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Issue No. 13-C, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward or Tax Credit Carryforward Exists." The settlement of a liability for an unrecognized tax benefit may be reduced by a net operating loss (NOL) carryforward or a tax credit carryforward as required by U.S. tax law. The IRS does not require a disallowed uncertain tax position to be settled in cash if sufficient NOL carryforwards are available to eliminate the additional taxable income, but a taxpayer is required to use NOL carryforwards in the first year taxable income arises.
Topic 740, Income Taxes, does not include explicit guidance on whether and when an entity should present an unrecognized tax benefit as a liability or as a reduction of NOL carryforwards or other related tax credits. In practice, the presentation of the liability for an unrecognized tax benefit depends on the relationship with the NOL carryforwards. If the liability for an unrecognized tax benefit is directly associated with a tax position taken in a tax year that results in or that resulted in the recognition of an NOL carryforward for that year (and the NOL carryforward has not yet been utilized), the unrecognized tax benefit should be presented as a reduction to the NOL; otherwise, it should be presented as a liability.
The issue is how an entity should present a liability for an unrecognized tax benefit in the statement of financial position when nonrecognition of the tax benefit would otherwise reduce a deferred tax asset related to an NOL or tax credit carryforward under the provisions of the tax law.
Status: At the January 17, 2013 EITF meeting, the Task Force reached a consensus-for-exposure to require presentation in the statement of financial position of any unrecognized tax benefit as a reduction of a deferred tax asset for an NOL carryforward or tax credit carryforward (rather than as a liability) except to the extent the carryforward at the reporting date is not available under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position; then it would be presented as a liability.
Task Force members noted that the proposed presentation is both consistent with how income taxes are often determined and in agreement with the intent of the offsetting guidance within Subtopic 210-20, Balance Sheet—Offsetting (formerly FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts).
The Task Force reached a consensus-for-exposure that no additional recurring disclosures would be required by this Issue because the amendments do not affect the recognition or measurement of uncertain tax positions under Topic 740.
The Task Force reached a consensus-for-exposure that entities should apply this Issue retrospectively to all periods presented with earlier application permitted.
The Task Force reached a consensus-for-exposure that entities should apply the transition disclosure requirements in Subtopic 250-10, Accounting Changes and Error Corrections—Overall, for an accounting change resulting from this Issue.
At its January 31, 2013 meeting, the Board ratified the consensus-for exposure and approved the issuance of a proposed Update for a 60-day public comment period.
Dates discussed: January 17, 2013
Issue No. 13-B, "Accounting for Investments in Tax Credits." The Low Income Housing Tax Credit (LIHTC or affordable housing tax credit) is a program to encourage investment of private capital in the construction and rehabilitation of low income housing. As an indirect tax subsidy, third-party investors may receive the benefits of the tax credits allocated to an entity that owns the affordable housing tax credit property. Investments in other tax credit programs use similar models.
Accounting guidance treats tax credit investments as equity method investments because most investors don't meet the consolidation requirements through their limited partnership interests, yet have significant influence. Alternative methods of accounting include the cost method, the fair value method, and the effective yield method. The effective yield method can be used if the investors meet criteria under EITF Issue No. 94-1, "Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects" (Codified in Subtopic 323-740, Investments—Equity Method and Joint Ventures—Income Taxes), the primary guidance related to accounting for affordable housing tax credit investments.
EITF Issue No. 98-11, "Accounting for Acquired Temporary Differences in Certain Purchase Transactions That Are Not Accounted for as Business Combinations," reaffirmed that purchases of future tax benefits should be accounted for as an investment using the effective yield method. The Task Force did not modify or expand the application of the effective yield method under Issue 94-1 for LIHTC investments. However, among tax credit investments, the effective yield method only applies to the LIHTC, and only a small portion of the LIHTC investments meet the criteria under Issue 94-1 to qualify for the effective yield method. The result is that most investments in the LIHTC and other tax credit investment programs are accounted for under the equity method of accounting. Some believe that the resulting presentation in the income statement of the pre-tax investment performance separately from the tax benefits distorts investment performance by reporting pre-tax losses on otherwise profitable investments, and makes investment performance difficult to understand.
There is currently no accounting guidance for tax credit investments that are not related to the LIHTC. Accordingly, the scope of this Issue could be limited to LIHTC, only, or could encompass all tax credit investments. The issue is how an investor should account for an investment in tax credits within the identified scope of this Issue.
Dates discussed: To be discussed at a future EITF meeting.
Issue No. 13-A, "Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes." Topic 815, Derivatives and Hedging, provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge. Among those risks for financial assets and financial liabilities is the risk of changes in a hedged item's fair value or a hedged transaction's cash flows attributable to changes in the designated benchmark interest rate (referred to as benchmark interest rate risk). Permitting the hedge of the benchmark interest rate risk provides a practical means to designate the risk of changes in the hedged item attributable to changes in the risk-free component of the interest rate (that is, benchmark interest rate risk) in isolation, without requiring that an entity also hedge changes in the spread (which is deemed to reflect credit risk) above the benchmark interest component.
In FASB Statement No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, the FASB decided that, in the U.S., the interest rate on direct Treasury obligations of the U.S. government provides the best measure of the risk-free component for hedge accounting purposes. Thus, the FASB considered defining benchmark interest rate risk based only on U.S. Treasury rates (UST); however, the FASB decided to make an exception and extend the definition to also include interest rate swap rates based on LIBOR. Currently other such indexes may not be used as the benchmark interest rate in the U.S.
The Fed Funds rate is the interest rate at which depository institutions (for example, banks) actively trade balances held at the Federal Reserve with each other, usually overnight. Institutions with surplus balances in their accounts at the Federal Reserve Banks lend those balances to institutions in need of additional reserves in their accounts to meet reserve requirements. The interest rate that the borrowing bank pays to the lending bank to borrow the funds is negotiated between the two banks, and the weighted average of this rate across all such transactions on any given day is the daily Fed Funds Effective Rate (FFE). The related OIS ("Overnight Index Swap Rate" or "Fed Funds Effective Swap Rate") is the fixed rate swapped in exchange for a floating overnight rate, which is the FFE.
The demand for hedging products incorporating the Fed Funds rate has increased significantly and is driven by an increased focus by banks on their sources of funding, the widening of spreads between LIBOR and OIS, and new regulatory measures to curb systemic risks (such as increased collateralization of derivatives).
As a result, instead of discounting the future cash flows of derivatives using LIBOR, practice is evolving such that some derivative counterparties believe that the appropriate discount rate to use in the valuation of collateralized derivatives should be based on OIS because that rate reflects the lower cost of financing of a collateralized instrument. This has caused derivative counterparties to be more exposed to overnight rates even on derivatives whose cash flows are based on LIBOR resets. That is, because of the widened spreads between LIBOR and OIS, if the fair value of collateralized derivatives is measured by discounting the instruments' LIBOR-based cash flows at OIS, in some cases it may result in significantly different valuations than discounting with LIBOR, which may affect the measurement of ineffectiveness being reported for certain hedges of interest rate risk. Some derivative counterparties believe that OIS should be permitted as a benchmark interest rate in the U.S. for hedge accounting purposes.
The issue is whether the Fed Funds Effective Swap Rate should be included as a U.S. benchmark interest rate for hedge accounting purposes.
Status: At the January 17, 2013 EITF meeting, the Task Force reached a consensus-for exposure to include the Fed Funds Effective Swap Rate (OIS) as a U.S. benchmark interest rate for hedge accounting purposes.
The Task Force also reached a consensus-for-exposure that no additional recurring disclosures should be required by this Issue.
The Task Force reached a consensus-for-exposure that the amendments should be applied on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. The Task Force also reached a consensus-for exposure that no additional transition disclosures should be required by this Issue.
At its January 31, 2013 meeting, the Board ratified the consensus-for exposure and approved the issuance of a proposed Update for a 60-day public comment period.
Dates discussed: January 17, 2013
Issue No. 12-H, "Accounting for Service Concession Arrangements." Service concession arrangements are contracts under which a public sector entity (grantor) grants a private entity (an operating entity) the right to operate and/or maintain the grantor's infrastructure assets (for example, airports, roads, bridges, tunnels, prisons, and hospitals). The infrastructure may already exist or may be constructed by the operating entity during the period of the service concession arrangement. If the infrastructure already exists, the operating entity may be required to provide significant upgrades as part of the arrangement. The grantor controls any residual interest in the assets at the end of the term of the arrangement, which is also known as a "public-to-private" service concession contract.
In a typical service concession contract, an operating entity operates and maintains for a period of time the infrastructure that will be used to provide a public service. In exchange, the operating entity may receive payments from the grantor to perform those services. Such payments may be paid as the services are performed or over an extended period of time. Alternatively, the operating entity may be given a right to charge the public (the third-party users) to use the infrastructure. The contract may also contain an unconditional guarantee from the grantor under which the grantor would provide a guaranteed minimum payment if the fees collected from the public do not reach a specified minimum threshold. The grantor controls and has the ability to modify or approve the services the operating entity must provide using the assets, to whom the services will be provided, and the price that will be paid for the services. The contract sets out performance standards, pricing mechanisms, and arrangements for arbitrating disputes.
In addition, the operating entity may be required to make an upfront cash payment to the grantor in exchange for the right to use and operate the grantor's infrastructure. In such contracts, the operating entity is generally given the right to charge users of the infrastructure.
U.S. GAAP does not have accounting guidance that specifically addresses accounting for service concession contracts. Depending on the terms of the service concession contract, some operating entities may account for their rights over the infrastructure in a service concession contract as a lease and apply Topic 840, Leases. Other entities, in the absence of U.S. GAAP, may apply by analogy the principles in IFRIC 12, Service Concession Arrangements, and account for their rights in a service concession contract as an intangible asset, a financial asset, or both.
This Issue applies to the accounting for an operating entity that enters into a service concession arrangement with a grantor. This Issue applies to the accounting by operating entities when both of the following conditions exist: (a) The grantor controls or has the ability to modify or approve what services the operating entity must provide with the infrastructure, to whom it must provide them, and at what price (b) The grantor controls, through ownership, beneficial entitlement, or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement.
The staff believes that the scope of this Issue should be limited to public-to-private service concession arrangements.
The issue is how an operating entity should account for a service concession arrangement within the scope of this Issue.
Status: At the January 17, 2013 EITF meeting, the Task Force tentatively concluded that an operating entity should account for its rights over the infrastructure in a service concession arrangement within the scope of this Issue as an intangible asset, a financial asset, or both. And that the accounting for service concession arrangements should be determined based on whether the operating entity controls the infrastructure that is being used to provide the public service. Service concession arrangements within the scope of this Issue should not be accounted for as leases under Topic 840 because the operating entity does not have the right to control the use of the grantor's infrastructure.
Dates discussed: January 17, 2013
Issue No. 12-G, "Accounting for the Difference between the Fair Value of the Assets and the Fair Value of the Liabilities of a Consolidated Collateralized Financing Entity." FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R), was codified in Topic 810, Consolidation, by ASU 2009-17. ASU 2009-17 states that if a reporting entity holds a controlling financial interest in a variable interest entity (VIE), that entity is determined to be the primary beneficiary of the VIE and is required to consolidate the VIE. Characteristics of a controlling financial interest in a VIE are (a) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance (the power criterion) and (b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE (the losses/benefits criterion).
Reporting entities are often required to consolidate collateralized financing entities (CFEs), such as collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) entities.
Upon the adoption, many reporting entities elected the fair value option to account for all eligible financial assets and financial liabilities of CFEs, which were consolidated upon the effective date of the ASU. In many instances, when the entity was initially consolidated the aggregate fair value of the assets of the CFE exceeded the aggregate fair value of the CFE's beneficial interests (liabilities).
This issue applies to all entities that subsequent to the effective date of ASU 2009-17, are required to consolidate a CFE as a result of (a) a reassessment of the consolidation conclusion, (b) a business combination, or (c) the acquisition of a management contract that results in the consolidation of a CFE.
The issue is how a reporting entity should initially and subsequently account for the excess in the fair value of assets over liabilities of a consolidated CFE.
