Happy New Year! We hope you and your family were able to enjoy the holiday season. During the fourth quarter of 2023, we hosted a Risk Management, Compliance and Internal Audit Track Forum during which our financial services experts addressed risk management, compliance, information technology, fintech and internal audit topics to help your financial institution anticipate and respond to risks. We also hosted a Finance, Accounting, and Strategy Forum sharing insights on regulatory hot topics, the state of the economy, ESG regulations and disclosures and liquidity and how to handle today’s interest rate environment. Both forums were recorded, and you can them view using the links above.

In this edition of the quarterly communication, we have provided information about financial reporting and accounting issues – some of which are currently being evaluated by regulatory agencies and not resolved at this time. We have also compiled a list of items for consideration in your financial reporting and disclosures for the fourth quarter and a summary of recently issued accounting pronouncements (see Appendices for summary of recently issued accounting pronouncements and the related effective dates).

This quarterly update is organized as follows:

FSAB Updates

The following selected Accounting Standards Updates (ASUs) were issued by the Financial Accounting Standards Board (FASB) during the fourth quarter. A complete list of all ASUs issued or effective in 2023 is included in Appendix A.

FASB Improves Segment Disclosures

In November, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, that improves disclosures about a public entity’s reportable segments and addresses requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses. The ASU applies to all public entities with public reporting requirements that are required to report segment information in accordance with FASB Accounting Standards Codification (ASC) 280, Segment Reporting. The amendments in the ASU improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The key amendments:

  • Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss.
  • Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss.
  • Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by ASC 280 in interim periods.
  • Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements.
  • Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.
  • Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in ASC 280.

Effective Dates

All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023.

New Guidance for Crypto Assets

In December, the FASB published ASU 2023-08, Accounting for and Disclosure of Crypto Assets, intended to improve the accounting for and disclosure of certain crypto assets. The new standard responds to feedback from stakeholders of all backgrounds who indicated that improving the accounting for and disclosure of crypto assets should be a top priority. The amendments in the ASU improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income. The amendments also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period.

The amendments in the ASU apply to all assets that meet all the following criteria:

  • Meet the definition of intangible asset as defined in the FASB Accounting Standards Codification
  • Do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets
  • Are created or reside on a distributed ledger based on blockchain or similar technology
  • Are secured through cryptography
  • Are fungible
  • Are not created or issued by the reporting entity or its related parties.

Effective Dates

The amendments in the ASU are effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued (or made available for issuance). If amendments are adopted in an interim period, they must be adopted as of the beginning of the fiscal year that includes that interim period.

FASB Makes Improvements to Income Tax Disclosures

In December, the FASB published ASU 2023-09, Improvements to Income Tax Disclosures, that addresses requests for improved income tax disclosures from investors, lenders, creditors, and other allocators of capital (collectively, “investors”) that use the financial statements to make capital allocation decisions. The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures.

Effective Dates For public business entities, the ASU is effective for annual periods beginning after December 15, 2024. For other entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.

Regulatory Update

The Fed Issues Financial Stability Report

In October, the Federal Reserve issued its semiannual Financial Stability Report, an evaluation of the stability of the U.S. financial system by analyzing vulnerabilities related to valuation pressures, borrowing by businesses and households, financial-sector leverage and funding risks. The report highlighted inflationary pressures, potential large losses in the commercial and residential real-estate sectors, and overall banking sector stress as the areas of highest risks to U.S. financial stability.

