United States: On The Horizon - July 9, 2013


ASU defers effective date for nonpublic employee benefit plan disclosures

The Board recently issued Accounting Standards Update (ASU) 2013-09, Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04, to indefinitely defer the effective date for disclosing unobservable inputs in Level 3 fair value measurements of investments held by a nonpublic employee benefit plan in its private company plan sponsor, including the plan sponsor's nonpublic affiliated entities.

This ASU addresses private companies' concerns that the previously required disclosures potentially could expose proprietary information about their securities, since the financial statements filed by participating nonpublic employee benefit plans can be publicly accessed on the U.S. Department of Labor's website. The amended guidance does not defer the effective date for required quantitative disclosure for other nonpublic entity equity securities held by a nonpublic employee benefit plan or any qualitative disclosures.

The amendments in ASU 2013-09 are effective upon issuance for financial statements that have not been issued.

Board issues three proposals on private company accounting alternatives

On July 1, the Board exposed for comment three proposed ASUs, discussed below, reflecting alternative accounting guidance proposed for private companies by the Private Company Council.

The comment period on the proposed ASUs ends on August 23.

For more information, refer to FASB In Focus, "Three Proposed Accounting Standards Updates on Private Company Proposals".

Identifiable intangible assets in business combinations

The proposed ASU, Accounting for Identifiable Intangible Assets in a Business Combination, offers private companies an alternative from existing U.S. GAAP in recognizing, measuring, and disclosing certain intangible assets that are acquired in business combinations. If the alternative is elected, the private company would recognize the acquired intangible assets together with goodwill, unless one or more intangible assets arise from a noncancelable contract or other legal rights. Qualitative disclosure would be required indicating the nature of the acquired intangible assets and stipulating they were not separately recognized as a result of electing this alternative treatment.

An acquired intangible asset that arises from a noncancelable contract would be measured at fair value in accordance with the guidance in FASB Accounting Standards Codification® (ASC) 820, Fair Value Measurement, except that the measurement would consider only market participant assumptions about the remaining noncancelable term and would exclude potential renewals or cancellations. This proposed measurement would be less subjective because the number of assumptions made by the entity in determining the fair value of the acquired intangible would be limited.

In addition, the measurement of an intangible asset arising from other legal rights would also be measured at fair value under ASC 820; however, unlike the contractual rights, all market participant expectations would be considered.


The proposed ASU, Accounting for Goodwill, offers private companies a more simplified and cost-effective approach to account for goodwill subsequent to initial recognition.

This ASU would allow private companies to amortize goodwill on a straight-line basis over the useful life of the primary asset acquired in a business combination, not to exceed 10 years. A "primary asset" is the long-lived tangible or intangible asset considered most significant in deriving the cash flow–generating capacity of the acquired entity.

In addition, goodwill would be tested for impairment at the entity-wide level, and an impairment test would be performed only when a triggering event occurs that indicates the fair value of the entity may be below its carrying amount. An entity would have the option to perform a qualitative assessment or quantitative analysis. A quantitative test of goodwill would be a single-step test, with the goodwill impairment loss equal to the excess of the entity's carrying amount over its fair value. The impairment loss would not exceed the carrying amount of goodwill.

In contrast, existing U.S. GAAP prohibits goodwill amortization, requires at least an annual impairment test at the reporting unit level, and, if a triggering event is identified, calls for the performance of a two-step impairment test.

Receive-variable, pay-fixed interest-rate swaps

The proposed ASU, Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps, would permit private companies, except private financial institutions, to adopt a simpler approach to account for certain types of interest-rate swaps if they intend to economically convert the interest rate on their debt. This proposal would allow a private company to (1) use approaches identified as "combined instruments" and "simplified hedge accounting" to account for certain interest-rate swaps utilized on an economic basis to convert variable-rate borrowings to fixed rate, and (2) present interest expense as though the borrowings were fixed rate.

Combined instruments approach

The combined instruments approach would allow private companies that elect this scope exception from ASC 815, Derivatives and Hedging, to account for the swap and the borrowing as one financial instrument if all of the following conditions are met:

  • The variable rate in the swap and borrowing are based on the same index and interest rate.
  • The swap terms are typical, and any floor or cap that exists on the variable-interest rate of the swap must be on the borrowing.
  • The repricing and settlement dates for the swap and borrowing are no more than a few days apart.
  • The fair value of the swap at inception is at or near zero.
  • The swap is not a forward-starting swap.
  • The notional amount of the swap is equal to or less than the borrowing principal.
  • The swap term approximates the borrowing term.
  • The effective dates of the swap and borrowing are either the same or within a few days of each other.

