Technical corrections clarify several areas of U.S. GAAP

The FASB on Dec. 14, 2016, published Accounting Standards Update (ASU) No. 2016-19, Technical Corrections and Improvements, with a slate of minor corrections for several parts of U.S. GAAP.

The update is based on Proposed ASU No. 2016-220, Technical Corrections and Improvements, from April.

Most of the updates take effect immediately, although the FASB said some will be effective for reporting periods that begin after Dec. 15.

The final update includes an amendment the FASB floated for public comment separately from the rest of the group in Proposed ASU No. 2016-350, Technical Correction to Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements — Endowment Reporting, to remove five words that were accidentally inserted into ASU No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, which the FASB published in August. The August update requires not-for-profit organizations to reconcile the beginning and ending balance of their endowments, in total and by net asset class, including “amounts appropriated for expenditure that contain no purpose restrictions.” The last five words — “that contain no purpose restrictions” — were never intended to be in the standard.

By removing the phrase, the FASB hopes it clarifies the minimum requirements for the reconciliation that a not-for-profit organization is required to disclose if it has endowment funds.

The FASB regularly combs through the Accounting Standards Codification for errors and also accepts suggestions from the public on potential corrections. The board compiles the proposed corrections and releases them jointly for public comment.

“While narrow in scope, the technical changes in the ASU are intended to make it easier to understand and implement guidance across important areas of GAAP,” FASB Chairman Russell Golden said in a statement. “We encourage stakeholders to review the new provisions.”

The FASB highlighted several changes that affect both public and private companies as well as not-for-profit organizations.

A change to, Compensation—Retirement Benefits—Defined Benefit Plans—Pension, and Subtopic 715-60, Compensation—Retirement Benefits—Defined Benefit Plans—Other Postretirement, and Topic 944, Financial Services—Insurance, attempts to provide consistent use of the term “participating insurance.”

An amendment to Topic 825, Financial Instruments, and Topic 944 makes the term “reinsurance recoverable” consistent in both standards.

A correction to Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales, revises the guidance to clarify that loans insured under the Federal Housing Administration and the Veterans Administration do not have to be fully insured by those government-insured programs to recognize profit using the full accrual method.

A change to Subtopic 405-40, Liabilities—Obligations Resulting from Joint and Several Liability Arrangements, clarifies that for an amount of an obligation under an arrangement to be considered fixed at the reporting date, the amount that must be fixed is not the amount that is the organization’s portion of the obligation but, rather, is the obligation in its entirety.

An amendment to Subtopic 860-20, Transfers and Servicing—Sales of Financial Assets, clarifies the considerations that should be included in an analysis to determine whether a transferor once again has effective control over transferred financial assets.

A change to Subtopic 860-50, Transfers and Servicing—Servicing Assets and Liabilities, adds guidance that existed in AICPA Statement of Position (SOP) No. 01-6, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others, about the sale of servicing rights when the transferor retains loans.

An amendment to Topic 820, Fair Value Measurement, aims to more clearly distinguish between a valuation “approach” versus a valuation “technique.” The change would require an organization to disclose when it alters either a valuation approach or a valuation technique and explain the reasons for the alteration.

An amendment to Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software, adds a reference to use when accounting for internal-use software licensed from third parties.

The update also includes an amendment to remove the term “debt” from the Codification’s master glossary because it was codified from guidance that was specific to troubled debt restructurings. Under the update, the use of the current definition is restricted to, Receivables—Troubled Debt Restructurings by Creditors, and Subtopic 470-60, Debt—Troubled Debt Restructurings by Debtors.

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