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Bridging the GAAP: March 2024

Centri’s Bridging the GAAP newsletter highlights this month’s news, developments, and emerging issues in the accounting and financial reporting world. 

FASB Standard Setter Updates

Financial Accounting Standards Board

February 28, 2024 Meeting

The Board discussed changes made to the illustrative example since the May 2023 proposed Accounting Standards Update, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest Awards. The Board decided to proceed with issuing a final Accounting Standards Update.

The Board also discussed feedback received and began redeliberations on the proposed Accounting Standards Update, Financial Instruments—Credit Losses (Topic 326): Purchased Financial Assets. The Board decided to affirm the scope of its proposal that would require all financial assets (with certain exceptions) to be accounted for using the gross-up approach when acquired through business combinations and asset acquisitions. The Board directed the staff to perform additional research and analysis on feedback received on the proposed Accounting Standards Update.

For more information, see the FASB’s Tentative Board Decisions.

March 20, 2024 Meeting

The Board discussed the results of staff research and project direction as it relates to the accounting for and disclosure of software costs.

The Board decided to pursue targeted improvements to Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software. Specifically, the Board decided to:

1. Specify that the costs of software that has unresolved high-risk development issues would be accounted for as research and development (R&D) expenses in accordance with Subtopic 730-10, Research and Development—Overall; and
2. Clarify the starting capitalization threshold for nonlinear software development, including:
   • Remove the requirement for an entity to evaluate the preliminary project stage and application development stage when determining the starting point for capitalization; and
   • Require that an entity consider significant unresolved development uncertainties if it is unclear that it is probable that a project will be completed and the software will be used to perform the function intended.

For more information, see the FASB’s Tentative Board Decisions.

FASB Addresses Accounting for Profits Interests in New Accounting Standard Update

The FASB issued an Accounting Standards Update (2024-01) to add an example illustrating how an entity applies the scope guidance in Accounting Standards Codification 718, Compensation – Stock Compensation, to assist in determining whether a profits interest or similar award should be accounted for as a share‑based payment arrangement under that guidance or should be accounted for under another accounting standard.

FAF Standard Setter Updates

Financial Accounting Foundation

On February 29, the Financial Accounting Foundation (FAF) released a request for public comment as part of its effectiveness review of the Private Company Council (PCC). The PCC is the primary advisory body to the FASB on private company matters. Among other questions, the FAF is soliciting stakeholder thoughts on the effectiveness of the PCC in (1) proposing alternatives within GAAP to aid the users of private company financial statements, and (2) providing private company perspectives to the FASB. Comments are due by May 31.

IASB Standard Setter Updates

International Accounting Standards Board

The International Accounting Standards Board (IASB) issued an exposure draft, Business Combinations – Disclosures, Goodwill, and Impairment. The exposure draft is a package of proposals intended to enhance information provided to investors about acquisitions; it includes amendments to IFRS 3, Business Combinations, and related amendments to IAS 36, Impairment of Assets. Comments are due by July 15.

SEC Regulatory Updates

Securities and Exchange Commission

SEC Adopts Climate Disclosure Rules

On March 6, the SEC voted (3-2) to adopt new rules to enhance and standardize public company climate-related disclosures. The new rules will require public companies to disclose:

• the impact of severe weather and other natural conditions in the footnote to the financial statements;
• information about a company’s climate-related risk management, governance, and strategy; and
• for larger companies, Scope 1 and Scope 2 greenhouse gas emissions, if material, subject to a phased-in assurance requirement.

While the rules provide examples of severe weather events and other natural conditions, they do not define the terms. As part of implementation activities, issuers will likely need to develop accounting policies to guide their disclosures in a manner consistent with the rules, facts and circumstances.

In a change from the proposal, the rules will not require disclosure of Scope 3 GHG emissions. They also further incorporate the US Supreme Court’s definition of materiality and give companies more time to comply.

The compliance dates depend on a registrant’s filer status and the type of disclosure. The rules will be phased in starting in fiscal year 2025.

SEC Adopts Amendments to Order Executions in National Market Systems Stocks

On March 6, the SEC adopted amendments to the disclosure requirements of Rule 605 of Regulation NMS for order executions in national market systems (NMS) stocks, which are stocks listed on a national securities exchange. The amendments expand the scope of entities subject to Rule 605 to include broker-dealers who introduce or carry 100,000 or more customer accounts, modify the information reported under the rule, and require a summary report of execution quality. The amendments become effective 60 days after publication of the adopting release in the Federal Register, with a compliance date of 18 months from the effective date.

Rikki Williams

Senior Director | CPA

Rikki is a Senior Director at Centri Business Consulting. He has more than 16 years of public and private accounting experience. View Rikki Williams's Full Bio