Alert: FASB Accounting Standards Update No. 2017-03 – Accounting Changes and Error Corrections and Investments - Equity Method and Joint Ventures

Category: US GAAP

Alert: FASB Accounting Standards Update No. 2017-03 – Accounting Changes and Error Corrections and Investments - Equity Method and Joint Ventures

On January 24, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-03 Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323). The ASU reflects the Securities and Exchange Commission’s (SEC) Staff Announcements made at the September 22, 2016 and November 17, 2016 Emerging Issues Task Force (EITF) meetings.

Disclosure of the Financial Statement Impact of Recently Issued, but not yet Adopted, Accounting Standards

As entities will be applying three major new standards over the next few years, the SEC Staff emphasized at its September 22, 2016 EITF meeting the importance of disclosures describing the financial statement impact of recently issued, but not yet adopted, accounting standards. As a result, the following standards were amended:

  • Accounting Changes and Error Corrections (Topic 250)
  • Financial Instruments – Credit Losses (Topic 326)
  • Revenue from Contracts with Customers (Topic 606)
  • Leases (Topic 842)

The amendments to the above-mentioned standards require that an entity evaluate ASUs that have not yet been adopted to determine the appropriate financial statement disclosures to inform a reader about the potential material effects on the financial statements upon adoption. This requirement applies to all accounting standards which have been issued but not yet adopted by the entity, unless the impact is not expected to be material.

The objective of the disclosure is to notify the reader that a standard has been issued which the entity will be required to adopt in the future, as well as assist in assessing the significance of the financial statement impact when adopted. To achieve this, an entity should consider the following disclosures:

  • A brief description of the new standard.
  • The required adoption date and the expected adoption date by the entity, if early adopting.
  • A discussion of the adoption methods permitted and the expected method to be utilized by the entity, if determined.
  • A discussion of the expected impact on the financial statements upon adoption, unless not known or reasonably estimable.
  • A discussion of the potential impact of other significant matters that the entity anticipates from the adoption, such as technical violations of debt covenant agreements, planned or intended changes in business practices, etc., is encouraged.

Such disclosures may be made in both the Management’s Discussion & Analysis (MD&A) and the notes to the financial statements. The MD&A may contain cross references to these disclosures that appear within the notes to the financial statements.

If an entity cannot reasonably estimate the impact of the adoption of an ASU, a statement to that effect must be disclosed. Further, the entity should consider additional qualitative disclosures to assist the reader in assessing the significance of the impact on the financial statements upon adoption of the standard. Such additional qualitative disclosures may include:

  • A description of the effect of the accounting policies that the entity expects to apply, if determined.
  • A comparison to the entity’s current accounting policies.
  • A description of the status of the entity’s implementation process for the new standards, including any significant implementation matters yet to be addressed.

The disclosures are required in the financial statements in filings with the SEC after the issuance of a new standard but before it is adopted by the entity.

Accounting for Tax Benefits Resulting from Investments in Qualified Affordable Housing Projects

Based on a comment from an SEC observer at the November 17, 2016 EITF meeting, amendments were made to Topic 323 Investments – Equity Method and Joint Ventures to change the reference from the “effective yield method” to the “proportional amortization method” to be consistent with ASU 2014-01 Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. This change is not expected to significantly impact current practice for entities that have adopted ASU 2014-01.

Resources

To access the full script of the September 22, 2016 EITF meeting, click here.

To access the full script of the November 17, 2016 EITF meeting, click here.

To access the full script of ASU No. 2017-03, click here.

This communication contains a general overview of the topic and is current as of January 24, 2017. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional, who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2017. All rights reserved.

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Michelle Balmer

Michelle Balmer CPA, CA

Vice President, Assurance

Michelle Balmer, CPA, CA, is a Senior Assurance Services Partner with MNP. With 14 years of experience in public practice, Michelle helps a broad range of public and privately held companies in a variety of industries. She also works on special projects, including costing studies, benchmarking and best-practice studies, operational analyses, litigation support and due diligence.

As a key member of MNP's Assurance team, Michelle has played an instrumental role in assurance policy development, implementing accounting and assurance standards firm-wide and educating assurance practitioners regarding methodologies and new pronouncements. She also provides technical advice and consultation on accounting and assurance issues, as well as on rules of professional conduct issues, to all MNP practitioners.

Michelle was certified a Chartered Accountant (CA) after obtaining a Bachelor of Commerce degree from the University of Alberta. She has been actively involved with the Institute of Chartered Accountants of Alberta, including the Chartered Accountants School of Business, in an instructional and marketing capacity. An avid volunteer, she has assisted numerous groups such as the Easter Seals of Alberta, Paralympic Sports Association and Junior Achievement of Northern Alberta.