Category: FASB Comment Letters

Effectus Group comments on FASB’s Proposed Accounting Standards Update—Exposure Draft, Induced Conversions of Convertible Debt Instruments (EITF Issue No. 23-A)

The comment period for the FASB’s proposed accounting standards update on accounting for induced conversions of convertible debt instruments recently closed. In our comment letter, we share our perspective that we generally support the Board’s efforts to provide further clarity in accounting for induced conversions, including in instances when certain conversion mechanics are eliminated or modified as part of an inducement offer. We expect the proposed amendment to reduce diversity in practice in accounting for transactions where the debtor offers incremental consideration to induce settlement or conversion of convertible debt instruments. However, we encourage the FASB to consider clarifying whether the proposed amendments also apply to conversions of preferred stock and whether the number of accounting models for debt modifications and exchanges could be reduced.

For further perspective on the proposed accounting standard update, please contact Brian Allen at ballen@effectusgroup.com, Brian Aubuchon at baubuchon@effectusgroup.com, Christie Hutchinson at chutchinson@effectusgroup.com or Mio Aura at maura@effectusgroup.com.

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© 2024 | All rights reserved | Effectus Group, LLC.

This publication contains information that is intended for general guidance purposes only and should not be used as a replacement for thorough research and professional judgement, especially in connection with specific and distinct circumstances to any person or entity. No express or implied representation or warranty is given with regards to the accuracy or completeness of the information contained herein. Effectus Group, LLC has endeavored to provide the most recent information but does not guarantee that the information will be accurate at the date of receipt or that the information will be accurate in the future. The information herein should not be interpreted as legal, tax, accounting, or any other professional service or advice and as such Effectus Group, LLC cannot accept any responsibility for loss resulting from any person acting or abstaining from action resulting from any information in this publication.

The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856.

Effectus Group comments on FASB’s Proposed Accounting Standards Update—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement Expenses 

The comment period for the FASB’s proposed accounting standards update requiring disclosure of disaggregated income statement information recently closed and elicited a robust response with 73 comment letters from a wide spectrum of industry trade groups, individual companies, accounting firms, academic groups and others. In our comment letter, we share our perspective that we generally support the Board’s efforts to provide investors with more detailed and decision-useful information about the types of expenses within cost of sales, SG&A, research and development, and similar captions, that allow for a better understanding and assessment of companies’ performance. We observe in our comment letter though that the proposed Update, if adopted, will impose significant incremental costs on preparers and within our responses to the Board’s questions we recommend that the Board consider approaches to mitigate the burden.

For further perspective on the proposed accounting standard update, please contact Brian Allen at ballen@effectusgroup.com, Eli Seller at eseller@effectusgroup.com, or Matt Conroy at mconroy@effectusgroup.com.

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Notification to reader

© 2023 | All rights reserved | Effectus Group, LLC.

This publication contains information that is intended for general guidance purposes only and should not be used as a replacement for thorough research and professional judgement, especially in connection with specific and distinct circumstances to any person or entity. No express or implied representation or warranty is given with regards to the accuracy or completeness of the information contained herein. Effectus Group, LLC has endeavored to provide the most recent information but does not guarantee that the information will be accurate at the date of receipt or that the information will be accurate in the future. The information herein should not be interpreted as legal, tax, accounting, or any other professional service or advice and as such Effectus Group, LLC cannot accept any responsibility for loss resulting from any person acting or abstaining from action resulting from any information in this publication.

The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856.

Effectus Group comments on FASB’s Proposed Accounting Standards Update—Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest Awards

In our comment letter, we support the FASB’s efforts to clarify the scope application for profits interest awards. We expect that the proposed amendments will enhance comparability across entities and reduce complexity in determining whether profits interest awards should be accounted for under ASC 718 or other topics. We had the following observations that we believe would be helpful to improve the operability of the proposed updates:

•  In the proposed illustrative examples, FASB should also clarify that the legal form of an award is not determinative of the scope application, provided that other facts and circumstances are the same.
• The proposed updates should clarify whether profits interest awards should be accounted for under ASC 718 if any part of the award is indexed to the entity’s share price, regardless of the magnitude, predominance or likelihood that entity’s share price or other factors may have on the value conveyed to the grantee.
• For retrospective adoption of the proposed updates, we proposed that the FASB should allow certain practical expedients to better enable entities to assess cost, benefits and preferability of each of the adoption methods.