Bank Regulators Issue Final Rule to Strengthen and Modernize Community Reinvestment Act Regulations

The Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System released a final rule to strengthen and modernize their regulations implementing the Community Reinvestment Act (CRA). The final rule makes the most significant changes to the agencies’ CRA regulations in more than 25 years. The key goals of the final rule include:

  • Expand access to credit, investment, and basic banking services in low- and moderate-income communities. Under the final rule, the agencies will evaluate bank performance across the varied activities they conduct and communities in which they operate so that CRA is a strong and effective tool to address inequities in access to credit. The final rule promotes community engagement and financial inclusion. It will also emphasize smaller-value loans and investments that can have high impact and be more responsive to the needs of low– and moderate–income (LMI) communities.
  • Adapt to changes in the banking industry, including internet and mobile banking. The final rule updates CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models.
  • Provide greater clarity, consistency, and transparency. The final rule adopts a metrics-based approach to CRA evaluations of retail lending and community development financing, which includes public benchmarks, for greater clarity and consistency. It also clarifies eligible CRA activities, such as affordable housing, that are focused on LMI, underserved, and rural communities.
  • Tailor CRA evaluations and data collection to bank size and type. The final rule recognizes differences in bank size and business models. It provides that smaller banks will continue to be evaluated under the existing CRA regulatory framework with the option to be evaluated under aspects of the new proposed framework.

Most of the final rule’s new requirements are applicable beginning January 1, 2026. The remaining new requirements, including data reporting requirements, are applicable on January 1, 2027.

OCC Issues Semiannual Risk Perspective

The OCC released its Fall 2023 Semiannual Risk Perspective which addresses key issues facing banks, focusing on those that pose threats to the safety and soundness of banks and compliance with applicable laws and regulations. The OCC reports banks’ financial condition remains sound noting recessionary pressures are easing. However, inflation remains elevated and a slowing labor market, declining savings, and higher interest rates could cause financial distress. The report focuses on the following risk themes:

  • Credit risk, especially within commercial real estate lending, due to higher interest rates, persistent inflation, decreasing corporate profitability and potential slower economic growth.
  • Rising deposit rates and increased reliance on wholesale funding impacting net interest margins through the first half of 2023.
  • Operational risk is high as banks continue to leverage new technology to digitize operations in addition to increasing sophistication and frequency of cyber attacks.
  • Compliance risk remains elevated due to increased focus on fair lending and expansion of partnerships with third parties, such as financial technology companies (fintechs).

FDIC Issues Advisory to Institutions with Commercial Real Estate Concentrations

On December 18, 2023, the FDIC issued an advisory to institutions with concentrations of commercial real estate (CRE) to remind them of the importance of strong capital, appropriate credit loss allowance levels, and robust credit risk-management practices. The advisory provides the following key risk management practices for institutions to consider in managing CRE loan concentrations in the current challenging economic environment:

  • Maintain strong capital,
  • Ensure the credit loss allowances are appropriate,
  • Manage construction and development and CRE loan portfolios closely,
  • Maintain updated financial and analytical information for borrowers,
  • Bolster the loan workout infrastructure, and
  • Maintain adequate liquidity and diverse funding sources.

The practices identified in the advisory are not new but are enhancements to the 2008 advisory: Managing Commercial Real Estate Concentrations in a Challenging Environment.

SEC Delays Action on Final Climate Disclosure Rule

The Securities and Exchange Commission (SEC) has, once again, delayed its climate change disclosure rulemaking. Now the agency will consider finalizing its March 2022 proposal, Release No. 33-11042, The Enhancement and Standardization of Climate-Related Disclosures for Investors, in the spring of 2024, according to an updated rulemaking agenda. The commission has delayed final action several times already, and the latest delay has been widely expected, given strong pushback by public companies against some of the more onerous proposed requirements, including scope 3 greenhouse gas (GHG) emission disclosures, 1%-materiality threshold for financial statement disclosures, and attestation of scope 1 and scope 2 GHG emissions for larger companies.

The climate change disclosure rule is probably the most closely watched and one of the most consequential projects that the SEC will undertake during Chair Gary Gensler’s tenure in part because it will test the boundaries of the securities laws and the commission’s authority. If adopted, it will represent a significant change for public companies. Many large companies today already provide voluntary sustainability reports. But the SEC’s proposal—with several extensive standardized and prescriptive requirements—is intended to provide investors with consistent, comparable, decision-useful information that is reliable.

