FASB Statements Articles
By: Mark Rodruck, CPA, Partner | email
On June 16, 2011, the FASB issued ASU 2011-05, eliminating one of the three existing presentation options for other comprehensive income and requiring reclassification adjustments to be reported on the face of the financial statements rather than in the notes as currently permitted. For non-public entities, this amendment is effective for fiscal years ending after December 15, 2012 and is to be applied retrospectively. If no items of other comprehensive income are present in any of the years presented in the financial statements, this standard does not apply.
The new standard eliminates the option of presenting comprehensive income in the “statement of changes in members' equity,” which leaves the following two options:
1) Presenting in a single-statement format. In this format, comprehensive income is reported in two sections: net income and other comprehensive income. It must also include the components of net income, a total of net income, the components of other comprehensive income, a total for other comprehensive income, and a total for (overall) comprehensive income.
2) Presenting in a two-statement format. In this format, the reporting entity must present the statement of other comprehensive income immediately following the statement of net income. Using this approach, the income statement would not change while the statement of other comprehensive income, which often begins with net income, should present the following: the components of other comprehensive income, a total for other comprehensive income, and a total for (overall) comprehensive income.
By: Mark Rodruck, CPA, Partner | email
On September 1, 2010, the Financial Accounting Standards Board (FASB) issued an Exposure Draft of a proposed Accounting Standards Update. The proposed update is intended to increase transparency in financial reporting for organizations that participate in multi-employer pension and other postretirement benefit plans. The update suggests new disclosures that the Board believes would help users of financial statements better assess the potential risks faced by those organizations.
Current U.S. GAAP requires employers to disclose their total contribution to multi-employer plans, but there is no requirement to describe the funding status of these plans. The objective of the project is to enhance the disclosures of an employer’s participation in a multi-employer pension plan. The Exposure Draft proposes the following disclosures, among others:
- Total assets and accumulated benefit obligation of the plan
- Quantitative information about the employer’s participation in the plan, for example, the number of its employees as a percentage of total plan participants
- A description of the contractual arrangements between the employer and the plan, including the length of the arrangement, the contribution rates agreed to, and any minimum funding arrangements
- Expected contributions for the next period and known trends in future contributions
- The amount required to be paid upon withdrawal from the plan
- A narrative description of any funding improvement plans adopted by the plan, including the expected effects on the employer.
This change was proposed to be effective for fiscal years ending after December 15, 2010 for public companies. A private company would be required to provide the enhanced disclosures for fiscal years beginning on or after December 15, 2010 (one year later than public companies). However, at its November 10, 2010 meeting, the Board decided that it will not be effective for the 2010 calendar year-end reporting period and it will decide on an effective date at a future meeting after it has substantially concluded its redeliberations. FASB will use the additional time to analyze and digest the more than 320 comments it received on the Exposure Draft, and to decide how to modify its Exposure Draft, if at all. The Board’s technical plan calls for the standard to be issued in the second quarter of 2011.
By: Dennis Gardiner, Partner | email
The Financial Accounting Foundation, FASB’s parent organization, was recently presented a report which recommends changes to the future of accounting standard setting for private companies, including a separate standard-setting board. It is believed that exceptions and modifications
to GAAP for private companies is a better response to the needs for the private company sector.
Under the recommendations, a separate private company standards board would be established to make exceptions and modifications for both new and existing standards. FASB will also need to define what differentiates private companies from public companies.
We will keep you posted as we learn more.
By: Gardiner Thomsen CPAs | email
The latest economic stimulus law, enacted on February 17, 2009, contains tax incentives designed to get the stagnant U.S. economy moving again. Here are 10 significant changes that might have an impact on your business.
Change #1: Some Businesses Can Carry Back 2008 Losses Up to Five Years
Under the new law, eligible businesses can elect to carry back 2008 net operating losses (NOLs) for either three, four, or five years to claim refunds of federal income taxes paid for earlier years. Certain deadlines apply, and the election privilege is only allowed for businesses with average annual gross receipts of $15 million or less for the three-year period that precedes the loss year for which the election is made.
Change #2: Extension of $250,000 Section 179 Depreciation Allowance
The new law extends the Section 179 first-year depreciation write-off by one year, increasing the maximum deduction from $133,000 to $250,000 for 2009. The new law also extends the phase-out threshold for new qualifying property by one year, increasing the threshold from $530,000 to $800,000 for 2009. For tax years beginning in 2010, the maximum deduction amount and the threshold will fall back to much lower amounts unless Congress takes further action.