Status: At the September 11, 2012 EITF meeting, the Task Force reached a consensus-for-exposure that the fair value of the financial assets and financial liabilities of a CFE shall be measured consistently with the guidance on "financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk" in Topic 820, Fair Value Measurement. Although this measurement guidance currently exists in Topic 820, not all reporting entities that consolidate CFEs meet all three criteria in paragraph 820-10-35-18E. As a result, certain reporting entities are not able to apply the measurement guidance in paragraph 820-10-35-18D relating to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk. The amendments resulting from this Issue are intended to allow such entities to use the measurement guidance in paragraph 820-10-35-18D.
The Task Force decided to limit the scope of the measurement guidance in the proposed Update to apply to reporting entities that consolidate a CFE and are required to or have elected a fair value option under Topic 825 to account for all eligible financial assets and financial liabilities of the CFE at fair value. The Task Force also clarified that the amendments in the proposed Update would apply to CFEs that only hold financial assets and issue beneficial interests that only have recourse to the financial assets held by the CFE, and defined a CFE as an entity that holds debt instruments, issues beneficial interests in those financial assets, and has no equity. The beneficial interests are financial liabilities that only have recourse to the related financial assets of the CFE.
The Task Force reached a consensus-for-exposure that no additional recurring disclosures should be required. Reporting entities would comply with the disclosure requirements in Topic 810, Topic 820, and other relevant Codification Topics, as applicable.
The Task Force reached a consensus-for-exposure that entities should use a modified retrospective approach to only consolidated CFEs that exist at the date of adoption. However, entities are permitted to apply this Issue on a retrospective basis to all relevant prior periods beginning from the fiscal year in which the amendments in Update 2009-17 were initially adopted. Early adoption would be permitted.
The Task Force reached a consensus-for-exposure that entities should apply the transition disclosure requirements in paragraphs 250-10-50-1 through 50-3 for an accounting change resulting from this Issue. No additional transition disclosures would be required.
At the September 27, 2012 meeting, the Board ratified the consensus-for exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 60-day public comment period.
Dates discussed: September 11, 2012
Issue No. 12-F, "Recognition of New Accounting Basis (Pushdown) in Certain Circumstances." There is limited U.S. GAAP guidance for determining when, if ever, an acquiring entity's cost of acquiring an acquired entity should be used to establish a new accounting and reporting basis (pushdown) in the acquired entity's standalone financial statements. SEC Staff Accounting Bulletin Topic No. 5.J, New Basis of Accounting Required in Certain Circumstances, EITF Topic No. D-97, "Push-Down Accounting," and other comments made by the SEC Observer at EITF meetings (which are codified in paragraphs 805-50-S99-1 through S99-4), provide guidance for SEC registrants. The guidance indicates that if a purchase transaction results in an entity becoming substantially wholly owned, its standalone financial statements should be adjusted to reflect the basis of accounting of the acquiring entity. It further states that pushdown accounting is (a) required when 95 percent or more of an entity is acquired, (b) permitted when 80 to 95 percent is acquired, and (c) prohibited when less than 80 percent ownership is acquired. It assumes that due to the purchase transaction, the acquired entity is within the control of the acquiring entity. Other interests, such as outstanding public debt, preferred stock, or a significant non-controlling interest, however, may impact the acquired entity's ability to adjust its standalone financial statements to reflect the acquiring entity's basis of accounting. The SEC staff's guidance also indicates that holdings of investors, who both mutually promote the acquisition and collaborate on the subsequent control of the acquired entity, should be aggregated for the purposes of determining whether the acquired entity has become substantially wholly owned.
Some EITF issues have addressed pushdown accounting but a consensus has been reached only on a few of them, including the application of pushdown accounting to non-SEC registrants (EITF Issue No. 86-9, "IRC Section 338 and Push-Down Accounting") and the change in accounting basis in master limited partnership transactions (EITF Issue No. 87-21, "Change of Accounting Basis in Master Limited Partnership Transactions"). Both Issues are codified in Subtopic 805-50, Business Combinations: Related Issues.
The AICPA Task Force on Consolidation Problems discussed pushdown accounting in its October 30, 1979 Issues Paper, "Push Down" Accounting. The Issues Paper developed some advisory conclusions but no authoritative guidance was issued. In addition, the FASB considered the issue in its Discussion Memorandum, New Basis Accounting, December 18, 1991. The Discussion Memorandum was issued as part of the FASB's broader project on consolidations but no further decisions were reached by the FASB on pushdown accounting after its issuance.
Since the SEC staff's guidance is only mandatory for SEC registrants, diversity in practice exists on the application of pushdown accounting by entities that are not SEC registrants.
The issue is whether an acquired entity should establish a new accounting basis in its standalone financial statements due to a change in its ownership as a result of a purchase transaction accounted for as a business combination by the acquiring entity. And, if so, the level of change in ownership at which the new accounting basis should be required.
A Working Group has been formed for this Issue.
Status: At the January 17, 2013 EITF meeting, the Task Force discussed three alternative views regarding the application of pushdown accounting and expressed a preference towards requiring pushdown accounting.
Dates discussed: January 17, 2013
Issue No. 12-E, "Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs." Subtopic 926-20, Entertainment—Films—Other Assets—Film Costs, provides accounting guidance for the capitalization of film costs for entities that produce and distribute films. Paragraphs 926-20-35-12 and 35-13 provide guidance for the impairment test for unamortized film costs. An entity first evaluates whether there are events or changes in circumstances that indicate that the fair value of a film is less than the unamortized film costs. If an entity determines that there are events that indicate a potential impairment, the entity assesses whether the fair value of the film is less than its unamortized film costs. If so, the entity recognizes an impairment and a charge to earnings for the excess of the unamortized film costs over the fair value of the film.
Paragraphs 926-20-35-18 and 926-855-35-1 provide guidance about how an entity should incorporate subsequent information into an impairment analysis as of the balance sheet date when determining the fair value of a film. However, when a film is released subsequent to the balance sheet date, the practice among entities in the film industry is to include events occurring subsequent to the balance sheet date but prior to the filing of the financial statements when assessing impairment as of the balance sheet date.
The definition of fair value in Topic 820, Fair Value Measurement, requires a fair value measurement to be as of the measurement date using assumptions that market participants would use when considering a transaction for the asset or liability. In general, information that arises subsequent to the measurement date is not considered in the measurement because the uncertainty is to be priced into the fair value at the measurement date, which is also consistent with the guidance in AICPA Valuation Standards Section 100.43—Subsequent Events.
If the entity updates financial statements immediately prior to their planned issuance, the entity also needs to update the financial information in the Form 10-K and in its press release materials, and then re-communicate changes in numbers to management, the audit committee, and its Board of Directors (who must approve inclusion of the financial statements in the Form 10-K), and publicly announce the change in earnings from what was included in its previously published press release.
Questions have arisen regarding the apparent conflict between the guidance in Topics 926 and 820. Specifically, fair value guidance would require that only known or knowable information, as of the measurement date, be incorporated into a fair value analysis, whereas paragraph 926-20-35-18 requires that an entity's fair value analysis performed as of a period end should reflect box office results that become known subsequent to the measurement date.
The issue is whether an entity should consider information subsequent to the balance sheet date in measuring fair value at the balance sheet date when performing an impairment test of unamortized film costs.
Status: At the March 15, 2012 EITF meeting, the Task Force reached a consensus-for-exposure to supersede paragraph 926-20-35-18 and Subtopic 926-855, Entertainment—Films—Subsequent Events, to remove the rebuttable presumption, which would have the effect of incorporating into the fair value measurement used for the impairment analysis only information that market participants would have considered as of the measurement date, consistent with how information is incorporated into other fair value measurements. In discussing this Issue, some Task Force members observed that the guidance in Subtopic 926-20 should align the use of fair value in the impairment test of unamortized film costs with the use of fair value in the impairment tests for similar nonfinancial assets.
The Task Force directed the FASB staff to include specific questions in the proposed Update to assess whether additional guidance should be provided about the impairment indicators described in paragraph 926-20-35-12 as a result of the proposed amendments.
At its April 9, 2012 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 90-day public comment period.
At the September 11, 2012 EITF meeting, the Task Force considered comment letters on the proposed Update. The Task Force affirmed as a consensus superseding paragraph 926-20-35-18 and Subtopic 926-855 to remove the rebuttable presumption, which would have the effect of incorporating into the fair value measurement used for the impairment analysis only information that market participants would have considered as of the measurement date, consistent with how information is incorporated into other fair value measurements.
The Task Force affirmed as a consensus that no additional recurring disclosure requirements should be required by this Issue.
The Task Force affirmed as a consensus that the amendments resulting from this Issue should be applied prospectively.
The Task Force decided that for an SEC filer, the amendments are effective for impairment assessments performed on or after December 15, 2012. For all other entities, the amendments are effective for impairment assessments performed on or after December 15, 2013. In addition, earlier application would be permitted, including for impairment assessments performed as of a date before issuance of the Accounting Standards Update if, for an SEC filer, the entity's financial statements for the most recent annual or interim period have not yet been issued or, for all other entities, have not yet been made available for issuance.
The Task Force also affirmed as a consensus that entities should apply the transition disclosure requirements in paragraphs 250-10-50-1 through 50-3 for an accounting change resulting from the amendments in this Issue.
At the September 27, 2012 meeting, the Board ratified the consensus reached by the Task Force on this Issue.
Dates discussed: March 15, 2012, September 11, 2012
Issue No. 12-D, "Accounting for Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date." Under joint and several liability, the full amount of an obligation is enforceable against all of the parties to an arrangement (not necessarily on a proportional or pro-rata basis) or may be enforced against any one of the parties. For example, under joint and several liability, a lender can demand payment for the full obligation from only one of the obligors. The paying obligor then may be able to pursue the other obligors for their share of the obligation.
This Issue applies to all entities that are jointly and severally liable with other entities, in which the total amount of the obligation at the reporting date is fixed, except for obligations that are accounted for under Codification Topic 410, Asset Retirement and Environmental Obligations; Topic 450, Contingencies; Topic 460, Guarantees; Topic 715, Compensation–Retirement Benefits; or Topic 740, Income Taxes.
Examples of obligations included in the scope of the Issue are debt arrangements, other contractual obligations for which the total amount at the reporting date is fixed, and settled litigation and judicial rulings.
Currently there is diversity in practice in accounting for these obligations. Some entities are recording the total amount of the obligation subject to joint and several liability and other entities are recording less than the total amount of the obligation subject to joint and several liability, such as the amount it expects to pay or the amount it was allocated.
The issue is how a reporting entity that is jointly and severally liable should account for an obligation whose total amount is fixed at the reporting date.
Status: At the March 15, 2012 EITF meeting, the Task Force discussed this Issue but did not reach a consensus-for-exposure. A number of Task Force members indicated that the scope should be limited to joint and several obligations involving either (a) entities under common control and related parties or (b) entities under common control. Other Task Force members indicated that the scope should include all entities as proposed by the FASB staff and this Issue's working group (a working group meeting was held on January 26, 2012). The Task Force instructed the FASB staff to perform outreach on the scope of this Issue, including its applicability to unrelated parties and nonpublic entities, and the recognition and measurement approaches for obligations included in the scope of this Issue.
At the June 21, 2012 EITF meeting, the Task Force reached a consensus-for-exposure that the recognition and measurement approach for obligations resulting from joint and several liability arrangements included in the scope of this Issue should be an approach under which the guarantee guidance in Topic 460 would apply to joint and several liability arrangements if the entity's role is primarily that of a guarantor. To make that determination, the entity should evaluate the guidance related to guarantees in Topic 460, including the scope guidance in paragraph 460-10-15-4, and evaluate all facts and circumstances of the arrangement, including whether the reporting entity receives explicit consideration for standing ready. The Task Force also concluded that there is a presumption that the minimum measurement of the liability is the greater of (a) the portion of the amount that the entity agreed to pay among co-obligors (for example, the amount received in some cases) and (b) the amount that the entity expects to pay (for example, if the entity expects to have to pay additional amounts on behalf of other joint obligors).
The Task Force reached a consensus-for-exposure that the following disclosures should be required for each obligation resulting from joint and several liability arrangements:
At the July 11, 2012 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 60-day public comment period.
At the At the January 17, 2013 EITF meeting, the Task Force considered 11 comment letters on the proposed Update and found that a majority of the respondents supported the recognition, measurement, and disclosure requirements in the proposed Update.
