Skip to main content

Financial Reporting Manual

Dec. 11, 2017

Back to Table of Contents

TOPIC 11 - Reporting Issues Related to Adoption of New Accounting Standards

(Last updated: 11/9/2016)

11100NEW REVENUE STANDARD (FASB ASC TOPIC 606)

(Last updated: 7/1/2019)

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.

Public entities (1) must apply Topic 606 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.(2) Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. For example, a calendar year-end company may adopt Topic 606 for annual and interim periods beginning on January 1, 2017 or 2018.

All other entities, including EGCs that have appropriately elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer (as defined under section 2(a) of the Sarbanes-Oxley Act of 2002) is required to apply such standards, must apply Topic 606 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Earlier application is permitted as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. For example, a calendar year-end non-public business entity may adopt the ASU for annual periods beginning on January 1, 2017, 2018, or 2019, and for interim periods at the same time or one year later than annual adoption.

The IASB also issued IFRS 15, Revenue from Contracts with Customers, in May 2014. For calendar year-end companies, the effective date is the same as under U.S. GAAP except earlier application was permitted upon the standard’s issuance in May 2014.

Companies may transition to Topic 606 and IFRS 15 (collectively, the “new revenue standard”) using one of two methods:

  • Retrospectively to each prior period presented, subject to the election of certain practical expedients (“full retrospective method”). A calendar year-end company that adopts the new revenue standard using this method must begin recording revenue using the new standard on January 1, 2018. In its 2018 annual report, the company would revise its 2016 and 2017 financial statements and record the cumulative effect of the change recognized in opening retained earnings as of January 1, 2016.
  • Retrospectively with the cumulative effect of initially applying the new revenue standard recognized at the date of adoption (“modified retrospective method”). A calendar year-end company that adopts the new revenue standard using this method must begin recording revenue using the new standard on January 1, 2018. At that time, the company must record the cumulative effect of the change recognized in opening retained earnings and financial statements for 2016 and 2017 would remain unchanged. The standard also sets forth additional disclosures required by companies that adopt the new standard using this method.

11110Registrant Financial Information

(Last updated: 7/1/2019)

11110.1Selected Financial Data

Question

A registrant elects to adopt the new revenue standard using the full retrospective approach. Must it apply the new revenue standard when reporting selected financial data (S-K Item 301) for periods prior to those presented in its retroactively-adjusted financial statements?

Answer

No, but registrants must provide the information required by Instruction 2 to S-K Item 301 regarding comparability of the data presented.

11110.2Supplementary Quarterly Financial Data

Question

A calendar year-end EGC that has elected to follow accounting transition applicable to non-issuers elects to adopt Topic 606 for annual periods beginning on January 1, 2019 and for interim periods within annual beginning on January 1, 2020. Must the company reflect adoption of the new revenue standard in the supplementary quarterly financial data (S-K Item 302(a)) contained in its 2019 annual report?

Answer

No. The EGC need not accelerate application of the standard to interim periods for the sole purpose of reporting supplementary quarterly financial data.

11110.3Ratio of Earnings to Fixed Charges

Question

A registrant elects to adopt the new revenue standard using the full retrospective approach. Must it apply the new revenue standard when reporting earnings to fixed charges for periods prior to those presented in its retroactively-adjusted financial statements?

Answer

No.

11120Financial Statements of Other Entities and Significance

(Last updated: 12/1/2017)

11120.1

Question

Will a registrant that adopts the new revenue standard using the full retrospective method be required to recompute the significance of equity method investees under Rules 3-09 and 4-08(g) of Regulation S-X?

Answer

No. See Section 2410.8.

11120.2

Question

A registrant adopts the new revenue standard as of a different date and/or under a different transition method than the other entity. For example, a calendar year-end registrant adopts the new revenue standard on January 1, 2018, but its equity-method investee adopts it on January 1, 2017. Must the registrant conform the other entity’s transition dates and methods to its own for purposes of performing the significance tests under Regulation S-X to determine whether financial statements (or financial information) of the other entity need to be included with the financial statements of the registrant?

Answer

No. The registrant need not conform the transition dates and methods for significance testing under Regulation S-X.

11200NEW LEASING STANDARD (FASB ASC TOPIC 842)

(Last updated: 7/1/2019)

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Public entities must apply Topic 842 to annual reporting periods beginning after December 15, 2018, including interim reporting periods within that reporting period.(3) Earlier application is permitted.

All other entities, including EGCs that have appropriately elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer (as defined under section 2(a) of the Sarbanes-Oxley Act of 2002) is required to apply such standards, must apply Topic 842 to annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. Earlier application is permitted.

The IASB also issued IFRS 16, Leases, in February 2016. For most companies, the effective date will be the same as under U.S. GAAP.

Companies will transition to Topic 842 using a modified retrospective approach where they will recognize and measure all leases within the scope of the standard that exist as of the beginning of the earliest comparative period presented. The entity will adjust equity at the beginning of the earliest comparative period presented as if the standard had always been applied, subject to certain practical expedients and other transition relief prescribed by the standard.

11210Registrant Financial Information

11210.1Date of Initial Application

Question

A calendar year-end registrant adopts the new leasing standard on January 1, 2019, with an initial application date of January 1, 2017. In May 2019, the registrant files its first quarter 10-Q, which reflects the adoption of the new standard. The next month, the registrant files a registration statement on Form S-3 that includes financial statements for the years ending December 31, 2018, 2017, and 2016, as well as the quarters ending March 31, 2019 and 2018.

Item 11(b)(ii) of Form S-3 requires retrospective revision of the pre-event audited financial statements that were incorporated by reference in the Form S-3 to reflect a subsequent change in accounting principle. Does the reissuance of the registrant’s financial statements change the date of initial application to January 1, 2016 because it is the beginning of the earliest comparative period presented?

Answer

No. The reissuance of the financial statements in Form S-3 accelerates the provision of the retroactively restated financial statements for the years ended December 31, 2018 and 2017, but it does not change the date of initial application.

11300NEW DISCLOSURES ABOUT SHORT-DURATION CONTRACTS FOR INSURANCE ENTITIES (FASB ASC TOPIC 944)

(Last updated: 11/9/2016)

In May 2015, the FASB issued ASU No. 2015-09, Disclosures about Short-Duration Contracts (the ASU). The ASU applies to all insurance entities that issue short-duration contracts as defined in Topic 944, Financial Services – Insurance, and requires additional disclosures including incurred and paid claims development information by accident year.

Public business entities must apply the ASU to annual reporting periods beginning after December 15, 2015, and interim reporting periods within annual periods beginning after December 15, 2016.

All other entities, including EGCs that have elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer (as defined under Section 2(a) of the Sarbanes-Oxley Act of 2002) is required to apply such standards, must apply the ASU to annual reporting periods beginning after December 15, 2016, and interim reporting periods within annual periods beginning after December 15, 2017.

Companies will transition to the ASU retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. Early application is permitted.

11310Registrant Financial Information

11310.1

Question

A registrant adopts the ASU for the fiscal year ended December 31, 2016. The new guidance requires the presentation in the notes to the financial statements of disaggregated claims development tables, at a minimum for each reportable segment, depicting, in part, re-estimates of claims by accident year for up to ten years. Securities Act Industry Guide 6 and Exchange Act Industry Guide 4 (collectively, “Industry Guide 6”) identify a consolidated ten-year loss reserve development table to be provided by Property and Casualty insurers in either the Business or MD&A section. Must the registrant continue to present the Industry Guide 6 table in its filings?

Answer

No. A registrant must provide the claims development tables required by the ASU. It does not have to separately provide the ten-year loss reserve development table identified in Industry Guide 6, but may opt to do so.

[1] Includes (1) public business entities as defined in the Accounting Standards Codification Master Glossary, (2) not-for-profit entities that have issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and (3) employee benefit plans that file or furnish financial statements to the SEC.

[2] A public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or inclusion of its financial statements or financial information in another entity’s filing with the Commission may apply Topic 606 for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.  See ASU No. 2017-13.

[3] A public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or inclusion of its financial statements or financial information in another entity’s filing with the Commission may apply Topic 842 for annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020.  See ASU No. 2017-13.

Back to Table of Contents

Return to Top