Final standards
Disclosure of supplier finance program obligations
On Sept. 29, 2022, the FASB issued ASU 2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations,” to provide transparency regarding an entity’s use of supplier finance programs in response to a lack of existing disclosure requirements in GAAP. The ASU includes various quantitative and qualitative disclosure requirements. For annual reporting, entities will be required to disclose key terms of the program, the amount outstanding, a description of where those obligations are presented on the balance sheet, and a rollforward of those obligations during the annual period. For interim reporting, the buyer should disclose the outstanding confirmed amount as of the end of the interim period.
Effective dates
The amendments are effective for fiscal years beginning after Dec. 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after Dec. 15, 2023. Early adoption is permitted. During the fiscal year of adoption, the annual disclosure requirements of the key terms of the programs and the balance sheet presentation of the program obligations should be disclosed in each interim period. The amendments should be applied retrospectively to each period in which a balance sheet is presented, except for the rollforward information, which should be applied prospectively.
For more detail, please read the Crowe article “FASB ASU Requires Supplier Finance Program Disclosures,” issued Sept. 29, 2022.
Transition for sold contracts
On Dec. 15, 2022, the FASB issued ASU 2022-05, “Financial Services – Insurance (Topic 944): Transition for Sold Contracts,” to reduce implementation costs and complexity associated with adoption of ASU 2018-12 related to targeted improvements to the accounting for long-duration contracts (LDTI) by allowing an insurance entity to make an accounting policy election on a transaction-by-transaction basis. An insurance entity may elect to exclude contracts from applying the amendments in ASU 2018-12 if both of the following conditions are met as of the LDTI effective date:
- Insurance contracts must have been derecognized because of a sale or disposal of individual or a group or contracts or legal entities.
- The entity has no significant continuing involvement with the derecognized insurance contracts.
Effective dates
For public business entities, excluding smaller reporting companies, 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, 2024, and interim periods within fiscal years beginning after Dec. 15, 2025. Early adoption is permitted.
Deferral of sunset date of reference rate reform
On Dec. 21, 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” to extend the sunset date of Accounting Standards Codification (ASC) Topic 848 to Dec. 31, 2024, in response to the United Kingdom’s Financial Conduct Authority (FCA) extension of the intended cessation date of the London Interbank Offered Rate (LIBOR) in the United States.
Effective dates
The amendments are effective immediately for all entities.
For more detail, please read the Crowe article “New FASB ASU Extends Reference Rate Reform Relief,” issued Dec. 23, 2022.
EITF activity
On Dec. 1, 2022, the EITF reached a final consensus to expand use of the proportional amortization method of accounting to equity investments in tax credit programs beyond those in low-income-housing tax credit (LIHTC) programs. The final consensus allows entities to elect the proportional amortization method, on a tax-credit-program-by-tax-credit-program basis, for all equity investments in tax credit programs meeting the eligibility criteria in ASC 323-740-25-1.
While the final consensus does not significantly alter the eligibility criteria, it does provide clarifications to address existing interpretive issues. It also prescribes specific information that reporting entities must disclose about tax credit investments each period.
The final consensus is effective for reporting periods beginning after Dec. 15, 2023, for public business entities. All other entities will have an extra year to adopt. Early adoption is permitted, including early adoption in any interim period as of the beginning of the fiscal year that includes that interim period.
Entities will have the option of applying the forthcoming revisions using either a modified retrospective or retrospective adoption approach.
In early 2023, the FASB plans to meet to consider ratifying the EITF’s consensus. Upon ratification, the FASB then would proceed with issuing a final ASU.
For more detail, please read the Crowe article “EITF Consensus Improves Accounting for Income Tax Credits,” issued Dec. 5, 2022.
Proposals
Improvements to reportable segment disclosures
On Oct. 6, 2022, the FASB issued a proposed ASU, “Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures,” to enhance disclosures about significant segment expenses for public entities reporting segment information in ASC 280. The amendments in this ASU would:
- Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss
- Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition
- Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets in interim periods
- If the CODM uses more than one measure of a segment’s profit or loss, require at least one of the measures to be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements
- Require that a public entity that has a single reportable segment provide all disclosures required by these proposed amendments and all existing segment disclosures in Topic 280
The proposed ASU does not yet include an effective date.