The Task Force affirmed as a consensus the consensus-for-exposure excluding the requirement to assess whether the primary role of the entity is that of a guarantor.
The Task Force concluded that the amendments in the Update should not include specific guidance about the corresponding entry or entries when recognizing and measuring a liability resulting from a joint and several liability arrangement.
At the January 17, 2013 EITF meeting, the Task Force reached a consensus that certain disclosures should be required for each liability or each group of similar liabilities resulting from joint and several liability arrangements.
The Task Force affirmed as a consensus its consensus-for-exposure that the amendments resulting from this Issue should be applied retrospectively to all prior periods presented for those obligations resulting from joint and several liability arrangements that exist at the beginning of the entity's fiscal year of adoption.
The Task Force affirmed as a consensus its consensus-for-exposure that entities should apply the transition disclosure requirements in paragraphs 250-10-50-1 through 50-3 for an accounting change resulting from this Issue.
The Task Force reached a consensus that the amendments resulting from this Issue will be effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. One year later for nonpublic entities.
At the January 31, 2013 meeting, the Board ratified the consensus reached on this Issue.
Dates Discussed: March 15, 2012; June 21, 2012; January 17, 2013
Issue No. 12-C, "Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution." Topic 805, Business Combinations, requires that when a seller indemnifies the acquirer from a particular contingency or uncertainty related to a specific liability (or asset) acquired in a business combination, the acquirer shall record an indemnification asset at the same time it recognizes the indemnified liability (or asset). The indemnification asset is initially measured on the “same basis” as the indemnified liability (or asset), subject to a valuation allowance for uncollectible amounts. Paragraph 805-20-35-4 includes guidance on the subsequent accounting for an indemnification asset.
There is diversity in practice related to the subsequent measurement of an indemnification asset recognized in accordance with paragraphs 805-20-25-27 through 25-28, particularly as it relates to FDIC-assisted (and National Credit Union Association-assisted (NCUA)) acquisitions that include a loss sharing arrangement. Multiple views exist in practice as to how the decrease in the cash flows expected to be collected on the indemnification asset should be recognized. The diversity exists primarily because there are differing interpretations of the subsequent measurement guidance in paragraph 805-20-35-4; specifically, what is meant by the terms “on the same basis” and “contractual limitations.”
The FASB Chairman requested that the scope of the issue be limited to subsequent accounting for an indemnification asset recognized as a result of a government-assisted acquisition of a lending institution.
The issue is how the terms "on the same basis" and "contractual limitations," as outlined in paragraph 805-20-35-4, should be interpreted when applied to the subsequent measurement of an indemnification asset recognized at the acquisition date as a result of a government-assisted acquisition of a financial institution.
Status: At the March 15, 2012 EITF meeting, the Task Force reached a consensus-for-exposure that when a reporting entity initially recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change occurs in the cash flows expected to be collected on the asset subject to indemnification, the reporting entity would be required to account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification, and any amortization of changes in value would be limited to the contractual terms of the indemnification agreement.
At its April 9, 2012 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 90-day public comment period.
At the September 11, 2012 EITF meeting, the Task Force considered comment letters on the proposed Update.
In affirming its consensus-for-exposure as a consensus, the Task Force requested that the Board's objective in Subtopic 805-20 to minimize measurement anomalies that result in earnings volatility by requiring measurement of an indemnification asset "on the same basis," be explicitly mentioned in the Update.
The Task Force clarified that when the unit of account is a pool under Subtopic 310-30, any amortization of changes in the value of the indemnification asset may be limited to the lesser of the contractual term of the indemnification agreement and the remaining life of the indemnified pool.
The Task Force affirmed as a consensus that the amendments shall be applied prospectively. The Task Force clarified that they should be applied to indemnification assets existing as of the date of adoption, regardless of whether there is any post-adoption change in the cash flows on the indemnified assets. The Task Force concluded that this transition method would enhance comparability and avoid the possibility of a residual indemnification asset existing after the expiration of the term of the indemnification agreement.
The Task Force also reached a consensus that the amendments are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012, with early application permitted. To enhance comparability and considering the limited scope and applicability of this Issue, the Task Force decided not to provide a delayed effective date for nonpublic entities. The Task Force also affirmed as a consensus that an entity should provide the disclosures in paragraphs 250-10-50-1 through 50-3 in the period the entity adopts the amendments.
At the September 27, 2012 meeting, the Board ratified the consensus reached by the Task Force on this Issue.
Dates discussed: March 15, 2012, September 11, 2012
Issue No. 12-B, "Not-for-Profit Entities: Services Received from Personnel of an Affiliate for Which the Affiliate Does Not Seek Compensation." Groups of affiliated not-for-profit entities (NFPs) often operate under agreements that provide for acquisition and deployment of resources for common purposes and projects. An NFP may receive support and revenue that is used to pay employees who are then assigned to work for other affiliated NFPs.
Paragraph 958-605-25-17 of the Codification provides guidance for the recognition of contributed services from affiliates. It includes the paragraph 958-605-25-16 criteria, which indicates that contributions of services shall only be recognized if they create or enhance nonfinancial assets or if they require specialized skills, are provided by individuals possessing the skills, and would typically need to be purchased if not provided by donation. The recognition of contributed services in paragraph 958-605-25-16 was limited to services requiring specialized skills because of the difficulty involved in placing a monetary value on donated services and the absence of control over those performing the services. Paragraph 958-605-30-2 provides that contributions received shall be measured at their fair value. Contributions are defined in the Codification as voluntary nonreciprocal transfers by another entity acting other than as an owner.
Questions have arisen about whether a recipient NFP should consider personnel costs incurred on its behalf by an affiliate as contributed services and apply the recognition guidance in paragraph 958-605-25-17. Some believe that the measure of control inherent in an affiliate relationship and information available to the affiliate about the cost of the services provided sufficiently distinguishes such transactions from other donor-contributed services to justify different recognition and measurement criteria. Practice is diverse.
The issue is whether recipient NFPs should apply the contributed services guidance in paragraph 958-605-25-17 for recognizing personnel costs incurred on their behalf by an affiliated entity. If a recipient NFP should not apply this guidance, a second issue is to determine what recognition and measurement guidance that NFP should apply.
Status: At the March 15, 2012 EITF meeting, the Task Force requested that the FASB staff perform additional research and outreach, including consideration of concerns about financial statement presentation and which NFPs should be included in the scope.
At the June 21, 2012 EITF meeting, the Task Force reached a consensus-for-exposure that a recipient NFP should not apply the contributed services guidance in paragraph 958-605-25-17 for recognizing personnel services received from an affiliate for which the affiliate does not seek compensation. Instead, the recipient NFP should recognize all personnel services received from an affiliate at the cost incurred by the affiliate.
The Task Force clarified that the personnel services received from an affiliate must directly benefit the recipient NFP in the way that is similar to the way in which benefit is gotten from personnel directly engaged by the recipient NFP.
The scope of the Issue would be limited to personnel services that are received from an affiliate, which is defined as a party that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the recipient NFP.
The Task Force also reached a consensus-for-exposure that an NFP that provides a performance indicator (analogous to income from continuing operations of a for-profit entity) should report the increase in net assets associated with personnel services received from an affiliate and for which the affiliate does not seek compensation as an equity transfer, regardless of whether those personnel services are received from a not-for-profit affiliate entity or a for-profit affiliate entity. For other NFPs that do not present a performance indicator, presentation guidance will not be prescribed for the increase in net assets associated with personnel services received from an affiliate other than prohibiting reporting as a contra-expense or a contra-asset. For all NFPs, the corresponding decrease in net assets or the creation or enhancement of an asset resulting from the use of personnel services received from an affiliate should be reported similar to how other such expenses and assets are reported.
At the July 11, 2012 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 60-day public comment period.
At the January 17, 2013 EITF meeting, the Task Force consider 13 comment letters on the proposed Update.
Task Force members expressed concern regarding scope, comparability, and cost-benefits of issuing the guidance.
The Task Force requested that the FASB staff perform additional research and outreach on this Issue with preparers and users of NFP financial statements to consider the concerns expressed above.
At the January 17, 2013 EITF meeting, the Task Force consider 13 comment letters on the proposed Update.
Task Force members expressed concern regarding scope, comparability, and cost-benefits of issuing the guidance.
The Task Force requested that the FASB staff perform additional research and outreach on this Issue with preparers and users of NFP financial statements to consider the concerns expressed above.
Dates discussed: March 15, 2012; June 21, 2012; January 17, 2013
Issue No. 12-A, "Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows." Some donations to not-for-profit entities (NFPs) are made in the form of appreciated securities to accommodate a donor's tax goals. NFPs typically have institutional policies to immediately sell those securities to convert them into cash to be available for immediate use.
Topic 230, Statement of Cash Flows, has been interpreted as allowing presentation of the sale of donated securities in the statement of cash flows as either operating or investing activities. Classification of the sale of investments in the statement of cash flows is, in some circumstances, based on how an entity classifies its investments. Subtopic 958-320, Not-for-Profit Entities: Investments—Debt and Equity Securities, does not include the three categories of investments into which other entities classify their investments that exist under Topic 320, Investments—Debt and Equity Securities (that is, trading, available-for-sale, and held-to-maturity). Topic 320 does not apply to NFPs (except for certain impairment guidance). However, paragraph 958-320-45-6 notes that some NFPs, primarily health care entities, like to compare their results to business entities and have the option to "report in a manner similar to business entities by identifying securities as available for sale or held to maturity as described in paragraphs 320-10-25-1 through 25-6 and excluding the unrealized gains and losses on those securities from an operating measure within the statement of activities."
Practice is mixed for reporting the sale of donated securities in the statement of cash flows with some NFPs reporting such amounts as operating cash flows, while others do not.
The issue is how NFPs should classify in the statement of cash flows the cash receipts received from the sale of donated securities that are directed upon receipt for sale and for which the NFP has the ability to avoid significant investment risks and rewards through near immediate conversion into cash.
Status: At the March 15, 2012 EITF meeting, the Task Force reached a consensus-for-exposure that cash receipts of NFPs resulting from the sale of donated securities that are directed upon receipt for sale and for which the NFPs have the ability to avoid significant investment risks and rewards through near immediate conversion into cash should be classified as operating cash flows. However, if the donor restricted the use of the contributed resource to a long-term purpose (for example, the acquisition, construction, or improvement of long-lived assets or to establish or increase a permanent or term endowment), then those cash receipts would be classified as financing cash flows.
The Task Force brought up a number of additional issues that are addressed by questions included in the proposed Update.
At its April 9, 2012 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 90-day public comment period.
At the September 11, 2012 EITF meeting, the Task Force considered comment letters on the proposed Update.
The Task Force decided to expand the scope of this Issue to include cash receipts from the sale of donated financial assets. The Task Force concluded that the form of a financial asset sold (that is, whether it is a security or not) should not directly affect the classification of the proceeds in the statement of cash flows and that expanding the scope to financial assets is consistent with the tentative conclusions in the FASB's accounting for financial instruments project, which generally does not distinguish between securities and other financial assets. The Task Force did not further expand the scope to include cash receipts from the sale of non-financial assets because the known diversity in practice is limited to securities, and asked the Board to consider the classification of cash receipts from the sale of donated assets other than financial assets as part of the FASB not-for-profit financial reporting: financial statements project.
The Task Force concluded that determining whether the cash receipts from the sale of such donated financial assets are classified as an operating activity or instead are classified as a financing activity should be consistent with classifying receipts of cash donations
The Task Force considered alternatives for the criterion for classifying the cash receipts from the sale of donated securities as operating cash flows, and reached a consensus to remove the reference to "has the ability to avoid significant investment risks and rewards" and require an NFP to classify as operating cash flows cash receipts resulting from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash. However, if the donor restricted the use of the contributed resource to a long-term purpose, then those cash receipts shall be classified as a financing activity. The Task Force concluded that "nearly immediately" is synonymous with "promptly" and should generally be considered to be within days rather than months. The Task Force concluded that the existence of an NFP-imposed limitation on the sale of donated financial assets (for example, a limit order) would be indicative of an investing decision and, therefore, such a limitation should result in an investing cash flows classification for the related proceeds.