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Notification to reader

© 2023 | All rights reserved | Effectus Group, LLC.

This publication contains information that is intended for general guidance purposes only and should not be used as a replacement for thorough research and professional judgement, especially in connection with specific and distinct circumstances to any person or entity. No express or implied representation or warranty is given with regards to the accuracy or completeness of the information contained herein. Effectus Group, LLC has endeavored to provide the most recent information but does not guarantee that the information will be accurate at the date of receipt or that the information will be accurate in the future. The information herein should not be interpreted as legal, tax, accounting, or any other professional service or advice and as such Effectus Group, LLC cannot accept any responsibility for loss resulting from any person acting or abstaining from action resulting from any information in this publication.

The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856.

Effectus Group comments on FASB’s Proposed Accounting Standards Update – Business Combinations – Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement

In our comment letter, we support the Board’s efforts to provide a framework for accounting for joint venture formations but do not support requiring that a joint venture recognize and initially measure its assets and liabilities upon formation at fair value using purchase accounting. In the event the FASB proceeds with the proposed accounting standards update, we also offer observations that we believe are necessary to improve the operability, consistency and understandability of the guidance.

View Comment Letter (PDF) >

Notification to reader

© 2023 | All rights reserved | Effectus Group, LLC.

This publication contains information that is intended for general guidance purposes only and should not be used as a replacement for thorough research and professional judgement, especially in connection with specific and distinct circumstances to any person or entity. No express or implied representation or warranty is given with regards to the accuracy or completeness of the information contained herein. Effectus Group, LLC has endeavored to provide the most recent information but does not guarantee that the information will be accurate at the date of receipt or that the information will be accurate in the future. The information herein should not be interpreted as legal, tax, accounting, or any other professional service or advice and as such Effectus Group, LLC cannot accept any responsibility for loss resulting from any person acting or abstaining from action resulting from any information in this publication.

The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856.

Effectus Group comments on FASB’s Invitation to Comment, Accounting for Government Grants by Business Entities

In our comment letter, we discussed that the FASB should add a project to its technical agenda related to the accounting for government grants into US GAAP for business entities. We had the following observations that we believe are necessary to improve the operability, consistency and understandability of any FASB standard for grants that starts with IAS 20 as its base:

• The scope of any standard should not be restricted to government grants but should also include non-government grants such as those from philanthropic organizations to biotechnology companies.
• The recognition threshold should be anchored to concepts that are well-understood in US GAAP such as probable or more likely than not rather than the auditing notion of reasonable assurance.
• GAAP should require an entity to identify the activity (i.e., analogous to a performance obligation under ASC 606) the respective grant is intended to incent and then recognize the grant in income as the activity is satisfied or completed using an appropriate measure of progress.  In addition, a standard should provide unit of account guidance for grants that have multiple incentives or triggers to grant entitlement embedded in them.
• The presentation of grant income should be separately presented from the asset or expenses the grant is intended to subsidize.
• For cash flow statement purposes, a perspective that should be considered by the Board is that grants are a source of financing for an entity.

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Notification to reader

© 2022 | All rights reserved | Effectus Group, LLC.

This publication contains information that is intended for general guidance purposes only and should not be used as a replacement for thorough research and professional judgement, especially in connection with specific and distinct circumstances to any person or entity. No express or implied representation or warranty is given with regards to the accuracy or completeness of the information contained herein. Effectus Group, LLC has endeavored to provide the most recent information but does not guarantee that the information will be accurate at the date of receipt or that the information will be accurate in the future. The information herein should not be interpreted as legal, tax, accounting, or any other professional service or advice and as such Effectus Group, LLC cannot accept any responsibility for loss resulting from any person acting or abstaining from action resulting from any information in this publication.

The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856.