March 2016 Article Archives

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FASB Removes Effective Dates for Private Company Accounting Alternatives

Published on March 23, 2016

The Financial Accounting Standards Board has issued an accounting standards update for private companies that opt to apply private company accounting alternatives, removing the effective dates for four of the alternatives. 

They include:

Previously, if a private company elected to adopt an accounting alternative after its effective date, it had to assess whether the accounting alternative was preferable to its accounting policy at that time. The new accounting standards update permits a private company to forgo the preferability assessment the first time it elects a private company accounting alternative.

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New FASB Leases Standard Brings Transparency to Lessee Balance Sheets

Published on March 23, 2016

Lessees will be required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months under a new financial reporting standard issued by FASB

Accounting Standards Update (ASU) No. 2016-02Leases, will apply to both types of leases—capital (or finance) leases and operating leases. Previously, GAAP has required only capital leases to be recognized on lessee balance sheets.

As under current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease for lessees primarily will depend on its classification as a finance or operating lease:

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New Leasing Standard Could Benefit Companies

Published on March 23, 2016

The Financial Accounting Standards Board’s new lease accounting standard could have some positive payoffs for companies if they take a careful approach to implementing it.

FASB released the long-awaited standard after a decade of work with the International Accounting Standards Board as one of their major convergence projects.

The standard will add operating leases to the balance sheet for the first time for many companies, and they will need to begin tracking down all of their leases. Companies today are required to disclose their leasing commitments. With the new standard and the prominence on the balance sheet, they need to ensure that the information they have is complete and accurate. While we tend to find companies tend to have a relatively good arm around their real estate portfolio, the equipment leases are probably a category of assets where they may be a bit more disbursed across an organization. Even though it might not be the most significant part of what they’re putting on the balance sheet, it may be one of the more significant efforts in order to get there.

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FASB Streamlines Move to Equity Method of Accounting

Published on March 23, 2016

The Financial Accounting Standards Board has issued an accounting standards update making it easier for companies to transition to the equity method of accounting.

Stakeholders told FASB that the requirement to retroactively adopt the equity method of accounting is costly and time consuming when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. They said the requirement does not provide a clear benefit to users of financial statements.

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How Cooperatives Measure Earnings Affects Patronage Refunds

Published on March 23, 2016

Patronage refunds are one of the main differentiating factors between a cooperative business and a regular corporation or other business entity. One of the major parts of the statutory definition of a patronage refund is that it is determined by the net earnings of the cooperative. The statutory definition, does not, however, state whether those net earnings are determined by federal income tax or financial accounting rules.

Based on experience, the method used to determine net earnings has been based on the region of the country that the cooperative is located and size of the cooperative. In recent years, cooperatives have begun to review their method for determining net earnings in the hopes of taking full advantage of tax breaks and still providing a fair and equitable return to their members. 

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FASB Releases Lease Accounting Standard

Published on March 23, 2016

The Financial Accounting Standards Board issued its long-awaited Lease Accounting Standard, one of the major convergence projects on which it has collaborated for a decade with the International Accounting Standards Board.

The accounting standards update aims to improve financial reporting about leasing transactions and will affect all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment, in many cases putting their operating leases on the balance sheet for the first time.

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