The Task Force reached a consensus that the amendments will be effective for fiscal years, and interim periods within those years, beginning after June 15, 2013. The Task Force reached a consensus that the amendments should be applied prospectively to cash receipts on or after the date of adoption from the sale of donated financial assets. Retrospective application to all prior periods presented upon the date of adoption would be permitted, but not required. Early adoption of the amendments from the beginning of the fiscal year of adoption is permitted so as to eliminate existing diversity as soon as is practicable. For fiscal years beginning before the date of issuance, early adoption is permitted only if an NFP's financial statements for those fiscal years and interim periods within those years have not yet been made available for issuance.
The Task Force also affirmed as a consensus its consensus-for-exposure that entities should apply the transition disclosure requirements in paragraphs 250-10-50-1 through 50-3 for an accounting change resulting from this Issue.
At the September 27, 2012 meeting, the Board ratified the consensus reached by the Task Force.
Dates discussed: March 15, 2012, September 11, 2012
Issue No. 11-A, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." When a parent enters into a transaction to sell or transfer to a third party a group of assets within a consolidated foreign entity while retaining ownership of that foreign entity, the group of assets sometimes constitutes a business as defined in Topic 805, Business Combinations. Alternatively, the group of assets may be sold directly by the foreign entity.
The objective of this Issue is to resolve the diversity in practice about whether Subtopic 810-10, Consolidation—Overall, or Subtopic 830-30, Foreign Currency Matters—Translation of Financial Statements, applies to the release of the cumulative translation adjustment into earnings when a parent no longer holds a controlling financial interest in a group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a consolidated foreign entity.
Subtopic 810-10, as amended by Accounting Standards Update No. 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification, requires that a parent derecognize a group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) if the parent ceases to have a controlling financial interest in that group of assets. Furthermore, the derecognition guidance in Subtopic 810-10 supports releasing the cumulative translation adjustment into earnings upon the loss of a controlling financial interest in such a group of assets. Subtopic 830-30, however, provides for the release of the cumulative translation adjustment into earnings only if the sale or transfer represents a sale or complete or substantially complete liquidation of an investment in a foreign entity. Thus, there is diversity in practice.
The issue is about when and how a parent should recognize a portion of the CTA in earnings upon the loss of a controlling financial interest in a group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a consolidated foreign entity. Specifically, whether the parent should apply (a) the guidance in Subtopic 810-10 and recognize a portion of the CTA in earnings upon ceasing to have a controlling financial interest in the group of assets or (b) the guidance in paragraph 830-30-40-1 and only recognize the CTA in earnings if the sale or transfer constitutes a complete or substantially complete liquidation of the consolidated foreign entity in which it resides.
This issue applies to all entities that cease to have a controlling financial interest in a group of assets within a consolidated foreign entity when (a) the group of assets is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights), (b) the functional currency of the consolidated foreign entity is not the parent’s reporting currency, and (c) there is a CTA balance associated with that consolidated foreign entity.
Status: At the November 3, 2011 EITF meeting, the Task Force reached a consensus-for-exposure that upon the sale or transfer of a group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a consolidated foreign entity a parent should recognize a portion of the CTA associated with the disposed group of assets in earnings. Entities shall release into earnings an amount of CTA that is determined in a systematic and rational manner to reflect an asset group’s relative portion of the total CTA associated with the foreign entity. The consensus-for-exposure clarifies the guidance for the release of the CTA into earnings upon the loss of a controlling financial interest in a subsidiary (thereby, the substance of currently non-codified paragraph B53 of Statement 160 would be added to the Codification). Additionally, the current reference in Subtopic 830-30 to Subtopic 810-10 would be amended to cite the applicable paragraphs within Subtopic 810-10 (as opposed to the entire subtopic). The consensus-for-exposure does not require any additional recurring disclosures. The amendments proposed by the consensus-for-exposure would be applied on a prospective basis for derecognition events occurring after the effective date. Prior periods would not be adjusted. Earlier application would be permitted.
At the November 30, 2011 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 60-day public comment period.
At the March 15, 2012 EITF meeting, the Task Force considered nine comment letters on the proposed Update. A number of concerns were brought up and the Task Force requested that the FASB staff perform user and preparer outreach prior to the Task Force affirming its consensus-for-exposure as a consensus. Further, the FASB staff was asked to evaluate certain questions that may arise if the CTA is to be released more frequently.
At the June 21, 2012 EITF meeting, the Task Force reached a tentative conclusion (thereby reversing the Task Force's consensus-for-exposure reached at the November 3, 2011 EITF meeting) that an entity should not release an allocated portion of CTA related to a foreign entity when the entity loses a controlling financial interest in a group of assets that is a nonprofit activity or a business within the foreign entity (within the scope of paragraph 810-10-40-3A) unless that loss represents a complete or substantially complete liquidation of a foreign entity.
The Task Force reached a tentative conclusion that the CTA related to a foreign entity should not be allocated to subsidiaries or assets within the foreign entity. Therefore, CTA should not be released when a subsidiary or a group of assets within the foreign entity is disposed of, unless such disposal results in a complete or substantially complete liquidation of the entity's investment in the foreign entity in accordance with Topic 830.
The Task Force reached a tentative conclusion that if a parent holds an equity method investment that meets the definition of a foreign entity and the parent obtains a controlling financial interest in that foreign entity, the CTA related to that foreign entity should not be released.
The following issues will be considered:
The Task Force discussed the additional outreach and analysis performed by the FASB staff related to sales and transfers involving an investment in a foreign entity, and reached a consensus-for-exposure that the reference to sale of an investment in a foreign entity in paragraph 830-30-40-1 should be clarified to include the loss of a controlling financial interest in a consolidated foreign entity (irrespective of any retained investment), which would include both sales and non-sale deconsolidation events referenced in paragraph 810-10-55-4A. The Task Force also reached a consensus-for-exposure that the sale or partial sale of an equity method investment in a foreign entity should not be removed as a CTA release event.
The Task Force also discussed the release of the CTA upon step acquisitions involving an investment in a foreign entity and reached a consensus-for-exposure that the CTA should be released in such transactions, consistent with the Board's intent in FASB Statement No. 141 (revised 2007), Business Combinations, for requiring the remeasurement of the original equity interest in a step acquisition. The Task Force also reached a consensus-for-exposure that the CTA should be released into net income upon a step acquisition, reversing its previous tentative conclusion reached at the June 21, 2012 EITF meeting.
The Task Force re-affirmed its original consensuses-for-exposure that this Issue does not require any additional recurring disclosures, that this Issue should be applied entirely prospectively from the beginning of the fiscal year of adoption with early adoption permitted, and that entities should apply the transition disclosure requirements in paragraphs 250-10-50-1 through 50-3 for an accounting change resulting from this Issue.
At the September 27, 2012 meeting, the Board ratified the consensus-for exposure and approved the issuance of a second proposed Update for a 60-day public comment period.
At the January 17, 2013 EITF meeting, the Task Force considered nine comment letters on the revised proposed Update. Given the mixed feedback received on the revised consensus-for-exposure, the Task Force focused on the conceptual merits of releasing CTA into net income based on the "substantial liquidation" concept in Subtopic 830-30 and on the loss of control concept in Subtopic 810-10, and whether there should be a difference depending on where an investment is held (that is, within a foreign entity or at the foreign entity level).
The Task Force noted that Topic 830 requires CTA be released into net income only upon events that generally cause a related gain or loss on the net investment to be recognized in net income. Those events were identified as either (a) a sale or (b) the complete or substantially complete liquidation of an investment in a foreign entity. The Task Force further indicated that CTA release guidance in Topic 830 is focused on events occurring to the investment in a foreign entity because in Statement 52 the Board decided that the CTA relates to the parent's investment in a foreign entity as opposed to relating to specific assets within a foreign entity. Further, the Task Force indicated that the Board in Statement 52 also decided that CTA does not belong in operating earnings until the sale or liquidation of the foreign entity because until then its effect is uncertain and remote. In Interpretation 37, the Board clarified that the reference to "sale" as a CTA release event in Statement 52 includes a parent's partial, as well as complete, disposal of its ownership interest in a foreign entity.
The Task Force affirmed as a consensus the consensus-for-exposure in the revised proposed Update that the amendments reach a compromise between the disparate principles in the two standards by (a) retaining Subtopic 830-30's CTA release events and (b) accommodating Subtopic 810-10's loss of control concept by further clarifying that reference to "sale" as a CTA release event includes the loss of a controlling financial interest in a foreign entity.
The Task Force affirmed as a consensus its revised consensus-for-exposure that no additional recurring disclosures should be required.
The Task Force re-affirmed its original consensus-for-exposure that this Issue should be applied entirely prospectively from the beginning of the fiscal year of adoption with early adoption permitted.
The Task Force affirmed as a consensus its consensus-for-exposure that the amendments resulting from this Issue should be applied prospectively, and that early adoption of the amendments resulting from this Issue should be permitted.
The Task Force affirmed as a consensus its consensus-for-exposure that entities should apply the transition disclosure requirements in paragraphs 250-10-50-1 through 50-3 for an accounting change resulting from this Issue.
The Task Force affirmed as a consensus its consensus-for-exposure that the proposed amendments should be effective for public entities for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013, and one year later for nonpublic entities.
At its January 31, 2013 meeting, the Board ratified the consensus reached by the Task Force.
Dates discussed: November 3, 2011; March 15, 2012; June 21, 2012; September 11, 2012; January 17, 2013.
Issue No. 09-D, "Application of the AICPA Audit and Accounting Guide, Investment Companies, by Real Estate Investment Companies." The AICPA Real Estate Funds Project task force worked with AcSEC on a project intended to help industry practitioners understand how real estate funds should apply AICPA Audit and Accounting Guide, Investment Companies. While many real estate funds concluded that their funds were within the scope of the Guide and were applying AICPA Statement of Position 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies, the subsequent deferral of the effective date of SOP 07-1 by FSP SOP 07-1-1, Effective Date of AICPA Statement of Position 07-1, did little to reduce diversity in practice for those funds following the Guide. Some entities carry real estate investments at fair value because (a) they are investment companies that are required to apply the Guide, (b) they are wholly-owned by a pension plan that is required to carry investments at fair value, and (c) they believe prevalent industry accounting practices authorize them to carry such non-financial assets at fair value without regard to investment company attributes or pension plan ownership. The issue is whether an entity that is not in the scope of the Guide can carry real estate and other non-financial investments at fair value through analogy to the Guide or on the basis of industry practice. Also, when carrying real estate investments at fair value, the issues are how an entity should report net investment income and how real estate properties that are owned directly (fee simple) by the entity should be reported.
Status: The Working Group on this Issue No. 09-D, "Application of the AICPA Audit and Accounting Guide, Investment Companies, by Real Estate Investment Companies," met in December 2009. Further Task Force discussion on this Issue has been indefinitely deferred pending the Board's deliberations on its investment properties project.
Description and Status of Current Issues
The following Issues described below are currently on the Task Force's list of Open Issues or have been resolved over the past year.
[13-C] [13-B] [13-A] [12-H] [12-G] [12-F] [12-E] [12-D] [12-C] [12-B] [12-A] [11-A]
[09-D] [03-15]
Issue No. 13-C, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward or Tax Credit Carryforward Exists." The settlement of a liability for an unrecognized tax benefit may be reduced by a net operating loss (NOL) carryforward or a tax credit carryforward as required by U.S. tax law. The IRS does not require a disallowed uncertain tax position to be settled in cash if sufficient NOL carryforwards are available to eliminate the additional taxable income, but a taxpayer is required to use NOL carryforwards in the first year taxable income arises.
Topic 740, Income Taxes, does not include explicit guidance on whether and when an entity should present an unrecognized tax benefit as a liability or as a reduction of NOL carryforwards or other related tax credits. In practice, the presentation of the liability for an unrecognized tax benefit depends on the relationship with the NOL carryforwards. If the liability for an unrecognized tax benefit is directly associated with a tax position taken in a tax year that results in or that resulted in the recognition of an NOL carryforward for that year (and the NOL carryforward has not yet been utilized), the unrecognized tax benefit should be presented as a reduction to the NOL; otherwise, it should be presented as a liability.
The issue is how an entity should present a liability for an unrecognized tax benefit in the statement of financial position when nonrecognition of the tax benefit would otherwise reduce a deferred tax asset related to an NOL or tax credit carryforward under the provisions of the tax law.
