Taxonomy Guides on Disclosures for Consolidation Rules Proposed
On February 16, the FASB staff announced that the public can now weigh in on two proposed taxonomy implementation guides that provide dimensional modeling for disclosures of consolidated and nonconsolidated entities, as well as accounting changes. The guides are based on the 2021 U.S. GAAP Financial Reporting Taxonomy, which is pending acceptance by the SEC. Proposed Guide 2021-650, “Dimensional Modeling for Disclosures of Consolidated and Nonconsolidated Entities,” includes new examples to help financial statement users of the taxonomy, model disclosures that report a summarized consolidating balance sheet of the obligor group on a combined basis. The examples are based on the assumption that an entity meets the criteria for reporting disclosures of consolidated and nonconsolidated entities under GAAP or SEC authoritative literature, a text of the proposal explains. In addition, “the reported line items within the examples do not include all reporting requirements and represent only partial disclosures and statements for illustrative purposes,” it states. Comments are due by March 3.
Bulk of Proposed Changes to Lease Accounting Rules Discarded
FASB gutted a targeted proposal that would have amended lease accounting rules, voting to drop or table two of the three topics it proposed in October 2020 after companies pushed back over fears of unintended negative impacts. The nation’s accounting rulemaker voted 5 to 2 to continue to hammer out only one of the changes: rules for sales-type leases with payments that fluctuate. The provisions impact solar and wind contracts in particular, causing, for example, profitable contracts to book a loss on day one. Discussions on that topic will continue at a future meeting, including on whether to revert to prior lease accounting rules under Topic 840, Leases, for those types of sales-type leases with payments that vary. Board members said they were sympathetic that the new leases standard, Topic 842, Leases, allowed some companies to record a day one loss on profitable contracts, and observed that older Topic 840 rules worked well for those transactions. “Having applied that standard for many years I never saw a problem with its application,” FASB Chair Richard Jones said. “I generally have a problem with standards that result in day-one losses when they’re not economic losses.”
Multinationals, Other Companies Get Narrow Rules on Accounting Disclosure Rules, Policy Elections
The IASB published two narrow amendments to improve accounting policy disclosure rules so that the information companies provide to investors is more useful. A separate narrow rule was also issued to help CPAs distinguish changes in accounting estimates from changes in accounting policies. The new rules require multinationals and other companies to provide better information to financial statement users about information that could influence investment decisions. Specifically, the board amended International Accounting Standard (IAS) 1, Presentation of Financial Statements, to require companies to disclose their material accounting policy information rather than their significant accounting policies, and IFRS Practice Statement 2, Making Materiality Judgements, to provide guidance on how to apply the concept of materiality to accounting policy disclosures. Also amended was IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, to clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. “That distinction is important because changes in accounting estimates are applied prospectively only to future transactions and other future events, but changes in accounting policies are generally also applied retrospectively to past transactions and other past events,” the board said. The amendments to IAS 1 and IAS 8 are effective for annual reporting periods beginning on or after January 1, 2023, but can be applied earlier.