FASB’s Accounting Standards Updates ASUs issued during 2010 and the beginning of 2011 with permission of the Financial Accounting Foundation for use of FASB material

22 2 Course Objectives High Level Review of FASB Accounting Standards Updates (ASUs) issued during 2010 and the beginning of 2011  The main provisions and their effective dates Update preparers of US GAAP financials, and get them up to speed Encourage preparers to perform further research on the new accounting standards Offer possibility to seek further guidance

33 3 Disclaimer The contents of this coursework provided have been prepared with reasonable care, that means the author has made every attempt to provide the most accurate information available using internal and external resources to prepare this course but he makes no representations, warranties, or guarantees regarding the accuracy, correctness or completeness of any opinions, advice, statements, instructions or other information provided in or by the material or the other contents and features of the course It is your responsibility to investigate and evaluate the accuracy, correctness, reliability or completeness of any opinions, advice, statements, instructions or request further clarification from the author

44 4 Introduction Effective July 1, 2009, changes to the source of authoritative U.S. GAAP, the FASB Accounting Standards Codification™ (FASB Codification), are communicated through an Accounting Standards Update (Update). Updates are published for all authoritative U.S. GAAP promulgated by the FASB, regardless of the form in which such guidance may have been issued prior to release of the FASB Codification (e.g., FASB Statements, EITF Abstracts, FASB Staff Positions, etc.) Updates are also issued for amendments to the SEC content in the FASB Codification as well as for editorial changes

55 5 Introduction An Update is a transient document that  summarizes the key provisions of the project that led to the Update,  details the specific amendments to the FASB Codification, and  explains the basis for the Board's decisions Although ASUs will update the FASB Codification, the FASB does not consider Updates as authoritative in their own right

66 6 Introduction

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99 9 A: ASU Update No Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations If a public entity presents comparative financial statements, the entity should  disclose revenue and earnings  of the combined entity  as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only

10 A: ASU The amendments in this Update also expand the supplemental pro forma disclosures under Topic 805 to include  a description of the nature and amount  of material, nonrecurring pro forma adjustments directly attributable  to the business combination included in the reported pro forma revenue and earnings

11 A: ASU Effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, Early adoption is permitted IFRS 3, Business Combinations, permits, but does not require, pro forma disclosures for the comparative period. IFRS does not require a description of the nature and amount of material, nonrecurring pro forma adjustments

12 B: ASU Update No Consolidation (Topic 810): Amendments for Certain Investment Funds Defer the consolidation requirements in Topic 810 for a reporting entity's interest in an entity that has all of the attributes of an investment company Effective as of the beginning of a reporting entity's first annual period that begins after November 15, 2009

13 B: ASU The deferral would apply to:  A reporting entity's interest in an entity  that is required to comply or operate in accordance with requirements  similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds  These entities are variable interest entities

14 C: ASU Update No Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary - a Scope Clarification Effective beginning in the first interim or annual reporting period ending on or after December 15, The amendments should be applied retrospectively to the first period that an entity adopted Statement 160 The scope of the decrease in ownership provisions of the Subtopic and related guidance applies to the following:

15 C: ASU A subsidiary or group of assets that is a business or nonprofit activity A subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture An exchange of a group of assets that constitutes a business or nonprofit activity for a non-controlling interest in an entity (including an equity method investee or joint venture)

16 D: ASU Update No Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements Effective for interim and annual reporting periods beginning after December 15, 2009

17 D: ASU A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements in either Levels 2 and 3

18 E: ASU Update No Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirement Provides definition for an SEC filer: Adds the term revised financial statement to its glossary Effective for interim or annual periods ending after June 15, 2010

19 E: ASU An SEC filer is an entity that is required to file or furnish its financial statements with either the SEC or,  with respect to an entity subject to Section 12(i) of the Securities Exchange Act of 1934, as amended,  the appropriate agency under that Section it does not include an entity that is not otherwise a SEC filer whose financial statements are included in a submission by another SEC filer

20 E: ASU Revised financial statements include financial statements revised either  as a result of correction of an error  or retrospective application of U.S. generally accepted accounting principles

21 E: ASU An entity that either  (a) is a SEC filer or  (b) is a conduit bond obligor for conduit debt securities that are traded in a public market is required to evaluate subsequent events through the date that the financial statements are issued if an entity meets neither of those criteria,  then it should evaluate subsequent events through the date the financial statements are available to be issued

22 F: ASU Update No Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No  Update No Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses The deferral in this amendment is effective upon issuance

23 F: ASU ASU defers the effective date of new disclosures about troubled debt restructurings in ASU A new definition of troubled debt restructuring would require ASU to be amended within a few months of issuance.