Simplified hedge accounting approach

The simplified hedge accounting approach would continue to account for the swap and borrowing as two separate financial instruments, except that no ineffectiveness would be assumed for qualifying swaps designated in a hedging relationship. Under this approach, the hedge accounting documentation could be completed within a few weeks of the hedge designation rather than at inception as required under U.S. GAAP. In addition, this proposed alternative would allow entities to record the swap at settlement value in the financial statements as opposed to fair value under existing guidance.

The criteria to qualify for the simplified hedge accounting approach would be similar to the criteria under the combined instruments approach listed above, except that under the simplified hedge accounting approach, the swap term could be less than the borrowing term, and the swap and borrowing effective dates would not have to be the same.

Boards schedule joint roundtable meetings to discuss leases proposals

The FASB and IASB are hosting public roundtable meetings on their recently issued leases proposals as follows:

  • September 10 in Sao Paulo, Brazil
  • September 16 in London, England
  • September 23 at FASB headquarters in Norwalk, CT
  • October 3 in Los Angeles, CA
  • October 4 in Singapore

Preparers, investors, auditors, and other stakeholders are encouraged to participate in discussing the leases proposals in more detail. Registration for the meetings closes on July 22.


The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) mandates numerous studies and regulatory rule changes. Initiatives that impact financial reporting are described in the On The Horizon as information becomes available.

Court voids SEC rule on resource extraction payment disclosures

On July 2, the District Court for the District of Columbia vacated Rule 13q-1 under the Securities Exchange Act of 1934, which requires resource extraction issuers to publicly disclose certain payments made to the U.S. federal government or foreign governments for the commercial development of oil, natural gas, or minerals.

In August 2012, the SEC adopted the Final Rule, Disclosure of Payments by Resource Extraction Issuers, to implement Section13q of the Exchange Act, as required by the Dodd-Frank Act. Resource extraction issuers would have been required to disclose payment information on Form SD within 150 days from the end of the fiscal year, with compliance beginning for fiscal years ending after September 30, 2013.

The District Court found that the SEC incorrectly interpreted Section 13q of the Exchange Act, saying that Congress did not specifically intend for reports filed under Section 13q to be publicly disclosed. A new rule must be promulgated by the SEC to implement Section 13q, and the District Court ordered the SEC to conduct further proceedings before enacting a new rule.


The SEC has announced the following three new initiatives to build on ongoing efforts by the Division of Enforcement to concentrate resources on high-risk areas of the market and bring cutting-edge technology and analytical capacity to bear in its investigations:

  • The Financial Reporting and Audit Task Force, which will target fraudulent or improper financial reporting. This task force will concentrate on securities-law violations relating to the preparation of financial statements, issuer reporting and disclosure, and audit failures, with the principal goal of fraud detection and increased prosecution of violations involving false or misleading financial statements and disclosures.
  • The Microcap Fraud Task Force, which will target abusive trading and fraudulent conduct in securities issued by microcap companies, particularly those that do not regularly publicly report their financial results
  • The Center for Risk and Quantitative Analytics, which will utilize quantitative data and analysis to profile high-risk behaviors and transactions and will support initiatives to detect misconduct


The U.S. Office of Management and Budget (OMB) recently released the 2013 version of the OMB Circular A-133 Compliance Supplement for single-audit engagements. Appendix V, "List of Changes for the 2013 Compliance Supplement," lists the changes by Catalog of Federal Domestic Assistance number.

The supplement is effective for audits of fiscal years beginning after June 30, 2012 and supersedes the June 2012 circular.


The GASB recently issued for comment a proposed Statement, Pension Transition for Contributions Made Subsequent to the Measurement Date, an amendment of GASB Statement No. 68, to provide transition guidance in implementing GASB Statement 68, Accounting and Financial Reporting for Pensions.

The proposed amendments would require a government entity to recognize at transition a beginning deferred outflow of resources for any pension contributions made after the measurement date of the beginning net pension liability. Statement 68 would continue to require an entity to report beginning balances for other deferred outflows and inflows of resources related to pensions at transition only if it is practical to determine all such amounts.

The current guidance under Statement 68 could result in a significant understatement of the beginning net pension liability and expense in the initial period of adoption by the state or local government employer or nonemployer contributing entity to a defined benefit pension plan.

The transition guidance in the proposal would be effective concurrent with the provisions in Statement 68, which must be applied in fiscal years beginning after June 15, 2014.

Comments on the proposal are due August 26.

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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