FASB: 2020 - What You Need To Know & A Review of 2019 Updates

Happy New Year! We are pleased to release MaloneBailey's January 2020 issue of The Crunch. This special edition of The Crunch highlights FASB updates that are going into effect in 2020 as well as a review of the FASB updates that went into effect in 2019.

Please note that the updates provided in this newsletter are not a comprehensive list. We encourage you to visit the SEC , FASB and IRS websites for more information as well as a complete list of updated rules, regulations and proposals.

We invite you to contact us should you have any questions about the information provided in this issue. We invite you to visit our website to review archived versions of this newsletter containing past accounting, regulatory and tax updates.

The MaloneBailey Team

www.malonebailey.com

What's the Crunch?

Featured Podcast

Revenue Recognition Guidance

FASB: What You Need to Know for 2020

Codification Improvements

Codification Improvements to Topic 326, Financial Instruments—Credit Losses
Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

Financial Instruments

Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief
Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Compensation

Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer

Intangibles

Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment — Broadcasters — Intangibles — Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials
Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

Leases

Leases (Topic 842): Codification Improvements

Consolidation

Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities

Fair Value

Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

Other FASB

Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606
Not-for-Profit Entities (Topic 958): Updating the Definition of Collections

FASB: A Review of 2019 Updates

Financial Instruments

Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)

Codification Improvements

Codification Updates to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates
Codification Improvements to Topic 842, Leases
Codification Improvements to Topic 995, U.S. Steamship Entities: Elimination of Topic 995

Intangibles

Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities

Leases

Leases (Topic 842): Narrow-Scope Improvements for Lessors
Leases (Topic 842): Targeted Improvements
Leases (Topic 842)
Leases (Topic 842):Land Easement Practical Expedient for Transition to Topic 842

Derivatives

Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception

Compensation

Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting

Income Tax

Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

Receivables

Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities

Other FASB

Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting.
Financial Services—Insurance (Topic 944)

Tax Updates

Final Regulations Eliminate the Potential Harms to Post-2025 Estates

Extra Crunch

FINRA's Small Firm Cybersecurity Checklist

About MaloneBailey, LLP

Featured Podcast

PODCAST: Revenue Recognition Guidance

Our featured podcast highlights Revenue Recognition guidance. Click on the image below to hear Leah Gonzales, Audit Partner, and Caroline Rosen, Marketing Manager, discuss the guidance.

For this podcast and many more, please visit the Resources section of the MaloneBailey website.

FASB: What You Need to Know for 2020

Codification Improvements to Topic 326, Financial Instruments—Credit Losses

Summary - This ASU, among other narrow-scope improvements, clarifies guidance around how to report expected recoveries. “Expected recoveries” describes a situation in which an organization recognizes a full or partial writeoff of the amortized cost basis of a financial asset, but then later determines that the amount written off, or a portion of that amount, will in fact be recovered. This ASU permits organizations to record expected recoveries on PCD assets.

In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities.

For entities that have not yet adopted the amendments in ASU 2016-13 as of 11/26/19, the effective dates and transition requirements are the same as those in ASU 2016-13.

For entities that have adopted ASU 2016-13, these amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim period after 11/26/19 as long as an entity has adopted ASU 2016-13.

For entities that have adopted ASU 2016-13, the amendments should be applied on a modified retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date that an entity adopted ASU 2016-13.

For more information, click here .

Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

Summary - These amendments clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement.

The topics included in this ASU are:

Topic 1: Codification Improvements Resulting from the June 11, 2018 and November 1, 2018 Credit Losses Transition Resource Group (TRG) Meetings;
Topic 2: Codification Improvements to ASU No. 2016-13;
Topic 3: Codification Improvements to ASU No. 2017-12 and Other Hedging Items;
Topic 4: Codification Improvements to ASU No. 2016-01; and
Topic 5: Codification Improvements Resulting from the November 1, 2018 Credit Losses TRG Meeting.

For entities that have not yet adopted the amendments in ASU 2017-12 as of April 25, 2019 (the issuance date of ASU 2019-04), the effective dates and transition requirements for the amendments to Topic 815 are the same as the effective dates and transition requirements in ASU 2017-12.

For entities that have adopted the amendments in ASU 2017-12 as of the issuance date of ASU 2019-04, the effective date is as of the beginning of the first annual reporting period beginning after April 25, 2019. For those entities, early adoption is permitted, including adoption on any date on or after April 25, 2019.

For the amendments related to ASU 2016-01, the effective date is for fiscal years and interim periods beginning after December 15, 2019. Early adoption in any interim period is permitted.

