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FASB Looks to Amend Several Areas of Codification

Apr 22nd 2016
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The Financial Accounting Standards Board (FASB) on April 21 proposed a handful of technical corrections and improvements to its Accounting Standards Codification.

The amendments, which are in response to suggestions made by stakeholders, are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities, according to the FASB.

“The board has a standing project on its agenda to address suggestions received from stakeholders on the Accounting Standards Codification and to make other incremental improvements to GAAP,” the proposal states. “This perpetual project will facilitate Accounting Standards Codification updates for technical corrections, clarifications, and minor improvements, and should eliminate the need for periodic agenda requests for narrow and incremental items.”

The proposed Accounting Standards Update, Technical Corrections and Improvements, includes simplification and minor improvements to guidance on insurance and troubled debt restructuring that would result in numerous changes to the Codification.

Specifically, the proposal includes the following amendments:

  • Consistent use of the term “participating insurance.” Currently, the terms “participating contract,” “participating insurance contract,” and “participating insurance” are used interchangeably throughout the Codification.
  • Consistent use of the term “reinsurance recoverable” within Topic 825, Financial Instruments, and Topic 944, Financial Services—Insurance, because that is a more commonly used term in the industry. Topics 825 and 944 use the terms “reinsurance receivable” and “reinsurance recoverable” interchangeably.
  • Removes the term “debt” from the Master Glossary. The current definition was codified from guidance that was specific to troubled debt restructuring. The definition might be used by analogy to other guidance that uses the term “debt” but are unrelated to troubled debt restructuring. The amendment would restrict 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.
  • Corrects the guidance in Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales, to include the final decision of the FASB Emerging Issues Task Force 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.
  • Clarifies the difference between an “approach” and a “technique” related to Topic 820, Fair Value Measurement. The amendment also would require an entity to disclose when there has been a change in either or both a valuation “approach” and/or a valuation “technique.”
  • Aligns implementation guidance in paragraph 860-20-55-41 with its corresponding guidance in paragraph 860-20-25-11 in Subtopic 860-20, Transfers and Servicing—Sales of Financial Assets. It also clarifies the considerations that should be included in an analysis to determine whether a transferor once again has effective control over transferred financial assets.

Most of the amendments would not require transition guidance and would become effective once the FASB issues the final Accounting Standards Update. For two of those proposed amendments, the FASB is proposing prospective application with cumulative-effect adjustments to equity as of the beginning of the annual period in which the guidance takes effect. The other proposed change, which would amend Topic 820, could involve adjustments to fair value. Therefore, the board is proposing a prospective-only application.

The amendments would apply to all reporting entities that use the affected accounting guidance.

Comments on the proposal are due by July 5. Instructions on how to submit comments can be found in the exposure draft.


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