Troubled Debt, Segment Reporting Slated for Discussions
On April 6, FASB discussed whether to extend the troubled debt restructurings (TDR) relief rule it just issued to all companies beyond creditors that have adopted credit loss accounting rules. The board received an agenda request asking that it provide a practical expedient so that all entities can choose to avoid TDR rules, according to a March 31 board alert. A practical expedient is a cost-effective way of achieving the same or a similar accounting or reporting objective of a specific rule. The rules were issued on March 31 as Accounting Standards Update (ASU) 2022-02, Financial Instruments–Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, to eliminate TDR recognition and measurement provisions—but only for creditors that have already adopted the current expected credit losses (CECL) standard. Two AICPA panels asked the board to extend TDR relief rules to “all entities immediately, irrespective of CECL adoption status.”
Nonprofits Struggle with Embedded and Below Market Leases in Adoption Efforts
According to a recent FASB advisory meeting, not-for-profit organizations struggle with identifying whether there is an embedded lease and how to treat below market leases in their adoption efforts of new lease accounting rules. ASC Topic 842, Leases, which requires entities to report the full magnitude of all long-term leases on the balance sheet, went into effect as of January 1, 2022, for “nonpublic entities” that are calendar year-end filers. The most significant issue not-for-profits face when adopting the standard is identifying embedded leases, an area that requires the use of judgment, according to Not-for-Profit Advisory Committee (NAC) discussions on March 31. In an offline poll, NAC also flagged issues they had with below market leases “ranging anywhere from one dollar a year lease to something where again it’s arguably below market,” Jeffrey Mechanick, FASB Assistant Director–Nonpublic Entities, said. “There’s a bit of a judgment call as to whether or not there is an inherent contribution in there or if it’s just the lessee entering the marketplace at an opportune time,” he said. Some accountants believe that a one dollar-a-year lease should be treated similarly to purely donated space, Mechanick added. “They might say that one dollar a year is not substantive consideration—but again that’s also a judgment call.” The discussion comes at a time when ASC Topic 842 is under post-implementation review (PIR), FABS’s process to determine whether a new accounting standard is working as the board intended.
New Global Sustainability Board Proposes Sweeping Disclosure Rules
As expected, the new International Sustainability Standards Board (ISSB) has issued two proposals for public comment that would require companies to disclose material information about all significant sustainability related risks, including climate-related risks and opportunities. The board issued IFRS S1, “General Requirements for Disclosure of Sustainability-related Financial Information,” which sets out the core content for a complete set of sustainability-related financial disclosures. Also issued was IFRS S2, “Climate-related Disclosures,” which would require a company to disclose the governance, strategy, and risk management of its business, as well as the metrics and targets it uses to measure, monitor, and manage its significant climate-related risks and opportunities. The company would also disclose information about climate-related physical and transition risks and opportunities, according to the tenets of the rules. “The proposals were developed as responses to requests from the G20 leaders, the International Organization of Securities Commissions, the IOSCO, and others,” ISSB Chair Emmanuel Faber explained in a webcast. “They are fully building upon the recommendations of the task force on climate-related financial disclosures, the TCFD, and they are also incorporating industry-specific requirements based on the SASB standards.” The public has until July 29 to submit comments to the board.