For entities that have not yet adopted the amendments in ASU 2016-13, the effective dates and transition requirements are the same as the effective dates and transition requirements in ASU 2016-13. For entities that have adopted the amendments in ASU 2016-13 as of the issuance date of ASU 2019-04, the effective date is for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted in any interim period as long as the entity has adopted the amendments in ASU 2016-13.

For more information, click here .

Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief

Summary - These amendments provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments—Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement—Overall, and 825-10.

For entities that have not yet adopted ASU No. 2016-13, the effective date and transition methodology are the same as in ASU No. 2016-13.

For entities that have adopted ASU No. 2016-13, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim period after the issuance of ASU No. 2019-05 as an entity has adopted the amendments in ASU No. 2016-13.

The amendments should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings balance in the balance sheet as of the date that an entity adopted ASU No. 2016-13.

For more information, click here .

Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Summary - Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.

In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

Effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). For public companies that are not SEC filers, the ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other organizations, the ASU on credit losses will take effect for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

For more information, click here.

Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer

Summary - This ASU requires companies to measure and classify (on the balance sheet) share-based payments to customers by applying the guidance in Topic 718, Compensation—Stock Compensation. As a result, the amount recorded as a reduction in revenue would be measured based on the grant-date fair value of the share-based payment.

Measuring and classifying share-based payments to customers under Topic 718 provide the following improvements:

Fewer measurement dates for the instruments;
Fewer instances of classifying the instruments as liabilities; and
More consistent accounting with share-based payments made to other nonemployees.

ASU No. 2019-08 is effective for entities that have not yet adopted the amendments in ASU No. 2018-07, the amendments in ASU No. 2019-08 are effective for (1) public business entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and (2) other than public business entities in fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

For entities that have adopted ASU No. 2018-07, the amendments in ASU No. 2019-08 are effective in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

An entity may early adopt the amendments in ASU No. 2019-08, but not before it adopts the amendments in ASU No. 2018-07. An entity may adopt the amendments in ASU No. 2019-08 either in the same fiscal year that it adopts the amendments in ASU No. 2018-07 or in a fiscal year after the fiscal year that the entity adopts the amendments in Update 2018-07, both through a cumulative-effective adjustment to retained earnings.

For more information, click here .

Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment — Broadcasters — Intangibles — Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials

Summary - The standard addresses when an organization should assess films and license agreements for program material for impairment at the film-group level. The amendments in the standard also:

Revise presentation requirements;
Require that an organization provide new disclosures about content that is either produced or licensed; and
Address cash flow classification for license agreements.

For public companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other organizations, the standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted.

For more information, click here .

Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

Summary - These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments.

For public business entities, the amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. For all other entities, the amendments are effective for annual periods beginning after December 15, 2020, and

interim periods in annual periods beginning after December 15, 2021. Early adoption is permitted.

For more information, click here .

Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

Summary - These amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.

The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

Effective for public business entities that are a SEC filers for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

A public business entity that is not an SEC filer should adopt ASU 2017-04 for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020.

All other entities, including not-for-profit entities, should adopt ASU 2017-04 for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis.

For more information, click here .

Leases (Topic 842): Codification Improvements

Summary - These amendments align the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement) should be applied. (Issue 1)

The ASU also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities. (Issue 2)

Finally, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. (Issue 3).

The transition and effective date provisions apply to Issue 1 and Issue 2. They do not apply to Issue 3 because the amendments for that Issue are to the original transition requirements in Topic 842.

The amendments in this ASU amend Topic 842. That Topic has different effective dates for public business entities and entities other than public business entities. The effective date of those amendments is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years for any of the following:

A public business entity
A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market
An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC).

For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted. An entity should apply the amendments as of the date that it first applied Topic 842, using the same transition methodology in accordance with paragraph 842-10-65-1(c).

For more information, click here .

Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606

Summary - A collaborative arrangement is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success. The ASU provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard.

The ASU also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. It accomplishes this by allowing organizations to only present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard. The parts of the collaborative arrangement that are not in the scope of the revenue recognition standard should be presented separately from revenue accounted for under the revenue recognition standard.

For public companies, the amendments in ASU No. 2018-18 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other organizations, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted.

For more information, click here .

Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities

Summary - The new guidance supersedes the private company alternative for common control leasing arrangements issued in 2014 and expands it to all qualifying common control arrangements.

