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Recent Developments in Accounting Standards

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FASB Issues Accounting Standards Update No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment

In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The objective of the amendment is to help simplify the impairment testing and to improve consistency in impairment testing of indefinite-lived intangible assets other than goodwill, such as licenses, distribution rights and trademarks. 

Previously, a company had to perform an annual impairment test of an indefinite-lived intangible asset by comparing the fair value of the asset to its carrying amount on the books. If the fair value was determined to be below the carrying amount, then an impairment loss was recognized in the amount of the excess cost over fair value.

Under this update, a company now has the option to perform a qualitative assessment first to determine whether a quantitative assessment of fair value would be needed. If the company’s qualitative assessment determines that it is "more likely than not" that the indefinite-lived asset is impaired, then the company is required to perform the qualitative assessment. If it is determined that the indefinite-lived asset is not "more likely than not" to be impaired, then the company is able to stop its assessment at that point.

The amendments in this update permitting a company to assess qualitative factors is similar to the amendments for goodwill impairment testing contained in ASU No. 2011-08.

ASU No. 2012-02 applies to all entities with long-lived intangible assets and is effective for fiscal years beginning after September 15, 2012. Early adoption is permitted.

 

FASB Issues Accounting Standards Update No. 2012-05, Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows

The FASB issued Accounting Standards Update No. 2012-05, Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows on October 22, 2012. The update sets forth guidance on the classification of cash receipts from the sale of certain donated financial assets, such as investment securities, in the statement of cash flows. Prior to this ASU, Not-for-Profit (NFP) entities would classify these cash flows as either investing cash flows or as either operating or financing cash flows dependent upon how they classified cash inflows resulting from cash contributions.

Under this update, NFPs will classify the cash receipts from the sale of donated financial assets consistent with where the NFP classifies its cash donations received when the sales of the financial assets donated is nearly immediately converted to cash without any NFP-imposed limitations for the sale. Under this scenario, the cash flows would be recorded as an operating cash flow, as long as there is no donor restricted use imposed for long-term purposes. If there is a restriction imposed for the use for long-term purposes, then the cash receipts should be classified in financing activities. If the financial assets are not nearly immediately converted to cash, then at the time a sale does occur, the cash inflows will be classified as cash flow from investing activities for the NFP.

ASU No. 2012-05 is effective prospectively for fiscal years, and interim periods within those years, beginning after June 15, 2013. Retrospective application to all prior periods presented upon the date of adoption is permitted.

 

FASB Issues Proposed Accounting Standards Update, Comprehensive Income (Topic 220): Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income

The FASB issued a proposed accounting standard update on August 16, 2012, related to the presentation of amounts that are reclassified out of accumulated other comprehensive income (AOCI). The full proposed ASU can be found on the FASB site.

The proposed update does not change the reporting of other comprehensive income but would require enhanced disclosures to present separately by component reclassification out of AOCI. A tabular presentation related to amounts reclassified out of AOCI for items required under U.S. GAAP to be reclassified directly to net income in their entirety would be required. For items not required under U.S. GAAP to be reclassified directly to net income in their entirety, the tabular disclosure would only include a cross-reference to other disclosures for those items. The updated presentation is designed to help provide a better reference to other disclosures that have additional information related to amounts reclassified out of AOCI. The proposed change is due to the FASB's cost/benefit analysis of its issuance of ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which was designed to increase the prominence of other comprehensive income in the financial statements.

The amendments in this proposed update would apply to all companies that issue financial statements in accordance with U.S. GAAP and that report items of other comprehensive income. The effective date will be determined after the FASB considers the feedback from the proposal.

 

American Institute of Certified Public Accountants Has Proposed a Financial Reporting Framework for SMEs

On November 1, 2012, the American Institute of Certified Public Accountants (AICPA) released for public comment the exposure draft Proposed Financial Reporting Framework for Small- and Medium-Sized Entities. The proposed Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs) is designed for privately owned, for-profit entities that are not required to produce financial statements in accordance with U.S. GAAP.

The proposed FRF for SMEs is a special purpose framework (formerly referred to as other comprehensive basis of accounting) intended for use by privately-held small- to medium-sized entities in preparing their financial statements. The proposed FRF for SMEs follows the general principal that historical cost is the most useful measurement basis for the users of SME financial statements and the most cost-beneficial approach for management.

Some of the key features of the proposed framework include the following:

  • Historical cost is the primary measurement basis
  • Closely aligned with the accrual basis of accounting
  • Disclosures are reduced, while still providing users with the relevant information
  • Familiar and traditional accounting methods are used
  • Adjustments needed to reconcile tax return income with book income are reduced
  • Principal-based framework, usable across industries by incorporated and unincorporated entities
  • Only financial statement matters that are typically encountered by SMEs are addressed in the framework

The FRF for SMEs is not proposed as an authoritative document, and the AICPA would have no authority to require the use of the FRF for SMEs. Use of the FRF for SMEs would be a choice made by management of the entity after considering the users of the financial statements.

Currently, the AICPA is asking for comments on the proposed framework. The comment period ends January 30, 2013. The AICPA has a resource page that provides additional information on the proposed FRF for SMEs:

http://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/PCFR/Pages/Financial-Reporting-Framework.aspx

The AICPA anticipates issuing a final framework in the first half of 2013.

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