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FASB Makes Technical Corrections to Accounting Guidance

Amendments to key parts of U.S. GAAP were announced this week by the Financial Accounting Standards Board (“FASB”). Issued as Accounting Standards Update (“ASU”) No. 2016-19, Technical Corrections and Improvements, the amendments relate to several topics in the FASB Accounting Standards Codification. FASB Chairman Russell Golden says the changes are narrow in scope and should be easy for reporting entities to understand and implement.

The following amendments in ASU No. 2016-19 impact all reporting entities:

  • Subtopic 715-30, Compensation—Retirement Benefits—Defined Benefit Plans—Pension, and Subtopic 715-60, Compensation—Retirement Benefits—Defined Benefit Plans—Other Postretirement, and Topic 944, Financial Services—Insurance. ASU No. 2016-19 advises uniform use of the phrase “participating insurance” under both Subtopics and Topic 944.
  • Topic 825, Financial Instruments, and Topic 944. The ASU advises uniform use of the phrase “reinsurance recoverable” under both Topics.
  • Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, and Subtopic 470-60, Debt—Troubled Debt Restructurings by Debtors. ASU No. 2016-19 removes “debt” from the Master Glossary and restricts the definition to both Subtopics.
  • Topic 958, Not-for-Profit Entities. ASU No. 2016-19 eliminates the phrase “that contain no purpose restrictions” from ASU No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities.
  • Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software. ASU No. 2016-19 adds guidance for reporting internal-use software from third parties that is under the scope of the Subtopic.
  • Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales. ASU No. 2016-19 clarifies that loans insured under the Federal Housing Administration and the Veterans Administration are not required to be fully covered by those programs to disclose profit using the full accrual approach.
  • Topic 820, Fair Value Measurement. ASU No. 2016-19 distinguishes between a “valuation approach” and “valuation technique” under Topic 820. The ASU also requires a change in either or both a valuation approach and/or valuation technique to be disclosed.
  • Subtopic 405-40, Liabilities—Obligations Resulting from Joint and Several Liability Arrangements. ASU No. 2016-19 clarifies that for an obligation in an arrangement to be deemed fixed at the reporting date, the amount that is to be fixed should be the obligation as a whole.
  • Subtopic 860-20, Transfers and Servicing—Sales of Financial Assets. ASU No. 2016-19 aligns the implementation guidance under Subtopic 860-20 to its matching guidance. The ASU also clarifies the factors in an analysis to conclude whether a transferor has effective control over transferred financial assets.
  • Subtopic 860-50, Transfers and Servicing—Servicing Assets and Liabilities. ASU No. 2016-19 adds guidance from AICPA Statement of Position 01-6, Accounting by Certain Entities (Including Entities with Trade Receivables) That Lend to or Finance the Activities of Others. The added guidance helps entities when disclosing a servicing rights sale in situations where the transferor maintains loans that were absent from the Accounting Standards Codification.

Reporting entities are encouraged to review the new provisions to ensure they meet compliance. Stakeholders are also urged to review the changes. Most of the changes are effective immediately, while other amendments go into effect for interim and annual periods starting after December 15, 2016.

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