In this section, we provide brief updates on regulatory developments in auditing and accounting that may impact Japanese companies in the United States. Further discussion of the issues can be found in KPMG's Department of Professional Practice's Defining Issues.
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Advanced planning will enable companies to spread over a longer period the work of implementing the forthcoming FASB and IASB's revenue recognition standard, and to include process and system changes in the implementation plan. Advance planning also will allow time to develop dual-reporting capability before the effective date and to handle unanticipated complexity.
The FASB decided to change the future direction of the proposed insurance contracts project and to limit the scope to insurance entities. However, the Board said that contracts written by non-insurers may be added back as the project progresses.
At its February 19 meeting, the FASB continued redeliberations about the proposed standard on financial instrument impairment and reached tentative decisions about nonaccrual guidance, purchased credit-impaired assets, and troubled debt restructurings.
At its February 26 meeting, the FASB continued to redeliberate its proposed standard about financial instrument classification and measurement, and discussed the need for a cash flow characteristics assessment and the fair value option for hybrid financial assets.
At its March 12 meeting, the FASB continued redeliberations about the proposed standards on financial assets impairment, and classification and measurement. The FASB tentatively decided that the lifetime expected credit loss model generally would apply to all financial assets measured at amortized cost or measured at fair value with qualifying changes recognized in other comprehensive income. The FASB tentatively decided to retain separate classification and measurement models from current U.S. GAAP for debt securities and loans, and reaffirmed its decision that equity investments would be measured at fair value through net income with limited exceptions.
At the March 13 meeting, the FASB's Emerging Issues Task Force discussed four issues and reached a final Consensus on Issue 13-D, Accounting for Share-Based Payments When the Terms of the Award Provide That a Performance Target Can Be Achieved after the Requisite Service Period. The EITF also reached a Consensus-for-Exposure on Issue 12-F, Recognition of New Accounting Basis (Pushdown) in Certain Circumstances. The EITF also discussed:
Issue 12-G, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity; and
Issue 13-G, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity.
On March 4, the FASB issued proposed FASB Concepts Statement about the Conceptual Framework for Financial Reporting over notes to the financial statements. The Exposure Draft discusses the framework that the FASB would use to improve its process for evaluating future and existing disclosure requirements, including interim disclosures, and addresses the limits on information that should be included in notes to financial statements. A later stage of the project will address preparers' decision process for disclosures.
At their March 18-19 meeting to redeliberate the proposals in their 2013 Exposure Drafts about lease accounting, the FASB and the IASB could not agree on how lessees and lessors should depict their leasing activities for financial reporting purposes. Both Boards remain committed to an approach that requires on-balance sheet recognition of leases by lessees. However, the IASB decided that lessees should apply a single lease accounting model under which all leases within scope would be treated as the purchase of an asset on a financed basis. Conversely, the FASB decided that lessees should apply a dual lease accounting model under which many leases would qualify for straight-line recognition of total lease expense without separate presentation of interest expense. The Boards decided to eliminate many aspects of the lessor accounting proposals from the 2013 EDs and to replace them with requirements based on current IAS 17. The IASB decided to exempt small-ticket leases from the proposals even if the effect is material in aggregate, but the FASB decided not to provide this exemption. The Boards also decided to expand the scope of the short-term lease exemption, and to introduce other targeted simplifications.
On March 20, the FASB issued guidance that gives private company lessees the option to not apply the variable interest entity consolidation guidance to some lessor entities. Private companies electing the exemption will need to disclose circumstances that expose them to providing financial support to the lessor entity.
The guidance is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early adoption is allowed and retrospective application is required.
The FASB has tentatively decided that the ability to elect the fair value option for a financial instrument will remain as it is in current U.S. GAAP. However, this tentative decision could change when the Board discusses at a future meeting whether the change in fair value that is attributable to an entity's own credit risk should be recognized in other comprehensive income for a financial liability for which it has elected the fair value option.
In April 2014, the FASB issued FASB ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for reporting discontinued operations and requires additional disclosures.
The ASU is effective for public business entities and certain not-for-profit entities for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2014. For other entities, the ASU is effective for annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. Early adoption is permitted, but only for a disposal (or classification as held for sale) that has not been reported in financial statements previously issued or made available for issuance. The ASU must be applied prospectively.
At the April 23 meeting, the FASB announced that the change in fair value that is attributable to an instrument-specific credit risk should be recognized in other comprehensive income for a financial liability for which an entity has elected the fair value option. The FASB also discussed the methods that can be used to calculate those changes, and affirmed its earlier decision that the ability to elect the fair value option for a financial instrument will remain as it is in current U.S. GAAP.