Status: At the January 17, 2013 EITF meeting, the Task Force reached a consensus-for-exposure to require presentation in the statement of financial position of any unrecognized tax benefit as a reduction of a deferred tax asset for an NOL carryforward or tax credit carryforward (rather than as a liability) except to the extent the carryforward at the reporting date is not available under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position; then it would be presented as a liability.
Task Force members noted that the proposed presentation is both consistent with how income taxes are often determined and in agreement with the intent of the offsetting guidance within Subtopic 210-20, Balance Sheet—Offsetting (formerly FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts).
The Task Force reached a consensus-for-exposure that no additional recurring disclosures would be required by this Issue because the amendments do not affect the recognition or measurement of uncertain tax positions under Topic 740.
The Task Force reached a consensus-for-exposure that entities should apply this Issue retrospectively to all periods presented with earlier application permitted.
The Task Force reached a consensus-for-exposure that entities should apply the transition disclosure requirements in Subtopic 250-10, Accounting Changes and Error Corrections—Overall, for an accounting change resulting from this Issue.
At its January 31, 2013 meeting, the Board ratified the consensus-for exposure and approved the issuance of a proposed Update for a 60-day public comment period.
Dates discussed: January 17, 2013
Issue No. 13-B, "Accounting for Investments in Tax Credits." The Low Income Housing Tax Credit (LIHTC or affordable housing tax credit) is a program to encourage investment of private capital in the construction and rehabilitation of low income housing. As an indirect tax subsidy, third-party investors may receive the benefits of the tax credits allocated to an entity that owns the affordable housing tax credit property. Investments in other tax credit programs use similar models.
Accounting guidance treats tax credit investments as equity method investments because most investors don't meet the consolidation requirements through their limited partnership interests, yet have significant influence. Alternative methods of accounting include the cost method, the fair value method, and the effective yield method. The effective yield method can be used if the investors meet criteria under EITF Issue No. 94-1, "Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects" (Codified in Subtopic 323-740, Investments—Equity Method and Joint Ventures—Income Taxes), the primary guidance related to accounting for affordable housing tax credit investments.
EITF Issue No. 98-11, "Accounting for Acquired Temporary Differences in Certain Purchase Transactions That Are Not Accounted for as Business Combinations," reaffirmed that purchases of future tax benefits should be accounted for as an investment using the effective yield method. The Task Force did not modify or expand the application of the effective yield method under Issue 94-1 for LIHTC investments. However, among tax credit investments, the effective yield method only applies to the LIHTC, and only a small portion of the LIHTC investments meet the criteria under Issue 94-1 to qualify for the effective yield method. The result is that most investments in the LIHTC and other tax credit investment programs are accounted for under the equity method of accounting. Some believe that the resulting presentation in the income statement of the pre-tax investment performance separately from the tax benefits distorts investment performance by reporting pre-tax losses on otherwise profitable investments, and makes investment performance difficult to understand.
There is currently no accounting guidance for tax credit investments that are not related to the LIHTC. Accordingly, the scope of this Issue could be limited to LIHTC, only, or could encompass all tax credit investments. The issue is how an investor should account for an investment in tax credits within the identified scope of this Issue.
Dates discussed: To be discussed at a future EITF meeting.
Issue No. 13-A, "Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes." Topic 815, Derivatives and Hedging, provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge. Among those risks for financial assets and financial liabilities is the risk of changes in a hedged item's fair value or a hedged transaction's cash flows attributable to changes in the designated benchmark interest rate (referred to as benchmark interest rate risk). Permitting the hedge of the benchmark interest rate risk provides a practical means to designate the risk of changes in the hedged item attributable to changes in the risk-free component of the interest rate (that is, benchmark interest rate risk) in isolation, without requiring that an entity also hedge changes in the spread (which is deemed to reflect credit risk) above the benchmark interest component.
In FASB Statement No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, the FASB decided that, in the U.S., the interest rate on direct Treasury obligations of the U.S. government provides the best measure of the risk-free component for hedge accounting purposes. Thus, the FASB considered defining benchmark interest rate risk based only on U.S. Treasury rates (UST); however, the FASB decided to make an exception and extend the definition to also include interest rate swap rates based on LIBOR. Currently other such indexes may not be used as the benchmark interest rate in the U.S.
The Fed Funds rate is the interest rate at which depository institutions (for example, banks) actively trade balances held at the Federal Reserve with each other, usually overnight. Institutions with surplus balances in their accounts at the Federal Reserve Banks lend those balances to institutions in need of additional reserves in their accounts to meet reserve requirements. The interest rate that the borrowing bank pays to the lending bank to borrow the funds is negotiated between the two banks, and the weighted average of this rate across all such transactions on any given day is the daily Fed Funds Effective Rate (FFE). The related OIS ("Overnight Index Swap Rate" or "Fed Funds Effective Swap Rate") is the fixed rate swapped in exchange for a floating overnight rate, which is the FFE.
The demand for hedging products incorporating the Fed Funds rate has increased significantly and is driven by an increased focus by banks on their sources of funding, the widening of spreads between LIBOR and OIS, and new regulatory measures to curb systemic risks (such as increased collateralization of derivatives).
As a result, instead of discounting the future cash flows of derivatives using LIBOR, practice is evolving such that some derivative counterparties believe that the appropriate discount rate to use in the valuation of collateralized derivatives should be based on OIS because that rate reflects the lower cost of financing of a collateralized instrument. This has caused derivative counterparties to be more exposed to overnight rates even on derivatives whose cash flows are based on LIBOR resets. That is, because of the widened spreads between LIBOR and OIS, if the fair value of collateralized derivatives is measured by discounting the instruments' LIBOR-based cash flows at OIS, in some cases it may result in significantly different valuations than discounting with LIBOR, which may affect the measurement of ineffectiveness being reported for certain hedges of interest rate risk. Some derivative counterparties believe that OIS should be permitted as a benchmark interest rate in the U.S. for hedge accounting purposes.
The issue is whether the Fed Funds Effective Swap Rate should be included as a U.S. benchmark interest rate for hedge accounting purposes.
Status: At the January 17, 2013 EITF meeting, the Task Force reached a consensus-for exposure to include the Fed Funds Effective Swap Rate (OIS) as a U.S. benchmark interest rate for hedge accounting purposes.
The Task Force also reached a consensus-for-exposure that no additional recurring disclosures should be required by this Issue.
The Task Force reached a consensus-for-exposure that the amendments should be applied on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. The Task Force also reached a consensus-for exposure that no additional transition disclosures should be required by this Issue.
At its January 31, 2013 meeting, the Board ratified the consensus-for exposure and approved the issuance of a proposed Update for a 60-day public comment period.
Dates discussed: January 17, 2013
Issue No. 12-H, "Accounting for Service Concession Arrangements." Service concession arrangements are contracts under which a public sector entity (grantor) grants a private entity (an operating entity) the right to operate and/or maintain the grantor's infrastructure assets (for example, airports, roads, bridges, tunnels, prisons, and hospitals). The infrastructure may already exist or may be constructed by the operating entity during the period of the service concession arrangement. If the infrastructure already exists, the operating entity may be required to provide significant upgrades as part of the arrangement. The grantor controls any residual interest in the assets at the end of the term of the arrangement, which is also known as a "public-to-private" service concession contract.
In a typical service concession contract, an operating entity operates and maintains for a period of time the infrastructure that will be used to provide a public service. In exchange, the operating entity may receive payments from the grantor to perform those services. Such payments may be paid as the services are performed or over an extended period of time. Alternatively, the operating entity may be given a right to charge the public (the third-party users) to use the infrastructure. The contract may also contain an unconditional guarantee from the grantor under which the grantor would provide a guaranteed minimum payment if the fees collected from the public do not reach a specified minimum threshold. The grantor controls and has the ability to modify or approve the services the operating entity must provide using the assets, to whom the services will be provided, and the price that will be paid for the services. The contract sets out performance standards, pricing mechanisms, and arrangements for arbitrating disputes.
In addition, the operating entity may be required to make an upfront cash payment to the grantor in exchange for the right to use and operate the grantor's infrastructure. In such contracts, the operating entity is generally given the right to charge users of the infrastructure.
U.S. GAAP does not have accounting guidance that specifically addresses accounting for service concession contracts. Depending on the terms of the service concession contract, some operating entities may account for their rights over the infrastructure in a service concession contract as a lease and apply Topic 840, Leases. Other entities, in the absence of U.S. GAAP, may apply by analogy the principles in IFRIC 12, Service Concession Arrangements, and account for their rights in a service concession contract as an intangible asset, a financial asset, or both.
This Issue applies to the accounting for an operating entity that enters into a service concession arrangement with a grantor. This Issue applies to the accounting by operating entities when both of the following conditions exist: (a) The grantor controls or has the ability to modify or approve what services the operating entity must provide with the infrastructure, to whom it must provide them, and at what price (b) The grantor controls, through ownership, beneficial entitlement, or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement.
The staff believes that the scope of this Issue should be limited to public-to-private service concession arrangements.
The issue is how an operating entity should account for a service concession arrangement within the scope of this Issue.
Status: At the January 17, 2013 EITF meeting, the Task Force tentatively concluded that an operating entity should account for its rights over the infrastructure in a service concession arrangement within the scope of this Issue as an intangible asset, a financial asset, or both. And that the accounting for service concession arrangements should be determined based on whether the operating entity controls the infrastructure that is being used to provide the public service. Service concession arrangements within the scope of this Issue should not be accounted for as leases under Topic 840 because the operating entity does not have the right to control the use of the grantor's infrastructure.
Dates discussed: January 17, 2013
Issue No. 12-G, "Accounting for the Difference between the Fair Value of the Assets and the Fair Value of the Liabilities of a Consolidated Collateralized Financing Entity." FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R), was codified in Topic 810, Consolidation, by ASU 2009-17. ASU 2009-17 states that if a reporting entity holds a controlling financial interest in a variable interest entity (VIE), that entity is determined to be the primary beneficiary of the VIE and is required to consolidate the VIE. Characteristics of a controlling financial interest in a VIE are (a) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance (the power criterion) and (b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE (the losses/benefits criterion).
Reporting entities are often required to consolidate collateralized financing entities (CFEs), such as collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) entities.
Upon the adoption, many reporting entities elected the fair value option to account for all eligible financial assets and financial liabilities of CFEs, which were consolidated upon the effective date of the ASU. In many instances, when the entity was initially consolidated the aggregate fair value of the assets of the CFE exceeded the aggregate fair value of the CFE's beneficial interests (liabilities).
This issue applies to all entities that subsequent to the effective date of ASU 2009-17, are required to consolidate a CFE as a result of (a) a reassessment of the consolidation conclusion, (b) a business combination, or (c) the acquisition of a management contract that results in the consolidation of a CFE.
The issue is how a reporting entity should initially and subsequently account for the excess in the fair value of assets over liabilities of a consolidated CFE.
Status: At the September 11, 2012 EITF meeting, the Task Force reached a consensus-for-exposure that the fair value of the financial assets and financial liabilities of a CFE shall be measured consistently with the guidance on "financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk" in Topic 820, Fair Value Measurement. Although this measurement guidance currently exists in Topic 820, not all reporting entities that consolidate CFEs meet all three criteria in paragraph 820-10-35-18E. As a result, certain reporting entities are not able to apply the measurement guidance in paragraph 820-10-35-18D relating to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk. The amendments resulting from this Issue are intended to allow such entities to use the measurement guidance in paragraph 820-10-35-18D.
The Task Force decided to limit the scope of the measurement guidance in the proposed Update to apply to reporting entities that consolidate a CFE and are required to or have elected a fair value option under Topic 825 to account for all eligible financial assets and financial liabilities of the CFE at fair value. The Task Force also clarified that the amendments in the proposed Update would apply to CFEs that only hold financial assets and issue beneficial interests that only have recourse to the financial assets held by the CFE, and defined a CFE as an entity that holds debt instruments, issues beneficial interests in those financial assets, and has no equity. The beneficial interests are financial liabilities that only have recourse to the related financial assets of the CFE.
The Task Force reached a consensus-for-exposure that no additional recurring disclosures should be required. Reporting entities would comply with the disclosure requirements in Topic 810, Topic 820, and other relevant Codification Topics, as applicable.
