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Bankers ask for income tax tweak ahead of potential law change.
The American Bankers Association and some individual banks have written letters to FASB saying that the board needs to change its accounting standard for income taxes ahead of the implementation of the Tax Cuts and Jobs Act, so that the tax effect of items typically presented in other comprehensive income does not affect net income. Under Topic 740, “Income Taxes,” businesses must adjust deferred tax assets and liabilities upon enactment of a new tax law and present those changes in net income from continuing operations, even when the corresponding deferred taxes relate to items presented in accumulated other comprehensive income, which is typically excluded by banker regulatory capital. “This will be confusing to financial statement users, particularly for the banking industry,” the group wrote. FASB is considering the request, a spokesperson said.
Hedge accounting may gain fifth benchmark interest rate.
In February, FASB plans to release a proposal to add a fifth benchmark interest rate to the acceptable rates for hedge accounting. The proposed benchmark rate is being considered by the Federal Reserve as an alternative to the London Interbank Offered Rate (LIBOR), which was tarnished by the 2012 rate-rigging scandal. “The staff believes it meets the criteria to be a benchmark rate; it’s close to risk free and is indicative of high-quality borrowing rates,” FASB assistant project manager Julie Um said in reference to the Secured Overnight Financing Rate for Overnight Indexed Swaps (SOFR OIS). FASB has no plans to remove LIBOR from U.S. GAAP, a FASB spokesperson said.
Reintroduction of goodwill amortization to IFRS rejected.
On December 14, the IASB rejected, by an 11-3 vote, the idea of reintroducing the amortization of goodwill to IFRS as part of its project to amend the guidance for goodwill. The board has yet to determine what changes it will make, but at its most recent meeting it ruled out reverting to the old standard, which allowed companies to amortize goodwill. “Many participants think the impairment test is complex, time-consuming, expensive, and involves significant judgments. Nothing we are talking about here removes any of that—it adds to it,” IASB member Gary Kabureck said. The board also rejected other ideas for amending the accounting for goodwill. The board plans to discuss the issue again when it meets in February.
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.
Exposure draft released on interest expenses from construction projects.
On December 8, GASB released Exposure Draft (ED) 9-5, Accounting for Interest Cost During the Period of Construction, which proposed that interest expenses from construction projects be reported during the period in which they are incurred. The board said that the new accounting should be adopted through what it calls “the prospective method of application,” which does not require altering the financial results of prior reporting periods to reflect the change to accounting. If the proposed change is finalized, interest expenses from construction projects will no longer be part of the project’s historical cost that is reported as a business activity or enterprise fund. GASB wants the proposal to be effective for reporting periods that begin after December 15, 2018, but the board is encouraging state and local governments to adopt the change ahead of the effective date. Comments on the proposal are due by March 5, 2018.