After being particularly slow with its standard setting in early 2018, the Financial Accounting Standards Board (FASB) has significantly picked up its pace in issuing new accounting guidance over the past few weeks. Also, in looking at the FASB’s technical agenda, there are several more Accounting Standards Updates (ASU) which the FASB plans to issue in the 3rd quarter of 2018. Let’s take a look at the recently issued ASUs as well as those soon to be released.
In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Through this ASU, the FASB placed the accounting for issuance of all share based payments on the same accounting model. Previously, accounting for share-based payments to employees was covered by ASC Topic 718 while accounting for such payments to non-employees was covered by ASC Subtopic 505-50. As it considered recently issued updates to ASC 718, the FASB, as part of its simplification initiatives, decided to replace ASC Subtopic 505-50 with Topic 718 as the guidance for non-employee share based awards.
Under this new guidance, both sets of awards, for employees and non-employees, will essentially follow the same model, with small variations related to determining the term assumption when valuing a non-employee award as well as a different expense attribution model for non-employee awards as opposed to employee awards. Plus, there are other simplification options for non-public business entities which should aid them in applying this new guidance. The ASU is effective for public business entities beginning in 2019 calendar years and one year later for non-public business entities. As there is essentially just one model for entities to follow for all share-based awards, entities should have a much easier time with their accounting in this area.
The FASB also had simplification on its mind when it issued ASU No. 2018-08, Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, which was also issued in June 2018. In this new guidance, the FASB is attempting to make it easier for Not-For-Profit entities (NFPs) to distinguish between a revenue transaction, which would be accounted for under Topic 606 and a contribution, which would be accounted for under Topic 958. The key determining factor is whether there is a reciprocal transfer of goods or services in exchange for the contribution between the resource provider, the donor and the recipient. If there is, the transaction is a revenue transaction and, if not, it’s a contribution. However, the accounting decisions don’t end there.
Conditional vs. Unconditional Contributions
If the transaction is deemed to be an unconditional contribution, the amount can be accounted for immediately in the NFP’s statement of activity. However, if the transaction is conditional, the amount is recorded as the conditions lapse in the NFP’s statement of activity. So clearly, there is a big impact on the timing of the recognition of the contribution in these two scenarios.
To ease this determination, as well as to assure consistency in the application of the guidance, the FASB provided additional guidance to help NFPs determine if the contribution is conditional or unconditional. To be conditional, there must be a barrier which the NFP must overcome before it is entitled to use the contribution. Additionally, there must be an obligation for the NFP to either return the contribution to the donor or release the donor from continuing to provide the contribution in order for the contribution to be considered conditional.
Again, the impact of whether a contribution is conditional or unconditional will have a large impact on the timing of its recognition in the NFP’s statement of operations so NFPs need to digest the impact of this standard, which is effective when the NFP adopts Topic 606, as quickly as possible.
Other New ASUs
While the impact of these two new ASUs may be significant for certain entities, they should also be prepared for other new ASUs which the FASB expects to issue in the 3rd quarter of 2018. The FASB anticipates that it will issue several updates to its guidance on leases, found in Topic 842, including an option which could greatly simplify the transition to Topic 842 for many entities. Additionally, the FASB is planning to issue an ASU which will provide significant relief to non-public business entities when performing consolidation analysis under the variable interest entity (VIE) model for commonly controlled entities. This update will also contain other simplifications for entities performing other VIE analysis, including consideration of decision making fees and determining when a related party should consolidate a VIE.
The remainder of 2018 promises to be a very busy time for both the FASB and accountants. It will be imperative to stay up to date on these new ASUs and other accounting hot topics in order to either provide the most value added services to your clients or to effectively implement this new guidance at your business. Join us at Surgent’s accounting and auditing update course, ACAU, where we will discuss these new standards as well as the other significant issues in the world of A&A today.
Rich Daisley, CPA, is Senior Director, Accounting and Financial Reporting Content for Surgent CPE. With over 26 years of experience in the accounting and auditing field, Mr. Daisley has worked in both the client service setting, mainly for PwC’s Capital Markets and Accounting Advisory Services Group and for PECO Energy’s Merger and Acquisition Group, and in the internal capacity setting as a course developer and facilitator creating leading training courses for PwC and Surgent. Rich lives in suburban Philadelphia.