Comments were due on Dec. 20, 2022.
For more detail, please read the Crowe article “FASB Proposes Changing Segment Reporting Requirements,” issued Oct. 10, 2022.
Recognition and initial measurement of joint venture formations
On Oct. 27, 2022 the FASB issued a proposed ASU, “Business Combinations – Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement,” to reduce diversity in accounting for contributions that a joint venture receives upon formation. In the absence of clear guidance, some joint ventures measure net assets at formation at fair value, while other joint ventures measure net assets based on the venturers’ carrying amounts. The proposed ASU requires a joint venture, upon formation, to recognize and initially measure its assets and liabilities at fair value by applying a new basis of accounting. Entities would be required to apply key adaptations from the business combination guidance upon formation.
The proposed ASU does not yet include an effective date.
Comments were due on Dec. 27, 2022.
For more detail, please read the Crowe article “FASB Proposes Accounting for Joint Ventures,” issued Dec. 23, 2022.
Common control arrangements in leases
On Nov. 30, 2022, the FASB issued a proposed ASU, “Leases (Topic 842): Common Control Arrangements,” to respond to feedback received from the post-implementation review process of Topic 842 from private company stakeholders regarding related-party arrangements between entities under common control. Private company stakeholders observed that language contained in Topic 842 could be interpreted to require a legal opinion to support legally enforceable terms and conditions when accounting for the lease between entities under common control on the same basis with an unrelated party. Stakeholders also observed that the requirement to amortize leasehold improvements with leases between entities under common control over a period shorter than economic life of such improvements could result in financial reporting not faithfully representing the economics of such arrangements. The amendments in the ASU address these two issues as follows:
- A practical expedient is provided for private companies and not-for-profit entities that are not conduit bond obligors to use written terms and conditions of a common control arrangement to determine whether a lease exists and the underlying classification and accounting for that lease. Employee benefit plans that file or furnish financial statements with or to the SEC are not eligible for this practical expedient.
- Leasehold improvements associated with leases under common control would be required to be amortized over the economic life of the leasehold improvement as long as the lessee controls the use of the asset through the lease and accounted for as a transfer between entities under common control through an adjustment to equity if and when the lessee no longer controls the underlying asset.
The proposed ASU does not yet include an effective date.
Comments were due on Jan. 16, 2023.
For more detail, please read the Crowe article “FASB Proposal Clarifies Related-Party Lease Accounting,” issued Dec. 2, 2022.
Other activity
Conceptual framework on reporting entity
On Oct. 18, 2022, the FASB issued a proposed statement of financial accounting concept, “Conceptual Framework for Financial Reporting – Chapter 2: The Reporting Entity,” to provide a framework for the identification of a reporting entity. The framework describes a reporting entity as a circumscribed area of economic activities that can be represented by general purpose financial reports that are useful to existing and potential stakeholders in making resource allocations to the entity. Reporting entities are viewed to have three distinct features:
- Economic activities of the entity have been conducted.
- Those activities can be distinguished from those of other entities.
- The financial information in general purpose financial reporting faithfully represents the economic activities of the entity in the circumscribed area and is useful in making decisions about providing resources to the entity.
Comments were due on Jan. 16, 2023.
Conceptual framework on recognition and derecognition
On Nov. 22, 2022, the FASB issued a proposed statement of financial accounting concept, “Conceptual Framework for Financial Reporting – Chapter 5: Recognition and Derecognition,” to provide guidance on when an item should be incorporated into and removed from financial statements. The proposed chapter enhances the foundation described in other concepts by bringing those concepts together to apply them broadly to recognition and derecognition issues. The proposal sets forth the following recognition criteria:
- The item meets the definition of an element of financial statements.
- The item is measurable and has a relevant measurement attribute.
- The item can be depicted and measured with faithful representation.
Under the proposal, derecognition should occur when an item no longer meets any one of the recognition criteria.
Comments were due on Feb. 21, 2023.