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FINANCIAL ACCOUNTING STANDARDS BOARD (FASB)

FINAL FASB GUIDANCE

All final FASB guidance can be accessed on the FASB website at http://www.fasb.org/home, located under the Standards tab, Standards Issued in 2011. 

Accounting Standards Update 2011-05 – Comprehensive Income (Topic 220): Presentation of Comprehensive Income

Issued: June 2011

Summary: Under the amendments in this Update, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income (OCI) either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  Regardless of which format is chosen, an entity is required to present each component of net income along with total net income, each component of OCI along with a total for OCI and a total amount for comprehensive income. The Update specifies the presentation to be followed under both options.  Accordingly, presentation in a separate statement of stockholders’ equity is no longer permitted.

Additionally, regardless of which format is chosen, the amendments establish a requirement for entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented.

The amendments in this Update do not change any of the following requirements: the items that must be reported in OCI; when an item of OCI must be reclassified to net income; or how earnings per share is calculated or presented.  The amendments also do not change the option for an entity to present components of OCI either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of OCI items.  In both cases, the tax effect for each component must be disclosed in the notes to the financial statements or presented in the statement in which OCI is presented.

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 because compliance with the amendments is already permitted.  The amendments do not require any transition disclosures.

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Accounting Standards Update 2011-04 – Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS

Issued: May 2011

Summary: The amendments in this Update were issued in order to align the fair value measurement and disclosure requirements in U.S. Generally Accepted Accounting Principles (U.S. GAAP) and International Financial Reporting Standards (IFRS).  Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements.

Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements.  Other amendments modify a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.  However, many of the amendments in this Update will not result in a change in the application of the requirements in ASC 820.

The amendments in this Update that change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements include the following: (1) the ASU permits an exception to the requirements in ASC 820 for measuring fair value when a reporting entity manages its financial instruments on the basis of its net exposure, rather than its gross exposure, to those risks; (2) the ASU clarifies that the application of premiums and discounts in a fair value measurement is related to the unit of account for the asset or liability being measured at fair value; and (3) the ASU amendments expand the disclosures about fair value measurements.  Further, as a result of the amendments, blockage discounts are no longer permitted for level 2 and 3 investments.

Effective Date: The amendments in this Update are to be applied prospectively.  For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011.  Nonpublic entities may apply the amendments in this Update early, but no earlier than for interim periods beginning after December 15, 2011. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011; early application is not permitted.

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Accounting Standards Update 2011-03 – Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements

Issued: April 2011

Summary: The amendments in this Update remove from the assessment of effective control for Repurchase Agreements (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on the substantially agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion.

Other criteria applicable to the assessment of effective control are not changed by the amendments in this Update.  Those criteria indicate that the transferor is deemed to have maintained effective control over the financial assets transferred (and thus must account for the transaction as a secured borrowing) for agreements that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity if all of the following conditions are met: (1) the financial assets to be repurchased or redeemed are the same or substantially the same as those transferred; (2) the agreement is to repurchase or redeem them before maturity, at a fixed or determinable price; and (3) the agreement is entered into contemporaneously with, or in contemplation of, the transfer.

Effective Date: The guidance in this Update is effective for all entities, both public and nonpublic, for the first interim or annual period beginning on or after December 15, 2011.  The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted.

Accounting Standards Update 2011-02 – Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring

Issued: April 2011

Summary:  In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (1) the restructuring constitutes a concession; and (2) the debtor is experiencing financial difficulties.

The amendments to ASC 310 clarify whether a creditor has granted a concession, as follows: (1) it provides additional considerations when it is determined that the restructuring is at a below-market rate, which may indicate a concession; (2) explains how a temporary or permanent increase in the contractual interest rate as a result of a restructuring affects the evaluation of whether a concession has been granted; and (3) includes various factors to be considered in assessing whether a restructuring resulting in a delay in payment is insignificant (the amendments clarify that a restructuring that results in a delay in payment that is insignificant is not a concession). The amendments include examples illustrating these clarifications.

The amendments to ASC 310 clarify the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulties, stating that a creditor may conclude that a debtor is experiencing financial difficulties, even though the debtor is not currently in payment default.  A creditor should evaluate whether it is probable that the debtor would be in payment default on any of its debt in the foreseeable future without the modification.
In addition, the amendments to ASC 310 clarify that a creditor is precluded from using the effective interest rate test in the debtor’s guidance on restructuring of payables (paragraph 470-60-55-10) when evaluating whether a restructuring constitutes a troubled debt restructuring.

Effective Date:  The amendments in this Update are effective for nonpublic entities for annual periods ending on or after December 15, 2012, including interim periods within those annual periods.  Early adoption is permitted for public and nonpublic entities, with certain stipulations for nonpublic entities. The amendments in this Update are effective for public entities for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to modifications occurring on or after the beginning of the annual period of adoption. 

Emerging Issues Task Force (EITF) Issue No. 10-H:  Fees Paid to the Federal Government by Health Insurers

Issued: Final consensus as of June 23, 2011; FASB ratification expected July 13, 2011 and final ASU to be issued thereafter.

