On the Horizon
June 16, 2016
Contents
FASB ............................................................................................................................................................. 1
Proposed ASU to clarify nonfinancial asset derecognition guidance ..................................................... 1
Tentative decisions from June 8 meeting posted ................................................................................... 3
Webcast for private companies and not-for-profits scheduled ............................................................... 4
EITF meeting held on June 10 ...................................................................................................................... 4
Final consensus ...................................................................................................................................... 4
Issue 15-F, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash
Payments” ........................................................................................................................................ 4
Consensus-for-exposure ........................................................................................................................ 6
Issue 16-B, “Employee Benefit Plan Master Trust Reporting” ......................................................... 6
AICPA and NASBA issue proposal on recognizing foreign designations ..................................................... 6
IOSCO reports on audit committee oversight of auditors ............................................................................. 6
FASB
Proposed ASU to clarify nonfinancial asset derecognition guidance
The Board issued proposed ASU, Clarifying the Scope of Asset Derecognition Guidance and Accounting
for Partial Sales of Nonfinancial Assets, which would clarify the scope of the nonfinancial asset guidance
and also provide guidance for partial sales of nonfinancial assets within ASC 610-20, Other Income –
Gains and Losses from the Derecognition of Nonfinancial Assets. The key provisions of the proposed
ASU are summarized below.
Clarified scope of ASC 610-20
Under the proposed guidance, an entity would apply the nonfinancial asset derecognition guidance in
ASC 610-20 to the derecognition of all nonfinancial assets and in substance nonfinancial assets, unless
other specific guidance applies. The proposal would clarify that an “in substance nonfinancial asset” is an
asset that is included in either (1) a contract with a counterparty that is not a customer if substantially all
of the fair value of the promised assets consists of nonfinancial assets, or (2) a consolidated subsidiary in
which substantially all of the fair value of its assets consists of nonfinancial assets.
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Assets that would not be considered in substance nonfinancial assets under the proposal include a group
of assets or a subsidiary that is a “business,” as defined in ASC 805, Business Combinations, or a
nonprofit activity, as well as certain investments, such as an equity method investment accounted for
under ASC 323, Investments – Equity Method and Joint Ventures, regardless of whether the underlying
assets are in substance nonfinancial assets.
As a result, the derecognition of all businesses, including real estate businesses, as well as the
derecognition of nonprofit activities would not be accounted for under ASC 610-20; however, the
proposed guidance also eliminates the existing exception from applying the guidance in ASC 610 to the
transfer of an investment in a real estate entity that is not a business.
Unit of account for applying ASC 610-20
The unit of account for applying the nonfinancial asset derecognition guidance in ASC 610-20 would be
the distinct nonfinancial asset. At contract inception, the proposed amendments would require an entity to
first identify the nonfinancial assets and in substance nonfinancial assets promised in the contract under
ASC 610-20, and then determine whether the contract contains distinct nonfinancial assets by applying
the guidance in ASC 606, Revenue from Contracts with Customers.
Contract consideration determined under the amended guidance in ASC 610-20-32-1 through 32-3 would
then be allocated to each identified distinct nonfinancial asset based on the guidance in ASC 606. Gain or
loss upon derecognition of a distinct nonfinancial asset would be recognized as the difference between
the consideration received and the carrying amount of the nonfinancial asset.
Partial sales of nonfinancial assets
The proposed guidance addresses the accounting for partial sales of nonfinancial assets within ASC 61020 and would be applied to transfers of distinct nonfinancial assets in exchange for a noncontrolling
ownership interest in a joint venture and other investees. The noncontrolling ownership interest received
would be considered noncash consideration and would be measured at fair value.
A decrease in an entity’s ownership interest in a subsidiary while the entity still retains a controlling
interest in that subsidiary would be accounted for as an equity transaction, with no gain or loss
recognized. However, if a controlling interest in that subsidiary is not retained in a partial sale transaction,
a distinct nonfinancial asset would be derecognized if control of the nonfinancial asset has been
transferred in accordance with ASC 606. Any retained noncontrolling interest in that former subsidiary
would be measured at fair value.
Effective date, transition, and comment period
The effective date and transition requirements for the proposed amendments would be the same as those
for the new revenue guidance in ASC 606, with early adoption permitted:

For public companies: Annual periods, including interim periods therein, beginning after
December 15, 2017

For private companies: Annual periods beginning after December 15, 2018 and interim periods in
annual periods beginning after December 15, 2019
The proposed ASU states that an entity does not need to apply the same transition method for ASC 606
and ASC 610-20. If an entity applies a different transition approach to ASC 610-20 than to ASC 606, it
must comply with the disclosure requirements for the transition approach selected, including disclosure of
which method of transition is applied for both ASC 610-20 and ASC 606.
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Comments on the proposed ASU are due August 5.
Tentative decisions from June 8 meeting posted
All decisions reached at Board meetings are tentative and may be changed at future meetings. Decisions
are included in an Exposure Draft only after a formal written ballot. Decisions reflected in Exposure Drafts
are often changed in redeliberations by the Board based on information received in comment letters, at
public roundtable discussions, and from other sources. Board decisions become final after a formal
written ballot to issue a final Accounting Standards Update.
The FASB met on June 8 to discuss its projects on disclosures related to government assistance and
income taxes, and took the actions summarized below.
Government assistance
The Board redeliberated the proposed ASU, Disclosures by Business Entities about Government
Assistance, and tentatively decided to

