FASB UPDATES ACCOUNTING STANDARDS ON LIQUIDATION
Norwalk, Conn. -- The Financial Accounting Standards Board has issued an Accounting Standards Update aimed at improving financial reporting by clarifying when and how public and private companies and not-for-profit organizations should prepare statements using the liquidation basis of accounting.
ASU No. 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting, is effective for interim and annual reporting periods beginning after Dec. 15, 2013, with early adoption permitted.
An organization that is in liquidation must prepare its financial statements using a basis of accounting that communicates information to users of those financial statements to enable those users to develop expectations about how much the organization will have available for distribution to investors after disposing of its assets and settling its obligations. Under the new standard, an organization will be required to prepare its financial statements using the liquidation basis of accounting when liquidation is "imminent."
In those cases where a plan for liquidation was specified in the organization's governing documents at inception, the organization should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified in the organization's governing documents.
The update requires financial statements prepared using the liquidation basis to present relevant information about a company's resources and obligations in liquidation, including the following:
The organization's assets measured at the amount of the expected cash proceeds from liquidation. Included in its presentation of assets should be any items it had not previously recognized under U.S. GAAP for entities not in liquidation but that it expects to either sell in liquidation or use in settling liabilities.
The organization's liabilities as recognized and measured in accordance with the guidance in other topics that applies to those liabilities. Importantly, the organization should not anticipate that it will be released from having to pay those liabilities.
Accrual of the costs it expects to incur and the income it expects to earn during liquidation, including any anticipated disposal costs.
FASB TO DEFER DISCLOSURES FOR BENEFIT PLANS
Norwalk, Conn. -- The Financial Accounting Standards Board has issued a proposal to defer indefinitely the effective date for certain disclosures about investments held by a non-public employee benefit plan in the plan sponsor's own equity securities.
FASB's proposal seeks to address stakeholder concerns about disclosure requirements that would potentially provide proprietary information about private companies through the dissemination of their employee benefit plans' financial statements on the plan regulator's Web site. The deferral would allow time for discussions between regulators and stakeholders about the specific quantitative disclosures and their potential effect on the plan sponsor as a result of making that information public.
FASB asked stakeholders to provide comments on a proposed Accounting Standards Update, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04, by May 31, 2013.
GASB SUPPORTS NON-EXCHANGE GUARANTEES
Norwalk, Conn. -- The Governmental Accounting Standards Board has approved a new standard that provides guidance to state and local governments that offer non-exchange financial guarantees and governments that receive guarantees on their obligations.
GASB Statement No. 70, Accounting and Financial Reporting for Non-Exchange Financial Guarantees, requires a state or local government guarantor that offers a non-exchange financial guarantee to another organization or government to recognize a liability on its financial statements when it is more likely than not that the guarantor will be required to make a payment to the obligation holders under the agreement. Non-exchange financial guarantees are not reflected in the financial statement notes of the government guarantor or the government issuer of the obligation.
Financial guarantees represent potential claims on a government's resources when it is the guarantor. The requirements of the new standard go into effect for reporting on June 15, 2013.
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