Episode 24: FASB Standard setting update, Q1 2017

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Overview

Trying to find an update on FASB standard setting? Stop looking and start listening... Hear about the standards that went final and exposure drafts that were issued in the first quarter of 2017. PwC’s Beth Paul, Pat Durbin and Jim Gazley discuss activity at the FASB, including a handful of new standards such as the definition of a business, pension simplification and more. We’ll also examine a few of the exposure drafts that were recently released by the FASB that are currently open for comment.

| Duration 28:18

 

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Show notes

The FASB changed the definition of a business. This change could result in more transactions being accounted for as asset acquisitions - rather than business combinations. It will also affect many other areas of accounting like disposals and consolidation.

The new definition of a business introduces an upfront screen test. This is a new concept that says that if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or a group of similar assets, then the acquisition is not a business. In other words, if a company is really just buying a single asset, or multiple similar assets , the screen requires you to treat it as an asset acquisition.

Another standards update was issued in February related to transfers of nonfinancial assets and partial sales of nonfinancial assets. This new guidance will be most impactful to transactions involving the disposition of real estate. But may impact other sectors like power and utilities or shipping. It applies in any scenario where a company is transferring a nonfinancial assets and what is referred to as “in substance” nonfinancial assets.

The new simplification to goodwill leaves Step 0 and Step 1 unchanged. Step 2 is eliminated. Essentially, if Step 1 needs to be performed and fair value of the reporting unit is less than its carrying amount, goodwill is impaired, and the impairment loss will be the amount by which a reporting unit’s carrying value exceeds its fair value up to the carrying amount of goodwill.

There is a current exposure draft on the balance sheet classification of debt. The proposed guidance would follow the principle that debt should be classified as current or noncurrent based on the contractual rights on the balance sheet date. That means that debt would only be classified as noncurrent if it is contractually due more than a year from the balance sheet date or if the borrower has a contractual right to defer the settlement for at least a year from the balance sheet date.

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Beth Paul
US Strategic Thought Leader, National Professional Services Group
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Pat Durbin
US Standard Setting Leader, National Professional Services Group
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David Schmid
International Accounting Leader, National Professional Services Group
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