This rulemaking has been especially controversial as many critics—mainly business organizations and Republicans—question whether the agency even has the authority to prescribe extensive rules that they view are intended to manage the economy and businesses.

SEC Provides More Disclosure Guidance on Pay versus Performance Rule

The SEC Division of Corporation Finance (CorpFin) has once again updated Compliance & Disclosure Interpretations (C&DIs) for Regulation S-K to further provide the staff’s interpretations of pay versus performance rules. CorpFin first provided C&DIs on the rules in February, then followed up with additional interpretations—mainly on GAAP questions—in late September to help reporting companies to implement Release No. 34-95607, Pay Versus Performance, which was adopted in August 2022. Companies began complying with the requirements for fiscal years ending on or after December 16, 2022.

The SEC added new Item 402(v) to Reg S-K, requiring companies to disclose in a table that includes the measure of total compensation and a measure reflecting “executive compensation actually paid” for the principal executive officer. The same information should be presented as an average for the other named executive officers (NEOs).

The latest update, published on November 21, 2023, answers 10 questions about peer group in Compensation Discussion & Analysis (CD&A), stock and option awards, and disclosures by companies that lose smaller reporting company (SRC) or emerging growth company (EGC) status. Depending on the rules, SRCs and EGCs get exemptions or get to comply with scaled or phased-in requirements.

SEC Staff Reminds Companies of Non-GAAP Rules

There has been some confusion about what the new FASB standard on segment reporting would mean in relation to a company’s ability to use non-GAAP metrics in financial statement notes. And the SEC is reminding public companies about current non-GAAP requirements while urging companies to consult with the commission before putting additional unofficial measures in the financial statement notes for segment reporting.

In November, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, that is intended to provide additional information about a public company’s significant segment expenses and more timely and detailed segment reporting to investors. Among other things, a company is required to disclose significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss. The additional measures of segment profit or loss are permitted but not required by the new ASU. Accordingly, the SEC rules consider such additional measures of segment profit or loss as non-GAAP financial measures subject to the non-GAAP guidance.

ASU 2023-07 includes the following related to potential use of non-GAAP measures:

“If the chief operating decision maker uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) shall be that which management believes is determined in accordance with the measurement principles most consistent with those used in measuring the corresponding amounts in a public entity’s consolidated financial statements.”

Accordingly, a company would be fully compliant with US GAAP and the new ASU if it presented the one required segment measure of profit or loss—the one most consistent with US GAAP—and not other additional measures. However, because ASU 2023-07 permits the additional measures in the financial statement notes with no requirement that they be calculated consistent with US GAAP, the SEC expects that some companies may disclose non-GAAP measures of segment profit or loss in their audited financial statements. Regulation G requires companies to present with equal or greater prominence the most directly comparable financial measure from U.S. GAAP. Companies must also reconcile the differences between the non-GAAP financial measure with the most directly comparable financial measurement from GAAP. The companies must also disclose why they believe the non-GAAP measures provide useful information to investors about their financial conditions and results of operations.

SEC Stresses Importance of Cash Flow Statement

The SEC Chief Accountant, Paul Munter, is urging companies to exercise the same level of due professional care with the statement of cash flows as they do for other financial statements. His remarks come as some companies and auditors may have not been applying the same rigor and skepticism in preparing or auditing the statement of cash flows, even though it is a primary financial statement. This has consistently been a leading area of financial statement restatements. The SEC staff have found that a significant majority of these restatements represent prior period errors corrected in the current period comparative financial statements—or “little r” restatements. This indicates that issuers are routinely making a determination that errors in the statement of cash flows do not constitute a material error in prior periods. Regulators have also observed material weakness in internal control over financial reporting (ICFR) around the preparation and presentation of the statement of cash flows.

