FASB issues US standards updates

The Financial Accounting Standards Board (FASB), has released updates for two standards, one relating to accounting for convertible instruments and the other to not-for-profit organisations, and is to delay the start-date for an insurance standard in light of the pandemic

The first accounting standards update (ASU) aims to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity.

This will be simplified by removing major separation models required under current GAAP. As a result, more convertible instruments will be reported as a single liability or equity with no separate accounting for embedded conversion features.

Certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception will be removed and, as a result, more equity contracts will qualify for the scope exception. The upcoming ASU also will simplify the diluted earnings-per-share calculation in certain areas.

Russell Golden, outgoing FASB chair, said: ‘The upcoming ASU will address areas of liabilities and equity guidance that stakeholders identified as overly complex, internally inconsistent, and the source of frequent financial statement restatements.

‘We expect it to result in improved comparability of information for financial statement users and reduced cost and complexity for preparers and auditors.’

The upcoming ASU 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 15 December 2021, including interim periods within those fiscal years.

For all other entities, the standard will be effective for fiscal years beginning after 15 December 2023, including interim periods within those fiscal years. Early adoption will be permitted.

The second ASU is intended to improve how not-for-profit organisations present and disclose contributed nonfinancial assets, also known as gifts-in-kind.

It will require a not-for-profit organisation 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 will require a not-for-profit to disclose the amount of contributed nonfinancial assets received, disaggregated by category, along with information about whether and how they have been monetised or utilised during the reporting period, as well as any donor restrictions on their use and the methodology for determining a fair value measure. 

The ASU will be effective for annual reporting periods beginning after 15 June 2021.

In addition, the FASB voted to issue a proposed ASU that would delay the effective date for its standard that improves financial reporting for insurance companies that issue long-duration contracts, such as life insurance, disability income, long-term care, and annuities.

This was Golden’s last meeting after completing a seven-year term as FASB chair.  He is succeeded by Rich Jones, who takes over on 1 July.

The ASU on convertible instruments

The ASU on not-for-profit entities

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