By Jim DeLuccia, PICPA learning content manager

CPAs are aware that the current expected credit loss standard (CECL) takes effect in 2020. And Adriana Yepes, supervising project manager at the FASB, discussed critical updates to this standard, as well as classification of debt and what PICPA members need to know about the Private Company Council at PICPA’s 2019 Accounting and Auditing Conference on Dec. 12. Yepes sat down with me for an overview of these issues.

What are a few new accounting standards that are especially timely for our members?

The current expected credit losses standard, also known as CECL, takes effect for calendar-year-end public companies in 2020, and private companies, not-for-profit organizations, and certain small public companies in 2023. With these deadlines almost upon us, we’re engaged in helping companies make a successful transition. For example, FASB recently embarked on a series of CECL educational workshops aimed at helping institutions of all sizes make a smooth transition to the new standard. We’re collaborating with the Conference of State Bank Supervisors to hold workshops in participating states based on each state’s training needs, with future sessions to be announced on the FASB website.

There is also talk about our new standard on accounting for film costs. In recent years, there’s been a significant change in the entertainment industry’s production and distribution models. For example, online streaming services have introduced subscription-based revenue models. But films and episodic content costs have traditionally been capitalized differently. The new standard aligns the capitalization requirements for content production to provide investors with better information about these costs.

In August 2018, FASB issued a standard on cloud computing arrangements that are service contracts. That new standard aligns the accounting for implementation costs of hosting arrangements—regardless of whether they convey a license to the hosted software. I’ll also talk about some revenue recognition implementation issues.

At the PICPA conference, I understand you addressed distinguishing liabilities from equity and classification of debt. Can you briefly explain a few of these points?

During the FASB’s agenda consultation project a few years ago, stakeholders described liabilities and equity guidance as overly complex, internally inconsistent, and the source of frequent financial statement restatements. To address this, the FASB added a project to improve guidance on both convertible instruments and the derivatives scope exception for contracts in a company’s own equity.

Last July, the FASB issued a proposed standard to improve guidance for certain financial instruments with characteristics of liabilities and equity, including convertible instruments. Our proposed standard would reduce the number of accounting models for convertible debt instruments and convertible preferred stock. It would revise the derivatives scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. The proposed standard also would improve and amend the related disclosure and earnings-per-share guidance.

The stakeholder comment period concluded on Oct. 14, and FASB staff is analyzing the comments received. The findings will be discussed by the FASB at a public meeting in early December and, depending on the outcome, a final standard could be issued sometime in 2020.

Are there any updates to the role of the Private Company Council (PCC) in standard setting? And what should CPAs be reminded of regarding PCC’s relationship with the FASB?

Over the years, the PCC has increased its advisory role on FASB projects in progress—and helped make private company considerations part of the standard-setting process. Perhaps more importantly, the PCC alerts us to areas of GAAP that may be unnecessarily complex for all stakeholders, not just private companies.  

For example, PCC members and other private company stakeholders shared concerns about the cost and complexity of the goodwill impairment test. Furthermore, users of private company financial statements told us they often disregard goodwill and goodwill impairment losses when analyzing a private company’s financial condition and operating performance.

Based on this feedback, the FASB issued an alternative that allows private companies to amortize goodwill and apply a simplified goodwill impairment model. But private companies weren’t the only ones who questioned the relative usefulness of the existing goodwill impairment model. Their feedback was consistent with what we’d heard from not-for-profit organizations and some public companies.

The FASB explored ways to extend the private company alternative to a broader audience. Earlier this year, the FASB issued a new standard that extends the PCC alternative for goodwill and for measuring certain identifiable intangible assets to not-for-profit organizations. More recently, we issued an invitation to comment on a project on the subsequent accounting for goodwill and the accounting for certain identifiable intangible assets directed primarily to public business entities.  

I encourage PICPA members to engage with the PCC, follow its activities, and share their input with the both the PCC and the FASB. Your input helps us better serve our private company stakeholders.

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