Costs of Implementing Revenue Standard to Receive Thorough Review
On December 14, FASB chair Russell Golden said that the board plans to conduct an extensive review of the implementation of its landmark revenue standard once the guidance becomes effective in 2018. The board hopes the lessons it learns can help it reduce costs for the implementation of other significant amendments to U.S. GAAP. “What was their original plan of the cost? What were their actual costs? Why there was a difference?” Golden said at a meeting of FASB’s Financial Accounting Standards Advisory Council (FASAC) during a discussion about the implementation. Once FASB implements the standard, it plans to look at the recurring costs for the revenue standard in 2019 and 2020.
FASB Votes on New Benchmark Interest Rate for Hedge Accounting
At its December 20 meeting, FASB considered whether to add to U.S. GAAP a new interest rate benchmark for fair value hedges of interest rate risk. The board voted on whether to add the overnight index swap rate based on the secured overnight financing rate (SOFR OIS) to the list of acceptable rates. The concept of a benchmark rate is rooted in the idea that the rate is commonly referenced and tied to instruments that have little risk of default. As it developed ASU 2017-12, FASB heard feedback that it should either expand the number of allowable benchmark rates or develop a principles-based approach for determining what a benchmark rate is. The board, however, was concerned about allowing interest rate indexes as benchmark rates that could incorporate a high level of credit risk. The board agreed to consider new rates on a case-by-case basis.
Draft Implementation Guidance for Revenue Standard Addresses Securities Firms’ Merger Advisory Fees
The AICPA’s Financial Reporting Executive Committee (FinREC) has issued a working draft of interpretive guidance for FASB’s revenue recognition standard. The draft implementation issue was produced by a task force assigned by the FinREC to develop guidance for the next edition of the Audit and Accounting Guide (AAG): Revenue Recognition, which goes into effect for public companies in 2018. “In applying FASB ASC 606, a broker-dealer should evaluate all of the goods or services promised in the advisory contract, including those implied by a broker-dealer’s customary business practice, to identify the separate performance obligations,” the draft guidance says. The draft guidance also explains the factors a broker-dealer should consider when determining the transaction price.