FASB: 2023 - What You Need To Know & A Review of 2022 Updates

We are pleased to release MaloneBailey's December 2022 issue of The Crunch. This special edition of The Crunch highlights FASB updates that went into effect in 2022 as well as a review of the FASB updates will go into effect in 2023.

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

FASB: What to Keep in Mind for 2023

Recent Accounting & Regulatory Updates

FASB: What You Need to Know for 2023

Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations
Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method
Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
Financial Services-Insurance (Topic 944): Effective Date and Early Application

FASB: A Review of 2022 Updates

Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance
Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities
Compensation—Stock Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards
Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments
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

Tax

2022 Tax Year-End Planning

Extra Crunch

Nasdaq's World Reimagined Podcast

About MaloneBailey, LLP

Featured Podcast

FASB: What to Keep in Mind for 2023

Summary - In this episode of Everybody Counts, Caroline Rosen, Marketing and Communications Manager, and Collins Ncho, Audit Manager discuss what to be mindful of as we head into 2023 in terms of FASB guidance.

Simply click on the image below to listen to the podcast. For this podcast and many more, please visit the Resources section of our website.

FASB: What You Need to Know for 2023

Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions

Summary - ASU No. 2022-03 is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. For all other entities, it is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance.

'These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

For more information, click here.

Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations

Summary - ASU NO. 2022-04 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022, except for the rollforward of the supplier finance program obligations, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. An entity should apply ASU No. 2022-04 retrospectively to all periods in which a balance sheet is presented, except for the obligation rollforward, which should be applied prospectively.

These amendments require that a company that uses a supplier finance program in connection with the purchase of goods or services disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude.

For more information, click here.

Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures

Summary - ASU No. 2022-02 is effective for entities that have adopted ASU No. 2016-13 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted ASU No. 2016-13, the effective date is the same as the effective dates in ASU No. 2016-13.

These amendments should be applied prospectively, except as provided in the next sentence. For the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

Early adoption is permitted if an entity has adopted ASU No. 2016-13, including adoption in an interim period. If an entity elects to early adopt ASU No. 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures.

These amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

For public business entities, these amendments require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

Gross writeoff information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by creditquality indicator and class of financing receivable by year of origination.

For more information, click here.

Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method

Summary - ASU No. 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. For all other entities, ASU No. 2022-01is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.

Early adoption is permitted on any date on or after the issuance of ASU No. 2022-01 for any entity that has adopted the amendments in ASU No. 2017-12 for the corresponding period. If an entity adopts the amendments in an interim period, the effect of adopting the amendments related to basis adjustments should be reflected as of the beginning of the fiscal year of adoption (i.e., the initial application date). 'In 2017, the FASB issued a new hedging standard to better align the economic results of risk management activities with hedge accounting.

One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows.

Since issuing that standard, stakeholders have told the FASB that the ability to elect hedge accounting for a single layer is useful, but hedge accounting could better reflect risk management activities if expanded to allow multiple layers of a single closed portfolio to be hedged under the method.

The ASU expands the current single-layer method to allow multiple hedged layers of a single closed portfolio under the method. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method.

For more information, click here.

Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

Summary - The amendments are effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. For all other entities they are effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023.

Entities should apply the amendments prospectively to business combinations that occur after the effective date. Early adoption is permitted, including in any interim period, for Public business entities for periods for which financial statements have

not yet been issued, and for all other entities for periods for which financial statements have not yet been made available for issuance.

This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination.

For more information, click here.

Financial Services-Insurance (Topic 944): Effective Date and Early Application

Summary - 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.

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.

For more information, click here.

FASB: A Review of 2022 Updates

Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance

Summary - ASU No. 2021-10 is effective for financial statements issued for annual periods beginning after December 15, 2021 for all entities except not-for-profit entities and employee benefit plans within the scope of Topics 960, 962, and 965 on plan accounting. Early adoption is permitted.

ASU No. 2021-10 should be applied:

Prospectively to all transactions within the scope of ASU No. 2021-10 that are reflected in financial statements at the date of initial application and to new transactions that are entered into after the date of initial application
Retrospectively.

These amendments are expected to increase transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance they receive.

The amendments require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance such as a grant model within FASB Accounting Standards Codification® Topic 958, Not-for-Profit Entities, or International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance:

Information about the nature of the transactions and the related accounting policy used to account for the transactions;
The line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and
Significant terms and conditions of the transactions, including commitments and contingencies.

