United States: On The Horizon - February 12, 2013


ASU issued on reclassifications out of accumulated other comprehensive income

Recently, the FASB issued Accounting Standards Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting reclassifications out of accumulated other comprehensive income (OCI) by requiring entities to present in one place information about significant amounts reclassified and, in some cases, to provide cross-references to related footnote disclosures. The amendments do not change the current requirements for reporting net income or OCI in the financial statements, nor do they require new information to be disclosed.

The new guidance requires the following:

  • An entity is required to present, either on the face of the statement where net income is presented or as a separate disclosure in the notes, the effect on the respective line items of net income for items required to be reclassified out of accumulated OCI to net income in their entirety in the same reporting period.

  • For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference to other required disclosures that provide additional details about those amounts (for example, when a portion of the amount reclassified out of accumulated OCI is initially transferred to a balance sheet account instead of directly to income or expense).

Public entities are required to comply with the amendments for all reporting periods presented, including interim periods. Nonpublic entities are required to (1) comply with the amendments for annual reporting periods and (2) report information about the amounts reclassified out of accumulated OCI by component for each reporting period. However, nonpublic entities are not required to report the effects of reclassifications on net income in interim reporting periods. Not-for-profit entities that report under FASB Accounting Standards Codification® (ASC) 958-205, Not-for-Profit Entities: Presentation of Financial Statements, are excluded from the scope of these amendments.

The amendments should be applied prospectively and are effective for public entities in reporting periods beginning after December 15, 2012 and for nonpublic entities in reporting periods beginning after December 15, 2013. Early adoption is permitted.

Additional information on the ASU can be found in the FASB in Focus, “FASB Issues Accounting Standards Update On Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income.”

Board clarifies nonpublic company exemption from fair value disclosures

The FASB also recently issued ASU 2013-03, Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities, to clarify that nonpublic entities are exempt from the requirement to disclose the level of the fair value hierarchy in which fair value measurements are categorized for items that are disclosed, but not measured, at fair value on the face of the statement of financial position.

Although certain nonpublic entities are exempt from the requirement to make disclosures regarding the fair value of their financial instruments, those either with total assets of $100 million or more or with one or more derivative instruments are required to make certain fair value disclosures. The issuance of ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, created confusion as to whether nonpublic entities required to include certain fair value information in the notes to the financial statements would also be required to disclose the level of the fair value hierarchy for those instruments. The guidance in ASU 2013-03 clarifies the intended scope of ASU 2011-04.

The amendments in ASU 2013-03 are effective immediately and therefore apply to December 31, 2012 financial statements.

Insurance contracts discussed at February 6 meeting

At its meeting on February 6, the FASB continued its discussions on the proposed guidance on accounting for insurance contracts, focusing on the accounting for guarantees, modifications of insurance contracts, and foreign currency transactions.

Accounting for guarantees

The Board tentatively decided that the proposed insurance contracts standard would apply to all guarantee contracts that meet the definition of an insurance contract, except for those that have certain characteristics, including, but not limited to, the following:

  • Certain guarantees addressed in ASC 840, Leases, ASC 605, Revenue Recognition, or ASC 360, Property, Plant, and Equipment

  • When the insurer is not exposed to risk throughout the term of the guarantee

  • A guarantee or an indemnification that is of an entity’s own future performance

  • Guarantees issued by an entity that are both unusual or nonrecurring and unrelated to the type of risk that is the subject of other guarantees issued by the entity

  • Guarantees between related parties or entities under common control when the issuer of the guarantee is not also issuing similar guarantees to third parties

  • Guarantees of debt owed to a third party by a related party or entity under common control when the issuer of the guarantee is not also issuing similar guarantees of debt owed by third parties

Modifications of insurance contracts

The Board tentatively decided that an insurer would derecognize an existing contract and recognize a new contract if certain conditions exist, including, but not limited to, a contract modification that would have resulted in a different assessment of either of the following items had the amended terms been in place at the inception of the contract:

  • Whether the contract is within the scope of the insurance contract standard

  • Whether to use the premium allocation approach or the building block approach to account for the insurance contract

Foreign currency transactions

The FASB reached a tentative decision stipulating that all financial statement components related to an insurance contract would be classified as monetary for foreign currency transaction remeasurements.

FAF to conduct post-implementation review of income tax accounting standard

The Financial Accounting Foundation (FAF) will conduct a post-implementation review of FASB Statement 109, Accounting for Income Taxes (codified in ASC 740, Income Taxes). The review process is intended to assist the FAF’s Board of Trustees with its ongoing efforts to evaluate the effectiveness of the FASB’s standard-setting process.


Division of Trading and Markets issues FAQs on broker-dealer exemption

On February 5, the SEC’s Division of Trading and Markets issued Frequently Asked Questions (FAQs) to provide guidance on the implementation of Title II of the Jumpstart Our Business Startups Act (JOBS Act), which provides an exemption from registration as a broker-dealer if certain conditions are met.

These FAQs do not constitute rules, regulations, or statements of the Commission and have neither been approved or disapproved by the Commission.

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.

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