Sie sind auf Seite 1von 8

Welschmeyer, Daniel WEEK 1 HOMEWORK ACCT540 1

Daniel E. Welschmeyer
ACCT 540
Professor Elizabeth Rolison
Keller Graduate School of Management
January 6, 2014

Welschmeyer, Daniel WEEK 1 HOMEWORK ACCT540 2

This update deals with the amendment to the Master Glossary by adding the new term
Public Business Entity. The definition of this term as laid out states that: A public business
entity is a business entity meeting any one of the following criteria. Neither a not-for-profit
entity nor an employee benefit plan is a business entity. The criterion are: (a) a requirement by
the U.S. SEC to file or furnish financial statements with the SEC, (b) a requirement by the
Securities Exchange Act of 1934 as amended, or rules or regulations promulgated under the
Act, to file or furnish financial statements with a regulatory agency other than the SEC
(Accounting standards update: 2013-12, 2013, p. 5), (c) the business is required to file or furnish
statements with a foreign or domestic regulatory agency when preparing for or selling/issuing
securities that are not subject to contractual restrictions on transfer, (d) the business has issued,
or is a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an
over-the-counter market (2013, p. 5), (e) or the business has one or more securities that do not
qualify for contractual restrictions on transfer, and is required by law, contract, or regulation to
prepare U.S. GAAP financial statements, (2013, p. 5) and make them available to the public
(must meet both conditions). The company may, by definition, meet the requirements based on
financial statement ties to another filing company as well.
There are no foreseen differences between U.S. GAAP and IFRS with the
implementation of this update; however, a key existing difference between the two is within the
applicability. This difference lies in the fact that IFRS provides for financial accounting and
reporting alternatives for entities that do not have public accountability through the use of a
separate set of standards for small and medium-sized entities (SMEs) (2013, p. 6).
Welschmeyer, Daniel WEEK 1 HOMEWORK ACCT540 3

There is no actual effective date for the amendment, however, the term public business
entity will be used in updates in the upcoming year.

The main purpose of this update is in regards to the implementation issues about the
scope of Accounting Standards Update No. 2011-11, Balance sheet (Topic 210): Disclosures
about Offsetting Assets and Liabilities. The scope (in 2011-11) has been found to be unclear, by
Stakeholders, in the topic and diversity in practice could result from this. There is a fear of
master netting using the commercial provisions and the Stakeholders questioned whether it was
intended to be such a broad scope. The objective is to be able to update the clarity of the scope
of the offsetting disclosures and address any unintended consequences (Accounting standards
update: 2013-01, 2013, p. 1).
There are various supersessions and edits to the current Topic 210. Some of the
suspensions are in the area of 210-20-50-1: (a) Superseded, (b) Superseded, (d) adds
Recognized derivative instruments accounted for in accordance with Topic 815, including
bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and
securities borrowing and securities lending transactions that are subject to an enforceable master
netting arrangement or similar agreement, irrespective of whether they are offset in accordance
with either Section 210-20-45 or Section 815-10-45 (2013, p. 4).
Another addition comes in 210-20-50-2 An entity shall disclose information to enable
users of its financial statements to evaluate the effect of potential effect of netting agreements on
its financial position (2013, p. 4), where it strikes the word position in order to be more
Welschmeyer, Daniel WEEK 1 HOMEWORK ACCT540 4

definitive, by adding position for recognized assets and liabilities within the scope of the
preceding paragraph (2013, p. 4). The preceding paragraph in reference is 210-20-50-1(d).
The main purpose of the amendments listed (as well as those not listed) is to clarify the
scope of the disclosures required by Section 210-20-50. It also provides the users of the
financial statements with comparable information as it ties into certain reconciling differences
between financial statements prepared in accordance with U.S. GAAP and those financial
statements prepared in accordance with International Financial Reporting Standards (IFRS)
(2013, p. 2). This particular amendment becomes effective January 1, 2013, and entities are
required to make the changes and apply the amendment to fiscal years beginning on or after that
date, as well as any interim periods within.