It is unclear how widespread the problems are, but Munter has stated that, at least anecdotally, there is some evidence that not all companies have the same rigorous processes and financial controls as they do around the other financial statements. And that kind of anecdotal evidence is worrisome because that might imply that in the minds of some issuers and some auditors, the cash flow statement is of lesser importance.

PCAOB Releases Spotlight: 2022 Conversations with Audit Committee Chairs

The PCAOB staff issued its annual spotlight which highlights observations and takeaways from conversations with audit committee chairs. This spotlight summarizes conversations with over 200 audit committee chairs during 2022 and focuses on topics such as staffing turnover among CPAs, COVID-19 impact and working remotely, communications with their auditors, critical audit matters, and information from outside of the financial statements, including non-GAAP measures and ESG reporting.    

PCAOB Adopts New Standard on Auditor’s Use of Confirmation

The PCAOB adopted a new standard to modernize the auditor’s confirmation process. The new confirmation standard aims to better respond to the current technological environment by addressing the use of electronic confirmations in audits. In addition, the new standard does not consider negative confirmations alone as sufficient audit evidence. Requirements related to accounts receivable confirmations are largely similar to the requirements under the old standard. The new standard also emphasizes the auditor’s responsibility to maintain control over the confirmation process and identifies situations in which alternative procedures should be performed. The new standard is effective for financial statement audits for fiscal years ending on or after June 15, 2025.

Other Developments

FASB Makes Changes to Emerging Issues Task Force

The FASB will roll out a new process next year that will leverage the work of the Emerging Issues Task Force (EITF), a special panel that addresses technical accounting issues that come from applying U.S. GAAP. The EITF will have control of its own agenda and deliberate issues, but the output of an EITF consensus will simply be a recommendation to the FASB in the form of an agenda request with a proposed solution.

The EITF, which was formed in 1984, has evolved over time. There was a period—decades ago—when the EITF controlled its own agenda, dealing in some cases with 30 to 40 issues a year. The task force’s decisions took effect right after it held meetings but over time that process changed and the group’s process became part of the FASB’s full process.

Today, the EITF has a limited mandate though broader than board advisory bodies. It is composed of 12 members and is chaired by the FASB Technical Director. The Task force can only address projects the FASB puts on its agenda, typically technical matters that accountants find confusing and therefore have created diversity in practice.

U.S. Treasury Warns Banks to Beware of Continuing Fraud Schemes Linked to COVID-19 Relief Program

The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has alerted firms to a pattern of continuing fraud schemes that exploit a COVID-19 relief program known as the Employee Retention Credit, or ERC. The alert includes red flag indicators to help firms detect transactions linked to ERC fraud.

The Employee Retention Credit was authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act as a tax credit to encourage businesses to keep employees on payroll during the COVID-19 pandemic. The Internal Revenue Services (IRS) Criminal Investigations (CI) unit identified the persistent ERC fraud schemes, which have so far triggered 323 investigations involving more than $2.8 billion in potentially fraudulent claims throughout tax years 2020, 2021, 2022, and 2023, the alert said.

FinCEN issued this alert in partnership with IRS CI to remind financial institutions that it is critical that they remain vigilant in identifying and reporting related suspicious activity and to protect businesses from being taken advantage of by fraudsters. ERC fraud has been so widespread that in September 2023, the IRS announced a moratorium—through at least year’s end—on processing new ERC claims to get a handle on the illicit activity.

While there are numerous variations of ERC fraud, the basic approach is to use shell companies, or existing but ineligible businesses, to file fraudulent ERC claims. In some cases, criminals have used the proceeds to pay for lavish purchases and personal expenses, the alert said. So-called “promoters” may occasionally also submit claims on behalf of businesses without their knowledge or using stolen information. Such ERC mills may also steal taxpayers’ personal information from an ERC claim to use in other identity theft schemes, the alert said.

