The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) on Dec. 14 that clarifies and amends key areas in GAAP.
“While narrow in scope, the technical changes in the ASU are intended to make it easier to understand and implement guidance across important areas of GAAP,” FASB Chairman Russell Golden said in a prepared statement.
The amendments in ASU No. 2016-19, Technical Corrections and Improvements, apply to all reporting organizations – including public companies, private companies, and nonprofits – that fall within the scope of the guidance.
Most of the amendments go into effect immediately, while others take effect for interim and annual reporting periods beginning after Dec. 15, 2016.
The following 10 amendments affect all companies and organizations, the FASB stated:
1. Promotes consistent use of the term “participating insurance” throughout Subtopic 715-30, Compensation—Retirement Benefits—Defined Benefit Plans—Pension; Subtopic 715-60, Compensation—Retirement Benefits—Defined Benefit Plans—Other Postretirement; and Topic 944, Financial Services—Insurance.
2. Promotes consistent use of the term “reinsurance recoverable” in Topic 825, Financial Instruments, and Topic 944.
3. Removes the term “debt” from the Accounting Standards Codification (ASC) Master Glossary. The current definition was codified from guidance that was specific to troubled debt restructuring. This amendment restricts the use of the current definition to Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, and Subtopic 470-60, Debt—Troubled Debt Restructurings by Debtors.
4. Removes the phrase “that contain no purpose restrictions” from the guidance in Topic 958, Not-for-Profit Entities, that was added in error by ASU No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities.
5. Adds a reference to Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software, to use when accounting for internal-use software licensed from third parties that is within the scope of Subtopic 350-40.
6. Corrects existing guidance in Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales, to clarify that loans insured under the Federal Housing Administration and the Veterans Administration do not have to be fully insured by those programs to recognize profit using the full accrual method.
7. Clarifies the difference between a valuation approach and a valuation technique when applying the guidance in Topic 820, Fair Value Measurement. The amendment also requires an organization to disclose when there has been a change in either or both a valuation approach and/or a valuation technique.
8. Clarifies in Subtopic 405-40, Liabilities—Obligations Resulting from Joint and Several Liability Arrangements, that for an amount of an obligation under an arrangement to be considered fixed at the reporting date, the amount that must be fixed is not the amount that is the organization’s portion of the obligation but is the obligation in its entirety.
9. Aligns implementation guidance to its corresponding guidance in Subtopic 860-20, Transfers and Servicing—Sales of Financial Assets. The amendment clarifies the considerations that should be included in an analysis to determine whether a transferor once again has effective control over transferred financial assets.
10. Adds guidance to Subtopic 860-50, Transfers and Servicing—Servicing Assets and Liabilities, from AICPA Statement of Position 01-6, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others, on the accounting for the sale of servicing rights when the transferor retains loans that was omitted from the ASC.