Summary: In March 2010, President Obama signed into law The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act (the “Acts”).  The Acts impose an annual fee on certain health insurers for each calendar year beginning after 2013.  The Task Force agreed that the fee to be paid by health insurers should be accounted for in a manner similar to its final consensus on Issue 10-D (issued as ASU 2010-27) concerning the fee to be paid by pharmaceutical manufacturers under the Acts.  Health insurers should recognize the annual fee as a liability in the year payable and recognize a corresponding asset that is amortized to operating expense ratable over the applicable calendar year.  The fee does not meet the definition of a deferred acquisition cost.

FASB ratification of the consensus is expected at the July 13, 2011 board meeting, after which the board will issue a final ASU.

Effective Date: This Issue will be effective for calendar years beginning after December 31, 2013.

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ASU No. 2011-7:  Health Care Entities: Presentation and Disclosure of Net Patient Service Revenue, Provision for Bad Debts and the Allowance for Doubtful Accounts

Issued: Final

Summary: The amendments in this Update require certain health care entities to change the presentation of their statement of operations by reclassifying the provision for bad debts associated with service revenue from an operating expense to a deduction from patient service revenue.  The deduction is required to be presented as a separate line in the statement of operations.  Additionally, enhanced disclosure about their revenue recognition policies and assessing bad debts is required.  The amendments also require disclosures of patient service revenue as well as qualitative and quantitative information about changes in the allowance for doubtful accounts.

Effective Date: For nonpublic entities, the Update will be effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter.  Early adoption would be permitted.  This Update will be effective for public entities for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Entities must apply the presentation requirements retrospectively; however, the qualitative and quantitative disclosures are only required to be provided prospectively.

PROPOSED FASB GUIDANCE

The following section provides high level summaries of FASB proposals and discussion papers that were exposed or remained open for comment in the second quarter, for which the comment period ended during the second quarter.  All proposed Accounting Standards Updates can be accessed on the FASB website at http://www.fasb.org/home, located under the Board Activities tab, Exposure Documents.        

 

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Proposed Accounting Standards Update – Testing Goodwill for Impairment

Issued: April 22, 2011

Comment Deadline: June 6, 2011

Summary: The guidance in this proposed ASU is intended to simplify how an entity is required to test goodwill for impairment.

The amendments in this Update would allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.  Current guidance requires an entity to perform the first step of the goodwill impairment test on at least an annual basis, whereby the entity compares the fair value of a reporting unit with its carrying amount, including goodwill.  If the fair value of a reporting unit is less than its carrying amount, then the entity must perform the second step of the test to measure the amount of impairment loss, if any.

Under the proposed amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.  The proposals include a number of factors to consider in conducting the qualitative assessment.

Effective Date: If approved, the amendments in the proposed Update would be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early adoption would be permitted.

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Proposed Accounting Standards Update – Balance Sheet (Topic 210): Offsetting

Issued: January 28, 2011

Comment Deadline: April 28, 2011

Summary: The FASB and IASB published a proposal to establish a common approach to offsetting financial assets and financial liabilities on the statement of financial position (balance sheet).

Under the proposed amendments, an entity would be required to offset (that is, present as a single net amount in the statement of financial position) a recognized eligible asset and a recognized eligible liability when it 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 (the “offsetting criteria”).

The proposed amendments clarify that the offsetting criteria would apply whether the right of setoff arises from a bilateral arrangement or from a multilateral arrangement (that is, between three or more parties).  The proposals also clarify that a right of setoff must be legally enforceable in all circumstances (including default or bankruptcy of a counterparty) and that its exercisability must not be contingent on a future event.
The proposed amendments would require an entity to disclose information about offsetting and related arrangements (such as collateral agreements) to enable users of its financial statements to understand the effect of those arrangements on its financial position.

Effective Date:  The Boards seek information about the time and effort that would be involved in implementing the proposed requirements.  The Boards will use that information to determine an appropriate effective date. In addition, the Boards will consider the responses to the Discussion Paper, Effective Dates and Transition Methods, as well as the implementation plan for other planned new accounting and reporting standards in order to facilitate management of the pace and cost of change.

Proposed Accounting Standards Update – Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers (A consensus of the FASB Emerging Issues Task Force)

Issued: December 17, 2010

Comment Deadline: April 18, 2011

Summary: The amendments in this Update specify that the liability for a fee paid to the federal government by health insurers should be estimated and recorded in full, once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable.

Additionally, the Update indicates that the fee would not meet the definition of an acquisition cost as amended by FASB ASU 2010-26, Financial Services – Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.

Effective Date: The amendments in this proposed Update would be effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective.

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EFFECTIVE DATES OF U.S. ACCOUNTING PRONOUNCEMENTS

This appendix was prepared with a calendar year-end company in mind.  Therefore standards with an effective date in 2010 have been included, since many companies applied them for the first time in 2011, e.g., the first interim or annual period beginning on or after December 15, 2010.  Standards that do not require adoption before 2012 are highlighted in gray.