July 21st, 2011, By Dana Haugh
In the last installment of our 5 part new FASB series, I’ll outline the new procedures for balance sheet offsetting, revenue recognition, comprehensive income and multiemployer pension plans. Once again, I want to congratulate you on making it through the arduous task of reading about these changes—and don’t worry, if your eyes glazed over or you found yourself day-dreaming, you aren’t the only one (this happened to me, and I was the one writing about it). These articles will be here for future reference once you finally decide it’s time to prepare—though if you’d prefer the denser, more technical summary, you can always access the white papers instead. Once again, good luck and stay calm.
For balance sheet offsetting, FASB and IASB came up with the following alternative methods. Alternative 1 supports a right of setoff exercisable in both the normal course of business as well as bankruptcy or default. The IASB supports this alternative. Alternative 2 supports the right of setoff legally enforceable in the normal course of business as well as the intention to settle a financial asset and financial liability net. Unfortunately for alternative 2, neither FASB nor IASB like this one. Sorry Alt 2. Alternative 3 is supported by FASB and is defined for derivative instruments. This alternative provides exception from general offsetting of fair value amounts for the right to reclaim cash collateral or obligation to return cash collateral arising from derivative instruments at fair value. It is a setoff that is only enforceable in bankruptcy, insolvency or default. And for whatever reason, they also came up with an Alternative 3a, which limits the exception for offsetting of derivative instruments under Alt 3 to only collateralized derivatives with daily value variation margin postings. As I mentioned before, there’s currently a difference of opinion between FASB and IASB, but FASB is in support of Alternative 3 so I suppose that is the one we should focus on—just be aware of the others.
Revenue Recognition is next up! The transition requirements are going to change and here’s what has been proposed: Entities should apply the proposed standard on a retrospective basis and to ease the burden in the first year of application, entities:
-Should not be required to restate contracts that begin and end within the same reporting period
-Should be permitted to use hindsight in estimating variable consideration in the comparative reporting periods
-Should be required to perform the onerous test only at the effective date unless the onerous contract liability was recognized previously in a comparative period
-Should not be required to disclose the maturity analyses of remaining performance for prior periods
-And should disclose reliefs employed and qualitative assessment if the likely effect of applying those reliefs is employing any of the above factors.
The changes in comprehensive income are broken down into two sections: Single Statement and Two-Statement.
Single statements must present components of net income, total net income, components of other comprehensive incomes, total other comprehensive income, and the total for comprehensive income.
Two-statement approaches must contain components of net income and total net income in the first statement and must immediately be followed by a financial statement that presents components of other comprehensive incomes, totals for other comprehensive incomes and the total for comprehensive income.
Also, the option to permit the presentation of the other comprehensive income in the statement of changes in equity has been eliminated.
Lastly, the multiemployer pension plan. You’re nearly done! Just take a look at what will be required to disclose versus the non-required disclosure and you’re set! For multiemployer pension plans, you will be required to disclose the following:
-The description of nature and effect of any changes affecting comparability from period to period for each period in which a statement of income is presented, including a business combination of divestiture, the rate of employer contributions and the number of employees subject to multiemployer pensions
-Information about plan assets and liabilities and the total contributions to the multiemployer plan from all employers in circumstances in which the information is not available in the public domain.
You will not be required to disclose:
-Known trends in future contributions
-Estimated amounts of future contributions
-Or the percentage of employees covered by multiemployer plans
Subsidiaries that participate in its parent entity’s single employer defined benefit pension plan would be required to disclose the name of the parent plan and the amount of contributions made in each period for which an income statement is presented. The required disclosures above would only apply to multiemployer pension plans.
Annnnnnd you’re done! Good job. Now forget everything you’ve just read because they are probably going to change it by the time the year is over.
JUST KIDDING… I hope.
All information gathered from FASB