January 2021: Latest SEC, FASB & Tax Updates & COVID-19 Related Updates from the SEC, IRS, Etc.

Happy New Year! We are pleased to release MaloneBailey's January 2021 issue of The Crunch. This special edition of The Crunch highlights FASB updates that are going into effect in 2021 as well as a review of the FASB updates that went into effect in 2020.

Please note that the updates provided in this newsletter are not a comprehensive list. We encourage you to visit the SEC , FASB and IRS websites for more information as well as a complete list of updated rules, regulations and proposals.

We invite you to contact us should you have any questions about the information provided in this issue. We invite you to visit our website to review archived versions of this newsletter containing past accounting, regulatory and tax updates.

The MaloneBailey Team

www.malonebailey.com

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Featured Podcast

FASB & Tax: What to Keep in Mind for 2021

FASB: What You Need to Know for 2021

Financial Services-Insurance (Topic 944): Effective Date and Early Application
Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets
Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762
Codification Improvements
Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs
Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
Financial Services —Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts

FASB: A Review of 2020 Updates

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
Codification Improvements to Financial Instruments
Codification Improvements to Topic 326, Financial Instruments—Credit Losses
Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief
Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer
Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
Not-for-Profit Entities (Topic 958): Updating the Definition of Collections
Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment — Broadcasters — Intangibles — Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials
Leases (Topic 842): Codification Improvements
Codification Improvements to Topic 326, Financial Instruments—Credit Losses
Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606
Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities
Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Tax Updates

Consolidated Appropriations Act 2021 – (NEW COVID RELIEF PACKAGE)

Extra Crunch

On the Air: Accounting Today's Podcast

About MaloneBailey, LLP

Featured Podcast

FASB & Tax: What to Keep in Mind for 2021

Summary - In this episode of Everybody Counts, Caroline Rosen, Marketing and Communications Manager, Yuki Hua, Audit Manager, and Nicole Zhao, Senior Tax Manager, discuss FASB's Accounting Standards Update - No. 2020-01 - Investments as well as what to be mindful of from a tax perspective as we head into 2021. As we navigate our way through the pandemic and usher in a new president among other transitions, we consider how such changes will impact us from a tax/accounting angle.

For this podcast and many more, please visit the Resources section of the MaloneBailey website.

FASB: What You Need to Know for 2021

Financial Services-Insurance (Topic 944): Effective Date and Early Application

Summary - This ASU allows the delayed adoption date of ASU No. 2018-12, as noted in the "Effective Date" information at the left. And allows insurance companies to restate only one previous period, rather than two, if they choose to early adopt LDTI.

For more information, click here.

Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

Summary - This ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas.

For more information, click here.

Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets

Summary - This ASU requires a not-for-profit organization to present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash or other financial assets. It also requires a not-for-profit to disclose various items.

For more information, click here.

Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762

Summary - This ASU amends and supersedes various SEC paragraphs to reflect SEC Release No. 33-10762, which includes amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. These SEC changes are intended to both improve the quality of disclosure and increase the likelihood that issuers will conduct debt offerings on a registered basis.

For more information, click here.

Codification Improvements

Summary - This ASU affects a wide variety of Topics in the Codification. They apply to all reporting entities within the scope of the affected accounting guidance.

More specifically, this ASU, among other things, contains amendments that improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50). Many of the amendments arose because the FASB provided an option to give certain information either on the face of the financial statements or in the notes to financial statements and that option only was included in the Other Presentation Matters Section (Section 45) of the Codification. The option to disclose information in the notes to financial statements should have been codified in the Disclosure Section as well as the Other Presentation Matters Section (or other Section of the Codification in which the option to disclose in the notes to financial statements appears). Those amendments are not expected to change current practice.

For more information, click here.

Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs

Summary - This ASU clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period.

For more information, click here.

Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815

Summary - This ASU among other things clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The new ASU clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.

For more information, click here.

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

Summary - This ASU removes specific exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles (GAAP). It eliminates the need for an organization to analyze whether various exceptions apply. The ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for various areas.

For more information, click here.

Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans

Summary - These amendments The amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

For more information on specific disclosure requirements deleted and added, click here.

