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Accounting and Reporting Changes Impact 2015 Financial Statements

The Financial Accounting Standards Board (FASB) has concluded another busy year with the issuance of 17 new updates to the Accounting Standards Codification in 2015. Additionally, many of its 18 updates to the Accounting Standards Codification issued in 2014 became effective in 2015. The most significant changes effective in 2015 have focused on simplifying current requirements and providing alternatives to reduce complexities for private companies. Following are the more significant updates that will affect private companies and not-for-profit organizations 2015.

Private Company Council (PCC) Reporting Alternatives Available in 2015

Four optional accounting and financial reporting alternatives are available to private companies to elect in 2015. FASB has recently removed the effective date of these four PCC alternatives, giving private companies the option to elect the alternatives in future years by applying the transition guidance in the year of adoption, in effect making it easier to adopt in the future. Below are the four alternatives.

Recognition of Intangible Assets in a Business Combination

Private companies are able to recognize fewer intangibles in a business combination by choosing to limit recognition of only customer-related intangibles capable of being sold or licensed independently from the other assets of the business acquired. The standard also clarifies that certain contract assets are ineligible to be recognized as goodwill. If this alternative is elected, the company is also required to elect the accounting alternative relating to amortization of goodwill. For more information, click on Private Companies Can Recognize Fewer Intangible Assets Acquired In A Business Combination.

Amortization of Goodwill

Private companies now have the option to elect to amortize goodwill on a straight-line basis for a period of up to 10 years. This alternative also provides for a simplified impairment analysis. Once elected, all goodwill from future business combinations must also be amortized. This alternative can be elected independent of the above alternative relating to recognition of intangible assets in a business combination.

Simplified Hedge Accounting

Private companies which enter into certain plain vanilla interest rate swap transactions may elect an accounting alternative to use simplified hedge accounting. If the transaction qualifies for this election, the company can assume the hedge is effective with changes in the settlement value recorded through other comprehensive income. This removes the requirement to perform an analysis to determine if the hedge is effective as well as evaluate the fair value of the hedge. Click on Private Companies Can Now Use Simplified Hedge Accounting to read more about Simple Hedge Accounting.

Consolidation of Certain Real Estate Entities

Private companies can elect not to consolidate certain variable interest entities that are related to common control leasing arrangements. To read more, click on Carl Kampel’s article, Private Companies Get Relief from Requirements to Consolidate Certain Real Estate Entities.

Changes Affecting All Organizations

Discontinued Operations

A change to the definition of discontinued operations is expected to result in fewer disposals of components of a business qualifying for discontinued operations reporting.   Disposals of a component of a business that are routine in nature and not a strategic shift in the business strategy will no longer be reported as discontinued operations. Significant continuing involvement with a discontinued operation no longer needs to be considered.

Push Down Accounting

The option to use push down accounting is generally available when a change in control has occurred. Without a change in control, an entity may no longer have the option to apply push down accounting. This was effective in November 2014; however, most companies will evaluate the impact of the change when a transaction occurs.

Recognition of Services from an Affiliate

Not-for-profit organizations are now required to measure and recognize the value of services provided by personnel of an affiliate, including services provided to the recipient organization from an affiliate at no charge. The new requirement is intended to reduce diversity and enhance comparability of financial information among not-for-profit entities.

Standards Available for Early Adoption

There are a number of standards that companies may consider adopting early. The one which may be beneficial to adopt early is the fair value measurements practical expedient to reduce disclosures related to investments measured at net asset value per share. For more information, click FASB Eliminates Requirement to Categorize Certain Investments in the Fair Value Hierarch.

Changes on the Horizon

FASB voted to move forward with the final lease standard for release in early 2016. These lease changes have been much anticipated since the project was recommended by the Securities and Exchange Commission in 2005 as part of the convergence project with the International Accounting Standards Board, which issued its lease standard on January 12, 2016. For private companies, the new lease requirements will not be effective by accounting principles generally accepted in the United States of America and International Financial Reporting Standards until 2019.

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Stephanie McGuire Is a Principal in the audit, accounting and consulting department of Ellin & Tucker. She provides audit, accounting and consulting services for numerous defined contribution and defined benefit plans, as well as health and welfare plans, for clients in the manufacturing, wholesale distribution, and not-for-profit industries, both nationally and internationally.


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