The first three Private Company Council-developed Accounting Standards Updates are effective for the first annual period beginning after Dec. 15, 2014, and interim periods within annual periods beginning after Dec. 15, 2015. Accordingly, many entities will be issuing financial statements applying these updates for the first time this coming reporting season.
These first Accounting Standards Updates (ASUs) developed by the Private Company Council (PCC) are titled ASU 2014-02, Accounting for Goodwill, ASU 2014-03, Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps – Simplified Hedge Accounting Approach, and ASU 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements. While many entities are eager to adopt one or more of the PCC-developed ASUs, accountants need to be aware that each has unique and specific transition requirements.
You may benefit from an outline of the transition requirements for each PCC-developed ASU, which can help you to focus on areas that may be overlooked.
The fourth PCC-developed ASU, ASU 2014-18, Accounting for Identifiable Intangible Assets in a Business Combination, is effective upon the occurrence of the first transaction that is within scope in fiscal years beginning after Dec. 15, 2015. However, early application is permitted.
Transition Methods for PCC-Developed ASUs
The following table summarizes the different transition methods for each PCC-developed ASU:
PCC-Developed ASU |
Transition |
Existing |
Consistency Requirement |
| ASU 2014-02 |
Prospective |
If ASU 2014-02 is adopted, must be applied to all existing goodwill |
If ASU 2014-02 is adopted, must be applied to all additions to goodwill |
| ASU 2014-03 |
Modified retrospective approach or full retrospective approach |
Optional |
Optional |
| ASU 2014-07 |
Full retrospective approach |
If ASU 2014-07 is adopted, must be applied to all qualifying entities |
If ASU 2014-07 is adopted, must be applied to all qualifying entities |
| ASU 2014-18 |
Prospective for future transactions within scope and requires adoption of ASU 2014-02 (see below) |
Must continue to be measured based on pre-existing U.S. GAAP (Topic 350-Intangibles) |
If ASU 2014-18 is adopted, all future transactions within scope must apply |
Required Adoption of ASU 2014-02 for Entities That Adopt ASU 2014-18
FASB Accounting Standards Codification (FASB ASC) 805-20-15-4 indicates that:
An entity that elects (ASU 2014-18) must adopt the accounting alternative for amortizing goodwill in the Accounting Alternative Subsections of Topic 350-20 on intangibles – goodwill and other (ASU 2014-02). If the accounting alternative for amortizing goodwill was not adopted previously, it should be adopted on a prospective basis as of the adoption of the accounting alternative in this Subtopic.
However, an entity that adopts ASU 2014-02 IS NOT required to adopt ASU 2014-18.
As noted above, the transition requirements for ASU 2014-02 require application of the alternative for all goodwill. Thus, an entity will need to consider the effect of amortization of pre-existing goodwill when considering adoption of ASU 2014-18.
Application of ASU 2014-03
One of the criterion to apply the simplified hedge accounting approach in ASU 2014-03 requires that an interest rate swap’s fair value be “at or near zero.” This criterion would not usually be met for any existing interest rate swap as an existing interest rate swap has a non-zero value after inception.
Therefore, the criterion in ASU 2014-03 that the swap’s fair value at the time of application of this approach is at or near zero need not be considered. Instead, as long as the swap’s fair value was at or near zero at the time the swap was entered into (or acquired) by the entity, the entity may apply the simplified hedge accounting approach.
For an existing swap, the documentation required by FASB ASC 815-20-25-3 to qualify for hedge accounting must be completed in the period of adoption by the date on which the first annual financial statements are available to be issued rather than concurrently at hedge inception.
Early Application
Early application is permitted for all four PCC-developed ASUs for any annual or interim period before which an entity’s financial statements are available to be issued.