It’s that time of year where CPAs are scrambling to get up-to-speed in the latest and greatest in U.S. GAAP (as well as fulfill their annual CPE requirement). Well in this blog post we’ll help you with both!

Of course, the biggest new standard is ASC Topic 606 Revenue from Contracts with Customers (ASC 606). This standard, which introduces a new 5-step model related to recognizing revenue, is effective for public business entities (PBEs) and certain other entities in 2018. Non-PBEs have an additional year. We won’t waste a lot of space on ASC 606 in this post as we’ve published more than twenty blog posts on the topic (summarized here) and developed a series of ASC 606 eLearning courses that we’ve bundled into a collection. 

Below is a summary of the other significant ASUs effective in 2018. Note this isn’t all the ASUs, but rather those we feel will have the greatest impact on most entities. We’ll break them down between those effective for public business entities (PBEs) in 2018 vs. those effective for other entities (i.e. non-PBEs) in 2018. 

ASUs Effective in 2018 (PBEs)

Recognition and measurement of financial assets/liabilities (ASU 2016-01)

The biggest change relates to the accounting for equity securities, which is based on whether or not the investment has a readily determinable fair value. However, there’s also some easing of the disclosure requirements related to instruments reported at amortized cost and, if you’re using the fair value option to measure financial liabilities, you might want to check it out 

Recognition of breakage for certain prepaid stored-value products (ASU 2016-04)

Do you issue prepaid gift cards issued on a specific payment network and redeemable at network-accepting locations (e.g. prepaid Visa cards)? What about prepaid telecommunications cards or traveler’s checks? If so, this ASU explains when and how you can recognize breakage, which is the value ultimately not redeemed by the consumer.

Classification of certain cash receipts/payments in the statement of cash flows (ASU 2016-15)

If you have a cash inflow and you’re not sure where to classify it in the statement of cash flows, chances are you’d migrate toward classifying it within operating cash flows. For cash outflows, the tendency might be either investing or financing. As a result of diversity in practice, this ASU clarifies the classification of cash flows in eight very specific circumstances.

Intra-entity transfers of assets other than inventory (ASU 2016-16)

If taxes, either current or deferred, arise as a result of an intercompany transfer of assets, this ASU specifies that each entity should use their respective tax rate. This may mean that the parent entity might actually record gains and losses as a result of intercompany transfers of assets like intangible assets. However, please not this ASU does not apply to intercompany transfers of inventory.

Restricted cash (ASU 2016-18)

Who knew? Restricted cash is considered cash! As such, its shown together with cash and cash equivalents in the statement of cash flows. 

Clarifying the definition of a business (ASU 2017-01)

Under the old guidance too many transactions were considered business combinations, at least in the opinion of the FASB. As a result of this ASU, which introduces a screen and evaluation of the outputs, fewer transactions are expected to be considered businesses! This means no goodwill (and a bunch of other differences between business combinations and asset purchases)!

Clarifying the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets (ASU 2017-05)

If you sell or transfer non-financial assets (think real estate), then this ASU is a big deal! However, it is fairly complicated to explain in just a few sentences. No worries. We’ve produced this short video to walk you through the changes:

Presentation of net periodic pension cost (ASU 2017-07)

The only component of net periodic pension cost that goes “above the line” in operations is service cost. All other components are shown outside of income from operations. However, this also means only the service cost component is eligible for capitalization.

Scope of modification accounting for share-based payments (ASU 2017-09

Do you issue share-based payment awards? Do you ever mess around with them post-issuance? If so, modification accounting is required unless all three conditions spelled out in the ASU are met.

Determining the customer in a service concession arrangement (ASU 2017-10)

Service concession arrangement involve contracts under which a public sector entity (grantor) grants a private entity (operator) the right to operate the grantor’s infrastructure for a specified period of time. Examples of such infrastructure includes hospitals, toll roads, prisons and airport. This ASU clarifies that public sector entity is always the customer, which comes into play when applying revenue recognition guidance within ASC 606.

ASUs Effective in 2018 (non-PBEs)

Classification of deferred taxes (ASU 2015-17)

Deferred taxes are always classified as non-current in a classified balance sheet.

Effective of derivative contract novation on existing hedge accounting relationships (ASU 2016-05)

Novation is the substitution of a new obligation for an old one by mutual agreement between the parties. A derivative novation can occur for a variety of reasons resulting in a change in the counterparty. This ASU clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require discontinuance of the hedging relationship. However, all the other hedge accounting criteria must still be met.

Contingent put and call options in debt instruments (ASU 2016-06)

This ASU specifies that an entity is required to assess whether an embedded put or call option is clearly and closely related to its debt host in accordance with a 4-step sequence set out in a FASB DIG Issue that was codified in ASC 815-15-25-42. If so, bifurcation of the embedded derivative is not required.

Improvements to employee share-based payment accounting (ASU 2016-09)

This ASU simplifies the accounting for share-based payment award in number of areas including:

• Accounting for excess tax benefits and tax deficiencies
• Estimating forfeitures or accounting for them as they occur
• Withholding up to the maximum individual statutory rate without it requiring liability classification

It also provides some practical expedients to non-public entities making accounting for such awards a bit easier.

Presentation of financial statement of not-for-profit entities (ASU 2016-14)

In addition to the ASUs above, there’s also ASU 2016-14 Presentation of Financial Statements of Not-for-Profit Entities, which is effective for annual financial statements of not-for-profit (NFP) entities issued for fiscal years beginning after December 15, 2017. ASU 2016-14 amends ASC Topic 958 and significantly changes how financial statements of NFP entities are presented.

We recorded a webinar covering the ASUs effective in 2018 and have turned it into a CPE-eligible self-study course. You can register for it here.

 And now a special offer for you! Use the following code for 75% off:

 CPEME75

 That’s 1.5 CPE credits for $22.25. But, hurry. This offer is only available through the end of the year.

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.