mhm messenger: fasb expands simplification initiative
DESCRIPTION
The Financial Accounting Standards Board (FASB) has been working to simplify US Generally Accepted Accounting Principles (GAAP) through the Simplification Initiative. The goal of this initiative is to identify areas of US GAAP where cost and complexity can be reduced while maintaining or improving the usefulness of information provided in the financial statements. The FASB recently expanded the number of improvements that are being considered and added additional related projects to its technical agenda.TRANSCRIPT
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The financial accounting Standards Board (FASB) has been working to simplify US Generally accepted accounting Principles (GaaP) through the Simplification Initiative. The goal of this initiative is to identify areas of US GAAP where cost and complexity can be reduced while maintaining or improving the usefulness of information provided in the financial statements. The FASB recently expanded the number of improvements that are being considered and added additional related projects to its technical agenda.
Targeted Improvements
The Simplification Initiative had two projects associated with it that had been previously discussed by the FASB and have had exposure drafts issued. These projects were Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Item and Simplifying the Subsequent Measurement of Inventory (MHM Messenger 2014-21). As part of the exposure draft process, the FASB is accepting comment letters through September 30, 2014.
additional projects that the faSB has added to its agenda include:
• SimplifyingthePresentationofDebtIssuanceCost:The aim of this project is to harmonize the accounting for certain fees and costs associated
august 2014
FASB Expands Simplification Initiative
with the issuance of a debt instrument with the accounting for a debt discount or premium. The FASB discussed this project and we expect an exposure draft to be issued that will propose treating debt issuance costs as a contra-liability account netted against the face amount of the debt on the balance sheet, instead of presenting the costs as a deferred asset.
• Simplifying the Measurement Date for PlanAssets: The board decided to allow employers to measure the projected benefit obligation and benefit plan assets as of the closest calendar month-end to the employers’ fiscal year-end. The change would make it easier for companies that have fiscal periods that do not end on a calendar month-end. Companies would make an accounting election to use the calendar month-end and be required to disclose the alternative measurement date. The board also deliberated the inclusion of additional rollforward information for plan assets and contributions for assets measured using a Level 3 fair value measurement. An exposure draft is expected on this project in the near future.
• Simplifying the Balance Sheet ClassificationofDebt:The classification of debt in US GAAP is based on rules that when being applied can result in significant costs. As part of this project, the FASB has proposed to modify the guidance on the classification of debt. The FASB is expected to deliberate creating a principle that the classification of debt will be based on the contract terms and covenant compliance as of the reporting date.
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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please contact your MHM auditor to further discuss the impact on your audit or audit report.
Other New Projects
The faSB added an additional project to its agenda to consider the accounting for income taxes for intra-entity asset transfers and the balance sheet classification of deferred taxes. This project includes the possibility of simplifying the accounting for income taxes by eliminating intercompany tax effects of the sale or transfer of assets among a consolidated group; making the classification of all deferred taxes noncurrent; and changes to the allocation of income tax expense between continuing operations, discontinued operations and charges to equity. Additional deliberation and research is expected on this project.
In addition, the FASB added projects to the Emerging Issues Task Force (EITF) agenda to consider the fair value leveling for investments measured at net asset value (NAV) and to clarify the accounting for historical earnings per unit for master limited partnerships that have had a dropdown transaction occur.
For More Information
The improvements under the Simplification Initiative have the potential to make applying and following US GAAP easier for many companies. We will continue to follow the projects and the initiative as they evolve and are deliberated by the FASB. If you have any specific questions, comments or concerns, please share them with Ernie Baugh or James Comito of MHM’s Professional Standards Group or your MHM service professional. You can reach Ernie at [email protected] or 423.870.0511 and James at [email protected] or 858.795.2029.