The Task Force reached a consensus-for-exposure that entities should use a modified retrospective approach to only consolidated CFEs that exist at the date of adoption. However, entities are permitted to apply this Issue on a retrospective basis to all relevant prior periods beginning from the fiscal year in which the amendments in Update 2009-17 were initially adopted. Early adoption would be permitted.
The Task Force reached a consensus-for-exposure that entities should apply the transition disclosure requirements in paragraphs 250-10-50-1 through 50-3 for an accounting change resulting from this Issue. No additional transition disclosures would be required.
At the September 27, 2012 meeting, the Board ratified the consensus-for exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 60-day public comment period.
Dates discussed: September 11, 2012
Issue No. 12-F, "Recognition of New Accounting Basis (Pushdown) in Certain Circumstances." There is limited U.S. GAAP guidance for determining when, if ever, an acquiring entity's cost of acquiring an acquired entity should be used to establish a new accounting and reporting basis (pushdown) in the acquired entity's standalone financial statements. SEC Staff Accounting Bulletin Topic No. 5.J, New Basis of Accounting Required in Certain Circumstances, EITF Topic No. D-97, "Push-Down Accounting," and other comments made by the SEC Observer at EITF meetings (which are codified in paragraphs 805-50-S99-1 through S99-4), provide guidance for SEC registrants. The guidance indicates that if a purchase transaction results in an entity becoming substantially wholly owned, its standalone financial statements should be adjusted to reflect the basis of accounting of the acquiring entity. It further states that pushdown accounting is (a) required when 95 percent or more of an entity is acquired, (b) permitted when 80 to 95 percent is acquired, and (c) prohibited when less than 80 percent ownership is acquired. It assumes that due to the purchase transaction, the acquired entity is within the control of the acquiring entity. Other interests, such as outstanding public debt, preferred stock, or a significant non-controlling interest, however, may impact the acquired entity's ability to adjust its standalone financial statements to reflect the acquiring entity's basis of accounting. The SEC staff's guidance also indicates that holdings of investors, who both mutually promote the acquisition and collaborate on the subsequent control of the acquired entity, should be aggregated for the purposes of determining whether the acquired entity has become substantially wholly owned.
Some EITF issues have addressed pushdown accounting but a consensus has been reached only on a few of them, including the application of pushdown accounting to non-SEC registrants (EITF Issue No. 86-9, "IRC Section 338 and Push-Down Accounting") and the change in accounting basis in master limited partnership transactions (EITF Issue No. 87-21, "Change of Accounting Basis in Master Limited Partnership Transactions"). Both Issues are codified in Subtopic 805-50, Business Combinations: Related Issues.
The AICPA Task Force on Consolidation Problems discussed pushdown accounting in its October 30, 1979 Issues Paper, "Push Down" Accounting. The Issues Paper developed some advisory conclusions but no authoritative guidance was issued. In addition, the FASB considered the issue in its Discussion Memorandum, New Basis Accounting, December 18, 1991. The Discussion Memorandum was issued as part of the FASB's broader project on consolidations but no further decisions were reached by the FASB on pushdown accounting after its issuance.
Since the SEC staff's guidance is only mandatory for SEC registrants, diversity in practice exists on the application of pushdown accounting by entities that are not SEC registrants.
The issue is whether an acquired entity should establish a new accounting basis in its standalone financial statements due to a change in its ownership as a result of a purchase transaction accounted for as a business combination by the acquiring entity. And, if so, the level of change in ownership at which the new accounting basis should be required.
A Working Group has been formed for this Issue.
Status: At the January 17, 2013 EITF meeting, the Task Force discussed three alternative views regarding the application of pushdown accounting and expressed a preference towards requiring pushdown accounting.
Dates discussed: January 17, 2013
Issue No. 12-E, "Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs." Subtopic 926-20, Entertainment—Films—Other Assets—Film Costs, provides accounting guidance for the capitalization of film costs for entities that produce and distribute films. Paragraphs 926-20-35-12 and 35-13 provide guidance for the impairment test for unamortized film costs. An entity first evaluates whether there are events or changes in circumstances that indicate that the fair value of a film is less than the unamortized film costs. If an entity determines that there are events that indicate a potential impairment, the entity assesses whether the fair value of the film is less than its unamortized film costs. If so, the entity recognizes an impairment and a charge to earnings for the excess of the unamortized film costs over the fair value of the film.
Paragraphs 926-20-35-18 and 926-855-35-1 provide guidance about how an entity should incorporate subsequent information into an impairment analysis as of the balance sheet date when determining the fair value of a film. However, when a film is released subsequent to the balance sheet date, the practice among entities in the film industry is to include events occurring subsequent to the balance sheet date but prior to the filing of the financial statements when assessing impairment as of the balance sheet date.
The definition of fair value in Topic 820, Fair Value Measurement, requires a fair value measurement to be as of the measurement date using assumptions that market participants would use when considering a transaction for the asset or liability. In general, information that arises subsequent to the measurement date is not considered in the measurement because the uncertainty is to be priced into the fair value at the measurement date, which is also consistent with the guidance in AICPA Valuation Standards Section 100.43—Subsequent Events.
If the entity updates financial statements immediately prior to their planned issuance, the entity also needs to update the financial information in the Form 10-K and in its press release materials, and then re-communicate changes in numbers to management, the audit committee, and its Board of Directors (who must approve inclusion of the financial statements in the Form 10-K), and publicly announce the change in earnings from what was included in its previously published press release.
Questions have arisen regarding the apparent conflict between the guidance in Topics 926 and 820. Specifically, fair value guidance would require that only known or knowable information, as of the measurement date, be incorporated into a fair value analysis, whereas paragraph 926-20-35-18 requires that an entity's fair value analysis performed as of a period end should reflect box office results that become known subsequent to the measurement date.
The issue is whether an entity should consider information subsequent to the balance sheet date in measuring fair value at the balance sheet date when performing an impairment test of unamortized film costs.
Status: At the March 15, 2012 EITF meeting, the Task Force reached a consensus-for-exposure to supersede paragraph 926-20-35-18 and Subtopic 926-855, Entertainment—Films—Subsequent Events, to remove the rebuttable presumption, which would have the effect of incorporating into the fair value measurement used for the impairment analysis only information that market participants would have considered as of the measurement date, consistent with how information is incorporated into other fair value measurements. In discussing this Issue, some Task Force members observed that the guidance in Subtopic 926-20 should align the use of fair value in the impairment test of unamortized film costs with the use of fair value in the impairment tests for similar nonfinancial assets.
The Task Force directed the FASB staff to include specific questions in the proposed Update to assess whether additional guidance should be provided about the impairment indicators described in paragraph 926-20-35-12 as a result of the proposed amendments.
At its April 9, 2012 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 90-day public comment period.
At the September 11, 2012 EITF meeting, the Task Force considered comment letters on the proposed Update. The Task Force affirmed as a consensus superseding paragraph 926-20-35-18 and Subtopic 926-855 to remove the rebuttable presumption, which would have the effect of incorporating into the fair value measurement used for the impairment analysis only information that market participants would have considered as of the measurement date, consistent with how information is incorporated into other fair value measurements.
The Task Force affirmed as a consensus that no additional recurring disclosure requirements should be required by this Issue.
The Task Force affirmed as a consensus that the amendments resulting from this Issue should be applied prospectively.
The Task Force decided that for an SEC filer, the amendments are effective for impairment assessments performed on or after December 15, 2012. For all other entities, the amendments are effective for impairment assessments performed on or after December 15, 2013. In addition, earlier application would be permitted, including for impairment assessments performed as of a date before issuance of the Accounting Standards Update if, for an SEC filer, the entity's financial statements for the most recent annual or interim period have not yet been issued or, for all other entities, have not yet been made available for issuance.
The Task Force also affirmed as a consensus that entities should apply the transition disclosure requirements in paragraphs 250-10-50-1 through 50-3 for an accounting change resulting from the amendments in this Issue.
At the September 27, 2012 meeting, the Board ratified the consensus reached by the Task Force on this Issue.
Dates discussed: March 15, 2012, September 11, 2012
Issue No. 12-D, "Accounting for Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date." Under joint and several liability, the full amount of an obligation is enforceable against all of the parties to an arrangement (not necessarily on a proportional or pro-rata basis) or may be enforced against any one of the parties. For example, under joint and several liability, a lender can demand payment for the full obligation from only one of the obligors. The paying obligor then may be able to pursue the other obligors for their share of the obligation.
This Issue applies to all entities that are jointly and severally liable with other entities, in which the total amount of the obligation at the reporting date is fixed, except for obligations that are accounted for under Codification Topic 410, Asset Retirement and Environmental Obligations; Topic 450, Contingencies; Topic 460, Guarantees; Topic 715, Compensation–Retirement Benefits; or Topic 740, Income Taxes.
Examples of obligations included in the scope of the Issue are debt arrangements, other contractual obligations for which the total amount at the reporting date is fixed, and settled litigation and judicial rulings.
Currently there is diversity in practice in accounting for these obligations. Some entities are recording the total amount of the obligation subject to joint and several liability and other entities are recording less than the total amount of the obligation subject to joint and several liability, such as the amount it expects to pay or the amount it was allocated.
The issue is how a reporting entity that is jointly and severally liable should account for an obligation whose total amount is fixed at the reporting date.
Status: At the March 15, 2012 EITF meeting, the Task Force discussed this Issue but did not reach a consensus-for-exposure. A number of Task Force members indicated that the scope should be limited to joint and several obligations involving either (a) entities under common control and related parties or (b) entities under common control. Other Task Force members indicated that the scope should include all entities as proposed by the FASB staff and this Issue's working group (a working group meeting was held on January 26, 2012). The Task Force instructed the FASB staff to perform outreach on the scope of this Issue, including its applicability to unrelated parties and nonpublic entities, and the recognition and measurement approaches for obligations included in the scope of this Issue.
At the June 21, 2012 EITF meeting, the Task Force reached a consensus-for-exposure that the recognition and measurement approach for obligations resulting from joint and several liability arrangements included in the scope of this Issue should be an approach under which the guarantee guidance in Topic 460 would apply to joint and several liability arrangements if the entity's role is primarily that of a guarantor. To make that determination, the entity should evaluate the guidance related to guarantees in Topic 460, including the scope guidance in paragraph 460-10-15-4, and evaluate all facts and circumstances of the arrangement, including whether the reporting entity receives explicit consideration for standing ready. The Task Force also concluded that there is a presumption that the minimum measurement of the liability is the greater of (a) the portion of the amount that the entity agreed to pay among co-obligors (for example, the amount received in some cases) and (b) the amount that the entity expects to pay (for example, if the entity expects to have to pay additional amounts on behalf of other joint obligors).
The Task Force reached a consensus-for-exposure that the following disclosures should be required for each obligation resulting from joint and several liability arrangements:
- The nature of the arrangement, including how the liability arose, the relationship with other co-obligors, and the terms and conditions of the arrangement
- The total outstanding amount under the arrangement, which should not be reduced by the effect of any amounts that may be recoverable from other entities
- The carrying amount, if any, for the entity's liability and the carrying amount of a receivable recognized, if any
- The nature of any recourse provisions that would enable recovery from other entities of the amounts paid, including any limitations on the amounts that might be recovered
- In the period the liability is initially recognized and measured or in a period the measurement changes significantly, the corresponding entry and where it was recorded in the financial statements.
At the July 11, 2012 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 60-day public comment period.
At the At the January 17, 2013 EITF meeting, the Task Force considered 11 comment letters on the proposed Update and found that a majority of the respondents supported the recognition, measurement, and disclosure requirements in the proposed Update.
The Task Force affirmed as a consensus the consensus-for-exposure excluding the requirement to assess whether the primary role of the entity is that of a guarantor.
The Task Force concluded that the amendments in the Update should not include specific guidance about the corresponding entry or entries when recognizing and measuring a liability resulting from a joint and several liability arrangement.
At the January 17, 2013 EITF meeting, the Task Force reached a consensus that certain disclosures should be required for each liability or each group of similar liabilities resulting from joint and several liability arrangements.
The Task Force affirmed as a consensus its consensus-for-exposure that the amendments resulting from this Issue should be applied retrospectively to all prior periods presented for those obligations resulting from joint and several liability arrangements that exist at the beginning of the entity's fiscal year of adoption.
The Task Force affirmed as a consensus its consensus-for-exposure that entities should apply the transition disclosure requirements in paragraphs 250-10-50-1 through 50-3 for an accounting change resulting from this Issue.
The Task Force reached a consensus that the amendments resulting from this Issue will be effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. One year later for nonpublic entities.
At the January 31, 2013 meeting, the Board ratified the consensus reached on this Issue.
Dates Discussed: March 15, 2012; June 21, 2012; January 17, 2013
Issue No. 12-C, "Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution." Topic 805, Business Combinations, requires that when a seller indemnifies the acquirer from a particular contingency or uncertainty related to a specific liability (or asset) acquired in a business combination, the acquirer shall record an indemnification asset at the same time it recognizes the indemnified liability (or asset). The indemnification asset is initially measured on the “same basis” as the indemnified liability (or asset), subject to a valuation allowance for uncollectible amounts. Paragraph 805-20-35-4 includes guidance on the subsequent accounting for an indemnification asset.
There is diversity in practice related to the subsequent measurement of an indemnification asset recognized in accordance with paragraphs 805-20-25-27 through 25-28, particularly as it relates to FDIC-assisted (and National Credit Union Association-assisted (NCUA)) acquisitions that include a loss sharing arrangement. Multiple views exist in practice as to how the decrease in the cash flows expected to be collected on the indemnification asset should be recognized. The diversity exists primarily because there are differing interpretations of the subsequent measurement guidance in paragraph 805-20-35-4; specifically, what is meant by the terms “on the same basis” and “contractual limitations.”
The FASB Chairman requested that the scope of the issue be limited to subsequent accounting for an indemnification asset recognized as a result of a government-assisted acquisition of a lending institution.
The issue is how the terms "on the same basis" and "contractual limitations," as outlined in paragraph 805-20-35-4, should be interpreted when applied to the subsequent measurement of an indemnification asset recognized at the acquisition date as a result of a government-assisted acquisition of a financial institution.
Status: At the March 15, 2012 EITF meeting, the Task Force reached a consensus-for-exposure that when a reporting entity initially recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change occurs in the cash flows expected to be collected on the asset subject to indemnification, the reporting entity would be required to account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification, and any amortization of changes in value would be limited to the contractual terms of the indemnification agreement.
At its April 9, 2012 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 90-day public comment period.
At the September 11, 2012 EITF meeting, the Task Force considered comment letters on the proposed Update.
In affirming its consensus-for-exposure as a consensus, the Task Force requested that the Board's objective in Subtopic 805-20 to minimize measurement anomalies that result in earnings volatility by requiring measurement of an indemnification asset "on the same basis," be explicitly mentioned in the Update.
The Task Force clarified that when the unit of account is a pool under Subtopic 310-30, any amortization of changes in the value of the indemnification asset may be limited to the lesser of the contractual term of the indemnification agreement and the remaining life of the indemnified pool.
The Task Force affirmed as a consensus that the amendments shall be applied prospectively. The Task Force clarified that they should be applied to indemnification assets existing as of the date of adoption, regardless of whether there is any post-adoption change in the cash flows on the indemnified assets. The Task Force concluded that this transition method would enhance comparability and avoid the possibility of a residual indemnification asset existing after the expiration of the term of the indemnification agreement.
The Task Force also reached a consensus that the amendments are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012, with early application permitted. To enhance comparability and considering the limited scope and applicability of this Issue, the Task Force decided not to provide a delayed effective date for nonpublic entities. The Task Force also affirmed as a consensus that an entity should provide the disclosures in paragraphs 250-10-50-1 through 50-3 in the period the entity adopts the amendments.
At the September 27, 2012 meeting, the Board ratified the consensus reached by the Task Force on this Issue.
Dates discussed: March 15, 2012, September 11, 2012
Issue No. 12-B, "Not-for-Profit Entities: Services Received from Personnel of an Affiliate for Which the Affiliate Does Not Seek Compensation." Groups of affiliated not-for-profit entities (NFPs) often operate under agreements that provide for acquisition and deployment of resources for common purposes and projects. An NFP may receive support and revenue that is used to pay employees who are then assigned to work for other affiliated NFPs.
Paragraph 958-605-25-17 of the Codification provides guidance for the recognition of contributed services from affiliates. It includes the paragraph 958-605-25-16 criteria, which indicates that contributions of services shall only be recognized if they create or enhance nonfinancial assets or if they require specialized skills, are provided by individuals possessing the skills, and would typically need to be purchased if not provided by donation. The recognition of contributed services in paragraph 958-605-25-16 was limited to services requiring specialized skills because of the difficulty involved in placing a monetary value on donated services and the absence of control over those performing the services. Paragraph 958-605-30-2 provides that contributions received shall be measured at their fair value. Contributions are defined in the Codification as voluntary nonreciprocal transfers by another entity acting other than as an owner.
Questions have arisen about whether a recipient NFP should consider personnel costs incurred on its behalf by an affiliate as contributed services and apply the recognition guidance in paragraph 958-605-25-17. Some believe that the measure of control inherent in an affiliate relationship and information available to the affiliate about the cost of the services provided sufficiently distinguishes such transactions from other donor-contributed services to justify different recognition and measurement criteria. Practice is diverse.
The issue is whether recipient NFPs should apply the contributed services guidance in paragraph 958-605-25-17 for recognizing personnel costs incurred on their behalf by an affiliated entity. If a recipient NFP should not apply this guidance, a second issue is to determine what recognition and measurement guidance that NFP should apply.
Status: At the March 15, 2012 EITF meeting, the Task Force requested that the FASB staff perform additional research and outreach, including consideration of concerns about financial statement presentation and which NFPs should be included in the scope.
At the June 21, 2012 EITF meeting, the Task Force reached a consensus-for-exposure that a recipient NFP should not apply the contributed services guidance in paragraph 958-605-25-17 for recognizing personnel services received from an affiliate for which the affiliate does not seek compensation. Instead, the recipient NFP should recognize all personnel services received from an affiliate at the cost incurred by the affiliate.
The Task Force clarified that the personnel services received from an affiliate must directly benefit the recipient NFP in the way that is similar to the way in which benefit is gotten from personnel directly engaged by the recipient NFP.
The scope of the Issue would be limited to personnel services that are received from an affiliate, which is defined as a party that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the recipient NFP.
The Task Force also reached a consensus-for-exposure that an NFP that provides a performance indicator (analogous to income from continuing operations of a for-profit entity) should report the increase in net assets associated with personnel services received from an affiliate and for which the affiliate does not seek compensation as an equity transfer, regardless of whether those personnel services are received from a not-for-profit affiliate entity or a for-profit affiliate entity. For other NFPs that do not present a performance indicator, presentation guidance will not be prescribed for the increase in net assets associated with personnel services received from an affiliate other than prohibiting reporting as a contra-expense or a contra-asset. For all NFPs, the corresponding decrease in net assets or the creation or enhancement of an asset resulting from the use of personnel services received from an affiliate should be reported similar to how other such expenses and assets are reported.
At the July 11, 2012 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 60-day public comment period.
At the January 17, 2013 EITF meeting, the Task Force consider 13 comment letters on the proposed Update.
Task Force members expressed concern regarding scope, comparability, and cost-benefits of issuing the guidance.
The Task Force requested that the FASB staff perform additional research and outreach on this Issue with preparers and users of NFP financial statements to consider the concerns expressed above.
At the January 17, 2013 EITF meeting, the Task Force consider 13 comment letters on the proposed Update.
Task Force members expressed concern regarding scope, comparability, and cost-benefits of issuing the guidance.
The Task Force requested that the FASB staff perform additional research and outreach on this Issue with preparers and users of NFP financial statements to consider the concerns expressed above.
Dates discussed: March 15, 2012; June 21, 2012; January 17, 2013
Issue No. 12-A, "Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows." Some donations to not-for-profit entities (NFPs) are made in the form of appreciated securities to accommodate a donor's tax goals. NFPs typically have institutional policies to immediately sell those securities to convert them into cash to be available for immediate use.
Topic 230, Statement of Cash Flows, has been interpreted as allowing presentation of the sale of donated securities in the statement of cash flows as either operating or investing activities. Classification of the sale of investments in the statement of cash flows is, in some circumstances, based on how an entity classifies its investments. Subtopic 958-320, Not-for-Profit Entities: Investments—Debt and Equity Securities, does not include the three categories of investments into which other entities classify their investments that exist under Topic 320, Investments—Debt and Equity Securities (that is, trading, available-for-sale, and held-to-maturity). Topic 320 does not apply to NFPs (except for certain impairment guidance). However, paragraph 958-320-45-6 notes that some NFPs, primarily health care entities, like to compare their results to business entities and have the option to "report in a manner similar to business entities by identifying securities as available for sale or held to maturity as described in paragraphs 320-10-25-1 through 25-6 and excluding the unrealized gains and losses on those securities from an operating measure within the statement of activities."
Practice is mixed for reporting the sale of donated securities in the statement of cash flows with some NFPs reporting such amounts as operating cash flows, while others do not.
The issue is how NFPs should classify in the statement of cash flows the cash receipts received from the sale of donated securities that are directed upon receipt for sale and for which the NFP has the ability to avoid significant investment risks and rewards through near immediate conversion into cash.
Status: At the March 15, 2012 EITF meeting, the Task Force reached a consensus-for-exposure that cash receipts of NFPs resulting from the sale of donated securities that are directed upon receipt for sale and for which the NFPs have the ability to avoid significant investment risks and rewards through near immediate conversion into cash should be classified as operating cash flows. However, if the donor restricted the use of the contributed resource to a long-term purpose (for example, the acquisition, construction, or improvement of long-lived assets or to establish or increase a permanent or term endowment), then those cash receipts would be classified as financing cash flows.
The Task Force brought up a number of additional issues that are addressed by questions included in the proposed Update.
At its April 9, 2012 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 90-day public comment period.
At the September 11, 2012 EITF meeting, the Task Force considered comment letters on the proposed Update.
The Task Force decided to expand the scope of this Issue to include cash receipts from the sale of donated financial assets. The Task Force concluded that the form of a financial asset sold (that is, whether it is a security or not) should not directly affect the classification of the proceeds in the statement of cash flows and that expanding the scope to financial assets is consistent with the tentative conclusions in the FASB's accounting for financial instruments project, which generally does not distinguish between securities and other financial assets. The Task Force did not further expand the scope to include cash receipts from the sale of non-financial assets because the known diversity in practice is limited to securities, and asked the Board to consider the classification of cash receipts from the sale of donated assets other than financial assets as part of the FASB not-for-profit financial reporting: financial statements project.
The Task Force concluded that determining whether the cash receipts from the sale of such donated financial assets are classified as an operating activity or instead are classified as a financing activity should be consistent with classifying receipts of cash donations
The Task Force considered alternatives for the criterion for classifying the cash receipts from the sale of donated securities as operating cash flows, and reached a consensus to remove the reference to "has the ability to avoid significant investment risks and rewards" and require an NFP to classify as operating cash flows cash receipts resulting from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash. However, if the donor restricted the use of the contributed resource to a long-term purpose, then those cash receipts shall be classified as a financing activity. The Task Force concluded that "nearly immediately" is synonymous with "promptly" and should generally be considered to be within days rather than months. The Task Force concluded that the existence of an NFP-imposed limitation on the sale of donated financial assets (for example, a limit order) would be indicative of an investing decision and, therefore, such a limitation should result in an investing cash flows classification for the related proceeds.
The Task Force reached a consensus that the amendments will be effective for fiscal years, and interim periods within those years, beginning after June 15, 2013. The Task Force reached a consensus that the amendments should be applied prospectively to cash receipts on or after the date of adoption from the sale of donated financial assets. Retrospective application to all prior periods presented upon the date of adoption would be permitted, but not required. Early adoption of the amendments from the beginning of the fiscal year of adoption is permitted so as to eliminate existing diversity as soon as is practicable. For fiscal years beginning before the date of issuance, early adoption is permitted only if an NFP's financial statements for those fiscal years and interim periods within those years have not yet been made available for issuance.
The Task Force also affirmed as a consensus its consensus-for-exposure that entities should apply the transition disclosure requirements in paragraphs 250-10-50-1 through 50-3 for an accounting change resulting from this Issue.
At the September 27, 2012 meeting, the Board ratified the consensus reached by the Task Force.