Based on FinCEN’s analysis of suspicious activity reports (SARs), other Bank Secrecy Act filings, open-source reporting, and information provided by law enforcement partners, the Treasury bureau developed a list of 10 red flags that may indicate ERC fraud activity:

  • A business account receives more than one ERC check deposit over multiple days.
  • Small business accounts receive an ERC check deposit that is not commensurate with the size of the business, the number of employees, and the volume of transactions.
  • A large ERC is deposited into a business account and is subsequently transferred using P2P services, sent to an online banking institution, or withdrawn as cash at an ATM. Funds may be transferred from the deposit account into separate accounts or used for payments to new businesses that the customer had not dealt with before receiving the ERC.
  • The account receiving an ERC check deposit has no deposits other than Treasury-issued checks, or the account has no regular business transactions.
  • A customer attempts to deposit an altered Treasury ERC check, or financial institutions are unable to verify the validity of the checks that customers attempt to deposit.
  • The ERC check is deposited into a new business account that did not exist in 2020 or 2021.
  • A new business account is created for an established business, but no other business activity occurs in the account except for the ERC deposit. This may indicate identity theft, where the established business was used as a front from which to apply for the ERC.
  • A dormant business account suddenly receives an ERC check deposit.
  • An ERC is deposited into a business account with no payroll history.
  • A customer reports or provides documents indicating that their ERC was obtained by a third-party firm whose credentials cannot be verified or is the subject of adverse media.

Statement of Cash Flows to be Narrowly Reorganized for Financial Institutions

In November, the FASB voted to add a rulemaking project to its agenda to reorganize the statement of cash flows to address items that are core to the operations of banks and other financial institutions, agreeing to keep the project narrow. The effort will revise ASC 230, Statement of Cash Flows, so that it does a better job of telling a bank’s story, according to the discussions.

At the crux of the matter—financial statement preparers and investors have said that many of the activities that are classified as “investing” or ”financing” for a nonfinancial institution are viewed as “operating activities” for a financial institution, such as accepting deposits and making loans. This in turn reduces the usefulness of the statement to users of the information who study financial institutions. In general, the planned changes would fix those issues in a manner that is operable at low cost, staff said.

Specifically, the project will revise ASC 230 to:

  • Require a disclosure of cash received for interest on the cash flow statement similar to the current disclosure that is already required for cash paid for interest. Staff said that a majority of investors support this disclosure because they believe it could encourage more banking investors to utilize the cash flows statement in their analyses.
  • Reorganize the statement for financial institutions. This would revise the statement of cash flows to expand the operating cash flows section to include additional items that are core to the operations of a financial institution. Additionally, the operating section would include a subtotal for net interest income related adjustments. Staff said that the majority of investors agree that the subtotal within the operating section related to net interest income could allow for a further breakdown to amortization and other line items which would provide more insight into adjustments for noncash accretion of interest income.

On the Horizon

The following selected FASB exposure drafts and projects are outstanding as of December 31, 2023.

Proposed ASU Related to Profits Interests Awards

In May, the FASB issued a proposed ASU that is intended to improve generally accepted accounting principles by adding illustrative guidance to help entities determine whether profits interest and similar awards should be accounted for as a share-based payment arrangement within the scope of ASC 718, Compensation—Stock Compensation.

Certain entities, typically private companies, provide employees and other service providers with profits interest and similar awards to align compensation with the company’s operating performance and provide those holders with the opportunity to participate in future profits and/or equity appreciation of the company. The Private Company Council (PCC) and other stakeholders have highlighted existing diversity in practice in accounting for these awards as a share-based payment arrangement under ASC 718 or similar to a cash bonus or profit-sharing arrangement (ASC 710, Compensation—General, or other Topics). As certain public business entities also may be required to account for profits interest awards, the PCC recommended that the Board add a project that would provide illustrative guidance for all reporting entities that account for profits interest and similar awards.

Potential GAAP Guidance on Government Grants

In June 2022, the FASB published an Invitation to Comment (ITC), Accounting for Government Grants by Business Entities: Potential Incorporation of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, into Generally Accepted Accounting Principles. The ITC gives stakeholders the opportunity to provide feedback on whether IAS 20 represents a workable solution for improving GAAP in the U.S. financial reporting environment for business entities as it relates to the accounting for government grants.

