Restructuring (ASU 2011-02) In April, the FASB Board completed its project on developing more consistent guidance in determining whether a modification or restructuring of a loan receivable constitutes a concession to a borrower that is experiencing financial difficulty – that is a troubled debt restructuring. The amendments clarify the existing guidance in Receivable (Topic 310) on (1) whether the creditor has granted a concession – collection of all amounts due, receipt of additional collateral or guarantees from the debtors, and restructuring a debt at a below-market rate; (2) and whether the debtor is experiencing financial difficulties. The ASU also ends the FASB's deferral of the additional disclosures about TDR activities required by ASU 2010-20.
For public entities, the ASU is effective for the first interim or annual period beginning on or after June 15, 2011. Public entities are required to apply the ASU retrospectively all modification and restructuring activities that occurred from the beginning of the annual period of adoption. For non-public entities, the ASU is effective for annual periods ending on or after December 15, 2012, including interim periods within those annual periods. Non-public entities may also elect to early adopt the provisions of the ASU. It is important to note, however, that the new disclosures about TDR activities required by ASU 2010-20 are effective for non-public entities for annual reporting periods ending on or after December 15, 2011.
Update on FASB and IASB Convergence Projects
The FASB and the IASB has published a report that updates the Boards' progress on their key convergence projects since their last progress report issued in November 2010. The highlights include:
- The original target date of June 2011 for the priority projects have been extended to the second half of 2011. The priority projects include revenue recognition, leases, financial instruments, and insurance contracts.
- The Boards have made significant progress on their joint project on revenue recognition and have reached tentative decisions on a number of issues, including: the impact of collectability, the time value of money on transaction price, the accounting for onerous contracts, the allocation of transaction price, contract costs, variable considerations, and accounting for licenses and customer options.
- The Boards continue their deliberation of the accounting of leases. Key areas discussed include the definition of a lease, variable lease payments, and profit and loss recognition pattern. The tentative decisions reached so far would significantly change the original exposure draft released in August 2010.
- The Boards' timing on financial instruments and insurance projects may differ.
- Other joint projects, including fair value measurement and presentation of other comprehensive income, are nearing completion and will be released shortly. The IASB will issue new standards consolidated financial statements, joint arrangement and post-employment benefits.
On the Horizon Netting Financial Assets and Liabilities The FASB has issued a joint proposal with the IASB which would establish a common approach to offsetting certain financial assets and financial liabilities. Under the proposal, a recognized eligible asset and a recognized eligible liability would be required to be offset in an entity's financial statements when the entity has an unconditional and legally enforceable right of setoff and intends either to settle the asset and liability on a net basis or to realize the asset and settle the liability simultaneously. This proposal also requires that the right of setoff must be legally enforceable in all circumstances, such as default or bankruptcy, and that its exercisability is not dependent on future events.
New Testing for Goodwill Impairment
The FASB issued an exposure draft of a proposed Accounting Standards Update that will simplify the required testing for goodwill impairment. The exposure draft would allow companies to first assess qualitative factors, such as events and circumstances, to determine if the two-step quantitative goodwill impairment test is necessary. Under current guidance, an entity is required to test goodwill for impairment at least annually, by comparing the fair value of a reporting unit with its carrying amount. If the fair value of a reporting unit is less than its carrying amount, then a second step must be performed. That step is used to measure the amount of impairment loss, if any. The proposed amendments would not require an entity to calculate the fair value of a reporting unit unless it concludes that it is more likely than not that its fair value is less than its carrying amount. These changes would be effective for fiscal years beginning after Dec. 15, 2011, and early adoption would be permitted.
SEC Trends & Developments - Summer 2011 Issue