Board Will Issue Rule for Tax Credit Investments
FASB has unanimously agreed with its Emerging Issues Task Force (EITF) that a proposal related to tax credit investments should be issued as U.S. GAAP, with certain clarifications. The rule will extend the proportional amortization method—a simple accounting approach limited to low-income housing tax credit (LIHTC) investments—to other federal tax credit projects that attract tax equity investments. The change takes effect for public companies’ fiscal years beginning after Dec. 15, 2023, including interim periods, and for private companies’ fiscal years beginning after Dec. 15, 2024. Early adoption is permitted. The provisions come at a time when the types of tax equity projects and investments in those projects have continued to increase in recent years, including among entities that are starting to make tax equity investments in an effort to meet environmental, social, and governance (ESG)–related objectives and for certain regulated entities to meet their Community Reinvestment Act goals. “I think that there may be constituents that feel like we didn’t go far enough,” FASB member Christine Botosan observed. “I know preparers and practitioners, certain of them, really wanted us to loosen up the conditions,” she said. “But I think that what I heard from the members of the EITF that were from the investor community was that they really view the specialized accounting as completely appropriate when the investment is essentially just a pass through of tax credits that generate a return, but that they do not want this specialized accounting to apply when there were other attributes of those investments that made the return unlike just essentially a pass through of those tax credits.”
Settling on New Model for Reporting Software Costs Might Prove Tough
FASB has honed in on two potential accounting models it will choose from to modernize the rules for reporting software costs: an initial development cost model and a dual model. The board said that both models could potentially provide investors with more transparency about software costs as well as reflect the underlying economics of such expenses, but the board wanted the staff to flesh out the models fully so that it could see how they would work. But the discussions signaled a bumpy path for the project, as views vary on the topic of software costs, a vast and nuanced subject. “Accountants and investors have varying opinions—they can be very different,” FASB member Gary Buesser observed. “What we’re doing with this project is trying to solve a problem with an accounting that’s a huge problem—everybody admits it,” he said. “Most investors [at a recent roundtable discussion] had no idea about software cost capitalization, internal, external—had no idea what this even means. But if you go with the initial development costs and dual models there are issues with those models.”
Lease Accounting Tops the List of Questions from Cities and States
GASB’s lease accounting rules topped the list of topics that the board received questions about last year, chair Joel Black said in a January 10, 2023, alert. The board was peppered with more than 300 inquiries about the implementation of GASB Statement 87, Leases, which is in full swing for state and local governments. GASB 87 is applicable to state, local, and municipal governments, public benefit corporations and authorities, public employee retirement systems, public utilities, hospitals and other healthcare providers, and public colleges and universities. The statement addresses the reporting requirements for lease contracts for nonfinancial assets, including vehicles, heavy equipment, and buildings. Preparers with questions should use the board’s Technical Inquiry System, as those issues are often ultimately included in future GASB implementation guides and updates, Black said. “Answering these inquiries is an essential part of our mission and gives the board and staff a better perspective on the issues facing your government,” he said. The standard went into effective for fiscal years beginning after June 15, 2021.