24 G: ASU Update No Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts

25 G: ASU Effective after 15 December 2010 for Public companies Eliminates an entity's ability to assert that a reporting unit is not required to perform Step 2  Step 1: Carrying Value > Fair Value  Step 2: Calculate Impairment, if any

26 G: ASU Test for reporting units with zero or negative carrying amounts Step 1 is modified to still require performing Step 2 if qualitative factors exist that would indicate goodwill may be impaired

27 G: ASU Impairment recorded as a cumulative- effect adjustment to beginning retained earnings in the period of adoption Under IFRS a different impairment model, i.e. a single-step goodwill impairment test

28 H: ASU Update No Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash Clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock  with a potential limitation on the total amount of cash  that all shareholders can elect to receive in the aggregate is considered

29 H: ASU a share issuance Effective > December 15, 2009, applied on a retrospective basis IFRS does not provide specific guidance

30 I: ASU Update No Revenue Recognition - Milestone Method (Topic 605): Milestone Method of Revenue Recognition Provides guidance on when to apply the milestone method of revenue recognition for Research and development transactions

31 I: ASU will primarily affect entities that provide research or development deliverables Effective > June 15, 2010 on a prospective basis for milestones achieved Early adoption is permitted

32 I: ASU A vendor can recognize consideration  that is contingent upon achievement of a milestone  in its entirety as revenue in the period in which the milestone is achieved  only if the milestone meets all criteria to be considered substantive

33 I: ASU To be considered substantive, the consideration earned by achieving the milestone should commensurate:  The vendor's performance to achieve the milestone  The enhancement of the value of the item delivered as a result of a specific outcome resulting from the vendor's performance to achieve the milestone Relate solely to past performance Be reasonable relative to all deliverables and payment terms in the arrangement

34 I: ASU Additional Disclosure requirements apply A vendor may elect, but is not required, to adopt the amendments in this Update retrospectively for all prior periods Previously no guidance under US GAAP

35 I: ASU IFRS does not have specific revenue-related guidance for vendors that provide research or development deliverables in arrangements in which one or more payments are contingent upon achieving uncertain future events or circumstances As such, differences between U.S. GAAP and IFRS may exist in the timing of when revenue is recognized for milestones achieved

36 J: ASU Update No Other Expenses (Topic 720): Fees Paid to the Federal Government by Pharmaceutical Manufacturers Effective for calendar years beginning after December 31, 2010 There is no specific guidance in IFRS for the fee covered by this Update

37 J: ASU Amended Act imposes an annual fee on the pharmaceutical manufacturing industry Annual fee ranges from $2.5 billion to $4.1 billion for all affected entities in total Fee will be allocated to individual entities on the basis of the amount of their branded prescription drug sales  for the preceding year as a percentage of the industry's branded prescription drug sales for the same period

38 J: ASU Update is clarification of the application of existing GAAP to a specific situation, it specifies:  liability for the fee should be estimated and recorded in full  upon the first qualifying sale with a corresponding deferred cost  that is amortized to expense using a straight-line method of allocation  unless another method better allocates the fee over the calendar year that it is payable

39 K: ASU Update No Financial Services - Insurance (Topic 944): How Investments Held through Separate Accounts Affect an Insurer's Consolidation Analysis of Those Investments Effective > December 15, 2010 The amendments in this Update may result in differences in accounting and reporting between GAAP and IFRS because IFRS does not specifically address the accounting by insurance entities

40 K: ASU The amendments in Update clarify that an insurance entity should not:  Consider any separate account interest held for the benefit of policy holders in an investment to be the insurer's interests  Combine separate account interests held for the benefit of policy holders with the entity's general account interests in the same investment when assessing investment for consolidation, unless required by another Subtopic

41 K: ASU Update provides amendments to Subtopic to clarify  that for the purpose of evaluating whether the retention of specialized accounting for investments in consolidation is appropriate,  a separate account arrangement should be considered a subsidiary

42 K: ASU Additionally, the amendments do not require an insurer to consolidate an investment  in which a separate account holds a controlling financial interest  if the investment is not or would not be consolidated in the standalone financial statements of the separate account

43 L: ASU Update No Health Care Entities (Topic 954): Presentation of Insurance Claims and Related Insurance Recoveries Effective > December 15, 2010 IFRS does not permit offsetting of assets and liabilities in the circumstances described in this Update

44 L: ASU The amendments in this Update clarify that a health care entity should not net insurance recoveries against a related claim liability Additionally, the amount of the claim liability should be determined without consideration of insurance recoveries

45 L: ASU A cumulative-effect adjustment should be recognized in opening retained earnings in the period of adoption if a difference exists between any liabilities and insurance receivables recorded as a result of applying the amendments in this Update The amendments in this Update permit retrospective application Early application of the amendments in this Update also is permitted

46 M: ASU Update No Plan Accounting - Defined Contribution Pension Plans (Topic 962): Reporting Loans to Participants by Defined Contribution Pension Plans Effective > December 15, 2010 Participant loans are not as commonly observed outside the United States

47 M: ASU Affects any defined contribution pension plan that allows participant loans The amendments in this Update require that participant loans  be classified as notes receivable from participants,  which are segregated from plan investments and  measured at their unpaid principal balance plus any accrued but unpaid interest

48 N: ASU Update No Extractive Activities - Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures Effective > December 31, 2009 IFRS 6 and Topic 932 differ in areas such as scope, measurement, and disclosures  E.g. IFRS 6 specifies the financial reporting for mining activities, while Topic 932 does not

49 N: ASU The changes from current GAAP improve the reserve estimation and disclosure requirements by  Updating the reserve estimation requirements for changes in practice and technology that have occurred over the last several decades and  Expanding the disclosure requirements for equity method investments

50 Need Further Guidance? Amsterdam US CPA Solutions Phone (+31) Fax (+31) Singel 540, 1017AZ Amsterdam, The Netherlands Expert international financial solutions in accounting, controlling, business, US auditing and US tax for entrepreneurial business leaders and investors