This week’s GAAP Flash includes articles about ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, liquidation basis of accounting, the second highest award under the SEC’s whistleblower program, and uncertain tax positions.

FASB Seeks Uniformity in Cash Flow Presentation (August 26, 2016) – Journal of Accountancy (@AICPA_JofA)

The FASB issued ASU 2016-25, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, on August 26, 2016 to address the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. There are eight specific cash flow areas where guidance is provided. For public business entities, the amendments are effective for fiscal

years beginning after December 15, 2017, and interim periods within those fiscal

years.

How It’s Relevant: ASC Topic 230 is the primary accounting guidance for the statement of cash flows and it has been around for 20+ years with very few amendments. The statement of cash flows has been a focus of the SEC in recent years. They have noted that the statement of cash flows seems to be increasingly prone to error. While they were unable to point to any specific trend or cause, the SEC did indicate that the majority of errors that they have noted were due to “relatively less complex areas of GAAP.” Companies should revisit the statement of cash flow guidance to ensure proper application of the standard. This recent ASU will help with eight specific areas where GAAP was not clear or did not provide specific guidance

Aeropostale Gets Bid from Mall Group to Keep 229 Stores Open (August 31, 2016) – Bloomberg (@Bloomberg)

Aeropostale filed for bankruptcy protection earlier this year. In July, the company announced “reorganization on a standalone basis is not feasible” and that it would hold an auction for its assets in mid-August. It seemed that Aeropostale was headed for liquidation after a ruling against them in court where Aeropostale had accused their lending partner of “plotting” to drive them into bankruptcy. But wait…just in the nick-of-time, the company has received a group bid that could potentially keep the clothing retailer alive!

How It’s Relevant: Liquidation basis of accounting guidance requires an entity to use the liquidation basis of accounting to present its financial statements when it determines that liquidation is imminent unless the liquidation follows a plan that was specified in the entity’s governing documents. While judgment may be required to determine whether a liquidation is “imminent,” the FASB did provide some guidance when it issued ASU 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. Liquidation basis of accounting requires entities to measure its assets at the undiscounted estimated amount of cash or other consideration it expects to collect upon sale of those assets. Liabilities should continue to be measured at the amount prescribed under U.S. GAAP, except that an entity must adjust its liabilities to reflect changes in assumptions that result from the entity’s decision to liquidate. Additionally, entities should accrue costs and income that it expects to incur or earn through the end of its liquidation (if and when it has a reasonable basis for estimation). At each reporting date, an entity must remeasure its assets and other items it expects to sell that it had not previously recognized, liabilities (if required under the relevant Topic for those liabilities), and the accruals of disposal or other costs or income to reflect the actual or estimated change in carrying value since the previous reporting date.

SEC Awards $22 Million to Ex-Monsanto Executive Through Whistleblower Program (August 30, 2016) – Reuters (@Reuters)

$22 MILLION DOLLARS! Whoa, that is some serious cash for being a whistleblower! Where does this money come from, you may ask? Awards are required to be made in the amount of 10% to 30% of the monetary sanctions collected. In this case, it appears that the whistleblower received approximately 28% of the penalty and this is the second largest, that’s right – only the second largest, payout under the program to date. The whistleblower is an ex-Monsanto Company executive who tipped off the SEC regarding improper accounting practices for revenue recognition of a rebate program the company offered for its Roundup herbicide product. Per the SEC, “Monsanto booked substantial amounts of revenue resulting from sales incentivized by the rebate programs, but failed to recognize all of the related program costs at the same time.”

How It’s Relevant: The SEC’s whistleblower program appears to be working well in helping the Commission identify fraud and other violations based on the large dollar amounts that have been awarded in recent years. Stemming from Dodd-Frank, the SEC is permitted to make monetary awards to eligible individuals who voluntarily provide original information that leads to successful Commission enforcement actions resulting in the imposition of monetary sanctions over $1,000,000, and certain related successful actions. Additionally, the Monsanto case dealt with improper revenue recognition. The rules for revenue recognition are changing. You may be tired of hearing about it, but that doesn’t change the fact that the new standard is here and implementation requirements are fast approaching! Are you ready?

Apple Hasn’t Set Aside Enough to Pay Irish Back Taxes (August 31, 2016) – MarketWatch (@MarketWatch)

The European Union has been investigating whether Ireland had granted inappropriate tax breaks to Apple and just recently ruled that Apple must pay Ireland $14.5 billion in back taxes. The EU Commissioner, Margrethe Vestager, said, "Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules. The Commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years.” According to this article, Apple does not have this amount reserved according to its most recent regulatory filings. Both Apple and Ireland have indicated they will file an appeal and Apple has issued a statement indicating, “…we are confident that it will be overturned by the courts of the European Union.”

How It’s Relevant:

While it appears that Apple does not have the full amount reserved, it will be interesting to see if they add to their reserves for uncertain tax positions. That, in turn, may lead to questions about whether tax positions taken or to be taken on tax returns should be reflected in the financial statements before they are finally resolved with the taxing authorities. ASC 740 – Income Taxes defines the threshold for recognizing the benefits of tax-return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority.