New Accounting Standards for First Quarter 2012
Author: Jennifer George
If you’re a calendar-year company, you’ve likely just filed or are about to file your U.S. Securities and Exchange Commission (SEC) Form 10-K. It's almost the end of your first quarter; are you on top of all the new accounting pronouncements effective this period?
Several Accounting Standards Updates (ASU) issued in 2011 by the Financial Accounting Standards Board (FASB) took effect during the first quarter of 2012 for calendar-year companies. Below is a list of some newly effective pronouncements that could affect you. This is not a comprehensive list, but it highlights some of the standards expected to be most significant to issuers.
ASU 2010-26, Financial Services—Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (October 2010)
- Effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. These amendments should be applied prospectively upon adoption. Retrospective application to all prior periods presented upon the date of adoption also is permitted, but not required.
- Specifies that certain costs incurred in the successful acquisition of new and renewal contracts should be capitalized. Those costs include incremental direct costs of contract acquisition that result directly from and are essential to the contract transaction(s) and would not have been incurred by the insurance entity had the contract transaction(s) not occurred.
- All other acquisition-related costs should be charged to expense as incurred. Advertising costs only are to be capitalized as deferred acquisition costs if the capitalization criteria for direct-response advertising in Subtopic 340-20 are met.
ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (June 2011)
- Effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. In addition, full retrospective application is required. See ASU 2011-12 below for subsequent deferral of certain amendments.
- Amendments require all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.
- ASU eliminates the third alternative—presenting components of other comprehensive income within the statement of changes in stockholders’ equity—altogether.
ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (December 2011)
- Effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted.
- This update defers the requirement for entities to present reclassification adjustments and the effect of those reclassification adjustments on the face of the financial statements where net income is presented, by component of net income, and on the face of the financial statements where other comprehensive income (OCI) is presented, by component of OCI.
- During the deferral period, entities will need to comply with the existing requirements (pre-ASU 2011-05) in Accounting Standards Codification 220, Comprehensive Income, which gives entities the option of presenting reclassification adjustments out of accumulated OCI on the face of the statement in which OCI is presented or disclosing reclassification adjustments in the footnotes to the financial statements.
ASU 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements (April 2011)
- Effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, this update should have been applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date, with early adoption not permitted.
- The ASU removes two aspects from the assessment of effective control:
- The criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee
- The collateral maintenance implementation guidance related to that criterion
- Other criteria applicable to the assessment of effective control are not changed by this ASU.
ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (May 2011)
- Effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption by public entities not permitted.
- Results in common fair value measurement and disclosure requirements in U.S. generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS). Consequently, some wording used has been changed and clarification has been added, but for many of the requirements, FASB does not intend a change in the application of requirements in Topic 820.
- Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.
ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment (September 2011)
- Effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted.
- Allows an entity to first assess qualitative factors to determine whether it’s necessary to perform the first step of the two-step goodwill impairment test. The entity would not be required to calculate the fair value of a reporting unit unless the entity determines it is more likely than not that its fair value is less than its carrying amount.
- In addition, the entity would no longer be permitted to carry forward its detailed calculation of its fair value from a prior year, as permitted under previous guidance.
Again, this is not a complete listing of newly issued or effective standards. For a complete listing, go to the FASB website.
If you have questions related to these or other standards that may affect your organization, contact your BKD advisor.