The accounting standard-setting activities that could be of interest to compa­nies all industry sectors:

● The FASB and IASB continue to re-debate issues on how revenue should be recognised at com­panies globally. Changes could impact certain industries more than others, depending on deci­sions in the next several months.
● The FASB and IASB continue to re-debate issues about how to account for leases. Recent deci­sions impact how much of the lease liability would be
capitalised on the balance sheet for what today are operating leases.

 

The accounting standard-setting activities that could be of interest to financial institutions:

● New disclosures began this year giving further detail and transparency into loans and the allow­ance for loan losses.

● New rules going into effect in the third quarter clar­ifying the definition of troubled debt restructur­ings.

● The FASB continues to re-debate issues on how financial instruments are classified and measured, and is working with the IASB to come to a global answer for how to calculate credit losses at finan­cial institutions.

● The FASB and IASB will soon begin to re-debate their proposal on offsetting, which could change how derivatives and other instruments are netted under US GAAP, impacting leverage ratios.

● The FASB has begun researching possible im­provements to disclosures at financial institutions about interest rate risk and liquidity risk.

The FASB and IASB staff have prepared a short survey to seek the views from users on whether or how to sequence the effective dates for a number of projects that are due to be completed this year, including Revenue Recognition, Leases, Account­ing for Financial Instruments and Insurance Con­tracts.

Joint discussions continue on a number of proj­ects, including:

Revenue Recognition—Feedback on the Ex­posure Draft made clear that the Boards needed to address better how to recognise revenue for contracts that contained services or elements of both goods and services. Decisions have been made in recent months in an attempt to address the concerns raised. Additionally, redeliberations have addressed how contract acquisition costs and questionable collectability should be reported. The Boards still need to re-debate any industry-specific considerations, whether to require retrospective ap­plication, and all disclosure requirements.

Leases—The Boards’ views on a number of topics have changed during redeliberations. Leases with less than one-year terms will not be capitalised. Variable (contingent) rentals will only be included in the lease liability when they are index-based or in-substance fixed, and renewal options will be in­cluded in the lease liability only if there is significant economic incentive that the renewal would be ex­ercised. The Boards have been discussing whether leases with greater than a one-year term should be classified into two types: finance leases and other than finance leases, and how the income statement should be presented under each type for both les­sees and lessors. The Boards still need to address many issues, including subleases, presentation on the income statement and balance sheet, how to transition existing leases, and all disclosures.

Insurance Contracts—The Boards are re-de­bating the issues on their respective insurance proposals, with the IASB working towards final­ising a standard, and the FASB building towards an Exposure Draft. In recent discussions with investors, analysts have pointed out concerns about any new standard introducing noneconomic volatility, as well as strong views about income statement presentation. The Boards have been discussing issues related to the discount rate on the insurance liability, and while several tentative decisions have been made, the Boards still need to make decisions about many significant items, such as whether to include an explicit risk adjust­ment in the liability, what presentation should be required on the income statement, whether to permit or require a modified approach for shorter-duration contracts, and whether or not to “unlock” the residual or composite margin.

Financial Instruments—The FASB continues to re­deliberate significant portions of its original proposals, including how financial instruments will be classified and measured. Most notably, the Boards tentatively decided that the classification and measurement of loans not held for sale but which were originated as part of a customer financing activity, where credit risk is the primary risk, measured from fair value to amor­tised cost. Many issues remain to be discussed, in­cluding presentation of the balance sheet and income statement (and whether and how to require highly vis­ible fair value information for items measured at cost), a disclosure package, transition, and other items.

The FASB and IASB have been working jointly on how to calculate credit losses in an impairment model. While the Boards have received very mixed feedback from around the world about how to pro­ceed, there seems to be a majority view among con­stituents who have weighed in that for all concerned it would be best if the Boards could agree upon a converged solution for impairment. As such, the Boards will continue to explore the best way forwards in order to arrive at a converged impairment model in upcoming months.

Offsetting—The FASB and IASB jointly proposed to change the criteria for netting, to allow netting of financial assets and liabilities on the face of the balance sheet only when an unconditional right to net exists at all times, and when there is an intention to settle contracts net or simultaneously. This would represent a major change for US filers with signifi­cant derivatives/repurchase agreement activity. An offsetting roundtable was recently held in Norwalk, CT.

 

The FASB is in the process of issuing a proposed Update (expected by end of June) that would require an investment property entity to measure real estate investment properties at fair value if related criteria are met.

The FASB is currently seeking investor views on financial instru­ment disclosures that would help investors analyse the interest rate and liquidity risk in a company with significant lending activities.

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