This week’s GAAP Flash includes articles about the impairment issues facing GM in Venezuela (ASC 360), what not-for-profit entities (and their auditors) should keep on their radar this year, SEC reporting issues, specifically the decline in the number of registrations, and proposed changes to IFRS 9 relating to financial instruments.

General Motors says Venezuela illegally seizes auto plant (April 19, 2017) – Reuters (@Reuters)

On Wednesday, April 19^th, Venezuelan authorities seized General Motors’ plant located in Valencia. Vehicles were taken, and the plant was prevented from continuing with their operations. This is not the first time manufacturing businesses have run into difficulties with the Venezuelan authorities. The government has taken over other factories in the past, and the economic situation in Venezuela continues to deteriorate. In 2012, one of GM’s competitors, Ford Motor Co., wrote off their entire Venezuelan investment.

How It’s Relevant: When the value of an asset permanently falls below the carrying amount on the books, an asset is impaired. There are triggering events outlined in ASC 360 that explain when a company should test for an impairment loss. When there is a “significant, unfavorable change in the business climate,” assets should be tested. Sometimes identifying a triggering event rests on management’s shoulders. Given the past week’s events, General Motors is bound to report a large impairment loss. Check out our refresher on accounting for impairment losses here!

Top Issues for Not-for-Profits This Year (April 24, 2017) – AICPA Insights (@AICPANews)

Not-for-profit entities face some unique challenges. This article outlines particular topics to keep in mind. Cybersecurity is a hot topic, as not-for-profits like to make it easy to accept contributions. However, this also makes it easier for a hacker to swipe credit card information! Also, ASU 2016-14 was released last summer, which sought to improve the presentation of financial statements. Other ASUs were tweaked, including ASU 2014-15, which requires disclosures for an entity’s ability to continue as a going concern. Finally, the exempt organization division of the IRS implemented a new system that scans the Form 990 returns being filed to identify potential “red flags” for further examination.

How It’s Relevant:ASU 2016-14 is the first major change to reporting for not-for-profit entities in over 20 years! As we discussed in this post, there are changes to the presentation of assets, expenses, and the cash flow statement. The ASU is effective for fiscal years ending after December 15, 2017. However, there are some significant changes, so not-for-profit entities should begin the process of implementing these changes now!

In addition, Form 990s have become much more complex during the past ten years. Having status as a not-for-profit provides many benefits and, as a result, the IRS wants to ensure the non-profits are honest and compliant. Just be aware that the IRS is ramping up their game, so it is more important than ever to complete the Form 990 completely and accurately!

SEC registrant number continues to decline (April 24, 2017) – Accounting Today (@AccountingToday

In the past 5 years, the number of companies filing with the SEC has dropped almost 40%! In 2002, the Sarbanes-Oxley Act increased the financial reporting requirements for public companies. This began the trend of more and more companies “going private.” Even with the JOBS Act of 2010, which eased filing requirements for companies with fewer than 2,000 shareholders, the number of companies reporting to the SEC continues to decline.

How It’s Relevant: When will this decline in the number of public companies filing with the SEC end? Does it matter? Only time will tell if having fewer investment options will impact the public market. However, it would not be surprising if changes were implemented to revise filing requirements even further to stop the bleeding. Until, then make sure you’re in compliance with SEC rules and regulations. If you are an SEC filer, check out our recent blog related to ASC 606 transition.

IASB proposes tweaks to financial instruments standard (April 21, 2017) – Accounting Today (@AccountingToday

It is common for payments related to loans and mortgages to be made early. These prepayments are often called “negative compensation” by lenders. Under IFRS 9, “simple” loans (those made up of only principal and interest) can be valued at fair value with changes recorded in other comprehensive income (OCI), but loans with “negative compensation” cannot. It has been proposed that this element be modified, provided certain conditions are met.

How It’s Relevant: Revising the standard would provide a more realistic approach to the reporting for lenders of financial instruments. Many loans allow for prepayment options, and it seems rational these types of financial instruments are treated consistently. This is just one of the topics that we will cover in our IFRS Update and Hot Topics course for 2017.

Disclaimer
This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.