to as stranded tax effects).
Who is affected by this ASU?
Any entity that has both of the following presented in the financial statements:
1 Deferred tax assets or liabilities (typically a “C” corporation).
2 Elements of Other Comprehensive Income presented in the Statement of Comprehensive Income that had a book or tax timing difference that had been recognized in a related deferred tax asset or liability.
What are the main provisions of this ASU?
This update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This is not a mandatory reclassification, but an election.
An entity that elects to use this provision must disclose the following:
A statement that an election was made to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.
A description of other income tax effects related to the application of Tax Cuts and Jobs Act that are reclassified from accumulated other comprehensive income to retained earnings, if any.
An entity that does not make an election under this ASU shall disclose in the period of adoption, a statement than an election was not made to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.
Note that this is a one-time provision and does not change the accounting for future potential changes in tax rates.
When will this ASU be effective?
This amendment is effective for all entities for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years.
The amendments should be applied either in the periods of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate tax rate in the Tax Cuts and Jobs Act is recognized.
FASB ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement
Why was this ASU issued?
The board issued the Conceptual Framework for Financial Reporting-Chapter 8: Notes to Financial Statements on August 28, 2018. This Conceptual Framework Statement was the result of a project started by FASB on March 4, 2014, that was intended to develop a framework for providing more useful and informative disclosures to users of financial statements. This ASU will be used by FASB in developing disclosure requirements in future updates, as well as evaluating existing disclosure requirements. This particular ASU was the result of FASB running a “test” implementation of this concepts statement on the existing disclosure requirements for fair value.
Who is affected by this ASU?
Any entity that measures either assets or liabilities on a recurring or non-recurring basis at fair value is affected by this update. Because this update does not affect what assets or liabilities should be measured at fair value, all entities currently disclosing fair value measurements will be affected by this update, along with any entity that is required to measure assets or liabilities at fair value for the first time.
What are the main provisions of this ASU?
The following disclosure requirements will no longer be required upon adoption of this ASU:
The amount and reasons for transfers between level 1 and 2 of the fair value hierarchy
The policy for timing of transfers between levels
The valuation processes for level 3 fair value measurements
For nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring level 3 fair value measurements held at the end of the reporting period
The following disclosure requirements were modified upon adoption of this ASU:
In lieu of a rollforward for level 3 fair value measurements, a nonpublic entity will be required to disclose the following:Transfers in and out of level 3 of the fair value hierarchyPurchases and issues of level 3 assets and liabilities
For investments in an investee that calculates net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse. This is required only if the investee has communicated the timing to the entity or publicly announced the timing.
Any disclosure related to measurement uncertainty is to communicate information about the uncertainty in measurement as of the reporting date (as opposed to the date of issuance of the financial statements).
The following disclosures requirements were added; however, they are not required for nonpublic entities:
The changes in unrealized gains and losses for the period included in other comprehensive income for recurring level 3 fair value measurements held at the end of the reporting period
The range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements (For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop the level 3 fair value measurements.)
In addition to the preceding modifications, the code was updated to include the phrase “at a minimum” for all required disclosures related to fair value.
When will this ASU be effective?
This ASU is effective for all entities for fiscal and interim periods beginning after December 15, 2019. The amendments should be applied retrospectively with the exception of the disclosure requirements that were added. Those requirements should be applied on the prospective basis.
Knowledge check
1 Which disclosure related to fair value were added as result of FASB ASU No. 2018-13?Change in unrealized gains and losses included in other comprehensive income for recurring level 3 fair value adjustments.Change in realized gains and losses included in other comprehensive income for recurring level 3 fair value adjustments.Change in unrealized gains and losses including in net income for recurring level 3 fair value adjustments.Change in unrealized gains and losses included in other comprehensive income for non-recurring level 3 fair value adjustments.
FASB ASU No. 2018-17, Consolidation Topic 810: Targeted Improvements to Related Party Guidance for Variable Interest Entities– Decision-Making Fees
Why was this ASU issued?
The process to determine when the payment of decision-making fees was streamlined to reduce the number of entities that are required to consolidate Variable Interest Entities (VIEs) when decision-making fees are paid.
Who is affected by this ASU?
The issue related to decision-making fees affects all private companies not making the election to not recognize VIE’s and public companies who must determine if the payment of decision-making fees creates the need to consolidate a VIE.
What are the main provisions of this ASU?