FASB clarifies liquidation basis of accounting guidance

The Board has issued Accounting Standards Update (ASU) 2013-07, Liquidation Basis of Accounting, to clarify guidance on how and when to use the liquidation basis of accounting. The new standard is designed to address constituents' requests for clarified guidance and is expected to reduce diverse practices in this area.

The ASU requires entities to use the liquidation basis of accounting when liquidation is "imminent," meaning that (a) there is a remote likelihood that the entity will return from liquidation, and (b) either one of the following conditions also exists:

  • An authoritative person (or persons) has approved a liquidation plan, and the likelihood that other parties will block the plan's execution is remote.
  • Other forces impose a liquidation plan on the entity (such as under involuntary bankruptcy).

If an entity's governing documents specify a liquidation plan, the entity should apply the liquidation basis of accounting only if the approved liquidation plan differs from the liquidation plan specified at the entity's inception.

Under the liquidation basis of accounting, the entity should present its assets at the amount of cash proceeds that it expects to receive from liquidation. Any assets not previously recognized in the U.S. GAAP financial statements should be included if the entity expects to receive proceeds for those assets or to use them to settle liabilities. The entity should continue to recognize liabilities in accordance with U.S. GAAP and to accrue the costs expected to be incurred and the income expected to be earned during liquidation.

The ASU also calls for disclosures about the liquidation plan and the expected duration of the liquidation period, the method and significant assumptions used in measuring the assets and liabilities, and the types and amounts of costs and income accrued.

The new guidance is effective prospectively for entities that determine liquidation is imminent during interim and annual reporting periods beginning after December 15, 2013. Early adoption is permitted. An entity using the liquidation basis of accounting in accordance with other Codification Topics as of the effective date is not required to apply the new guidance; rather, it would continue to apply the guidance in the other Topics until liquidation is complete.

For more information, refer to FASB in Focus, "Accounting Standards Update (ASU) No. 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting."

SEC staff and CAQ's SEC Regs Committee issue joint meeting highlights

The highlights of joint meetings between the Committee and the SEC staff only summarize matters discussed at the meetings. They do not represent official positions of the AICPA or the CAQ, nor are they authoritative positions or interpretations issued by the SEC or its staff. The CAQ does not update or delete meeting highlights for subsequent positions taken by the SEC staff or for the issuance of subsequent highlights or authoritative accounting or auditing literature that supersedes the matters previously discussed.

The Center for Audit Quality (CAQ) recently issued highlights of the joint meeting on March 19 between its SEC Regulations Committee and the SEC staff. The Committee meets periodically with the SEC staff to discuss emerging financial reporting issues relating to SEC rules and regulations.

The topics addressed at the March 19 meeting include the following:

  • Including, as permitted, two years of financial statements for an acquired business (Regulation S-X, Rule 3-05) or equity method investee (S-X Rule 3-09) when an emerging growth company voluntarily provides a third year of its financial statements in an initial registration statement
  • Reflecting certain specified changes (for example, a transfer of business or assets and a change in the composition of guarantors) in guarantor structure in condensed consolidating financial information under S-X Rule 3-10
  • Determining which fiscal year-end financial statements to include for an equity method investee (S-X Rule 3-09) when the registrant's and investee's fiscal year-ends differ by six months
  • Applying the annual report "grace period" in S-X Rule 3-09 in connection with a registration statement
  • Measuring significance of a recently acquired subsidiary or issuer guarantor under S-X Rule 3-10(g) when more than one class of guaranteed securities is being registered on a single registration statement
  • Updating requirements for S-X Rule 3-05 financial statements when a nine-month period is used to satisfy the audited financial statement requirement (S-X Rule 3-06) in the most recent year

Other matters discussed include the February 2013 recommendations by the SEC Advisory Committee on Small and Emerging Businesses, rulemaking for conflict minerals and extractive industry payments, and an initiative to identify ways to clarify and/or simplify the application of S-X Rule 3-14.

AICPA completes sweeping update of employee benefit plans guide

The AICPA Audit and Accounting Guide, Employee Benefit Plans, is now available after undergoing a comprehensive overhaul for the first time since 1991.

The new guide incorporates significant changes in the types of retirement plans and investments that are available and in how plans are administered, and reflects major regulatory and professional amendments, including the clarity standards issued by the Auditing Standards Board.

The updated guide also covers specific issues in an effort to improve users' understanding of employee benefit plans and to minimize diverse practices in this area, including the following features:

  • Chapters focusing on specific plans, as well as the related accounting and auditing guidance, including defined benefit pension plans and defined contribution retirement plans, among others
  • Tips for limited scope audits, multiemployer plans, and employee stock option plans
  • Changes to the rules and regulations issued by the U.S. Department of Labor, IRS, and Pension Benefit Guarantee Corporation
  • Illustrated financial statements for various plans, including a 401(k) and a health care benefit plan complete with fair value disclosures

GASB approves new guidance for nonexchange financial guarantees

The Governmental Accounting Standards Board (GASB) has approved GASB Statement 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees, which contains new reporting and accounting guidance for governments that receive guarantees on obligations and for state and local governments that offer nonexchange financial guarantees. A "nonexchange financial guarantee" is defined as "a credit enhancement or assurance offered by a guarantor without receiving equal or approximately equal value in exchange."

Under the new guidance, a state or local government guarantor is required to recognize a liability when it has determined that it will more likely than not be required to make a payment to the obligation holders of an agreement under a nonexchange financial guarantee. Both qualitative and quantitative factors must be considered in the determination of the more likely than not threshold.

Additional disclosures are also required under this statement.

The requirements in Statement 70 are effective for reporting periods starting after June 15, 2013. The Board encourages early application of the new guidance.

The standard will be posted to the GASB website in May 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.