Annual Accounting and Auditing Workshop - Kurt Oestriecher

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measurements

       For public entities, the effects of a one-percentage-point change in the assumed health care cost trend rates

      When will this ASU be effective?

      Public business entities — Fiscal years ending after December 15, 2020

      All other business entities — Fiscal years ending after December 15, 2010

      Early adoption is permitted for all entities.

      The amendments should be adopted on a retrospective basis.

      Knowledge check

      1 Which is a disclosure added for sponsors of defined benefit plans as a result of the issuance of FASB ASU No. 2018-14?The amount and timing of plan assets expected to be returned to the employer.Significant transactions between the employer or related parties and the plan.An explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.For public entities, the effects of a one-percentage-point change in the assumed health care cost trend rates.

      Why was this ASU issued?

      FASB issued ASU No. 2015-05 to provide guidance on fees paid to an entity for cloud-based computing arrangements. That guidance provided that if a license was issued as a result of the transactions, the fees paid should be recorded as an intangible asset (with a resulting liability recorded) and accounted for in accordance with Subtopic 350-40. Any other fees paid would be considered a service contract and expensed as incurred. Stakeholders have requested additional guidance on fees paid in a cloud computing arrangement that is a service contract because the Codification was largely silent on the issue and diversity in practice had developed.

      Who is affected by this ASU?

      Any entity that incurs upfront costs (implementation, setup, and other costs) in procuring a hosting arrangement that is determined to be a service contract.

      What are the main provisions of this ASU?

      Measurement issues

      An entity shall follow the guidance in ASC 350-40 in determining which upfront costs shall be capitalized as an asset related to the service contract, with all other costs being expensed. The guidance requires an entity to determine which of the following phases of implementation the costs are incurred:

       Preliminary project stage — Expensed

       Application development stage — Capitalized, depending on the nature of the cost

       Postimplementation stage — Expensed

       An option to extend the arrangement if it is reasonable that the option will be exercised

       An option to terminate the agreement if it is not reasonably certain that the termination option will be exercised

       An option to extend (or not terminate) the arrangement in which the option is in control of the vendor

      Any capitalized costs will also be subject to the impairment guidance in ASC 350-40 if the costs are long-lived assets.

      Presentation issues

      The capitalized costs shall be presented in the statement of financial position in the same line item that a prepayment of fees for the associated hosting arrangement would be presented.

      The expense related to the amortization of the capitalized costs is required to be presented in the same line item in the statement of income as the fees associated with the hosting arrangement.

      The payments for capitalized implementation costs will be classified in the same manner as payments for the hosting arrangement in the statement of cash flows. In most cases, this will be an operating activity.

      When will this ASU be effective?

      Public companies — Fiscal years beginning after December 15, 2019, and interim periods within those years

      All other entities — Fiscal years beginning after December 15, 2020, and interim periods beginning after December 15, 2021

      Early adoption is permitted.

      Transition

      The option of either retrospective or prospective for all implementation costs incurred after the date of adoption.

      Why was this ASU issued?

      There was diversity in practice in the entertainment industry related to the capitalization of film production. Certain types of productions capitalized all costs, while other types capitalized costs only to the extent for contracted revenues for each episode in the initial market until persuasive evidence existed that revenue from secondary markets would occur. In addition, stakeholders believed that the guidance related to license agreements should be updated to reflect current conditions.

      Who is affected by this ASU?

      Broadcasters and entities that produce and distribute films and episodic television series.

      What are the main provisions of this ASU?

      This standard removes the content distinction for capitalization, which effectively aligns accounting for the production costs of an episodic television series with those of a film production.

      The standard also requires that an entity test a film or license agreement for program material that is capitalized in accordance with ASC 920-350 for impairment at a film group level when a film or license agreement is predominately monetized with other films and/or license agreement. A film group is the lowest level at which identifiable cash flows are largely independent of the cash flows from other films and/or license agreements.

      The standard requires an entity to write off unamortized film costs when a film is substantively abandoned.

      The standard requires an entity to provide disclosures about content that is either produced or licensed and also addresses certain items related to classification in the statement of cash flows.

      For public companies, fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

      For all other entities, fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

      Early adoption is permitted.

      The amendments should be applied prospectively.

      Why was this ASU issued?

      ASU 2018-07 was issued to address accounting for share-based payments transactions for acquiring goods and services from nonemployees.

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