We are pleased to release MaloneBailey's July 2021 issue of The Crunch. This special edition of The Crunch highlights FASB updates that went into effect in 2021 as well as a review of the FASB updates will go into effect in 2022.
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
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What's the Crunch?
Featured Podcast
- FASB & Tax: What to Keep in Mind for 2021
FASB: What You Need to Know for 2022
- Financial Services-Insurance (Topic 944): Effective Date and Early Application
- Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity(Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options
- Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
FASB: A Review of 2021 Updates
- Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets
- Reference Rate Reform (Topic 848): Scope
- Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762
- Codification Improvements
- Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs
- Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815
- Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
- Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans
- Financial Services —Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts
Tax Updates
- Child Tax Credit Expansion and Advance Payments for 2021
Extra Crunch
- SEC Spotlight on Cybersecurity
About MaloneBailey, LLP
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FASB & Tax: What to Keep in Mind for 2021
Summary - In this episode of Everybody Counts, Caroline Rosen, Marketing and Communications Manager, Yuki Hua, Audit Manager, and Nicole Zhao, Senior Tax Manager, discuss what to be mindful of from a tax perspective in 2021. In light of the pandemic and new President among other transitions, we consider how such changes will impact us from a tax/accounting angle.
For this podcast and many more, please visit the Resources section of the MaloneBailey website.
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FASB: What You Need to Know for 2022 |
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Financial Services-Insurance (Topic 944): Effective Date and Early Application
Summary - This ASU allows the delayed adoption date of ASU No. 2018-12, as noted in the "Effective Date" information at the left. And allows insurance companies to restate only one previous period, rather than two, if they choose to early adopt LDTI.
The amendments permit the delay of the implementation of ASU No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI), by one year as follows:
- For SEC filers, excluding smaller reporting companies as defined by the SEC, LDTI is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.
- For all other entities, LDTI is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025. Early adoption is permitted.
- If early adoption is elected, the transition date is either the beginning of the prior period presented or the beginning of the earliest period presented. If early application is not elected, the transition date is the beginning of the earliest period presented.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options
Summary - This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) How an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) How an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) How an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange.
The amendments are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments.
Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
Summary - This ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas.
ASU No. 2020-06 is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.
For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption will be permitted.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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FASB: A Review of 2021 Updates |
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Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets
Summary - This ASU requires a not-for-profit organization to present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash or other financial assets. It also requires a not-for-profit to disclose:
- Contributed nonfinancial assets recognized within the statement of activities disaggregated by category that depicts the type of contributed nonfinancial assets; and
- For each category of contributed nonfinancial assets recognized (as identified in (a)):
- Qualitative information about whether the contributed nonfinancial assets were either monetized or utilized during the reporting period. If utilized, a description of the programs or other activities in which those assets were used.
- The not-for-profit’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets.
- A description of any donor-imposed restrictions associated with the contributed nonfinancial assets.
- The valuation techniques and inputs used to arrive at a fair value measure, in accordance with the requirements in Topic 820, Fair Value Measurement, at initial recognition.
- The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
ASU No. 2020-07 is effective retrospectively for annual reporting periods beginning after June 15, 2021, and interim periods with annual reporting periods beginning after June 15, 2022. Early adoption is permitted.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Reference Rate Reform (Topic 848): Scope
Summary - This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.
An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued.
An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762
Summary - This ASU amends and supersedes various SEC paragraphs to reflect SEC Release No. 33-10762, which includes amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. These SEC changes are intended to both improve the quality of disclosure and increase the likelihood that issuers will conduct debt offerings on a registered basis.
The final rules are effective on January 4, 2021. Voluntary compliance with the final amendments in advance of January 4, 2021, will be permitted. After voluntary compliance subsequent Exchange Act or Regulation A periodic reports must comply with the final rules.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Codification Improvements
Summary - This ASU affects a wide variety of Topics in the Codification. They apply to all reporting entities within the scope of the affected accounting guidance.
More specifically, this ASU, among other things, contains amendments that improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50). Many of the amendments arose because the FASB provided an option to give certain information either on the face of the financial statements or in the notes to financial statements and that option only was included in the Other Presentation Matters Section (Section 45) of the Codification. The option to disclose information in the notes to financial statements should have been codified in the Disclosure Section as well as the Other Presentation Matters Section (or other Section of the Codification in which the option to disclose in the notes to financial statements appears). Those amendments are not expected to change current practice.
The amendments are effective for annual periods beginning after December 15, 2020, for public business entities. For all other entities, the amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022.
Early application of the amendments is permitted for and varies based on the entity.
The amendments should be applied retrospectively and at the beginning of the period that includes the adoption date.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs
Summary - This ASU clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. ASU No. 2020-08 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted.
For all other entities, ASU No. 2020-08 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application is permitted for all other entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.
All entities should apply ASU No. 2020-08 on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815
Summary - This ASU among other things clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.
The new ASU clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.
ASU No. 2020-01 is effective For public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, ASU No. 2020-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021.
Early application is permitted, including early adoption in an interim period for: 1. Public business entities for periods for which financial statements have not yet been issued, and2. All other entities for periods for which financial statements have not yet been made available for issuance.
