US Week in Review - Week ending 8 February 2018

    The US Week in Review highlights this week’s developments and emerging issues in the financial reporting world and gives you direct access to relevant technical accounting guidance and thought leadership produced by EY.

    What’s new from EY

    To the Point: FASB moves ahead with guidance on reclassification of tax effects stranded in OCI by tax reform

    The FASB decided to finalize guidance that would permit entities to reclassify tax effects stranded in accumulated other comprehensive income (OCI) as a result of tax reform to retained earnings and directed the staff to draft a final Accounting Standards Update. The FASB decided to give entities the options to (1) reclassify these amounts rather than require reclassification and (2) apply the guidance retrospectively or in the period of adoption.

    Technical Line: A closer look at accounting for the effects of the Tax Cuts and Jobs Act (Updated 8 February 2018)

    We have updated our Technical Line to incorporate the FASB decision to finalize guidance that would allow entities to reclassify tax effects stranded in OCI by tax reform. We also added discussions of the effect of interest expense deduction limitations on sources of future taxable income and accounting considerations for US Treasury Department and IRS regulations and notices, among other things.

    This document incorporates our views on SAB 118 and provides additional discussion on other accounting effects of the Act, including the views expressed by the FASB staff on the accounting for certain provisions of the Act. It also addresses the accounting implications for companies with fiscal years that end on a date other than 31 December.

    Comment letter on the reclassification of stranded tax effects

    In our comment letter, we said the FASB’s proposed guidance appropriately addresses the concerns raised by stakeholders regarding the effects of US tax reform on financial reporting. However, we questioned whether the proposed guidance would be beneficial or operational for all entities and recommended that the Board give companies the option to apply the guidance and/or exclude certain tax effects recorded in other comprehensive income from the scope of any final standard. We also supported the addition of a broader project on backwards tracing to the FASB’s standard-setting agenda.

    Comment letter on FASB proposal to add a transition option and practical expedient for lessors to the new leases standard

    In our comment letter, we supported the FASB’s efforts to reduce the cost and complexity of applying the guidance in ASC 842, Leases. However, we believe the Board could provide additional relief by giving entities the option to use an alternative transition method that would allow them to apply the recognition and subsequent measurement guidance in ASC 842 to existing leases at the date of initial application. In addition, we expressed concern that the proposed criteria for use of the lessor practical expedient would inadvertently limit the population of leases to which the practical expedient could be applied.

    Updated FRD on business combinations

    We have updated our Financial reporting developments (FRD) publication on business combinations to include interpretive guidance on how to apply the recognition and measurement principles in ASC 805 to acquired contracts with customers that are accounted for under ASC 606. Refer to Appendix H of the publication for a summary of the updates.

    Standard Setter updates

    Financial Accounting Standards Board (FASB)

    7 February 2018 FASB meeting

    Reclassification of certain tax effects from accumulated other comprehensive income – See our To the Point.

    Collaborative arrangements: targeted improvements – The Board directed the staff to draft a proposed Accounting Standards Update that would clarify when transactions between parties to collaborative arrangements are in the scope of ASC 606. The Board decided not to expand the project to develop an accounting framework for the financial reporting for non-revenue transactions. The proposal would require entities to record the cumulative effect of adoption retrospectively as of the adoption date of the new revenue standard. As a reminder, the standard was effective 1 January 2018 for calendar-year public business entities.

    The Board ratified the Emerging Issues Task Force’s consensus-for-exposure on Customer’s accounting for implementation, setup and other upfront costs (implementation costs) incurred in a cloud computing arrangement that is considered a service contract (Issue 17-A). The FASB also discussed its projects on Disclosure framework: disclosure review – fair value measurement and Segment reporting. For details, see the FASB’s Tentative Decisions.

    Upcoming meetings

    7 February 2018 FASB meeting

    The FASB will discuss issues related to the implementation of its new hedge accounting guidance. It also will discuss its projects on Disclosure framework: disclosure review – defined benefit plans and Revenue recognition of grants and contracts by not-for-profit entities. For details, see the FASB’s calendar.

    American Institute of Certified Public Accountants (AICPA)

    FinREC industry working drafts on revenue out for comment

    The AICPA’s Financial Reporting Executive Committee (FinREC) issued working drafts addressing accounting issues entities in the following industries may encounter as they apply the new revenue recognition standard:


    The working drafts include considerations and/or examples of how these entities may apply the standard. When the drafts are finalized, the AICPA plans to include them in a new Accounting and Auditing Guide on Revenue Recognition. While the guide will be non-authoritative, US stakeholders will likely consider it for guidance on industry-specific matters. Comments on the working drafts are due by 2 April 2018.

    Governmental Accounting Standards Board (GASB)

    GASB issues invitation to comment on development of guidance on revenue and expense recognition

    The GASB issued an invitation to comment to request feedback on the development of comprehensive revenue and expense recognition guidance for state and local governments. The document discusses an exchange/nonexchange model that would classify revenue and expense transactions based on whether a transaction is considered an exchange or nonexchange, and a performance obligation/no performance obligation model that would classify revenue and expense transactions based on whether a binding agreement contains one or more performance obligations. The GASB plans to hold public roundtable meetings on the issue in the second quarter of 2018. Comments are due by 27 April 2018.

    International standard setter updates

    International Federation of Accountants/International Auditing and Assurance Standards Board (IFAC/IAASB)

    Exposure draft on leases

    The IPSASB released for public comment Exposure Draft 64, Leases, which proposes a single right-of-use model for lease accounting that will replace the risks and rewards incidental to ownership model in IPSAS 13, Leases. Comments are due by 30 June 2018.

    Consultation document on proposed strategy and work plan

    The IPSASB released a consultation document on its Proposed Strategy and Work Plan 2019–2023. The draft strategy emphasizes the importance of IPSAS to public financial management reforms. Comments are due by 15 June 2018.

    Upcoming Thought Center webcasts and podcasts

    EY Q1 2018 financial reporting update
    22 March 2018, 1 p.m. Eastern time



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