Technical corrections approved as final amendments to U.S. GAAP

The FASB on October 19, 2016, approved a slate of minor technical corrections that will be incorporated into U.S. GAAP.

The board largely affirmed the changes outlined in Proposed Accounting Standards Update (ASU) No. 2016-220, Technical Corrections and Improvements, which was released on April 21. The proposal was issued as part of the FASB’s recurring effort to comb through the Codification and fix minor errors and add clarifications.

One change was not in the April exposure draft but came to the board’s attention after the August publication of ASU No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, which was the first major change to not-for-profit accounting in two decades.

The standard’s section on endowments includes a phrase that the board never intended to include. FASB project manager Rick Cole characterized it as a wording mistake that needed to be erased. Although the FASB agreed that it would be a small change — the deletion of the phrase “that contain no purpose restriction” with regard to some endowments — the board wants to seek public comment on it and will release it as proposal in a few weeks for a 15-day comment period.

“I don’t think there will be a lot of concern about changes we’re making, but I just think it’s something we should do,” FASB Chairman Russell Golden said.

The FASB’s other technical corrections are considered more routine. One change involves an amendment to Subtopic 820-10, Fair Value Measurement — Overall, to more clearly distinguish between a valuation “approach” versus a valuation “technique.” The change requires an organization to disclose when it makes a change in either a valuation approach or a valuation technique and explain the reasons for the changes.

Another change requires updating ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which the FASB issued in 2015.

The standard specifies that if a cloud computing arrangement includes a license, it should be accounted for as an intangible asset. If it does not, it should be accounted for as a service contract.

The board received a technical inquiry that ASU No. 2015-05 is unclear about the recognition guidance that should applied to a cloud computing license. The FASB responding by agreeing to note in the Codification that financial professionals should employ the guidance in ASC 350-30-25-1 Assets — Intangibles — Goodwill and Other — General Intangibles Other Than Goodwill — Recognition, formerly SFAS No. 142, and ASC 350-30-30-1 Assets — Intangibles — Goodwill and Other — General Intangibles Other Than Goodwill — Initial Measurement, for the licenses.

Once the technical corrections are published, organizations must comply with the changes after December 15. Private companies will have an extra year to comply. Early adoption will be permitted.

The technical correction to the cloud computing guidance becomes effective at the same time as ASU No. 2015-05, which is December 15 for public entities and December 15, 2017, for private companies.

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