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The Simplification Initiative/Current Trends in Financial Accounting Standards

What is the Simplification Initiative?

According to FASB, “The objective of the Simplification initiative is to reduce cost and complexity in financial reporting while maintaining or improving the quality of information reported to investors.”

In 2014, the FASB launched a simplification initiative aimed at reducing the complexity and costs associated with financial reporting while improving the usefulness of the information reported to investors and other third parties. Hence some of these changes will have specific changes to how their company meets with it’s reporting standards.

According to FASB, “The projects included in the initiative are intended to improve or maintain the usefulness of the information reported to investors while reducing cost and complexity in financial reporting”.

The Driving Force

FASB is the force behind the Simplification Initiative

Since 2014

Many suggestions for simplification were identified by the stakeholders.

FASB Wants Opinions

FASB requests stakeholders to submit opinions to assist in simplification of existing GAAP standards to [email protected]

FASB encourage stakeholders to submit additional ideas for simplification in other areas of accounting as well.

Completed Simplification Projects

Elimination of Extraordinary Items

Income Statement — Extraordinary and Unusual Items (Subtopic 225-20)

Eliminates the Concept of Extraordinary Items

Completed Simplification Projects

Measurement Date of Defined - April 2015

Benefit Pension Plan Asset

Compensation- Retirement Benefits (Topic 715)

Aligns the dates of valuing plan assets and the closest month end date.

Eliminating remeasurement

Completed Simplification Projects

Presentation of Debt Issuance

Costs - April 2015

Interest- Imputation of Interest (Subtopic 835-30)

Eliminates separate balance sheet for debt issuance costs

Completed Simplification Projects

Customer’s Accounting for Fees Paid

in a Cloud Computing Arrangement - April 2015

Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40)

Redefines classification of computer software

Either license or service contract

Other Completed Simplification Projects

Equity Method of Accounting

Simplifying the Accounting for Measurement-Period Adjustments

Accounting for Income Taxes, Intra-Entity Transfers of Assets Other Than Inventory

Accounting for Income Taxes, Balance Sheet Classification of Deferred Taxes

Current Trends in Financial Accounting

1- 5-2017 - update

Definition of Business

1-10-2017 - proposed update

Balance Sheet Clarification of debt

Current 2017 Updates

Accounting Standards Update No. 2017-02—Not-for-Profit Entities—Consolidation (Subtopic 958-810):

When NFP is a general partner or a limited Partner of For-Profit

Clarifying when NFP should consolidate

Superseded subtopic 820-20

Added guidance to 820-10

Current 2017 Updates

Accounting Standards Update No. 2017-01—Business Combinations (Topic 805):

Clarifying the Definition of a Business.

(1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output

(2) removes the evaluation of whether a market participant could replace the missing elements.

The 3 Major Accounting Standards Update

Revenue Recognition (ASU 2014-09)

Leases (ASU 2016-02)

Credit Losses (ASU 2016-13)

Revenue Recognition:

Leases (ASU 2016-02) : According to FASB Codification, “Given the objective of general purpose financial reporting, the Board also considered the objective of the leases project, which is to increase the decision usefulness and comparability among organizations by recognizing lease assets and lease liabilities on the statement of financial position and disclosing key leasing information. For example, users of financial statements are interested in obtaining information about a lessee’s leasing activities, in general, to assess the cash flows, returns, and capital structure of the lessee and to assess the lessee’s ability to meet financial commitments. Most users already make adjustments that are often based on incomplete information to a lessee’s reported statement of financial position to capitalize operating leases when operating leases are significant to the lessee. BC5.”

Proposed Updates for 2017

Inventory (Topic 330)—Disclosure Framework—Changes to the Disclosure Requirements for Inventory

Adds requirements to disclosure of inventory

Changes in inventory that are not related to the ordinary course of manufacturing

Purchasing (LIFO/FIFO)

Selling inventory and disaggregating inventory materially

Current Accounting

There have been and continue to be changes in the accounting industry. These changes can be tracked through the AICPA or FASB website. The changes/updates are put in place to make it easier for reporting.

Conclusion

The simplification initiative intends to provide a more user friendly means of financial reporting which is also less costly to prepare. These financial reporting changes and updates are evidence of a responsive and proactive standard setting body.