Quarterly accounting webcast - 2024 series

Key takeaways

The FASB has been active in their meetings making tentative decisions on the following:

1. ASC 815: Derivatives Scope Refinements

• The project originated from the FASB’s 2021 Invitation to Comment
• Its goal is to provide clarity concerning the applicability of the scope exceptions to the derivative accounting guidance in ASC 815-10
• Project will provide guidance on applying the scope exceptions to when a derivative has more than one underlying

2. Hedge accounting improvements. The update will improve hedge accounting in the following areas:

• Cash flow hedges – applying the similar risk assessment
• Cash flow hedges – Narrowing the application of “You Pick’em” Debt
• Cash flow hedges – changed guidance related to hedged risk components in a hedge of a forecasted non-monetary transaction
• Updated guidance on net written options and dual F/X options

3. Accounting for and disclosure of software costs

• Retaining the current 2 model approach, with targeted improvements
• Capitalization will begin under ASC 350-40 (Software for internal use) when it is probable that the project will be completed and that the software will perform the function intended
• The stages approach currently used in ASC 350-40 will be eliminated
• Further guidance will be provided on evaluating software with development uncertainties or unresolved high-risk development issues
• Cash outflows for software development will require disclosure

4. Accounting for government grants

• The FASB will retain the basics of the IAS 20 model
• Grants related to income will be recognized when the entity incurs the grant-related cost
• Grants related to capital items will be recognized on a cost-incurred basis, as part of the asset cost
• Monetary and tangible nonmonetary assets
• Exchanges and transactions
• Entities will follow the current disclosure requirements in ASC 832, Government Assistance

Exposure drafts on these four projects are expected in Q3, 2024.

Accounting considerations related to weakness in the commercial real estate sector:

1. Real estate companies

• Impairment of real estate assets
  • Held and used - ASC 360-10-35-21
  • Assets held for sale
• Accounting for lease modifications from the lessor’s perspective
• Amendments to debt agreements, from the borrower’s perspective
  • Criteria and accounting for troubled debt restructurings
  • Accounting for loan extinguishments
  • Accounting for loan modifications
• Debt covenants and related accounting and disclosure issues

2. Lenders

• Development of reasonable and supportable forecasts by creditors when developing their CECL loss reserves
• Accounting for loan amendments
  • Accounting for loan extinguishments
  • Accounting for loan modifications

3. Lessees

• ROU asset impairment
• Lease modifications
• Lease reassessments

Key takeaways

1. The FASB has issued two recent accounting standards updates (ASU)

• ASU 2024-01: Compensation – stock compensation (topic 718) 
• ASU 2024-02: Codification improvements 

2. There have been status updates on projects of the FASB and other U.S. standard setters that could affect broader reporting entities

• Credit Losses Standard (Topic 326) 
• The FASB continues to have ongoing deliberations around the feedback received from the PFA proposal
• The FASB has agreed to proceed with the Disaggregation – Income Statement Expense (DISE) project

3. On March 6, 2024 the SEC approved the final climate disclosure rule. Learn more.  

4. There have been several market developments with financial reporting considerations for reporting entities

• ROU asset impairment
• Equity Issuance Cost
• Pillar Two Legislation

Key Takeaways

1. Disclosure improvements: Codification amendments     in response to the SEC’s disclosure update and     simplification initiative

• This Accounting Standards Update (ASU) incorporates certain disclosures referred to the FASB by the SEC as part of its disclosure simplification initiatives.
  • Better align the requirements in the Codification with the SEC’s regulations
  • Allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to those disclosure requirements.
• Updated disclosures most likely to impact private companies include:
  • Assets subject to liens
  • Unused commitments and lines of credit
  • Derivative accounting policies

2. Segment reporting (Topic 280): Improvements to     reportable segment disclosures

• Additional disclosures for each reportable segment, including significant segment expenses under the significant expense principle and an amount and description of composition of other segment items.
• Expansion of interim disclosures to include all currently required annual disclosures about a reportable segment’s profit or loss and assets.
• Entities with a single reportable segment must provide all the disclosures required by the amendments in this ASU (2023-07) and all existing segment disclosures in Topic 280.
• In addition to the measure that is most consistent with GAAP measurement principles, a public entity is not precluded from reporting additional measures of a segment’s profit or loss.