Independent Joint Ventures Getting Specific Disclosure Rules

FASB continued to hammer out a proposal for joint venture formations, voting on the disclosures that stand-alone joint ventures would need to provide. Joint ventures are typically business arrangements whereby two or more parties pool their resources. GAAP does not have explicit guidance on the initial recognition and measurement of nonmonetary assets in such agreements, and therefore CPAs are conflicted about how to properly report them. The disclosures would enable investors and other financial statement users to evaluate the nature and financial effect of the joint venture formation, but would not be difficult or costly to comply with as the information is easy to obtain, according to board discussions. Moreover, the disclosures would not duplicate existing disclosures under Topic 275, Risks and Uncertainties. The disclosures would provide “the basic information that would be needed in order to meet the disclosure objective,” FASB member Christine Botosan said. “And having that list I think will reduce cost for companies because if they didn’t have the list they’re each going to have to figure out what sorts of disclosures are going to meet this disclosure objective, they’re then going to have that judgement audited and there’s always the potential it could be second guessed after the fact by a regulator for a public company.”

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Proposal to Amend Accounting for Troubled Debt, Vintage Disclosures Coming Soon

In mid-November, FASB will issue a proposal to remove troubled debt restructuring (TDR) guidance from the credit loss accounting standard in areas that do not provide useful information, according to October 13 board discussions. Specifically, the proposal would eliminate the recognition and measurement guidance for TDRs for lenders that have already adopted the current expected credit losses (CECL) standard. “In my mind, I think the utility that it once had isn’t there any longer, particularly for entities that have adopted the current expected credit loss model,” FASB member Susan Cosper said. Enhanced disclosures about companies’ loan modification programs will be proposed. With the elimination of the TDR rules, all loans and modifications would be accounted for based on the modification guidance in ASC 310-20, which means that upon modification a company would determine if the modification represents the continuation of an existing loan or a new loan, the discussions indicated. That guidance is well understood and not complex.

Commenters Ask for Project on Software Development Costs

Some companies have asked FASB to develop one accounting standard that addresses whether software costs should be capitalized, claiming that the current reporting rules do not mesh well with how software is developed today. “In our view, the original rationale for two standards is no longer relevant,” David Fabricant, senior vice president, deputy controller, at American Express Co., told the board in an October 1 letter. The work “performed by developers of internal-use and external-use software follow similar processes or concept-based steps in creating their assets,” and therefore there is no longer a need for two standards, Fabricant wrote. “Combining the standards and clearly defining the attributes of internal versus external use software would drive consistency and remove the potential ambiguity in application that exists today by having two standards.” Other companies, including specialized accounting firm Connor Group, Inc. and Bank of America Corp. also wrote in favor of FASB taking up a streamlined project on the topic.