In 2021, the FASB issued the Invitation to Comment, Agenda Consultation, which gave all stakeholders the opportunity to provide input on what the Board’s future priorities should be. The 2021 ITC asked stakeholders to weigh in on a broad range of issues, including whether the FASB should pursue a project on the recognition and measurement of government grants—and, if so, whether it should leverage an existing grant or contribution model or develop a new accounting model. Approximately three-quarters of stakeholders who provided specific feedback on that question, including investors, practitioners, preparers, and state certified public accounting societies, preferred that the FASB leverage International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance.

In response to this feedback, the FASB added a project, Accounting for Government Grants, Invitation to Comment, to the research agenda. Published as part of that research project, the government grants ITC solicits additional feedback from stakeholders on relevant requirements in IAS 20 and includes specific questions for investors about the importance and utility of government grants information to their analysis of a company’s financial performance.

Projects on Environmental Credits, Consolidation, and KPIs In May 2022, the FASB added a project to its technical agenda on the recognition, measurement, presentation and disclosure of environmental credits that are legally enforceable and tradeable, following a review of the staff’s initial research on accounting for environmental credits, including feedback that there is diversity in practice in this area. The project will address the accounting by participants in compliance and voluntary programs, as well as by creators of environmental credits. In addition, the FASB added a project on consolidation for business entities to its research agenda after removing its project on consolidation reorganization and targeted improvements from the technical agenda. The new project will explore whether a single consolidation model could be developed for business entities. In response to feedback received on the FASB’s Invitation to Comment, Agenda Consultation, the

FASB also added a project on financial key performance indicators to the research agenda to explore standardizing the definitions of financial key performance indicators.

EITF Agenda Items

The Emerging Issues Task Force (EIFT) did not meet during the fourth quarter. The next EITF meeting has not been scheduled.

PCC Activities

The Private Company Council (PCC) met on December 14 and 15, 2023. Below is a summary of topics discussed by PCC and FASB members at the meeting:

