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FASB Proposes Targeted Changes to Hedge Accounting Rules

Published on September 20, 2016

FASB proposed targeted changes to hedge accounting standards Thursday that are designed to help financial statements provide an accurate depiction of how an organization manages risk.

The board proposed that the economic results of an institution’s risk management activities would be portrayed more faithfully by:
• Expanding the use of component hedging for nonfinancial and financial risks.
• Refining the measurement techniques for hedged items in fair value hedges of benchmark interest rate risk.
• Eliminating the separate measurement and reporting of hedge ineffectiveness.
• Requiring for cash flow and net investment hedges that all changes in fair value of the hedging instrument included in the hedging relationship be deferred in other comprehensive income and released to the income statement in the period or periods when the hedged item affects earnings.
• Requiring that changes in the fair value of hedging instruments be recorded in the same income statement line item as the earnings effect of the hedged item.
• Requiring enhanced disclosures to highlight the effect of hedge accounting on individual income statement line items.

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FASB clarifies the classification of certain cash receipts and cash payments

Published on September 20, 2016

The FASB issued final amendments to clarify how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will generally be applied retrospectively and is effective for public business entities for fiscal years beginning after 15 December 2017, and interim periods within those years. For all other entities, it is effective for fiscal years beginning after 15 December 2018, and interim periods within fiscal years beginning after 15 December 2019. Early adoption is permitted.
(Source: EY AccountingLink – US Week in Review – September 1, 2016)

FASB Seeks Uniformity in Cash Flow Presentation

Published on September 20, 2016

Concerns over divergent practices for reporting on the statement of cash flows led to FASB’s issuance Friday of a new standard for presenting and classifying certain cash payments and cash receipts.

Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, provides guidance for eight specific cash flow issues:

• Debt prepayment or debt extinguishment costs.
• Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing.
• Contingent consideration payments made after a business combination.
• Proceeds from the settlement of insurance claims.
• Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies.
• Distributions received from equity-method investees.
• Beneficial interests in securitization transactions.
• Separately identifiable cash flows and application of the predominance principle.

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Sales and Use Tax Audit Sampling

Published on August 12, 2016

Business taxpayers sometimes face surprisingly large sales and use tax audit assessments when the tax or taxable amount is projected from seemingly small and infrequent errors in the auditor's sample. Depending on how the sample is designed and weighted, large audit assessments can either reasonably reflect the taxpayer's actual facts or unintentionally be in error due to the sampling methodology itself. Many taxpayers are not equipped to evaluate the appropriateness of a jurisdiction's methodologies and projections and do not know whether or how to challenge them.

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The Hidden Costs of a Data Breach

Published on August 12, 2016

Much of the business discussion around cyber-security relates to protection of key assets such as customer information and intellectual property, often after the news that another company has suffered a large data breach. While strengthening defenses against cyber-attackers is important, companies also must be prepared to handle the reputational and financial hits that a cyber incident can produce for years down the road.

Cyber-security has the attention of CFOs and other decision-makers. And for good reason: The average cost of a data breach has risen 29% since 2013, to about $4 million per incident, according to an annual report from IBM and Ponemon Institute. And a 2015 survey of US finance decision-makers shows that organizations are increasing spending on cyber-security.

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Cost Segregation Recapture Tax

Published on August 12, 2016

Cost Segregation Recapture Tax

Here are some ways to lower any depreciation recapture when disposing of a property. Savvy tax professionals who recommend cost-segregation studies are well aware of the recapture tax rules that require taxpayers to pay back any tax deductions for accelerated depreciation when the property is sold. After all, in the right situation, the net present value of those tax savings far exceeds any recapture tax payback. While the effects of a cost-segregation study can magnify recapture issues, tax professionals should consider a number of worthwhile opportunities to reduce or avoid recapture tax that is realized upon sale of property.

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FASB proposes concepts for financial statement presentation

Published on August 12, 2016

FASB issued a proposal that would establish a set of concepts for how recognized items should be presented in a financial statement.

The exposure draft issued by FASB is designed for provide a foundation for the board as it creates future accounting standards, with a goal of enhancing financial statement users’ ability to assess prospects for future cash flows by addressing how to: 

The proposal, Concepts Statement 8—Conceptual Framework for Financial Reporting: Chapter 7: Presentation, is part of FASB’s larger project to create a new conceptual framework, which also would address concepts related to measurement and disclosure.

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FASB proposes changing income tax disclosure requirements

Published on August 12, 2016

FASB proposed accounting rules Tuesday that would change disclosure requirements for income taxes on organizations' financial statements.

Under the proposal, existing disclosure requirements would change and organizations would be required to provide new disclosures. The proposal would require preparers to: 

Additional disclosures also would be required, with differentiation between requirements for public business entities and other organizations. The proposal is titled Proposed Accounting Standards Update, Income Taxes (Topic 740), Disclosure Framework—Changes to the Disclosure Requirements for Income Taxes.

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What should FASB work on next?

Published on August 12, 2016

FASB is asking for public comment on which financial accounting and reporting topics it should consider adding to its agenda.

The board issued an Invitation to Comment document that explains areas of concern that were identified in a recent survey of FASB’s advisory groups.

After completing major projects in recent years on standards such as revenue recognition, leases, and credit impairment, FASB is seeking input on other areas of accounting and financial reporting that need improvement.

The Invitation to Comment covers areas of concern identified in a recent survey of FASB’s advisory groups. The document discusses potential issues and possible solutions in the following areas: 

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Zero-Based Budgeting Is Not a Wonder Diet for Companies

Published on July 25, 2016

Zero-based budgeting (ZBB) is elegantly logical: Expenses must be justified for each new budget period based on demonstrable needs and costs, as opposed to the more common method of using last year’s budget as your starting point, then adjusting up or down. ZBB is a straightforward, intuitively simple way to aggressively strip out costs that cannot be rationally justified. Who would argue that a business should not eliminate unjustifiable costs?

ZBB has been around for decades, but is currently enjoying a revival driven by powerful investors like 3G Capital Partners, the force behind the 2015 merger of Kraft Foods and H.J. Heinz. Such high-profile exposure has prompted more companies to view ZBB as a fresh “wonder diet” for achieving radical corporate leanness. ZBB’s resurgence is further fueled by the uncertain markets hindering many companies’ efforts to attract fresh capital, as we see venture capital and private equity funds increasingly pushing ZBB on their portfolio companies, in the hope of securing a more rapid and profitable exit on their investments.

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