Under the new standard, a private company could make an accounting policy election to not apply VIE guidance to legal entities under common control (including common control leasing arrangements) when certain criteria are met. This accounting policy election must be applied by a private company to all current and future legal entities under common control that meet the criteria for applying the alternative. A private company will be required to continue to apply other consolidation guidance, specifically the voting interest entity guidance.

Additionally, a private company electing the alternative is required to provide detailed disclosures about its involvement with, and exposure to, the legal entity under common control.

The ASU also amends the guidance for determining whether a decision-making fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in GAAP). Therefore, these amendments likely will result in more decision makers not consolidating VIEs.

For organizations other than private companies, the amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this ASU are effective for a private company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted.

For more information, click here .

Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

Summary - These amendments modify the disclosure requirements in Topic 820 as follows:

Removals

The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;
The policy for timing of transfers between levels;
The valuation processes for Level 3 fair value measurements; and
For nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period.

Modifications

In lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities;
For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and
The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

Additions

The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and
The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

For all entities, amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date.

Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date.

For more information, click here .

Not-for-Profit Entities (Topic 958): Updating the Definition of Collections

Summary - These amendments modify the definition of the term collections and require that a collection-holding entity disclose its policy for the use of proceeds from when collection items are deaccessioned (i.e., removed from a collection). If a collection-holding entity has a policy that allows proceeds from deaccessioned collection items to be used for direct care, it should disclose its definition of direct care.

The amendments apply to all entities, including business entities, that maintain collections. However, accounting for collections is primarily an issue for certain not-for-profit (NFP) entities because collections often are held by museums; botanical gardens; libraries; aquariums; arboretums; historic sites; planetariums; zoos; art galleries; nature, science, and technology centers; and similar educational, research, and public service organizations that have those divisions.

The amendments are effective for annual financial statements issued for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. Early application of the amendments is permitted. The amendments should be applied on a prospective basis.

For more information, click here .

FASB: A Review of 2019 Updates

Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates

Summary - This ASU amends the effective dates of ASU No. 2017-12 (Hedging); ASU No. 2016-13 (Credit Losses) and ASU No. 2016-02 (Leases). It basically pushes back by one year the effective date for all other entities, and also distinguishes that smaller reporting companies as definied by the SEC are considered for purposes of ASU No. 2016-13 only, as an other entity. See ASU No. 2019-10 for further details. The standard is effective immediately.

For more information, click here .

Codification Updates to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates

Summary - This ASU amends certain SEC sections or paragraphs within the FASB Accounting Standards Codification™ (Codification). These amendments are being made to reflect the following previously issued SEC final rules:

Disclosure Update and Simplification; and
Investment Company Reporting Modernization (2 final rules).

The SEC adopted the above final rules to improve, update, and simplify its regulations on financial reporting and disclosure. ASU 2019-07 updates the Codification to reflect these SEC changes. Other miscellaneous updates are included in ASU 2019-07 to update language in the Codification to the electronic Code of Federal Regulations.

Effective upon addition to the FASB Codification.

For more information, click here .

Codification Improvements to Topic 842, Leases

Summary - These amendments affect narrow aspects of the guidance issued in the amendments in ASU 2016-02 including those regarding residual value guarantees, rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic 840, transition guidance for modifications to leases previously classifed as direct financing or sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect of initial direct costs on rate implicit in the lease, and failed sale and leaseback transactions.

For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842.

For more information, click here .

Codification Improvements to Topic 995, U.S. Steamship Entities: Elimination of Topic 995

Summary - The amendments add further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606.

'The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The effective date for nonpublic entities is deferred by one year.

For more information, click here .

Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities

Summary - This ASU extends the scope of the two private company alternatives to not-for-profits, enabling organizations to recognize fewer items as separate intangible assets in acquisitions and to account for goodwill in a more cost-effective manner.

In ASU No. 2019-06, instead of testing goodwill for impairment annually at the reporting unit level, a not-for-profit organization that elects the accounting alternative will:

Amortize goodwill over 10 years or less, on a straight-line basis;
Test for impairment upon a triggering event; and
Have the option to elect to test for impairment at the entity level.

A not-for-profit organization also has the option to subsume certain customer-related intangible assets and all noncompete agreements into goodwill, which it subsequently must amortize.

The standard is effective immediately.

For more information, click here .

