FASB/IASB
Convergence Paper
Written Assignment
Giovanni Grajales
ACCT 601: Accounting Capstone
Prof. Waddell
Week 4
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The FASB stands for the Financial Accounting Standards Board which was established in
1973. The FASB is an independent, private sector, not-for-profit organizations that establishes
financial accounting and reporting standards for public and private companies and not-for-profit
organizations that follow Generally Accepted Accounting Principles, also known as GAAP. The
U.S. Securities and Exchange Commission also recognizes FASB as the designated accounting
standard setting. FASB consist of seven board members appointed by the Financial Accounting
Foundation trustees. They are a big government body which also includes the FAF, the FASB,
the Financial Accounting Standards Advisory Council (FASAC), the Governmental Accounting
Standards Board (GASB), and the Governmental Accounting Standards Advisory Council
(GASAC). “The mission of the FASB is to establish and improve financial accounting and
reporting standards to provide decision-useful information to investors and other users of
financial reports (Financial Accounting Foundation).” When issues arise, the FASB may step in
and amend current topics and update its standards. In order to do so, the FASB must issue an
exposure draft, which individuals and organizations come together and express agreement or
disagreement on the matter in the proposed draft. Interested parties may comment in three ways.
One way which seems more convenient is by going to the FASB website and doing an electronic
feedback. Another way is to send an email with your comments to [email protected], along with
the file reference number. Lastly, you can send a letter to “Technical Director” along with the
reference number as well.
Topic 305 – Intangibles – Goodwill and Other
An exposure document that was issued December 21st of 2020, was a proposal on
intangibles which talked about an accounting alternative for evaluating triggering events. The
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board invites parties for comments on this proposal up until January 20th, 2021. This proposal is
to simplify the goodwill triggering evaluation. It was brought to the audience attention that
stakeholders were concern about the cost and complexity of private companies evaluating these
type of situations and potentially measuring a good will impairment at an interim date which
isn’t useful information rather than an item that would have been an impairment on an annual
basis. This has seemed to occur more often during the coronavirus pandemic due to uncertainty
in the economic environment. The provisions that was proposed were:
a. Amortize goodwill on a straight-line basis over 10 years or a shorter period if an
entity determines that another useful life is more appropriate.
b. Forgo performing an annual impairment test and, instead, test goodwill for
impairment only when a triggering event occurs.
c. Test goodwill for impairment at the entity or reporting unit level.
(Retrieved from FASB)
With this amendment it would allow private and not-for-profit entity that only reports in-scope
financial information on an annual basis to perform the identification and evaluation of a
triggering event for goodwill impairment as of its annual reporting date only.
Topic 805 – Business Combinations – Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers
Another expose document I decided to look into which was created on December 15 th,
2020 was Topic 805 Accounting for Contract Assets and Contract Liabilities from Contracts with
Customers. The board invites parties for comments on this proposal up until March 15 th, 2021.
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The FASB has issued this proposal update to improve the acquiring of revenue contracts with
addressing diversity and the inconsistency related to:
1. Recognition of an acquired contract liability
2. Payment terms and their effect on subsequent revenue recognized by the acquirer.
Stakeholders also asked for guidance on measuring revenue contracts with customers and
expressing concern about the timing of payment of a revenue contract because it may affect the
post-acquisition revenue recognized by the buyer. An example the FASB provided was “if two
revenue contracts with identical performance obligations are acquired but one contract is paid
upfront before the acquisition and the other contract is paid over the contract term after the
acquisition, the revenue recognized by the acquirer after the business combination likely would
differ between the two acquired contracts [ CITATION FAS201 l 1033 ].” With the proposed
amendment it would apply to entities who enter into a business combination that’s within scope.
It’ll require entities to recognize and measure contract assets and liabilities in accordance with
Topic 606 on revenue from contracts with customers.
Topic 718 – Compensation – Stock Compensation
An exposure document created August 17th, 2020 for Topic 718 – Compensation – Stock
Compensation concentrated on determining the current price of an underlying share for equity
classified share option award. The deadline for comments were October 1st,2020. The main
provisions of this document were to allow nonpublic entities to determine their current price
input of equity classified share option awards. It is allowed for both employees and
nonemployees, which must follow specific Treasury regulations for a valuation method.
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“Presumption of reasonableness” is an accepted valuation method. There are three methods and
one may be used to meet the presumption of reasonableness. The requirements include:
1. A valuation determined by an independent appraisal within the 12 months preceding
the grant date
2. A valuation based on a formula that, if used as part of a nonlapse restriction with
respect to the share, would be considered the fair market value of the share
3. A valuation made reasonably and in good faith and evidenced by a written report that
considers the relevant factors of the illiquid stock of a start-up corporation (as
defined in the regulations). [ CITATION FAS l 1033 ]
With this updated, it’ll reduce the cost associated with determining the current price input and
the PCC decided that nonpublic entities can obtain one valuation that will satisfy the requirement
rather than the old two which was one for GAAP and and for tax requirements.
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Bibliography
FASB. (2020, December 15). FASB Exposure Draft – Business Combinations (Topic 805). Retrieved from
https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?
cid=1176175769579&acceptedDisclaimer=true.
FASB. (2020, April 17). FASB Exposure Draft – Compensation—Stock Compensation (Topic 718). Retrieved
from https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?
cid=1176175058347&acceptedDisclaimer=true.
FASB. (2020, December 21). FASB Exposure Draft: Intangibles—Goodwill and Other (Topic 350). Retrieved
from https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?
cid=1176175820990&acceptedDisclaimer=true.
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