Annual Accounting and Auditing Workshop - Kurt Oestriecher

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an entity elects to apply the nature of the distribution approach and the information to apply that approach to distributions received from an individual equity method investee is not available to the investor, the entity must apply the cumulative earnings approach, and report a change in accounting principle on a retrospective basis. The entity must disclose that a change in accounting principle has occurred due to the lack of available information and should provide the disclosures required in paragraphs 250-10-50-1(b) and 250-10-50-2, as applicable.

      This amendment does not address equity method investments measured using the fair value option.

      Issue 8: Separately Identifiable Cash Flows and Application of the Predominance Principle. For cash receipts and payments that have aspects of more than one class of cash flows, the following three-step approach should be followed:

      1 An entity should first apply specific guidance in GAAP.

      2 If there is no specific guidance, an entity should determine each separately identifiable source or use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows. Each separately identifiable source or use will then be classified as operating, investing, or financing by applying the guidance in ASC 230.

      3 In situations in which cash receipts and payments cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item.

      When will this ASU be effective?

      For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years.

      For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years after December 15, 2019.

      Early application is permitted. This update should be applied using a retrospective transition method to each period present.

      Knowledge check

      1 Which approach represents an acceptable accounting policy for classifying cash distributions from equity method investees?Cumulative distribution.Nature of distribution.Proportionate distribution.Multiple option.

      Why was this ASU issued?

      This update is part of FASB’s simplification initiative. GAAP currently prohibits the recognition of current and deferred income taxes for intra-entity asset transfers until the asset has been sold to an outside party. Although additional guidance has been introduced over the years related to certain tangible and intangible assets, this has led to diversity in practice, particularly related to transfers of intellectual property.

      Who is affected by this ASU?

      The amendments of this update apply to any entity that has an intra-entity transfer of assets other than inventory.

      What are the main provisions of this ASU?

      This update requires immediate recognition of current and deferred taxes on an intra-entity transfer of an asset other than inventory when the transfer occurs. This update does not change GAAP for an intra-entity transfer of inventory.

      The update does not include new disclosure requirements, but existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory.

      What is the effective date of this ASU?

      For public business entities, the amendments of this update are effective for annual reporting periods beginning after December 15, 2017, including interim periods therein.

      For all other entities, the amendments of this update are effective for annual reporting periods beginning after December 15, 2018, and for interim periods within annual periods beginning after December 15, 2019.

      Early application is permitted for all entities as of the beginning of an annual period for which interim or annual statements have not yet been issued or made available for issuance. The update should be applied on a modified retrospective basis.

      Why was this ASU issued?

      Diversity in practices existed in the classification and presentation of changes in restricted cash on the statement of cash flows. Entities classify transfers between cash and unrestricted cash as operating, investing, and financing, or as a combination of those activities on the statement of cash flows. In addition, some consider such transfers as cash inflows and cash flows, whereas others disclose those cash flows as noncash investing or financing activities. This update was issued to harmonize treatment of such transfers on the statement of cash flows.

      Who is affected by this ASU?

      The amendments of this update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows.

      What are the main provisions of this ASU?

      Restricted cash and cash equivalents should be considered as part of unrestricted cash and cash equivalents. Therefore, transfers between restricted and unrestricted cash should no longer be classified in any of the three categories.

      When will this ASU be effective?

      For public business entities, the amendments of this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.

      For all other entities, the amendments of this update are effective for fiscal years beginning after December 15, 2018, and for interim periods beginning after December 15, 2019.

      Early application is permitted, including for interim periods. A retrospective transition method should be applied for each period presented.

      1 Transfers from restricted cash should be classified in the statement of cash flows asOperating activities.Investing activities.Financing activities.Included in total cash and cash equivalents.

      Why was this ASU issued?

      There was diversity in practice in determining when the purchase or sale of a group of assets constituted a business because the definition of a business in FASB ASC 805, Business Combinations, was too broad. This led to differences in accounting for purchase or sales transactions and the subsequent accounting for those transactions. This update is meant to provide a framework to assist entities in evaluating whether they have acquired or sold a business.

      Who is affected by this ASU?

      The amendments of this update apply all reporting entities that must determine whether they have acquired

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