The reason that FASB is issuing this update is to improve the reporting reclassifications
of accumulated and other comprehensive income (AOCI). The amendments now require an
entity to report the effect of significant reclassifications out of AOCI on the respective line items
in net income if the amount that is reclassified is required under U.S. GAAP to be reclassified in
its entirety to net income (Accounting standards update: 2013-02, 2013, p. 1). Other amounts
that are not required to be reclassified are required to be cross-referenced with other disclosures
required under U.S. GAAP and provide additional detail.
These amendments do not change any of the current requirements for reporting income or
OCI in the financial statements; however, they do require an entity to provide information
regarding the amounts to be reclassified out of AOCI on a component basis. They also require
an entity to
Welschmeyer, Daniel WEEK 1 HOMEWORK ACCT540 5

present, either on the face of the statement where net income is presented or in the notes,
significant amounts reclassified out of accumulated other comprehensive income by the
respective line items of net income but only if the amount reclassified is required under
U.S. GAAP to be reclassified to net income in its entirety in the same reporting period
(2013, pp. 1-2).
Other amounts of income that do not require reclassification must simply contain disclosures and
be cross-referenced to provide detail.
When compared to IFRS, there are fewer amounts in OCI and the reclassification is not
as frequently required (to the Profit and Loss statement). There is, however, a requirement to
present the reclassification by component of OCI, either in the P & L statement(s), or in the notes
to the financial statements (2013, p. 2).
This amendment took effect on December 15, 2012 for prospective reporting periods, for
public entities, and for nonpublic entities it is effective prospectively the sameallowing for
early adoption.

The reason for the issuance of this update is to provide guidance and clarification on
when and how to apply the liquidation basis of accounting. These amendments should help to
clarify when the liquidation basis of accounting should apply as well as the principles necessary
for the recognition and measurement of assets and liabilities and requirements for the preparation
of the financial statements using this method (Accounting standards update: 2013-07, 2013, p.
Welschmeyer, Daniel WEEK 1 HOMEWORK ACCT540 6

The amendments require the preparation of financial statements using the liquidation
basis of accounting when liquidation is imminent; meaning when the likelihood is remote that
the entity will return from liquidation and either (a) a plan for liquidation is approved by the
person or persons with the authority to make such a plan effective and the likelihood is remote
that the execution of the plan will be blocked by other parties (2013, p. 1), or (b) the plan for
liquidation is being forced. In the case of limited-life entities, there should not be differentiation
unless the approved plan differs from the plan at inception. These amendments also require the
financial statements to present relevant information about the entitys expected resources in
liquidation by measurement of cash proceeds. There should be no assumption that the entity will
be released from any of their primary obligors and they are also required to accrue and separately
present any and all expected costs and income incurred during the liquidation process (2013, p.
In regards to IFRS, there are no explicit guidelines on when to apply the liquidation basis
of accounting, and all financial statements should be prepared on the going concern basis of
accounting (unless liquidation is planned or unavoidable) (2013, p. 2).
This Update will be effective for any entities that feel that liquidation is imminent
during annual reporting periods beginning after December 15, 2013, and interim reporting
periods therein (2013, p. 2). If the liquidation basis is used in conjunction with other Topics,
the amendments are not required to be applied; instead they should continue along the guidance
of the other topics.
Welschmeyer, Daniel WEEK 1 HOMEWORK ACCT540 7

Financial Accounting Standards Board, (2013).
Accounting standards update: Balance sheet (topic 210) (No. 2013-01).
Retrieved from Financial Accounting Foundation website:
Financial Accounting Standards Board, (2013).
Accounting standards update: Comprehensive income (topic 220) (No. 2013-02).
Retrieved from Financial Accounting Foundation website:
Welschmeyer, Daniel WEEK 1 HOMEWORK ACCT540 8

Financial Accounting Standards Board, (2013).
Accounting standards update: Presentation of financial statements (topic 205)
(No. 2013-07). Retrieved from Financial Accounting Foundation website:
Financial Accounting Standards Board, (2013).
Accounting standards update: Definition of a public business entity (No. 2013-12).
Retrieved from Financial Accounting Foundation website: