Confirm Decisions Reached to Date
During redeliberations the Board made a number of decisions to the proposed Accounting Standards Update (“Update”) including limiting the scope to legally enforceable agreements. There were also specific changes that came out of redeliberations that would be changes from the amendments in the proposed Update:
2. The Board removed the requirement to disclose the amount of government assistance received but not recognized directly in the financial statements.
A fairly robust discussion occurred around issue #2 above – in particular, why the Update doesn’t require quantitative disclosures for information that companies should have readily available. The conversation focused mainly around property tax abatements and the fact that government agencies themselves have this data and so should the companies. One Board member believed that taking a baby step of just disclosing an agreement was enough and felt there was too much of a burden to deal with quantitative disclosure. While another member strongly stated that a disclosure that a company just “got something” is not that useful and the FASB should be giving investors a better starting point. He also felt these disclosures are decision-useful. The Board agreed to consider different types of tax abatements at the next meeting but to leave out certain incentives like low interest rate loans. They also agreed to keep it as just a period amount and also look to GASB Statement 77 to help with quantitative disclosure language.
Do you want to know how “pervasive” government incentives are in the U.S.? Try $100B every single year…just in the U.S….and growing. To that point, Board member Marc Siegel provided some background for the newer Board members for context. Topic 832 was originally a recognition and measurement project, but they decided to dial it back to just a disclosure project to get a handle on just how pervasive these incentives are in the market. He also referenced the fact that there is currently no guidance in the U.S. and companies are typically confused on how to account for incentives – some apply IFRS, others do nothing, all of which leads to diversity in practice.
Regarding issue #3 above, the staff confirmed that they found virtually no examples in the U.S. and maybe one foreign example of an agreement that had a confidentiality clause. They also spoke with the GASB who did a lot of research and were not able to find any agreements either. The Board agreed to look at defense contractors and how they disclose their projects as a potential example.
Transition
The staff proposed two alternatives for the Board to consider: 1) a modified prospective application; or 2) prospective application. In alternative 2, a company would only have to disclose agreements they enter into on or after the effective date. One of the Board members stated that alternative 2 was a “non-starter” for him after just a few minutes of discussion. I absolutely agree here. The spirit of this disclosure is for companies to actually disclose the agreements they current have in place so the Board can identify how prevalent these incentives are in the market. Alternative 1 would be counterintuitive to that notion. I cannot see a situation where the Board doesn’t adopt alternative 1.
Effective Date and Early Adoption
The Board briefly discussed the effective date in the context of the proposed Update. Since the Update does not specify a specific date the actual effective date is TBD, but staff believes it to be as follows: public companies will have 1 year to implement from the effective date & private companies will have 2 years. Staff also believes the project will be finalized in early Q3 of 2018. We believe that taxpayers should begin paying attention to the Update now given the proposed timing.
Private Company Considerations
Up Next