FASB to Propose Conceptual Framework Amendments in June
The U.S. accounting standards setter plans to issue a proposal early June that revises the concepts for elements of financial statements and definitions for items such as revenue and expenses. FASB voted 6 to 1 to issue revisions to its conceptual framework, the nonauthoritative guide of objectives it uses to determine how financial information is measured and displayed in financial statements. Board member Christine Botosan dissented on the proposal. Among other reasons, Botosan said she did not think the revisions would be an improvement to what was currently there. “I did not support the decision to retain the current rules-based definition of comprehensive income in equity, and then secondly, I don’t agree with the path we decided to go down today [on definitions of revenues, expense, gains and losses],” Botosan said. “I don’t view these definitions as an improvement over the current definitions, so if our choice was this or nothing, I would have preferred that we kept what we had.”
Multinationals Receive Clarifying Rules for Classifying Debt
On January 23, IASB issued an amendment to clarify how companies should present debt in financial statements, a narrow provision that could force companies to rework their loan covenant agreements. The rules amend International Accounting Standard (IAS) 1, Presentation of Financial Statements, to clarify what can be classified as current versus noncurrent debt in financial statements. Whether a company’s debt (liability) is classified as “current” or “noncurrent’ is important to investors because it changes a company’s working capital and liquidity. Moreover, debt arrangements often contain creditor protective clauses, among other limitations. Under the amendments, a company would classify a liability as current when—
- it expects to settle the liability in its normal operating cycle;
- it holds the liability primarily for the purpose of trading;
- the liability is due to be settled within 12 months after the reporting period; or
- it does not have the right at the end of the reporting period to defer settlement of the liability for at least 12 months after the reporting period.
The rules are effective for annual reporting periods beginning on or after January 1, 2022. Earlier application is permitted.
AICPA Issues Draft Implementation Guidance for Long-Term Insurance Contracts
The AICPA’s Financial Reporting Executive Committee (FinREC) has issued several working drafts of accounting issues for insurers to help with implementation of FASB’s revised standards on long-term insurance contracts. In August 2018, FASB issued Accounting Standards Update (ASU) 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts, to require companies offering long-term insurance products—such as life, annuities, long-term health-care, and disability insurance—to review annually the assumptions they make about their policyholders and update the liabilities on their balance sheets if the assumptions change. The standard is intended to make insurers more accurately reflect the economics of how long-term insurance works and give a clearer picture of their financial obligations and risks. The AICPA wants informal feedback by April 10.