Change #3: Extension of 50 Percent First-Year Bonus Depreciation
The Recovery Act extends the beneficial 50 percent first-year bonus depreciation provision to cover qualifying new assets that are placed in service by December 31, 2009. (A later deadline applies to limited assets described below.) To be eligible for 50 percent first-year bonus depreciation, an asset must be new qualified property and must be placed in service by December 31, 2009 or by December 31, 2010 for certain long-lived assets, transportation equipment, and aircraft.
Change #4: Bigger First-Year Write-offs for Autos and Light Trucks
For a new passenger auto or light truck that falls under the luxury auto depreciation limitation rules, the 50 percent first-year bonus depreciation benefit translates into an $8,000 increase in the maximum write-off obtained in the first year. Assuming 100% business use of the vehicle, for new cars placed in service in 2009, the estimated maximum first-year depreciation deduction is $10,960. For new light trucks the estimated maximum first-year depreciation deduction is $11,060.
Change #5: Favorable AMT Depreciation Side Effect
Fortunately, 50 percent first-year bonus depreciation applies equally for both regular tax and Alternative Minimum Tax (AMT) purposes. Just as good, there are no AMT adjustments necessary for depreciation deductions claimed for the remaining 50 percent of depreciable basis left after subtracting the bonus depreciation write-off. In other words, when 50 percent first-year bonus depreciation is claimed for an asset, the rules are the exactly the same for both regular tax and AMT purposes.
Change #6: Corporate Option to Claim Certain Credits Instead of Bonus Depreciation
Under prior rules, corporations could elect to forego claiming 50% first-year bonus depreciation deductions, for qualified assets that were purchased after March 31, 2008 and placed in service by December 31, 2008 (or December 31, 2009 for certain assets), in lieu of using other credits, allowing the company to offset both regular tax and AMT liabilities.
The new law extends these deadlines to December 31, 2009 and December 31, 2010, respectively, and it also provides electing corporations with three options for choosing the best mix of available credits and bonus depreciation.
Change #7: Income Triggered by Reacquiring Taxpayer’s Own Debt at a Discount Can Be Deferred
Under the new law, a business that reacquires its own debt at a discount in calendar years 2009 and 2010 can defer the resulting taxable debt discharge income (DDI) and spread the DDI over five years after the deferral period is over. This may allow financially stressed businesses to restructure their debts in a tax-favored manner.
Change #8: Tax Break for Some S Corporation Built-In Gains
When a C corporation switches to S corporation status, the built-in gains tax (BIG tax) applies to assets that have built-in gains as of the C-to-S corporation conversion date. The new law grants a temporary BIG tax exemption for gains recognized from an S corporation’s tax years beginning in 2009 and 2010, but only if seven years have passed since the conversion date.
Change #9: Subsidized COBRA Coverage for Terminated Workers.
COBRA (Consolidated Omnibus Budget Reconciliation Act) Assistance eligible individuals who were involuntarily terminated as of September 1st, 2008 are now provided a new 60-day period to elect coverage if they had previously declined it. All COBRA eligible individuals as of March 1st will only be required to pay 35 percent of the health plan premiums while the federal government will subsidize the remaining 65 percent. The government subsidy will generally come in the form of a federal payroll tax credit for the employer on its quarterly employment tax return. This change is explained in more detail in a separate article in this newsletter.
Change #10: Liberalized Gain Exclusion for New Issues of Small Business Stock
Under Section 1202 of the tax code, non-C corporation sellers of qualified small business corporation stock can potentially exclude up 50 percent of their gains from federal income taxation (subject to several limitations).
To encourage more investment in qualified small business corporations, the Recovery Act increases the gain exclusion percentage from 50 to 75 percent. This beneficial change only applies to qualifying sales of eligible shares that are issued between February 18, 2009 and December 31, 2010.
This is just an overview of only 10 important changes made by the new Stimulus Law. For further detail on these and additional changes potentially affecting the tax liability of your company, please call us. We’re here to help.
