Looking Ahead: ASUs Effective for Fiscal Years Beginning After 12/15/18
As 2018 comes to a close, it’s time to look ahead to the many changes in generally accepted accounting principles in the United States (U.S. GAAP) that will become effective for 2019 calendar year ends. The following summarizes accounting standards updates (ASUs) which are effective for fiscal years beginning after Dec. 15, 2018 for most nonpublic companies.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
This ASU applies to all entities reporting under U.S. GAAP. The potential impacts of the sweeping revenue recognition changes included within this ASU have been explained in detail throughout KSM’s ‘Dissecting the New Revenue Recognition Guidance’ five-part series. As a high-level summary, the new ASU provides a robust principles-based framework, in contrast to the rules-based approach in the current guidance. In addition to the changes in how to think about revenue recognition, the ASU also requires significant additional disclosures to be included in the financial statements. As a part of the additional disclosures, entities are required to disclose the method of adoption for the ASU and the financial statement impacts, as well as any practical expedients adopted. The ASU has two adoption methods:
- Full retrospective – each period presented would be adjusted with a choice of practical expedients and any equity adjustment would be posted to the beginning of the first year presented.
- Modified retrospective – only the current period would be adjusted and any equity adjustment would be posted as of the beginning of the current year.
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
This ASU applies to all entities, including not-for-profits, which are required to present a statement of cash flows. The ASU clarifies eight specific issues related to the presentation of certain cash receipts and cash payments. The items addressed are listed below:
- Debt prepayment and extinguishment costs
- Settlement of zero-coupon debt instruments or instruments with coupon interest rates that are insignificant in relation to the interest rate of the borrowing
- Contingent consideration payments after a business combination
- Proceeds from settlement of insurance claims
- Proceeds from the settlement of corporate and bank-owned life insurance policies
- Distributions received from equity method investees
- Beneficial interest in securitization transactions
- Separately identifiable cash flows and application of the predominance principle
The ASU is to be applied retrospectively, except when impracticable.
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash
This ASU applies to all entities, including not-for-profits, which have restricted cash or restricted cash equivalents and which are required to present a statement of cash flows. Existing guidance was unclear on the presentation of restricted cash and restricted cash equivalents; the ASU was issued to address appropriate presentation.
The ASU requires that restricted cash and restricted cash equivalents be included in the statement of cash flow beginning and ending amounts, with disclosure of the activity in the restricted cash and restricted cash equivalents. Additionally, entities must reconcile the ending amount on the statement of cash flow to the lines on the statement of financial position. The ASU is to be applied retrospectively to all periods presented.
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
This ASU applies to all entities that must determine whether they have acquired or sold a business. The ASU added guidance to assist in evaluating whether a transaction is an acquisition, or disposal, of a business versus an asset purchase, or sale. The ASU provides an upfront screen that entities can use to determine when a set of activities is not considered a business. If this screen is not met, the ASU requires that to be considered a business, a set must include an input and a substantive process that together create an output. The ASU also removes the evaluation of whether a market participant could replace missing elements to make the set a business.
The ASU is to be applied prospectively to any new acquisitions or sales.
ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
This ASU applies to all employers, including not-for-profits, which have a defined benefit pension plan or other postretirement benefit plan. Employers are now required to report the service cost component in the same line as other compensation costs arising from services rendered by the respective employees during the period and any other components of the net benefit cost must be presented outside of a subtotal of income from operations, if such a total is presented. Additionally, only the service cost component is eligible for capitalization.
The ASU is to be applied retrospectively for all periods presented, with the option for the reporting entity to elect a practical expedient related to the prior periods.
ASU 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made
This ASU applies to all entities, unless otherwise indicated, and was issued as a direct response to issues which were highlighted during the issuance and discussion of ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance is a clarification of current accounting standards as it relates to contributions received and contributions made. Specifically, the ASU clarifies how grants are characterized as either exchange transactions or contributions and addresses whether or not a contribution has a condition. No additional disclosure requirements were added. The ASU is effective for recipients (contributions received) as of Jan. 1, 2019. The ASU is effective for resource providers (contributions made) for annual periods beginning after Dec. 15, 2019. The amendments should be applied on a modified prospective basis. Retrospective application is also permitted.
If you have any questions or need additional information on how these ASUs may impact your entity, please reach out to us.
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