This week’s GAAP Flash includes articles about the status of IFRS in the U.S., potential impacts from the new CECL model (ASC 326), the new auditing standard on going concern, and the latest FASB accounting standard activity.

It’s a Two-GAAP World, but the US Market is Deeply Invested in IFRS (February 28, 2017) – KPMG IFRS Institute (@KPMG_US)

In this article, KPMG conveys the latest status of adoption of IFRS in the United States. At the 2016 AICPA Conference, the SEC conveyed that U.S. GAAP will continue to best serve financial statement users “at least for the foreseeable future.” While it appears that adoption of IFRS in the U.S. most likely will not happen anytime soon, IFRS will continue to be of significance to U.S. investors and companies. According to KPMG, “We estimate that, as of today, the use of IFRS and U.S. GAAP as an accounting framework to support capital formation is about equal around the globe, when looking at relative market capitalization of shares publicly traded.”

How It’s Relevant: At the 2016 AICPA National SEC and PCAOB Conference last December, Wesley Bricker, the Chief Accountant at the Securities and Exchange Commission’s Office of the Chief Accountant encouraged the FASB and IASB to continue to work together when opportunities exist to eliminate differences between U.S. but was clear that use of IFRS in the U.S. is not a priority. While the FASB and the IASB will continue with their respective GAAPs, Bricker as well as Hans Hooogervorst, the IASB Chairman, stressed the relevance of IFRS to U.S. investors given that “U.S. investors invest directly in securities of approximately 525 foreign private issuers with a market capitalization of approximately $7.3 trillion as of September 2016, that apply IFRS in filings with the Commission.”

Banks Worried About FASB Changes on Credit Losses (February 23, 2017) – Accounting Today (@AccountingToday)

Deloitte conducted a survey on the expected impacts by banks on implementation of the FASB new credit loss accounting standard. The results of the survey indicated that, “Most responding banks say that if CECL were in place today, their impairment number would increase by more than 10 percent for consumer loans (75 percent of banks), mortgages (71 percent), and commercial loans (54 percent).”

How It’s Relevant: The FASB issued ASU 2016-13, Financial Instruments - Credit Losses, in June 2016, impacting the accounting for impairment for financial assets and certain other instruments. While the standard is not effective for public business entities until calendar year 2020, companies are encouraged to get started on implementation as the standard impacts a wide range of assets and is expected to affect a wide range of companies, not just those in the financial services industry.

FASB Defines ‘In-Substance Nonfinancial Asset’ in New Standard (February 23, 2017) – AccountingWeb (@AccountingWeb)

The FASB issued Accounting Standards Update 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets on February 22. This ASU defines an in substance nonfinancial asset as “a financial asset (for example, a receivable) promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. If substantially all of the fair value of the assets that are promised to a counterparty in a contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty in the contract are in substance nonfinancial assets.”

How It’s Relevant: This ASU resulted from confusion that arose when the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Part of this ASU included scoping provisions of Subtopic 610 – 20, Other Income – Gains and Losses from Derecognition of Nonfinancial Assets, which included the derecognition of an in-substance nonfinancial asset. Stakeholders raised uncertainty about the types of transactions that should be included within the scope because the term “in substance nonfinancial asset” was not defined, as well as confusion about how an entity should account for partial sales of nonfinancial assets. This ASU provides clarification on the derecognition guidance on nonfinancial assets and conforms with the new revenue recognition standard.

ASB Issues New Going Concern Auditing Standard (February 22, 2017) – Journal of Accountancy (@AICPA_JofA)

The AICPA Auditing Standards Board (ASB) issued Statement on Auditing Standards (SAS) No. 132, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern last week, promoting greater transparency in financial reporting regarding an entity’s ability to continue as a going concern. While it retains the requirement for the auditor to separately conclude whether there is substantial doubt about an entity’s ability to continue as a going concern, the standard provides clarification on the auditor’s objectives in doing so and introduces other new requirements. SAS No. 132 supersedes SAS No. 126 (the previous auditing standard on going concern) and will be effective for (i) audits of financial statements for periods ending on or after December 15, 2017, and (ii) reviews of interim financial information for interim periods beginning after fiscal years ending on or after December 15, 2017

How It’s Relevant: The primary objective in the development of SAS No. 132 was to consider the accounting provisions of the FASB’s guidance on going concern, Accounting Standards Update No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, and GASB Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards. The FASB issued ASU 2014-15 in August 2014 addressing management’s responsibilities with respect to going concern. ASU 2014-15 provided an explicit requirement for management to evaluate whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern. It is effective for annual periods ending after December 15, 2016 and for annual and interim periods thereafter.

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