  • Stock Compensation Disclosures (PCC Research Project): FASB staff and members of the PCC’s stock compensation disclosures working group summarized outreach conducted with private company preparers, practitioners, and users. Several PCC members expressed preliminary support for adding a project on stock compensation disclosures to the PCC’s technical agenda, while some PCC members questioned whether this is a pressing and pervasive issue for private companies. PCC members noted that many users have access to management and detailed information, such as capitalization tables, and may not find certain required stock compensation disclosures decision useful. Some PCC members noted that some stock compensation disclosures may be costly for private companies to prepare, largely driven by whether the entity uses software to generate the required disclosures and by the complexity of the company’s stock compensation plans. PCC members indicated that no additional research was necessary before deciding whether to add a project to the PCC’s technical agenda at a future meeting.
  • Accounting for Government Grants: The PCC discussed the Board’s recent decision to add a project to its technical agenda on the accounting for government grants received by business entities and recent Board decisions on scope, recognition, measurement, and presentation. Some PCC members supported the Board’s decision to have a separate, cost-accumulation model for grants related to assets, while other PCC members indicated preference for a single model with gross presentation of all grants recognized. Some user PCC members indicated that disclosure of the ongoing impact of grants related to assets, in periods subsequent to grant recognition, could be decision useful.
  • Scope Application of Profits Interest Awards: PCC members supported the Board’s decisions made during redeliberation of the amendments in the proposed Update, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest Awards, at its November 1, 2023 meeting. PCC members asked for clarification on how the Board determined which additional characteristics to add to the illustrative example in the Codification. PCC members suggested that educational materials or communications about the final Update could be provided through state CPA societies, PCC liaison meetings, and FASB webcasts.
  • Revenue Implementation: FASB staff provided a summary of feedback received at the November 10, 2023 public roundtable on the FASB’s post-implementation review of Topic 606, Revenue from Contracts with Customers. A preparer PCC member who participated in the roundtable provided additional details on the roundtable discussion in the areas of benefits, costs, implementation challenges, and improvements to the standard-setting process. PCC members discussed areas in Topic 606 that could be considered for potential future standard setting for private companies, such as presentation of contract assets and contract liabilities, short-cycle manufacturing, and variable consideration for long-duration contracts.
  • Leases Implementation: PCC members discussed recent observations about the implementation of Topic 842, Leases, and feedback received at the Risk Management Association (RMA) liaison meeting, indicating that the RMA members expressed a need for additional information to distinguish related party leases from third-party leases. PCC members also discussed continuing implementation issues, such as the determination of the incremental borrowing rate and the election to use the risk-free discount rate.
  • Credit Losses Implementation: PCC members discussed recent observations on the status of private company implementation of Topic 326, Financial Instruments—Credit Losses (CECL). Some PCC members described challenges related to applying certain aspects of CECL, such as developing reasonable and supportable forecasts on trade receivables and similar types of financial assets held by nonpublic commercial entities. Other PCC members discussed how the implementation of CECL, while not significant to their financial statements, provided an unexpected benefit to their internal management reporting. PCC members also emphasized a need to continue promoting awareness of the guidance among private company stakeholders.
  • Accounting for Environmental Credit Programs: FASB staff provided PCC members with an update on the Accounting for Environmental Credit Programs project and a summary of the recent Board decisions on scope and asset recognition and measurement. PCC members noted that while they do not currently have extensive experience with environmental credits within the scope of the project, they support the Board’s consideration of the project as both compliance and voluntary programs are becoming more prevalent. PCC members also asked clarifying questions about the project, including its interaction with the FASB’s Accounting for Government Grants project and consideration of fair value measurement for a subset of environmental credits.
  • Induced Conversions of Convertible Debt Instruments: The PCC’s EITF observer member provided an overview of the project and the consensus-for-exposure reached by the EITF at its September 14, 2023 meeting and the ratification by the Board at its October 4, 2023 meeting. A proposed Accounting Standards Update was issued on December 19, 2023, with a 90-day comment period.
  • Town Hall/Liaison Meeting Update: PCC members and FASB staff discussed feedback received during the following recent liaison meetings: (1) RMA’s Accounting Working Group, (2) Auditing Standards Board Audit Issues Task Force, and (3) AICPA Private Companies Practice Sections (PCPS) Technical Issues Committee (TIC). FASB staff also noted that the PCC will hold a liaison meeting with the Institute of Management Accountants Small Business Committee in March 2024 and will participate in the AICPA ENGAGE Conference in June 2024. FASB staff also noted that the FASB held its semiannual webcast, IN FOCUS: FASB Update for Private Companies and Not-for-Profit Organizations, on December 11, 2023.

Appendix A – Important Implementation Dates

The following table contains significant implementation dates and deadlines for standards issued by the FASB and others.

Appendix B – Illustrative Disclosures for Recently Issued Accounting Pronouncements

For the Quarter Ended December 31, 2023

The illustrative disclosures below are presented in plain English.  Please review each disclosure for its applicability to your organization and the need for disclosure in your organization’s financial statements.

Appendix C – Recently Issued Accounting Pronouncements

NOTE: The disclosures in the previous appendix are not intended to be all inclusive.  All pronouncements issued during the period should be evaluated to determine whether they are applicable to your Company. Through December 31, 2023, the FASB has issued the following Accounting Standard Updates during the year.

  • ASU 2023-01, Leases (Topic 842) Common Control Arrangements
  • ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)
  • ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock (SEC Update)
  • ASU 2023-04, Liabilities (Topic 405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 121 (SEC Update)
  • ASU 2023-05, Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement
  • ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative
  • ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
  • ASU 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets
  • ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures