Episode 27: FASB Standard setting update, Q2 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 in the second quarter of 2017 as well as the larger scale projects on the horizon for release. PwC's Cathy Benjamin, Pat Durbin and Jim Gazley discuss activity at the FASB, including a handful of new standards such as stock compensation modifications, service concession arrangements and more. We’ll also give you a sneak peek into the two standards expected for release next quarter.

| Duration 19:13

 

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Show notes

The FASB amends stock based compensation guidance, specifically the scoping of modifications. This ASU provides a more robust definition, via a “scoping” paragraph which states that an entity should account for the effects of a modification unless (1) the fair value of the award is the same before and after the change, (2) the vesting conditions do not change, and (3) and the classification as equity or a liability is the same. All three criteria must be met.

The FASB amended the guidance for determining the customer of operation services. This is narrower topic addressed by the EITF which amends the guidance around service concession arrangements. So an easy example here is a toll road, where a state government hires a third party to operate its toll road. The guidance uses the terms grantor and operating entity to define the parties in these arrangements. The question here for the operating entity (for example the toll road operator) is “who is their customer” (the state or the toll payers)? The new guidance clarifies that the grantor is the customer.

The FASB has been working on a project to improve the accounting for derivatives and hedging activities for a number of years and a new standard is expected to come out shortly. The amendment it addresses topics such as what qualifies for hedge accounting, hedge documentation, hedge effectiveness, measuring ineffectiveness, and also the related presentation and disclosure. At the FASB meeting on June 7th, the Board decided that it will permit early adoption of the guidance once it’s issued. So if that happens, it means companies could adopt it in the third quarter of this calendar year if that’s when it’s issued.

Current accounting guidance creates cost and complexity for companies that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. The proposed amendment would require that when determining whether certain financial instruments should be classified as liabilities or equity instruments, a company would not consider the down round feature when assessing whether the instrument is indexed to its own stock.

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Beth Paul
US Strategic Thought Leader, National Professional Services Group
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David Schmid
IFRS & US Standard Setting Leader, National Professional Services Group
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