By: Dave Thomsen, Partner | email
For many years, two methods of reporting mergers, the purchase method and the pooling of interests method, had been available to account for mergers and acquisitions “in accordance with generally accepted accounting principles.” In 2001, the Financial Accounting Standards Board (FASB) discontinued the acceptance of the pooling of interest method except for certain business entity types such as mutual enterprises like Farmer cooperatives. However, the FASB has recently issued Statement No. 141(R) that now eliminates the pooling of interests method altogether and also introduced other new requirements to be considered in most, if not all, business combinations.
As most of you know, the pooling of interests method simply combined the accounts of each merging company at book value, with no adjustments to reflect market value differences. In addition, retained savings of both companies were also combined.
On the effective date of FASB 141(R), any new business combination will be required to use the purchase method to measure and recognize the fair value of all assets and liabilities of the companies being combined. A few of the significant issues we see from this new approach are:
- Under the purchase method, one company will be identified as the Acquirer and the other(s) as the Acquired.
- Greater attention will now be placed on the fair value of assets as compared to book value. This applies to both the Acquirer and the Acquired. Appraisals of property and equipment will be much more common in mergers than in the past, and though investments in other cooperatives will be recorded at cost, an adjustment may be included to reflect fair value based on present value calculations.
- Rather than adding the retained savings of the Acquired company to those of the Acquirer, that retained will disappear and any additional value of unallocated equity, net of fair market valuation adjustments may transfer to allocated equities (write-ups as opposed to write-downs) or be recognized as a bargain purchase gain or goodwill.
Previous mergers have always tried to take into consideration “balance sheet equalization.” That equalization will continue with future mergers, only it will become more transparent.
The new rules are effective for business combinations with acquisition dates that occur on or after the first annual reporting period beginning on or after December 15, 2008.
For help in understanding the new guidelines under FASB 141(R), please give us a call.
By: Gardiner Thomsen CPAs | email
The Financial Accounting Standards Board (FASB) has recently initiated an effort to simplify the organization of authoritative U.S. accounting pronouncements and standards. The FASB has released the “NEW” FASB Accounting Standards Codification™ and related online Codification Research System. FASB will confirm the accuracy of the Codification by asking users to provide feedback during a one-year verification period. Register at: http://asc.fasb.org.
The Codification reorganizes the 1000’s of U.S. generally accepted accounting principles (GAAP) pronouncements into 90 accounting topics, and displays them all using a consistent st
ructure. Pronouncements from multiple standard setters and related literature are covered. It is intended to reflect GAAP for non-governmental entities.
FASB expects the Codification to reduce time and effort required to solve accounting research issues. Also it will improve usability of the literature, thereby mitigating the risk of noncompliance with standards and provideing real-time updates of new standards.
As we all know, GAAP is often confusing with an enormous amount of information. The Codification will make GAAP more understandable and easier to research. We encourage you to take the time to learn the new standards and make yourself familiar with the Codification. However, always feel free to contact us anytime.
By: Dennis Gardiner, Partner | email
Recently, the Federal Accounting Standards Board (FASB) instituted Statement No. 158 which is an amendment to several other FASB statements concerning the reporting of pension funds for a defined benefit post-retirement plan ('Plan').
No. 158 requires that any employer who sponsors one or more Plans:
- Recognize the over-funded or under-funded status of a Plan [the difference between fair market value and benefit obligation] as an asset or liability in the company's year-end financial statements.
- Recognize as a part of other comprehensive income, net of tax, certain gains and losses associated with the Plan. These are items that would not be considered components of net periodic benefit costs.
- Footnote any occurrences that may change the status of net periodic benefit costs for the following fiscal year due to delayed recognition of certain gains or losses.
- Measure the funded status of a Plan from the date of the company's year-end financial statements.
The application of FAS No. 158 does not have an impact on the co
mpany's income statement. However, the impact on the company's balance sheet may be significant depending on the magnitude of the over-funded or under-funded status of the plan.
The Board decided to implement No. 158 due to concerns that previous requirements did not allow employers to clearly and completely communicate the funded status of a Plan. One of those concerns was that certain events affecting the Plan's funded status could also have a financial effect on the company and should therefore be recorded, along with footnotes about the specific event, in the company's year-end financial statements. Another concern was that while employers were allowed to recognize the value of assets or liabilities arising from the plan, the over-funded or under-funded status of a Plan was usually different from those values.
This new standard now helps to clarify the status of Plans by requiring employers to recognize critical information on the financial statements instead of only recording it in the footnotes, more clearly communicating your financial position to your members.
For more information on how these changes could affect your business, please contact us. We're here to help!