Financial Services —Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts

Summary - These amendments:

Require updated assumptions for liability measurement. Assumptions used to measure the liability for traditional insurance contracts, which are typically determined at contract inception, will now be reviewed, and, if there is a change, updated, at least annually, with the effect recorded in net income;
Standardizes the liability discount rate. The liability discount rate will be a standardized, market-observable discount rate (upper-medium grade fixed-income instrument yield), with the effect of rate changes recorded in other comprehensive income;
Provide greater consistency in measurement of market risk benefits. The two previous measurement models have been reduced to one measurement model (fair value), resulting in greater uniformity across similar market-based benefits and better alignment with the fair value measurement of derivatives used to hedge capital market risk;
Simplify amortization of deferred acquisition costs. Previous earnings-based amortization methods have been replaced with a more level amortization basis; and
Require enhanced disclosures. They include rollforwards and information about significant assumptions and the effects of changes in those assumptions.

For more information, click here.

FASB: A Review of 2020 Updates

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Summary - The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be in effect for a limited time through December 31, 2022.

For more information, click here.

Codification Improvements to Financial Instruments

Summary - This ASU makes narrow-scope improvements to various aspects of the financial instruments guidance, including the current expected credit losses (CECL) standard issued in 2016. The ASU is part of the FASB’s ongoing Codification improvement project aimed at clarifying specific areas of accounting guidance to help avoid unintended application. The items addressed in that project generally are not expected to have a significant effect on current accounting practice or create a significant administrative cost for most entities. Among its improvements, the ASU clarifies that all nonpublic companies and organizations are required to provide certain fair value option disclosures.

For more information, click here.

Codification Improvements to Topic 326, Financial Instruments—Credit Losses

Summary - This ASU, among other narrow-scope improvements, clarifies guidance around how to report expected recoveries. “Expected recoveries” describes a situation in which an organization recognizes a full or partial write-off of the amortized cost basis of a financial asset, but then later determines that the amount written off, or a portion of that amount, will in fact be recovered. This ASU permits organizations to record expected recoveries on PCD assets. In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities.

For more information, click here.

Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief

Summary - These amendments provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments—Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement—Overall, and 825-10.

For more information, click here.

Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer

Summary - This ASU requires companies to measure and classify (on the balance sheet) share-based payments to customers by applying the guidance in Topic 718, Compensation—Stock Compensation. As a result, the amount recorded as a reduction in revenue would be measured based on the grant-date fair value of the share-based payment. Measuring and classifying share-based payments to customers under Topic 718 provide the following improvements:

Fewer measurement dates for the instruments;
Fewer instances of classifying the instruments as liabilities; and
More consistent accounting with share-based payments made to other nonemployees.

For more information, click here.

Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

Summary - These amendments clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement.

The topics included in this ASU are:

Topic 1: Codification Improvements Resulting from the June 11, 2018 and November 1, 2018 Credit Losses Transition Resource Group (TRG) Meetings;
Topic 2: Codification Improvements to ASU No. 2016-13;
Topic 3: Codification Improvements to ASU No. 2017-12 and Other Hedging Items;
Topic 4: Codification Improvements to ASU No. 2016-01; and
Topic 5: Codification Improvements Resulting from the November 1, 2018 Credit Losses TRG Meeting.

For more information, click here.

Not-for-Profit Entities (Topic 958): Updating the Definition of Collections

Summary - These amendments modify the definition of the term collections and require that a collection-holding entity disclose its policy for the use of proceeds from when collection items are deaccessioned (i.e., removed from a collection). If a collection-holding entity has a policy that allows proceeds from deaccessioned collection items to be used for direct care, it should disclose its definition of direct care.

For more information, click here.

Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment — Broadcasters — Intangibles — Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials

Summary - The standard addresses when an organization should assess films and license agreements for program material for impairment at the film-group level. The amendments in the standard also:

Revise presentation requirements;
Require that an organization provide new disclosures about content that is either produced or licensed; and
Address cash flow classification for license agreements.

For more information, click here.

Leases (Topic 842): Codification Improvements

Summary - These amendments align the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply.