Leases (Topic 842): Narrow-Scope Improvements for Lessors

Summary - ASU No. 2018-20 addresses the following issues facing lessors when applying the leases standard:

Sales taxes and other similar taxes collected from lessees. The amendments in the ASU permit lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, those lessors will account for those costs as if they are lessee costs and exclude the costs from being reported as lease revenue with an associated expense.
Certain lessor costs paid directly by lessees. The amendments in the ASU related to certain lessor costs require lessors to exclude from variable payments, and therefore revenue, lessor costs paid by lessees directly to third parties. The amendments also require lessors to account for costs excluded from the consideration of a contract that are paid by the lessor and reimbursed by the lessee as variable payments. A lessor will record those reimbursed costs as revenue.
Recognition of variable payments for contracts with lease and nonlease components. The amendments in the ASU related to recognizing variable payments for contracts with lease and nonlease components require lessors to allocate (rather than recognize as currently required in the new leases standard) certain variable payments to the lease and nonlease components when the changes in facts and circumstances on which the variable payment is based occur. After the allocation, the amount of variable payments allocated to the lease components will be recognized as income in profit or loss in accordance with the new leasing guidance, while the amount of variable payments allocated to nonlease components will be recognized in accordance with other accounting guidance, such as revenue from contracts with customers.

An entity that has not yet adopted Topic 842 should apply ASU No. 2018-20 to all new and existing leases when the entity first applies Topic 842 and should apply the same transition method elected for Topic 842.

An entity that has adopted Topic 842 before the issuance of ASU No. 2018-20 should adopt ASU No. 2018-20 to all new and existing leases at the original effective date of Topic 842 for that entity as determined in paragraph 842-10-65-1(a) through (b).

Alternatively, an entity that has adopted Topic 842 may adopt ASU No. 2018-20 to all new and existing leases either:

In the first reporting period ending after the issuance of ASU No. 2018-20, or
In the first reporting period beginning after the issuance of ASU No. 2018-20.

An entity that has adopted Topic 842 before the issuance ASU No. 2018-20 should apply ASU No. 2018-20 to all new and existing leases either:

Retrospectively to all prior periods beginning with the fiscal years in which Topic 842 was initially applied, or
Prospectively.

For more information, click here .

Leases (Topic 842): Targeted Improvements

Summary - These amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases).

The amendments also provide lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606) and certain criteria are met: If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity is required to account for the combined component in accordance with Topic 606. Otherwise, the entity must account for the combined component as an operating lease in accordance with Topic 842.

For entities that have not adopted Topic 842 before the issuance of ASU No. 2018-11, the effective date and transition requirements for the amendments related to separating components of a contract are the same as the effective date and transition requirements in ASU No. 2016-02. For entities that have adopted Topic 842 before the issuance of ASU No. 2018-11, the transition and effective date of the amendments related to separating components of a contract in ASU No. 2018-11 are as follows:

The practical expedient may be elected either in the first reporting period following the issuance of this Update or at the original effective date of Topic 842 for that entity.
The practical expedient may be applied either retrospectively or prospectively.

All entities, including early adopters, that elect the practical expedient related to separating components of a contract in ASU No. 2018-11 must apply the expedient, by class of underlying asset, to all existing lease transactions that qualify for the expedient at the date elected.

For more information, click here .

Leases (Topic 842)

Summary - Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and
A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

Effective for Public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Nonpublic business entities should apply the amendments for fiscal years beginning after December 15, 2019 (i.e., January 1, 2020, for a calendar year entity), and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted for all public business entities and all nonpublic business entities upon issuance.

Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach.

For more information, click here .

Leases (Topic 842):Land Easement Practical Expedient for Transition to Topic 842

Summary - The amendments in ASU 2018-01:

Provide an optional transition practical expedient for the adoption of ASU 2016-02 that, if elected, would not require an organization to reconsider their accounting for existing land easements that are not currently accounted for under the old leases standard; and
Clarify that new or modified land easements should be evaluated under ASU 2016-02, once an entity has adopted the new standard.

Effective with ASU 2016-02, as amend ed.

For more information, click here .

Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting

Summary - In the United States, eligible benchmark interest rates under Topic 815 are interest rates on direct Treasury obligations of the U.S. government (UST), the London Interbank Offered Rate (LIBOR) swap rate, and the Overnight Index Swap (OIS) Rate based on the Fed Funds Effective Rate. When the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, in August 2017, it introduced the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate as the fourth permissible U.S. benchmark rate.

The new ASU adds the OIS rate based on SOFR as a U.S. benchmark interest rate to facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and hedge accounting purposes.

The amendments will be effective concurrently with ASU 2017-12. For public companies that already have adopted ASU 2017-12, the new amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other companies and organizations that already have adopted ASU 2017-12, the new amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted in any interim period upon issuance of this ASU if a company or organization already has adopted ASU 2017-12.

