Annual Accounting and Auditing Workshop - Kurt Oestriecher

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      Decision-making fees

      Indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. Currently, such relationships must be evaluated in its entirety instead of on a proportional basis. This change will reduce the number of entities that are required to consolidate VIEs due to the payment and receipt of decision-making fees.

      For entities other than private companies, this update is effective for fiscal years beginning after December 15, 2019, and interim periods within those years.

      For private companies, this update is effective for fiscal years beginning after December 15, 2020, and interim periods for fiscal years beginning after December 15, 2021.

      Early adoption is permitted.

      Transition

      All entities are required to apply the amendments in this Update retrospectively with a cumulative effect adjustment to retained earnings at the beginning of the earliest period presented.

      Why was this ASU issued?

      The definition in the Master Glossary of the Accounting Standards Codification did not align with the definition used in the American Alliance of Museums’ Code of Ethics for Museums. This standard aligns those definitions

      Who is affected by this ASU?

      Even though this standard aligns the codification definition with the definition in the museums’ code, this standard will apply to all entities, including business entities, that maintain collections. This standard will have the greatest impact on not-for-profit entities, because these are the types of entities that typically have collections as an asset.

      What are the main provisions of this ASU?

      A collection-holding entity must disclose its policy for the use of proceeds from when collection items are deaccessioned (that is, removed from a collection). If a collection-holding entity has a policy that allows proceeds from deaccessioned collection items to be used for direct care, it should disclose its definition of direct care.

      Current GAAP defines collections as

      Works of art, historical treasures, or similar assets that meet all of the following criteria:

       They are held for public exhibition, education, or research in furtherance of public services rather than financial gain.

       They are protected, kept unencumbered, cared for, and preserved.

       They are subject to an organization policy that requires the proceeds from sales of collection items be used to acquire other items for collection

      This update will modify the last condition to allow the proceeds to support the direct care of existing collections in addition to the above policy. Note that the effect of this definition change will allow more assets that are donated to be considered a collection. GAAP does not require the recognition of revenue or capitalization of a collection.

      This amendment is effective for annual financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted. The amendments in ASU 2019-03 should be applied on a prospective basis.

      Knowledge check

      1 Which of the following is not a criterion for a work or art or historical treasure to be classified as a collection?The asset is held for public education.The asset is preserved.The asset is held by an entity designated as an historical preservation entity.The asset is unencumbered.

      Why was this ASU issued?

      When the Board issued ASU 2014-18 that provided relief to private companies in accounting for goodwill, the Board acknowledged that the relief could be appropriate for not-for-profit entities as well as public companies. Therefore, the FASB added a project to its agenda to explore the possibility of extending the relief to not-for-profit entities. The Board has concluded that the cost of using an impairment-only model for not-for-profit entities does not exceed the benefit and issued this standard in response.

      Who is affected by this ASU?

      Any entity that meets the definition of a not-for-profit entity defined as follows:

      An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity:

       Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return

       Operating purposes other than to provide goods or services at a profit

       Absence of ownership interest like those of a business

      What are the main provisions of this standard?

      The amendments in this update extend the private company alternatives from Topic 350 (ASU 2014-02) and Topic 805 (ASU 2014-18) to not-for-profit entities.

      A not-for-profit entity that elects the alternative in Topic 350 will amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity can establish that a shorter life is more appropriate.

      The entity is also required to make an accounting policy election to test for goodwill impairment at either the entity level or the reporting unit level when a triggering event occurs that indicates the fair value of the entity (or a reporting unit) may be below its carrying amount.

      What is the effective date of this ASU?

      This standard is effective upon issuance, May 2019.

      Why was this ASU issued?

      The FASB issued this standard as part of the Simplification Initiative designed to reduce the overall complexity of United States GAAP.

      Who is affected by this ASU?

      Any entity that is required to account for income tax expense within the scope of ASC 740.

      What are the main provisions of this ASU?

      The following exceptions were eliminated from Topic 740

       The exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items such as discontinued operations or other comprehensive income. Apply on a prospective

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