Proposal to Tweak Credit Losses Standard Expected in November
FASB will propose a package of minor clarifications to the board’s sweeping new credit losses accounting standard by November, the board agreed on August 29. The proposal will cover questions about whether to include accrued interest in defining “amortized cost basis,” reversing accrued interest on nonaccrual loans, transferring loans and debt securities between categories, and dealing with recoveries. Some of the planned amendments aim to relieve banks from some requirements they said were overly burdensome, such as offering what the board called practical solutions for measuring, presenting, and disclosing information specifically related to accrued interest. Under the proposal, FASB wants to allow businesses to determine the expected cash flows for accrued interest separately from the associated financial asset and other components of amortized cost.
New Benchmark Interest Rate for Hedge Accounting to be Published
FASB plans to publish an update to its hedge accounting standard that will add a new interest rate based on the U.S. Treasury repurchase market to the list of accepted benchmark interest rates for hedge accounting. The Federal Reserve introduced the new rate in April as an alternative to the London Interbank Offered Rate (LIBOR), which was tarnished by a rate-rigging scandal in 2012. Most of the audit firms, professional groups, and businesses that responded to FASB’s proposal agreed with the board’s plan, but some said FASB should consider a broader principle to more quickly adopt new benchmark interest rates. FASB rejected this idea. “I think that we’ve demonstrated through this process that we are ready, willing, and able at the appropriate time to go through the process of considering the addition of another rate, and I think we will do that when the time is right depending on how the markets develop,” FASB member Christine Botosan said.
Cloud Computing Setup Costs to be Capitalized
FASB has published Accounting Standards Update 2018-15, which will let businesses capitalize the often-expensive implementation costs related to setting up business systems that operate on cloud technology. The final update, which was crafted by FASB’s Emerging Issues Task Force (EITF), will align the accounting for these costs with the accounting for costs associated with developing or obtaining internal-use software. The update directs businesses to look at the guidance in Accounting Standards Codification 350-40, Intangibles—Goodwill and Other—Internal-Use Software, in order to determine which implementation costs in a cloud computing arrangement that is considered a service contract can be capitalized as an asset. This change is expected to result in businesses paying to reconfigure systems and enter code to enable cloud-managed business service expenses to be treated as long-term assets and amortized over the life of the arrangement.