An entity should apply ASU No. 2020-01 prospectively at the beginning of the interim period that includes the adoption date.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
Summary - This ASU removes specific exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles (GAAP). It eliminates the need for an organization to analyze whether the following apply in a given period:
-Exception to the incremental approach for intraperiod tax allocation;
-Exceptions to accounting for basis differences when there are ownership changes in foreign investments; and
-Exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.
The ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for:
- Franchise taxes that are partially based on income;
- Transactions with a government that result in a step up in the tax basis of goodwill;
- Separate financial statements of legal entities that are not subject to tax; and
- Enacted changes in tax laws in interim periods.
ASU No. 2019-12 is effective as for public business entities, for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.
Early adoption is permitted for Public business entities for periods for which financial statements have not yet been issued. And all other entities for periods for which financial statements have not yet been made available for issuance.
An entity that elects early adoption in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption should adopt all the amendments in the same period.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans
Summary - These amendments The amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.
Disclosure Requirements Deleted
- The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year.
- The amount and timing of plan assets expected to be returned to the employer.
- The disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law.
- Related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan.
- For nonpublic entities, the reconciliation of the opening balances to the closing balances of plan assets measured on a recurring basis in Level 3 of the fair value hierarchy. However, nonpublic entities will be required to disclose separately the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets.
- For public entities, the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for postretirement health care benefits.
Disclosure Requirements Added
- The weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates
- An explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.
The amendments also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed:
- The projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets.
- The accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets.
For public busines entities, the amendments are effective for fiscal years ending after December 15, 2020. For all other entities the amendments are effective for fiscal years ending after December 15, 2021. Early adoption is permitted.
Address cash flow classification for license agreements.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Financial Services —Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts
Summary - These amendments:
- Require updated assumptions for liability measurement. Assumptions used to measure the liability for traditional insurance contracts, which are typically determined at contract inception, will now be reviewed, and, if there is a change, updated, at least annually, with the effect recorded in net income;
- Standardizes the liability discount rate. The liability discount rate will be a standardized, market-observable discount rate (upper-medium grade fixed-income instrument yield), with the effect of rate changes recorded in other comprehensive income;
- Provide greater consistency in measurement of market risk benefits. The two previous measurement models have been reduced to one measurement model (fair value), resulting in greater uniformity across similar market-based benefits and better alignment with the fair value measurement of derivatives used to hedge capital market risk;
- Simplify amortization of deferred acquisition costs. Previous earnings-based amortization methods have been replaced with a more level amortization basis; and
- Require enhanced disclosures. They include rollforwards and information about significant assumptions and the effects of changes in those assumptions.
For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application is permitted.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Child Tax Credit Expansion and Advance Payments for 2021
Written by the Chuqiao Peng, Tax Experienced Staff, MaloneBailey, LLP
The American Rescue Plan Act of 2021 has brought the following major changes to the child credit for the tax year 2021 only:
- The maximum age of child of a qualifying child is increased from 16 to 17
- The maximum credit per child is increased from $2,000 to $3,000 ($3,600 if under age 6)
- The credit is refundable from up to $1,400 to the maximum amount
- The credit is automatically paid in advance in monthly installments during the last half of 2021 if you are eligible based on your 2020 tax return or 2019 tax return without needing to take any additional action
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Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
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Given us your information in 2020 to receive the Economic Impact Payment using the Non-Filers: Enter Payment Info Here tool; and
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A main home in the United States for more than half the year (the 50 states and the District of Columbia) or file a joint return with a spouse who has a main home in the United States for more than half the year; and
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A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
- Been subjected to two phaseouts based on modified adjusted gross income (AGI) in 2021.
- The credit begins to be reduced to $2,000 per child if your modified AGI in 2021 exceeds $150,000 if married and filing a joint return (or $75,000 if you are a single filer or are married and filing a separate return)
- The credit won’t begin to be reduced to below $2,000 per child until your modified AGI in 2021 exceeds $400,000 if married and filing a joint return (or $200,000 for all other filing statuses)
More information for 2021 child tax credit and advance child tax credit payments can be found at IRS.gov.
If you would like additional information, please click here or please feel free to contact our Nicole Zhao, Tax Partner .
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SEC Spotlight on Cybersecurity
Summary - Cybersecurity is an increasingly important topic in today's digital world. According to the SEC website, "As markets grow more global and complex, so too are the threats through cyber intrusion, denial of service attacks, manipulation, misuse by insiders and other cyber misconduct. In the United States, aspects of cybersecurity are the responsibilities of multiple government agencies, including the SEC. Cybersecurity is also a responsibility of every market participant. The SEC is committed to working with federal and local partners, market participants and others to monitor developments and effectively respond to cyber threats."
The SEC's webpage on cybersecurity provides a plethora of information and guidance on the topic of cybersecurity and it also offers a cyber-savvy quiz, cybersecurity risk alerts and statements & news from the SEC.
For more information, visit the SEC webpage on cybersecurity by clicking here.
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Should you be interested in a complimentary estimate for audit, consulting and tax services, please contact Caroline Rosen at crosen@malonebailey.com or 713.343.4286.
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