For more information, click here.

Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities

Summary - The amendments are effective prospectively for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

Early adoption, including application in an interim period, is permitted for financial statements that have not been issued or made available for issuance as of October 25, 2021.

'This ASU provides private companies the option to elect a practical expedient to determine the current price input of equity-classified share-based awards issued as compensation using the reasonable application of a reasonable valuation method. The characteristics of this method are the same as the characteristics used in the regulations of the U.S. Department of the Treasury related to Section 409A of the U.S. Internal Revenue Code (the Treasury Regulations) to describe the reasonable application of a reasonable valuation method for income tax purposes.

For more information, click here.

Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments

Summary - An entity that has not yet adopted ASU No. 2016-02 as of July 19, 2021, should apply ASU No. 2021-05 when it first applies ASU No. 2016-02 and should apply the same transition method elected for ASU No. 2016-02. An entity within the scope of ASC paragraph 842-10-65-1(a) that has adopted ASU No. 2016-02 as of July 19, 2021, should apply ASU No. 2021-05 for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Earlier application is permitted. An entity within the scope of ASC paragraph 842-10-65-1(b) that has adopted ASU No. 2016-02 as of July 19, 2021, should apply ASU No. 2021-05 for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Earlier application is permitted. See a discussion of the transition methods available in ASU No. 2021-05.

This ASU amends the lease classification requirements for lessors to align them with practice under ASC Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met:

The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in ASC paragraphs 842-10-25-2 through 25-3; and
The lessor would have otherwise recognized a day-one loss.

When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss.

For more information, click here.

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 - 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.

'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.

For more information, click here.

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 - 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.

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.

For more information, click here.

Compensation—Stock Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards

Summary - The amendments are effective prospectively for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

Early adoption, including application in an interim period, is permitted for financial statements that have not been issued or made available for issuance as of October 25, 2021.

For more information, click here.

Tax

2022 Tax Year-End Planning

Written by Travis Moffett, Tax Manager

Summary - There is still time for taxpayers to take actions that can favorably impact tax liability for 2022 and help get ready for the next year. Several strategies can be employed such as converting a traditional IRA to a Roth IRA or harvesting capital losses to offset gains that were triggered earlier in the year. Having these discussions before year end may help you make tax smart moves.

Roth IRA Conversions

While opening to a Roth IRA is based on income level, you can convert assets from a traditional IRA or 401(k) to a Roth IRA. Roth IRAs offer tax-free growth potential in that contributions are made on after-tax basis and investment earnings are tax-free when distributed. There were rumors that this back door Roth opportunity would be closed with the new tax law, but it is now confirmed that the Roth IRA conversions are still alive. Now is as good a time as any to consider a Roth conversion because the value of assets in a traditional IRA account is relatively low. Assets can be moved easily and have potential for high growth. Also, traditional IRAs require distributions after age 72 while Roth IRAs have no mandatory distributions. This can give you more flexibility to manage your cash flow and tax liability in the future.

Harvest Investment Losses to Offset Gains

When your capital losses outweigh gains, the IRS will allow you to deduct up to $3,000 in losses against your income and carryforward remaining losses to offset against future income. These losses can be carried forward indefinitely for as long as you live. The goal is to defer income taxes into the future after you retire when you would likely be in a lower tax bracket.

Review Your Tax Withholding on Wages

If you’ve had major employment or life changes, reviewing your tax withholding can help you determine if you’re withholding too much or too little in taxes. This strategy can help save you from an unexpected tax bill when you file your income tax return. The IRS has eliminated the old system where you claim withholding “allowances” and will now allow you to provide the specific amounts that you would like taken out of your paycheck. Another important thing to keep in mind is that some of you may have NOL and passive losses carrying forward which might lead you to believe that you will not owe any taxes. However, the IRS has limitations in place that prevent you from utilizing these deductions to reduce your tax liability entirely so it’s important to discuss this with your tax advisor. When implemented correctly, you can ensure that you are getting the right amount of cash flow for you with each paycheck and avoid a high tax bill when the time comes to file your taxes.

Extra Crunch

Nasdaq's World Reimagined Podcast

Summary - The World Reimagined podcast by Nasdaq explores topics of leadership through times of change and crisis. With topics such as 'trusted leadership,' 'purpose-driven leadership,' and 'leading with empathy, transparency and humility,' the conversations feature global leaders from a variety of different industries.

To access the podcast, please click here.

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