FASB Updates

The authors are committed to providing complete and up-to-date content to users of our Intermediate Accounting text. Check this page periodically to find out about emerging accounting pronouncements that affect financial reporting.

The FASB recently changed the number of full-time members from seven to five. More information about the responsibilities of board members, the terms of service and the current board members can be found at the FASB board member facts page.

The FASB and the IASB are working together to develop a common and improved conceptual framework that will provide the foundation for developing principles-based, common standards.
The joint conceptual framework project consists of eight phases:

The FASB Accounting Standards Codification^TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162
(Issue Date 06/09)

The FASB'scodification became effective on July 1, 2009 and now represents the single source of authoritative nongovernmental U.S. GAAP, except for rules and interpretive releases of the SEC which remain also as sources of authoritative GAAP. All other literature is now nonauthoritative. Codification references for the 5th edition of the text can be found here.

This statement amends interpretation 46(R) to require an enterprise to perform an analysis to determine whether the enterprise's interest or interests give it a controlling financial interest in a variable interest entity. The standard does not impact the content of the textbook.

Accounting for Transfers of Financial Assets-an Amendment of FASB Statement No. 140
(Issue Date 6/09)

Effective in 2010, SFAS No. 166 removes the concept of a qualifying special-purpose entity from GAAP. Therefore, post-SFAS No. 166 QSPEs fall within the scope of FASB Interpretation No. 46, Consolidation of Variable Interest Entities (VIE’s). In combination with the tightened VIE consolidation requirements in SFAS No. 167, this change makes it more likely that companies will have to consolidate an SPE that they set up to securitize their receivables. After consolidation, it no longer appears as if the company had sold its receivables to an outside entity. Instead, the company appears to have kept its receivables and engaged in a secured borrowing with whoever loaned money to the SPE.

SFAS No. 166 also defines the term “participating interest” to establish the conditions in which transfer of a portion of a financial asset can be treated as a sale. Per SFAS No. 166, a participating interest as a portion of a financial asset that:

(1) Conveys proportionate ownership rights with equal priority to each participating interest holder.

(2) Involves no recourse (other than standard representations and warranties) to, or subordination by, any participating interest holder.

(3) Does not entitle any participating interest holder to receive cash before any other participating interest holder.

Because these requirements are restrictive, it is likely that transfers of portions of receivables are less likely to qualify for sales treatment under SFAS No. 166. However, SFAS No. 166 emphasizes that the specific legal form of the asset is important for determining what constitutes an entire financial asset, so some clever transactions still are likely to qualify for sales treatment.

SFAS No. 166 also requires that a transferor (a) recognize and (b) initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of an entire financial asset or a group of financial assets accounted for as a sale. SFAS No. 166 also emphasizes that a company must consider all arrangements or agreements made at the same time as (or in contemplation of) a transfer when applying the provisions of the standard.

SFAS No. 166 alters the content of chapter 7, in particular Illustrations 7-6 and 7-7. Here are revised versions of those Illustrations .

SFAS No. 165 defines subsequent events as events or transactions that occur after the balance sheet date but before financial statements are issues or are available to be issued. Consistent with prior GAAP, this statement requires that entities recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed as of the balance sheet date, including any estimates underlying the financial statements. The entity should not recognize subsequent events that provide evidence about conditions that arose after the balance sheet date, but should disclose those events which are so important that nondisclosure would make the financial statements misleading.

The only way in which the standard impacts the content of the 5th edition of the textbook is in its clarification of the date up to which subsequent events are to be evaluated. Prior to SFAS No. 165, the focus for evaluating subsequent events was the date at which financial statements are issued, i.e., widely distributed to shareholders and other financial statement users in a format consistent with GAAP. However, some entities (for example, private companies) do not widely distribute their financial statements to users. For those entities, SFAS No. 165 clarifies that the key date for subsequent events is not the date of issuance but rather the date upon which the financial statements are available to be issued, which occurs when the financial statements are complete, in a format consistent with GAAP, and have obtained the necessary approvals for issuance. Entities must disclose the date through which subsequent events have been evaluated.

Not-for-Profit Entities: Mergers and Acquisitions-Including an amendment of FASB Statement 142
(Issue Date 4/09)

The objective of this statement is to improve the relevance, representational faithfulness, and comparability of the information that a not-for-profit entity provides in its financial reports about a combination with one or more other not-for-profit entities, businesses, or nonprofit activities. The standard does not impact the content of the textbook.

The standard clarifies how SFAS No. 60, "Accounting and Reporting by Insurance Enterprises," applies to financial guarantee insurance contracts issued by insurance enterprises, including the recognition and measurement of premium revenue and claim liabilities. It also requires expanded disclosures about financial guarantee insurance contracts. The standard does not impact the content of the textbook.

Exposure Drafts

The FASB is currently working on a number of projects that could result in significant changes in financial reporting practices. Here is a link to a list of exposure drafts that are currently outstanding.