FASB Discussions with Nonprofits Include Revenue, Contributions
FASB met on September 14 with its Not-for-Profit Advisory Committee (NAC) to focus on issues that charities, social service entities, foundations, healthcare facilities, and others in the nonprofit sector have to deal with in their financial reporting activities. The NAC discussed the board’s ongoing post-implementation review (PIR) of Topic 606, Revenue from Contracts with Customers, according to a September 9 board alert. This standard replaced hundreds of pieces of industry-specific rules with an overarching principle for reporting revenues earned from certain types of contracts. The core principle is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the sum an entity expects to be paid in exchange for those goods or services. The guidance provides a five-step model to reflect the principle.
Board to Vote on Proposed Accounting for Leases Discount Rate Rule
FASB will decide this week on whether or not to finalize a June proposal aimed at providing private companies with a more flexible approach when using a discount rate to measure lease liabilities. The discount rate directly impacts the lease liability that companies record on their balance sheet; though minor, the proposal would be a helpful simplification and could even save costs for some private companies, commenters have said. The proposed amendment comes at a time when private companies are gearing up to adopt Topic 842, Leases, which takes effect next year for that business demographic. Topic 842 requires companies, for the first time, to record the full magnitude of their long-term lease liabilities on the balance sheet, a historic change. Currently, under Topic 842 private companies have an option to use a risk-free rate for measuring lease liabilities, but that election has to be made for the entire lease portfolio. The proposal would allow those companies to elect to use the risk-free rate, as opposed to an incremental borrowing rate, at an underlying asset class level rather than having to elect it for their entire portfolio of leases.
First Meeting Since Summer Hiatus Set for September 20-24
The IASB’s September 20-24 meetings, the first since its summer hiatus, will focus on seven topics, including on the post-implementation review (PIR) of its accounting standard on classification and measurement of financial instruments. Specifically, the board will determine whether to approve the publication of a request for information (RFI) for the post-implementation review of the classification and measurement requirements in IFRS 9, Financial Instruments, according to agenda meeting papers posted on September 10. If approved, the RFI will be published at the end of the month for a 120-day public comment period. A PIR is the board’s process to determine whether a major standard worked as intended, which is to provide information that investors find useful.
Separately, the board will also discuss:
- Dynamic risk management: studying a model to better reflect entities’ interest rate risk management strategies and activities in the financial statements;
- Financial instruments with characteristics of equity (FICE): to focus on accounting for financial instruments that contain contingent settlement provisions; and the effects of laws on contractual terms (i.e. whether and if so, to what extent, an entity should be required to treat a legal requirement or a term that is required by law as part of the contractual terms);
- Work plan: to determine whether to add or remove projects and to assess overall progress on projects including prioritization and timing;
- An updated project plan for further deliberations of its preliminary views in the Discussion Paper (DP) 2020-1, “Business Combinations—Disclosures, Goodwill and Impairment”;
- Extractive activities; and
- Exposure Draft (ED) -7, “General Presentation and Disclosures.”