GAAP Flash – ASU 2017-01, ASC 360, ASC 606 and ASC 805 – 01.13.17
gaap-flash-asu-2017-01-asc-360-asc-606-and-asc-805-01-13-17

GAAP Flash – ASU 2017-01, ASC 360, ASC 606 and ASC 805 – 01.13.17

This week’s GAAP Flash includes articles about newly issued ASU 2017-01 and the clarified definition of a business, the new ASC 606 AICPA Audit and Accounting Guide, discontinued operations and impairment considerations under ASC 360, and accounting for business combinations under ASC 805.

FASB clarifies business definition (January 6, 2017) – accountingTODAY (@AccountingToday)

On January 5, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2017-01. The ASU clarifies the definition of a business and affects different areas of accounting, such as business combinations. Under the ASU, when determining whether an integrated set of assets and activities constitutes a business, entities must go through a “screen”. The screen requires entities to compare the fair value of gross assets acquired to the fair value of a single identifiable asset or group of similar identifiable assets. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in the single identifiable assets or group of similar identifiable assets, the integrated set of assets and activities is not a business.

How It’s Relevant: As we discussed in this blog post, determining whether an acquisition constitutes a business combination or an asset purchase isn’t easy under ASC 805. In fact, we concluded that the determination of asset purchase vs. business combination is one of the top five biggest issues related to accounting for business combinations. Apparently the FASB agreed! Although the ASU isn’t effective until next year, make sure you read up on it because the changes will have significant impacts on accounting as we know it!

Revenue recognition: Guidance for preparers and auditors (January 4, 2017) – Journal of Accountancy (@AICPA_JofA)

The AICPA Financial Reporting Executive Committee (FinREC) issued a new AICPA Audit and Accounting Guide for revenue recognition in December. The guide provides key accounting provisions of ASC 606, as well as industry specific guidance and general guidance to help preparers and auditors when implementing the new standard. The guide will be updated throughout 2017 to include new implementation issues that arise and for any additional accounting standard updates that are issued by the FASB.

How It’s Relevant: ASC 606, Revenue Recognition, is effective for public companies for annual periods beginning after December 15, 2017. For calendar year-end public companies that are required to present three years of financial information, in their 2018 financial statements, revenues must be stated under ASC 606 for years 2018, 2017, and 2016. Hmm…didn’t 2016 just come and go? The point is, both companies and auditors need to be thinking about implementation NOW. Need help? Start with our free 1-hour eLearning module.

Sears Buys Time With Craftsman Brand Sale, Store Closures (January 5, 2017) – The Wall Street Journal (@WSJ)

Sears seems to be in financial distress and they are trying to fix it! According to the WSJ article, over the past five years, Sears Holdings Corp. has booked $8.2 billion in cumulative losses and in November and December 2016, same store sales fell approximately 13%. To help increase their liquidity, Sears announced that it is closing 150 unprofitable stores, as well as selling their Craftsman brand to Stanley Black & Decker for $900 million. Sears says that they will continue to shrink by closing unprofitable stores.

How It’s Relevant: Sears has a lot going on and determining the accounting implications of their business decisions must be keeping their accountants busy! Sears should review the discontinued operations accounting guidance under ASC 360 to determine whether the closure of the stores is considered discontinued operations. Additionally, the negative sales and continuing losses may be considered a “triggering event” and an impairment analysis under ASC 360 may need to be performed over Sears’ asset groups.

Mars to Buy Pet Hospital Chain for $7.7 Billion (January 9, 2017) – The New York Times (@nytimes)

Mars, Inc., a company best known for their chocolate brands, has agreed to acquire VCA Animal Hospitals, a company that provides general, surgical, and specialized care to animals. VCA has over 750 animal hospitals located in 43 states, as well as in five Canadian provinces. The article states that “VCA will become part of Mars Petcare but will operate as a “distinct and separate business unit””. The deal is expected to close in the third quarter of 2017.

How It’s Relevant: Mars, Inc.’s acquisition of VCA Animal Hospitals is one of the first M&A activities in 2017. Accounting for business combinations under ASC 805 has been under a microscope in the last couple of years. The reason? The increase of M&A activity and because the accounting can be complicated. We published a series of blog posts in 2016 that examine five issues related to accounting for business combinations under ASC 805. If you’ll be going through an acquisition in 2017 and need help in addition to our blog posts, contact us today! 

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