Dates discussed: March 15, 2012, September 11, 2012
Issue No. 11-A, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." When a parent enters into a transaction to sell or transfer to a third party a group of assets within a consolidated foreign entity while retaining ownership of that foreign entity, the group of assets sometimes constitutes a business as defined in Topic 805, Business Combinations. Alternatively, the group of assets may be sold directly by the foreign entity.
The objective of this Issue is to resolve the diversity in practice about whether Subtopic 810-10, Consolidation—Overall, or Subtopic 830-30, Foreign Currency Matters—Translation of Financial Statements, applies to the release of the cumulative translation adjustment into earnings when a parent no longer holds a controlling financial interest in a group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a consolidated foreign entity.
Subtopic 810-10, as amended by Accounting Standards Update No. 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification, requires that a parent derecognize a group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) if the parent ceases to have a controlling financial interest in that group of assets. Furthermore, the derecognition guidance in Subtopic 810-10 supports releasing the cumulative translation adjustment into earnings upon the loss of a controlling financial interest in such a group of assets. Subtopic 830-30, however, provides for the release of the cumulative translation adjustment into earnings only if the sale or transfer represents a sale or complete or substantially complete liquidation of an investment in a foreign entity. Thus, there is diversity in practice.
The issue is about when and how a parent should recognize a portion of the CTA in earnings upon the loss of a controlling financial interest in a group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a consolidated foreign entity. Specifically, whether the parent should apply (a) the guidance in Subtopic 810-10 and recognize a portion of the CTA in earnings upon ceasing to have a controlling financial interest in the group of assets or (b) the guidance in paragraph 830-30-40-1 and only recognize the CTA in earnings if the sale or transfer constitutes a complete or substantially complete liquidation of the consolidated foreign entity in which it resides.
This issue applies to all entities that cease to have a controlling financial interest in a group of assets within a consolidated foreign entity when (a) the group of assets is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights), (b) the functional currency of the consolidated foreign entity is not the parent’s reporting currency, and (c) there is a CTA balance associated with that consolidated foreign entity.
Status: At the November 3, 2011 EITF meeting, the Task Force reached a consensus-for-exposure that upon the sale or transfer of a group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a consolidated foreign entity a parent should recognize a portion of the CTA associated with the disposed group of assets in earnings. Entities shall release into earnings an amount of CTA that is determined in a systematic and rational manner to reflect an asset group’s relative portion of the total CTA associated with the foreign entity. The consensus-for-exposure clarifies the guidance for the release of the CTA into earnings upon the loss of a controlling financial interest in a subsidiary (thereby, the substance of currently non-codified paragraph B53 of Statement 160 would be added to the Codification). Additionally, the current reference in Subtopic 830-30 to Subtopic 810-10 would be amended to cite the applicable paragraphs within Subtopic 810-10 (as opposed to the entire subtopic). The consensus-for-exposure does not require any additional recurring disclosures. The amendments proposed by the consensus-for-exposure would be applied on a prospective basis for derecognition events occurring after the effective date. Prior periods would not be adjusted. Earlier application would be permitted.
At the November 30, 2011 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 60-day public comment period.
At the March 15, 2012 EITF meeting, the Task Force considered nine comment letters on the proposed Update. A number of concerns were brought up and the Task Force requested that the FASB staff perform user and preparer outreach prior to the Task Force affirming its consensus-for-exposure as a consensus. Further, the FASB staff was asked to evaluate certain questions that may arise if the CTA is to be released more frequently.
At the June 21, 2012 EITF meeting, the Task Force reached a tentative conclusion (thereby reversing the Task Force's consensus-for-exposure reached at the November 3, 2011 EITF meeting) that an entity should not release an allocated portion of CTA related to a foreign entity when the entity loses a controlling financial interest in a group of assets that is a nonprofit activity or a business within the foreign entity (within the scope of paragraph 810-10-40-3A) unless that loss represents a complete or substantially complete liquidation of a foreign entity.
The Task Force reached a tentative conclusion that the CTA related to a foreign entity should not be allocated to subsidiaries or assets within the foreign entity. Therefore, CTA should not be released when a subsidiary or a group of assets within the foreign entity is disposed of, unless such disposal results in a complete or substantially complete liquidation of the entity's investment in the foreign entity in accordance with Topic 830.
The Task Force reached a tentative conclusion that if a parent holds an equity method investment that meets the definition of a foreign entity and the parent obtains a controlling financial interest in that foreign entity, the CTA related to that foreign entity should not be released.
The following issues will be considered:
- Whether an entity should release CTA when a parent loses a controlling financial interest in a foreign entity and the remaining interest is (1) an equity method investment, (2) a cost method investment, or (3) an equity security classified as an "available for sale" investment.
- Whether an entity should release a portion of CTA when a parent sells part of its equity method investment in a foreign entity; that is, revisit the guidance in paragraph 830-30-40-2 (formerly Interpretation 37).
- Whether an entity should release CTA upon performing a step acquisition. This issue also is one for which the Task Force reached a tentative conclusion at its June 21, 2012 meeting.
The Task Force discussed the additional outreach and analysis performed by the FASB staff related to sales and transfers involving an investment in a foreign entity, and reached a consensus-for-exposure that the reference to sale of an investment in a foreign entity in paragraph 830-30-40-1 should be clarified to include the loss of a controlling financial interest in a consolidated foreign entity (irrespective of any retained investment), which would include both sales and non-sale deconsolidation events referenced in paragraph 810-10-55-4A. The Task Force also reached a consensus-for-exposure that the sale or partial sale of an equity method investment in a foreign entity should not be removed as a CTA release event.
The Task Force also discussed the release of the CTA upon step acquisitions involving an investment in a foreign entity and reached a consensus-for-exposure that the CTA should be released in such transactions, consistent with the Board's intent in FASB Statement No. 141 (revised 2007), Business Combinations, for requiring the remeasurement of the original equity interest in a step acquisition. The Task Force also reached a consensus-for-exposure that the CTA should be released into net income upon a step acquisition, reversing its previous tentative conclusion reached at the June 21, 2012 EITF meeting.
The Task Force re-affirmed its original consensuses-for-exposure that this Issue does not require any additional recurring disclosures, that this Issue should be applied entirely prospectively from the beginning of the fiscal year of adoption with early adoption permitted, and that entities should apply the transition disclosure requirements in paragraphs 250-10-50-1 through 50-3 for an accounting change resulting from this Issue.
At the September 27, 2012 meeting, the Board ratified the consensus-for exposure and approved the issuance of a second proposed Update for a 60-day public comment period.
At the January 17, 2013 EITF meeting, the Task Force considered nine comment letters on the revised proposed Update. Given the mixed feedback received on the revised consensus-for-exposure, the Task Force focused on the conceptual merits of releasing CTA into net income based on the "substantial liquidation" concept in Subtopic 830-30 and on the loss of control concept in Subtopic 810-10, and whether there should be a difference depending on where an investment is held (that is, within a foreign entity or at the foreign entity level).
The Task Force noted that Topic 830 requires CTA be released into net income only upon events that generally cause a related gain or loss on the net investment to be recognized in net income. Those events were identified as either (a) a sale or (b) the complete or substantially complete liquidation of an investment in a foreign entity. The Task Force further indicated that CTA release guidance in Topic 830 is focused on events occurring to the investment in a foreign entity because in Statement 52 the Board decided that the CTA relates to the parent's investment in a foreign entity as opposed to relating to specific assets within a foreign entity. Further, the Task Force indicated that the Board in Statement 52 also decided that CTA does not belong in operating earnings until the sale or liquidation of the foreign entity because until then its effect is uncertain and remote. In Interpretation 37, the Board clarified that the reference to "sale" as a CTA release event in Statement 52 includes a parent's partial, as well as complete, disposal of its ownership interest in a foreign entity.
The Task Force affirmed as a consensus the consensus-for-exposure in the revised proposed Update that the amendments reach a compromise between the disparate principles in the two standards by (a) retaining Subtopic 830-30's CTA release events and (b) accommodating Subtopic 810-10's loss of control concept by further clarifying that reference to "sale" as a CTA release event includes the loss of a controlling financial interest in a foreign entity.
The Task Force affirmed as a consensus its revised consensus-for-exposure that no additional recurring disclosures should be required.
The Task Force re-affirmed its original consensus-for-exposure that this Issue should be applied entirely prospectively from the beginning of the fiscal year of adoption with early adoption permitted.
The Task Force affirmed as a consensus its consensus-for-exposure that the amendments resulting from this Issue should be applied prospectively, and that early adoption of the amendments resulting from this Issue should be permitted.
The Task Force affirmed as a consensus its consensus-for-exposure that entities should apply the transition disclosure requirements in paragraphs 250-10-50-1 through 50-3 for an accounting change resulting from this Issue.
The Task Force affirmed as a consensus its consensus-for-exposure that the proposed amendments should be effective for public entities for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013, and one year later for nonpublic entities.
At its January 31, 2013 meeting, the Board ratified the consensus reached by the Task Force.
Dates discussed: November 3, 2011; March 15, 2012; June 21, 2012; September 11, 2012; January 17, 2013.
Issue No. 09-D, "Application of the AICPA Audit and Accounting Guide, Investment Companies, by Real Estate Investment Companies." The AICPA Real Estate Funds Project task force worked with AcSEC on a project intended to help industry practitioners understand how real estate funds should apply AICPA Audit and Accounting Guide, Investment Companies. While many real estate funds concluded that their funds were within the scope of the Guide and were applying AICPA Statement of Position 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies, the subsequent deferral of the effective date of SOP 07-1 by FSP SOP 07-1-1, Effective Date of AICPA Statement of Position 07-1, did little to reduce diversity in practice for those funds following the Guide. Some entities carry real estate investments at fair value because (a) they are investment companies that are required to apply the Guide, (b) they are wholly-owned by a pension plan that is required to carry investments at fair value, and (c) they believe prevalent industry accounting practices authorize them to carry such non-financial assets at fair value without regard to investment company attributes or pension plan ownership. The issue is whether an entity that is not in the scope of the Guide can carry real estate and other non-financial investments at fair value through analogy to the Guide or on the basis of industry practice. Also, when carrying real estate investments at fair value, the issues are how an entity should report net investment income and how real estate properties that are owned directly (fee simple) by the entity should be reported.
Status: The Working Group on this Issue No. 09-D, "Application of the AICPA Audit and Accounting Guide, Investment Companies, by Real Estate Investment Companies," met in December 2009. Further Task Force discussion on this Issue has been indefinitely deferred pending the Board's deliberations on its investment properties project.
Issue No. 03-15, "Interpretation of Constraining Conditions of a Transferee in a CBO Structure." Collateralized bond obligations (CBOs) are securitizations of high-yield debt, bank loan participations, or similar financial assets. The CBO issuing vehicle is a special-purpose entity (SPE), typically a corporation domiciled (for security law and tax reasons) in the Cayman Islands. The SPE is not a qualifying SPE (QSPE) because the conditions under which it can sell assets violate the provisions of EITF Abstracts, Topic No. D-66, "Effect of a Special-Purpose Entity's Powers to Sell, Repledge, or Distribute Transferred Financial Assets under FASB Statement No. 125." The SPE has, at all times, the discretion to hold or sell defaulted assets or assets deemed to be "credit risk" or "credit improved" assets. The SPE also can sell up to between 20 percent and 30 percent annually of the aggregate principal balance of collateral (as of the beginning of each year) (known in the industry as the "free trade basket") during the reinvestment period. The free trade basket is in addition to the SPE's ability to trade defaulted credit risk and credit improved securities so that if the collateral manager decided that 50 percent of the SPE's assets were "credit improved," the collateral manager would be able to trade 70 percent of the SPE's assets (assuming a 20 percent free trade basket) in that year. Paragraph 9(b) of Statement 140 provides that with respect to a transferee that is not a QSPE, no condition both constrains the transferee (or holder) from taking advantage of right to pledge or exchange the transferred assets and provides more than a trivial benefit to the transferor. If the constraint is not imposed by the transferor, as would be the case in a typical CBO structure, then that constraint may or may not provide more than a trivial benefit to the transferor. The issue is whether the "free trade basket" violates paragraph 9(b) of Statement 140 and therefore precludes sale treatment by the transferor.
Status: To be discussed at a future meeting.