However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement) should be applied. (Issue 1)

The ASU also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities. (Issue 2)

Finally, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard.

(Issue 3)

For more information, click here.

Codification Improvements to Topic 326, Financial Instruments—Credit Losses

Summary - The new guidance mitigates transition complexity by requiring entities other than public business entities, including not-for-profit organizations and certain employee benefit plans, to implement the credit losses standard issued in 2016, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. This aligns the implementation date for their annual financial statements with the implementation date for their interim financial statements. The guidance also clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard.

The effective date and transition requirements are the same as the effective dates and transition requirements in the credit losses standard, as amended by the new ASU.

For more information, click here.

Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606

Summary - A collaborative arrangement is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success. The ASU provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard.

For more information, click here.

Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities

Summary - The new guidance supersedes the private company alternative for common control leasing arrangements issued in 2014 and expands it to all qualifying common control arrangements.

Under the new standard, a private company could make an accounting policy election to not apply VIE guidance to legal entities under common control (including common control leasing arrangements) when certain criteria are met. This accounting policy election must be applied by a private company to all current and future legal entities under common control that meet the criteria for applying the alternative. A private company will be required to continue to apply other consolidation guidance, specifically the voting interest entity guidance.

For more information, click here.

Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

Summary - These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internaluse software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments.

For more information, click here.

Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

Summary - These amendments modify the disclosure requirements in Topic 820 and pertain to removals, modifications and additions.

For more information, click here.

Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

Summary - These amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.

For more information, click here.

Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Summary - Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

For more information, click here.

Tax Updates

Consolidated Appropriations Act 2021 – (NEW COVID RELIEF PACKAGE)

Written by Tabitha Ford, Tax Senior at MaloneBailey, LLP

Summary - The Consolidated Appropriations Act 2021 is a new COVID relief package provided by Congress, which extends many popular provisions of the previous relief and stimulus acts passed in 2020. This includes additional loans under the Paycheck Protection Program (PPP), relief for the transportation industry, additional funding for programs related to vaccines and virus testing, as well as further expansion of federal unemployment assistance.

Below briefly highlights the most notable changes:

Stimulus Payments – a direct payment of $600 is being sent to each qualified individual, including child dependents. This payment begins to phase out for individuals with adjusted gross income in 2019 in excess of $75,000 ($150,000 for joint filers). These amounts phase out faster than the earlier payment of $1,200 included with the original stimulus package (CARES ACT). Therefore, fewer taxpayers will receive direct payments from the current stimulus package.
Business Expenses / PPP Loan – Previously, the IRS determined that any business expenses that was paid with the proceeds of a forgiven PPP Loan could not be deducted. The Act now expressly clarifies that even though the forgiven PPP loan is treated as tax-exempt income, the business expenses paid with such proceeds are tax deductible
Charitable Contributions - The amount of charitable cash contribution taxpayers can deduct on tax returns is limited to a percentage of the taxpayer’s adjusted gross income (for individual) or taxable income (for corporation). The Act provides temporary increases to these limitations for cash contribution made during 2020:

Individuals - increased from 60% to 100% of the taxpayer’s adjusted gross

income; and

Corporations – increase from 10% to 25% of the taxpayer’s taxable income

Business Meals Deduction – Allowed for 2021 and 2022 only, business meals are now deductible in full, as opposed to the original 50% limitation.

A summary of other provisions can be found here (attach the CCH Tax Briefing). Also, a full text of the Consolidated Appropriations Act, 2021 can be found here: (https://www.congress.gov/116/bills/hr133/BILLS-116hr133enr.pdf).

If you have any questions in regards to the above or if you would like to discuss further, please feel free to contact our Senior Tax Manager, Nicole Zhao.

Extra Crunch

On the Air: Accounting Today's Podcast

Summary - Accounting Today's podcast series, On the Air, offers up in-depth conversation on the latest issues with thought leaders from the accounting profession.

Topics are varied and include discussions on soft conversation, firm management in a post-Covid world, diversity and equality issues, generational topics, the future of the profession and much, much more.

For more information about the podcast and to subscribe, please click here.

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