For more information, click here .

Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

Summary - These amendments refine and expand hedge accounting for both financial (e.g., interest rate) and commodity risks. Its provisions create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. It also makes certain targeted improvements to simplify the application of hedge accounting guidance.

Effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020.

Early adoption, including adoption in an interim period, is permitted. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period (i.e., the initial application date).

For more information, click here .

Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception

Summary - These amendments simplify the accounting for certain financial instruments with down round features.

The amendments require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity.

The amendments also address navigational concerns within the FASB Accounting Standards Codification® related to an indefinite deferral available to private companies with mandatorily redeemable financial instruments and certain noncontrolling interests, one that created significant “pending content” in the Codification. The FASB decided to reclassify the indefinite deferral as a scope exception, which does not have an accounting effect.

Effective for a public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

Earlier adoption is permitted for all entities as of the beginning of an interim period for which financial statements (interim or annual) have not been issued or have not been made available for issuance.

For more information, click here .

Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting

Summary - These amendments expand the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees.

For public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers.

For more information, click here .

Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

Summary - These amendments provide financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.

The ASU requires financial statement preparers to disclose:

A description of the accounting policy for releasing income tax effects from AOCI;
Whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act; and
Information about the other income tax effects that are reclassified.

The amendments affect any organization that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP.

Effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.

For more information, click here .

Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities

Summary - The amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.

Effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.

For more information, click here .

Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting

Summary - Among other things, the amendments require a plan’s interest in that master trust and any change in that interest to be presented in separate line items in the statement of net assets available for benefits and in the statement of changes in net assets available for benefits, respectively.

The amendments also remove the requirement to disclose the percentage interest in the master trust for plans with divided interests and require that all plans disclose the dollar amount of their interest in each of those general types of investments.

The amendments require all plans to disclose: (a) their master trust’s other asset and liability balances; and (b) the dollar amount of the plan’s interest in each of those balances.

Lastly, the amendments eliminate redundant investment disclosures (e.g., those required by Topics 815 and 820) relating to 401(h) account assets.

Effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The amendments should be applied retrospectively to each period for which financial statements are presented.

For more information, click here .

Tax Updates

Final Regulations Eliminate the Potential Harms to Post-2025 Estates

Summary - The Tax Cuts and Jobs Act (TCJA, or “2017 Tax Reform”) increased the tax-free threshold to $11.4 million for gifts made or decedents dying between January 1, 2018 and December 31, 2025. However, the mechanism on the estate and gifts tax return is not as straight forward as stated above.

When taxpayers file estate and gift tax returns, they are required to first calculate the estate and gift tax on all taxable transfers of money, property and other assets. Then, a nonrefundable credit (shared between gifts and estates) will be applied to reduce the net tax. This credit is calculated based on an applicable exclusion amount, which is $11.4 million for 2019. In 2026, this exclusion amount will revert to $5 million level.

The statutory sunset of higher exclusion creates a concern: For example, a taxpayer makes a gift of $11.4 million in 2019, and uses up all of his credits of $4,505,800. If he passes away in 2027, at which time the maximum exclusion amount is $5,490,000 and the credit is $2,141, 800, does he need to pay 40% marginal estate tax on the $5,910,000 taxable estates (life-time total gifts minus allowable exclusion at the time of death)? Based on the language of the code section, it seems that this taxpayer will retroactively lose his full benefits of making large gifts by 2026.

The good news is that the final regulation provides a special rule which allows the estate to compute its tax credit using the higher of the exclusion amount applicable to gifts made during life or the exclusion amount applicable on the date of death. Accordingly, in the above example, the exclusion remains $11.4 million on the taxpayer’s 2027 estate tax return.

Click here for more information.

Should you have any questions on the R&D tax credit, please contact Nicole Zhao .

Extra Crunch

FINRA's Small Firm Cybersecurity Checklist

Summary - FINRA provides a 'Small Firm Cybersecurity Checklist' in their effort toward protecting the data of investors. FINRA's cybersecurity program supports the following according to its website:

Identify and assess cybersecurity threats;
Protect assets from cyber intrusions;
Detect when their systems and assets have been compromised;
Plan for the response when a compromise occurs; and
Implement a plan to recover lost, stolen or unavailable assets.

The checklist, which is primarily derived from the National Institute of Standards and Technology (NIST) Cybersecurity Framework and FINRA’s Report on Cybersecurity Practices, is available online. Click here for more information.

About MaloneBailey, LLP

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