Financial Reporting and Regulatory Update

Fourth Quarter 2021

From the FASB

Final standards

Private company practical expedient for equity-classified share-based awards

On Oct. 25, 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-07, “Compensation – Stock Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards,” to reduce the cost and complexity for nonpublic business entities in accounting for equity-classified share-based awards as compensation to employees and nonemployees. The ASU provides an option to elect a practical expedient to determine the current price input of equity-classified share-based awards issued as compensation using the reasonable application of a reasonable valuation method, consistent with U.S. Department of the Treasury regulations related to Section 409A of the U.S. Internal Revenue Code (IRC). The practical expedient can be elected for equity-classified share-based awards within the scope of Accounting Standards Codification (ASC) Topic 718, “Stock Compensation.”

For more information, read the Crowe article “ASU 2021-07: Equity-Classified Share-Based Award Measurement.”

Effective dates

The ASU is effective on a prospective basis for fiscal years beginning after Dec. 15, 2021, and interim periods within fiscal years beginning after Dec. 15, 2022. Early application is permitted.

Acquired revenue contracts in a business combination

On Oct. 28, 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities From Contracts With Customers,” to address diversity in practice. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts instead of at fair value. The ASU also provides certain practical expedients and applies to contract assets and liabilities from other contracts to which the provisions of Topic 606 apply.

Effective dates

For public business entities (PBEs), the amendments are effective for fiscal years beginning after Dec. 15, 2022, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after Dec. 15, 2023, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption is permitted. If early adopted in an interim period, the entity should apply the amendments 1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and 2) prospectively to all business combinations that occur on or after the date of initial application.

Discount rate guidance for lessees

On Nov. 11, 2021, the FASB issued ASU 2021-09, “Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities,” to provide entities that are not PBEs with more flexibility in how they determine the discount rate and make the risk-free rate election to reduce implementation costs. Prior to this update, Topic 842 provided lessees that are not PBEs with a practical expedient to elect an accounting policy to use a risk-free rate as the discount rate for all leases. The amendments allow those lessees to make the risk-free rate election by class of underlying asset rather than at the entitywide level. In making the risk-free rate election, entities are required to disclose to which asset classes it has elected to apply the risk-free rate. Under the ASU, when the rate implicit in the lease is readily determinable for any individual lease, the lessee would use that rate regardless of whether it has made a risk-free rate election.

Effective dates

For entities that have not adopted Topic 842, the amendments are effective when they adopt Topic 842. For entities that already have adopted Topic 842, the amendments are effective for fiscal years beginning after Dec. 15, 2021, and interim periods within fiscal years beginning after Dec. 15, 2022. Early adoption is permitted.

Disclosures about government assistance

On Nov. 17, 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance,” to increase transparency by requiring business entities to disclose information about certain types of government assistance they receive, including cash grants and grants of other assets.

The ASU requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance such as a grant model within Subtopic 958-605, “Not-for-Profit Entities – Revenue Recognition,” or International Accounting Standards 20, “Accounting for Government Grants and Disclosure of Government Assistance.” Required disclosures include:

  • The nature of the transactions
  • The related accounting policy used to account for the transactions
  • Amounts presented in the financial statement by line item
  • Significant terms and conditions of the transactions, including commitments and contingencies

Effective dates

The amendments are effective for all entities, excluding not-for-profit entities and employee benefit plans, that account for a transaction with a government by applying a grant or contribution accounting model by analogy to other accounting guidance, for financial statements issued for annual periods beginning after Dec. 15, 2021. Early application is permitted.

Proposals

Interim disclosure requirements

On Nov. 1, 2021, the FASB issued a proposed ASU, “Interim Reporting (Topic 270): Disclosure Framework – Changes to Interim Disclosure Requirements,” that introduces a disclosure principle for interim reporting. Specifically, the proposed ASU removes the phrase “at a minimum” and encourages assessing materiality when entities evaluate interim disclosure requirements. The principle is designed to require event- or transaction-specific disclosure when there is a material effect on an entity. The proposed guidance provides clarification to presentation and disclosure alternatives for interim financial statements and consolidates all interim reporting requirements under one topic.

The proposed ASU does not yet include an effective date.

Comments are due Jan. 31, 2022.

Troubled debt restructurings (TDRs) and vintage disclosures

On Nov. 23, 2021, the FASB issued a proposed ASU, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,” addressing areas identified as part of its post-implementation review of the CECL standard. The proposed amendments would eliminate the accounting guidance for TDRs by creditors while enhancing disclosure requirements for loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Under the proposal, an entity would apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 to 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. Related to vintage disclosures, the proposed ASU would require that a public business entity disclose current period gross write-offs by year of origination for financing receivables and net investments in leases.

The proposed ASU does not yet include an effective date.

Comments were due Dec. 23, 2021.

Supplier finance program disclosures

On Dec. 20, 2021, the FASB issued a proposed ASU, “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations,” which would require a buyer in a supplier finance program to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. Supplier finance programs allow a buyer to offer its suppliers the option to access payment in advance of an invoice due date, which is paid by a third-party finance provider or intermediary on the basis of invoices that the buyer has confirmed are valid. The proposed amendments would require the buyer to disclose the key terms of the program along with additional information regarding the obligation amount including the amount outstanding as of the end of the period, a description of where the amount is presented on the balance sheet, and changes in that amount during the period.         

The proposed ASU does not yet include an effective date. 

Comments are due March 21, 2022.