On The Horizon: FASB considering changes to ASC 842, Leases

Contents FASB

Highlights from Dec. 4 meeting posted
Webcast for private companies implementing ASC 606 scheduled

SEC releases Small Entity Compliance Guide AICPA releases final balloted draft on employee benefit plan audits

PCAOB releases its 2019 inspections brief CAQ

Highlights from September 2018 SEC Regulations Committee meeting released

IASB

IFRS Foundation proposes Taxonomy update

IFRIC update published

FASB Highlights from Dec. 4 meeting posted All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on Dec. 4 and tentatively decided to add a project to its technical agenda to consider proposed amendments to the guidance in ASC 842, Leases, addressing two issues related to how lessors apply certain aspects of this guidance. These issues, along with the Board’s related actions, are summarized below.

The proposed amendments discussed below would be effective for all entities for fiscal years beginning after Dec. 15, 2019, and for interim periods within those fiscal years. Early adoption would be permitted. Entities would be required to apply the proposed amendments using the transition method applied to adopt the guidance in ASC 842 on the date when the entity initially applies ASC 842.

The Board directed the staff to draft a proposed ASU comprising the proposals for vote by written ballot, with a comment period of either 15 days or ending Jan. 15, 2019, whichever occurs later.

Determining the fair value of the underlying asset by lessors that are not manufacturers or dealers

ASC 842 eliminates the legacy guidance on how a lessor that is neither a manufacturer nor a dealer should determine the fair value of leased property at lease inception (referred to as the “fair value exception”). The Board tentatively decided to amend the guidance in ASC 842 to allow these lessors to determine the fair value of the underlying asset at lease commencement in a manner similar to the fair value exception allowable under ASC 840, Leases. As a result, these lessors would determine the fair value of the underlying asset at lease commencement at cost, reflecting any volume or trade discounts, unless a significant amount of time had elapsed between acquiring the underlying asset and lease commencement. In these circumstance, fair value would be determined under the definition of fair value in ASC 842.

Presentation of the statement of cash flows – sales-type and direct financing leases

ASC 842 requires all lessors to present cash receipts from leases within operating activities in the statement of cash flows, which conflicts with the existing guidance that applies to lessors that are depository and lending entities within the scope of ASC 942, Financial Services – Depository and Lending. The Board tentatively decided that these lessors should continue to present all principal payments received under leases within investing activities in the statement of cash flows under the existing guidance in ASC 942.

Webcast for private companies implementing ASC 606 scheduled On Dec. 18, the FASB will host a webcast titled “IN FOCUS: FASB Update for Private Companies on Revenue from Contracts with Customers,” for private companies implementing the guidance in ASC 606, Revenue from Contracts with Customers.

Registration is required.

SEC releases Small Entity Compliance Guide Small Entity Compliance Guides summarize and explain rules adopted by the SEC, but they are not a substitute for SEC rules. Only an SEC rule provides complete and definitive information regarding its requirements.

The staff of the SEC’s Division of Corporation Finance recently issued a Small Entity Compliance Guide to summarize key provisions of the Final Rule, Modernization of Property Disclosures for Mining Registrants. Among other things, this guide provides an overview of the disclosure requirements and compliance information for registrants with material mining operations.

For more information on the Final Rule, refer to the Nov. 8 On the Horizon.

AICPA releases final balloted draft on employee benefit plan audits The Auditing Standards Board (ASB) of the AICPA released a final balloted draft of Statement on Auditing Standard (SAS) 13X, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. While the ASB voted to issue SAS 13X as a final standard, conforming amendments related to other standards expected to be issued in 2019 may be necessary.

Among other things, SAS 13X addresses:

• Engagement acceptance
• Audit risk assessment and response
• Those charged with governance communications
• ERISA audit procedures
• Auditor reporting when management imposes a scope limitation as permitted by ERISA rules and regulations (often referred to as a “limited scope audit”)
• Form 5500, “Annual Return/Report of Employee Benefit Plan”

PCAOB releases its 2019 inspections brief The PCAOB released its “Inspections Outlook for 2019,” which includes information on objectives and potential areas of focus for its 2019 planned audit inspections of both issuers and broker-dealers.

The focus areas discussed in the brief include:

• System of quality control
• Independence
• Recurring inspection deficiencies
• External considerations
• Cybersecurity risks
• Software audit tools
• Digital assets
• Audit quality indicators
• Changes in the auditor’s report
• Implementation of new accounting standards

CAQ Highlights from September 2018 SEC Regulations Committee meeting released The Center for Audit Quality (CAQ) SEC Regulations Committee meets periodically with the SEC staff to discuss emerging financial reporting issues relating to SEC rules and regulations. The highlights summarize matters discussed at the meetings and do not represent official positions of the AICPA or the CAQ, nor are they authoritative positions or interpretations issued by the SEC or its staff.

The CAQ recently issued highlights of the Sept. 12 joint meeting between its SEC Regulations Committee and the SEC staff. The topics discussed include:

• Observations on the new disclosures required by ASC 606, Revenue from Contracts with Customers, which were consistent with the remarks from the previous meeting. For more information, refer to the Sept. 27 On the Horizon.
• Impact of the retrospective application of new accounting standards on the fourth and fifth year in the selected financial data table, including an indication that the staff’s views expressed in the SEC’s Division of Corporation Finance’s Financial Reporting Manual, Section 1601.1, have not changed.
• Emerging growth company transition issues regarding the adoption of ASC 606.
• Clarification from the staff that the financial statements of a private operating company required in Form S-4 and/or a merger proxy for its merger with a special purpose acquisition company should be audited in accordance with PCAOB standards and comply with public company GAAP disclosures.
• Whether a master limited partnership drop-down transaction previously accounted for as a common control business combination under ASC 805, Business Combinations, that might be accounted for as a failed sale-leaseback transaction subsequent to the adoption of ASC 842, Leases, represents the acquisition of an asset or a business for purposes of Item 2.01 of Form 8-K.

IASB IFRS Foundation proposes Taxonomy update The IFRS Foundation published for public comment “IFRS Taxonomy 2018 – Proposed Update 2, General Improvements,” which includes changes to the content and technical structure of the IFRS Taxonomy.

The proposal is intended to improve the IFRS Taxonomy by:

• Introducing implementation notes explaining how to use specific taxonomy elements and to avoid tagging errors
• Introducing a new type of element for reporting information about a period of time to achieve more consistent tagging
• Removing entry points without documentation labels to make it easier to access the taxonomy

Comments on the proposal are due Feb. 4, 2019.

IFRIC update published The IASB’s IFRS Interpretations Committee (IFRIC) has issued the November 2018 Update summarizing the decisions reached by the Committee during its November public meeting.

Decisions on an IFRIC Interpretation become final only after the Committee has formally voted on the Interpretation, which is then sent to the IASB for ratification.

© 2018 Grant Thornton LLP, U.S. member firm of Grant Thornton International Ltd. All rights reserved. This Grant Thornton LLP On the Horizon provides information and comments on current accounting and SEC reporting issues and developments. It is not a comprehensive analysis of the subject matter covered and is not intended to provide accounting or other advice or guidance with respect to the matters addressed in this publication. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this publication. For additional information on topics covered in this publication, contact a Grant Thornton client-service partner.