On The Horizon - February 5, 2013

Author:Ms Grant Thornton's Audit Practice Group
Profession:Grant Thornton LLP

Board issues scope clarification of disclosure requirements on offsetting

Recently, the FASB issued Accounting Standards Update (ASU) 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, to clarify that the disclosure requirements in ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, do not apply to trade receivables.

The ASU also clarifies that the disclosure requirements in ASU 2011-11 apply to the following items when they are offset under either FASB Accounting Standards Codification® (ASC) 210-20-45, Balance Sheet: Offsetting, or ASC 815-10-45, Derivatives and Hedging, or are subject to a master netting arrangement or similar agreement:

Derivatives within the scope of ASC 815, including bifurcated embedded derivatives

Repurchase agreements and reverse repurchase agreements

Securities borrowing and securities lending transactions

The amendments apply to annual reporting periods beginning on or after January 1, 2013 and to interim periods within those annual periods, which is consistent with the effective date of ASU 2011-11. An entity should retrospectively provide the disclosures required for all comparative periods presented.

Meetings held January 30 and 31

The FASB and IASB held a joint meeting on January 30 to discuss their revenue recognition, leases, and insurance contracts projects. In addition, the FASB met on January 31 to discuss its projects on going concern and fair value disclosures for nonpublic companies, and to approve the consensuses-for-exposure and consensuses reached by the EITF on January 17. Highlights of these meetings are discussed below.

Revenue recognition

The FASB and the IASB continued discussing comments received on the 2011 Exposure Draft (ED), Revenue from Contracts with Customers, focusing on the following topics.


The Boards tentatively affirmed the scope of the proposed revenue guidance, including the definition of a customer in the ED. The Boards also tentatively decided to clarify that (1) a collaborative arrangement as described in the ED would not be limited to the development and commercialization of a product, and (2) such an arrangement would fall within the scope of the revenue guidance if the counterparty to the arrangement meets the definition of a customer. Finally, the Boards tentatively decided to clarify that if guidance on how to separate and initially measure the transaction exists in other applicable standards, that guidance would be applied first; otherwise, the proposed revenue guidance would be applied.

Repurchase agreements

The Boards tentatively decided the following related to accounting for repurchase agreements in the proposed ED:

A sale and leaseback transaction with a put option that has an exercise price less than the original sales price would be accounted for as a financing transaction rather than as a lease if the holder of the put option has a significant economic incentive to exercise the option.

The word unconditional as it relates to forwards, call options, and put options would be removed from the implementation guidance in the final revenue guidance.

For a product financing arrangement in which an entity sells a product to another entity (such as a contract manufacturer) and later repurchases the product as part of a larger component for a higher price, the processing costs would not be included in the repurchase price when determining the amount of interest.

The following implementation guidance would not be amended:

The sale of goods to a customer with a guaranteed minimum resale value. The Boards confirmed that such an arrangement would not preclude the transfer of control.

The sale of goods to a customer that are subsequently repurchased and leased to the customer's customer. The Boards affirmed that this type of arrangement is not a repurchase agreement and that an entity would consider the principal versus agent considerations in determining whether...

To continue reading