Reaffirm that the scope of the project is limited only to disclosures

Reaffirm that the scope of the project would apply to an entity that has entered into a legally
enforceable agreement with a government to receive cash, nonmonetary assets, or benefits that
reduce the entity’s expenditures. The Board also directed the staff to perform further analysis about
the types of nonmonetary assets that should be included within the scope of the project.

Exclude from the scope of the project (1) not-for-profit entities, (2) employee benefit plans, and
(3) government-assistance arrangements that impact taxable income or are accounted for under the
guidance in ASC 740, Income Taxes

Provide examples in the proposed guidance that describe the types of benefits that could or could not
be considered government assistance

Eliminate the proposed disclosure about the amount of government assistance received but not
directly recognized in the financial statements

Require disclosure of both the general nature of the information and the source of the legal prohibition
for any information not disclosed because disclosure is legally prohibited
The Board will continue redeliberations at a future meeting.
Income taxes
The Board completed its deliberations on the disclosure requirements for income taxes and reached the
following tentative decisions:

To require disclosure of the aggregate of cash, cash equivalents, and marketable securities held by
foreign subsidiaries; however, the Board reversed its previous tentative decision to require an entity
to disaggregate the cumulative amount of indefinitely reinvested foreign earnings for any country that
represents at least 10 percent of this aggregate amount

To replace the term public entity in ASC 740-10-20 with the term public business entity in the
Codification’s Master Glossary so that certain disclosures in ASC 740 would be required for public
business entities, while others would be required for entities other than public business entities

To require disclosure of any rights or privileges granted by a government entity that have reduced or
may reduce income taxes
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To revise the disclosure requirements for the gross amounts of carryforwards and the related
deferred tax assets for these amounts
The Board directed the staff to draft a proposed ASU for vote by written ballot, with a comment period of
60 days or ending September 30, whichever is longer.
Webcast for private companies and not-for-profits scheduled
The FASB will present a webcast on June 20 at 1 p.m. (EDT) to discuss its standard-setting activities
affecting private companies and not-for-profit organizations.
EITF meeting held on June 10
Because consensuses and consensuses-for-exposure are subject to ratification by the FASB and some
of the details of conclusions reached at an EITF meeting are determined during the process of developing
the minutes of the meeting, the following descriptions are preliminary.
At its meeting on June 10, the FASB’s Emerging Issues Task Force (EITF) discussed two issues,
reaching one final consensus and one consensus-for-exposure, which are discussed below.
The FASB will consider ratification of the consensus and consensus-for-exposure at its June 29 meeting.
If ratified, the consensus will be issued as an ASU, and the consensus-for-exposure will be posted to the
FASB website as a proposed ASU for comment.
Final consensus
Issue 15-F, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash
Payments”
The Task Force reached a final consensus on the eight sub-issues within the scope of Issue 15-F, which
is intended to address areas where diversity in practice exists with respect to classifying cash receipts
and payments within the statement of cash flows.
On five of the eight sub-issues, outlined below, the Task Force reaffirmed guidance in its consensus-forexposure that was included in the proposed ASU issued in January 2016, with only minor wording
changes:

Cash payments for debt prepayment or extinguishment costs would be classified as cash outflows
from financing activities.

Cash proceeds received from an insurance settlement would be classified in the statement of cash
flows based on the nature of the loss. Lump-sum settlements may need to be allocated based on the
nature of the losses covered if there is more than one type of loss.

Cash proceeds received from the settlement of corporate-owned life insurance (COLI) policies would
be classified as cash inflows from investing activities. Cash payments for premiums on COLI policies
may be classified as cash outflows for investing activities, operating activities, or a combination of
investing and operating activities.

A transferor’s beneficial interest obtained in a financial asset securitization would be disclosed as a
noncash investing activity, with cash receipts from payments related to a transferor’s beneficial
interest in securitized trade receivables classified as cash inflows from investing activities.
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To determine whether a cash receipt or payment must be separated into components that are
classified separately in the statement of cash flows, an entity would first determine whether there is
specific, applicable cash flow classification guidance in ASC 230, Statement of Cash Flows, or
elsewhere in the Codification and, if so, apply that guidance. If there is not specific classification
guidance, then an entity would identify each separately identifiable source or use within cash receipts
and cash payments based on the nature of the underlying cash flows. Reasonable judgment may be
necessary to estimate the amount of each separately identifiable source or use, and the entity would
classify the components accordingly. If cash receipts and cash payments have aspects of more than
one class of cash flows and those aspects are not separately identifiable, then an entity would
classify the cash receipt or payment based on the activity that is the predominant source or use of
that cash flow.
On three of the eight sub-issues, the Task Force modified previous tentative decisions and reached final
consensus as discussed below:

The cash payment at maturity of a zero-coupon bond and other bonds with insignificant cash coupons
would be split into two components: (1) The portion attributable to interest would be classified as a
cash outflow from operating activities, and (2) the portion attributable to principal would be classified
as a cash outflow from financing activities.

The cash payment made by an acquirer to settle a contingent consideration liability that is not paid
soon after the consummation date of the business combination would be split into two components:
(1) The portion up to the acquisition-date fair value of the liability, including measurement-period
adjustments, would be classified as a cash outflow from financing activities, and (2) any amount paid
in excess of the liability’s acquisition-date fair value would be classified as a cash outflow from
operating activities. Further, contingent consideration payments made “soon after” the consummation
date of a business combination would be classified as investing activities. The Task Force noted that
“soon after” would be three months.

Entities would determine if distributions received from equity method investees are either a return on
investment and classified as cash inflows from operating activities or a return of investment and
classified as cash inflows from investment activities. An entity would be allowed to make an
accounting policy election to apply the cumulative earnings method or the look-through approach to
determine the cash flow classification of the distributions. The election would apply to all equity
method investees (not investee by investee).

Under the cumulative earnings method, when cumulative distributions exceed cumulative equity
in earnings, the excess represents a return of investment, and when cumulative distributions do
not exceed the investor’s cumulative equity in earnings, the distributions represent a return on
investment.

Under the look-through approach, an entity determines whether distributions are returns on
investment or returns of investment based on specific facts and circumstances. When an entity
elects to apply the look-through approach but does not have enough information for an investee
to determine whether the distribution is a return on or return of its investment, it would default to
the cumulative earnings approach for that investee.
The guidance would apply on a retrospective basis. Public business entities would apply the guidance for
fiscal years, and interim periods within those fiscal periods, beginning after December 15, 2017. All other
entities would apply the guidance for fiscal years beginning after December 15, 2018 and for interim
periods within fiscal years beginning after December 15, 2019. All entities may early adopt the guidance.
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Consensus-for-exposure
Issue 16-B, “Employee Benefit Plan Master Trust Reporting”
The Task Force reached a consensus-for-exposure on Issue 16-B, which is intended to improve and
make consistent financial reporting for employee benefit plan master trust reporting.
The EITF’s tentative decisions on this issue are as follows:

A plan would present master trust balances and activity on the face of the plan’s financial statements
on a net basis, within a single master trust line-item. That is, the plan’s interest in the master trust
investments would be combined with investment-related receivables and/or payables, and net
investment income would be combined with expenses.

A plan with a divided interest in a master trust would need to disclose the master trust’s investments
by general type and the individual plan’s quantitative interest in the master trust investments by
general type.

A plan would be required to disclose both the investment-related accruals for the master trust and the
individual plan’s interest in the accruals.

A health and welfare plan would no longer be required to provide 401(h) account investment
disclosures in its financial statements and instead would disclose the defined benefit plan’s name so
that participants may access the investment information. There would be no changes to defined
benefit plan disclosures.

The master trust guidance in ASC 960, Defined Benefit Pension Plans, 962, Defined Contribution
Benefit Plans, and 965, Health and Welfare Benefit Plans, would be amended so that it is consistent,
where applicable.
Entities would be required to adopt the guidance retrospectively and to disclose the nature of, and reason
for, changes in accounting principle in the first interim and annual period of adoption.
If the consensus-for-exposure is ratified at the June 29 FASB meeting, a proposed ASU will be issued for
public comment.
AICPA and NASBA issue proposal on recognizing foreign designations
The AICPA and the National Association of State Boards of Accountancy (NASBA) issued proposed
changes to the Uniform Accountancy Act (UAA), Amendments to UAA Section 6 Recognition of Foreign
Professionals and UAA Model Rules Article 5 Changes for Examination.
The proposal amends the Uniform CPA Examination Model Rules to allow for a unilateral pathway for
U.S. CPA licensure for holders of foreign designations when those designations are substantially
equivalent to or higher than those provided by the UAA.
Comments are due by September 1.
IOSCO reports on audit committee oversight of auditors
The International Organization of Securities Commissions (IOSCO) published a report, “Survey Report on
Audit Committee Oversight of Auditors,” identifying audit committee practices that could improve audit
quality at listed entities. The report summarizes the results of a survey of IOSCO members on their
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existing legal, regulatory, and other requirements related to audit committee oversight of auditors and the
audit process of listed entities.
The report notes that 96 percent of the jurisdictions that responded require listed entities to establish an
audit committee or other similar governing body that is separate from executive management. The report
also includes IOSCO’s observations on the survey responses.
© 2016 Grant Thornton LLP, U.S. member firm of Grant Thornton International Ltd. All rights reserved.
This Grant Thornton LLP On the Horizon provides information and comments on current accounting and
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and is not intended to provide accounting or other advice or guidance with respect to the matters
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