The second quarter of 2017 brought only two accounting standards and might represent the calm before the next storm. The Financial Accounting Standards Board (FASB) currently has 24 projects in various stages of development on its agenda and 10 research projects. Major projects, including accounting updates to hedging, consolidation and the disclosure framework are still in the works, and research projects indicate that the FASB may be taking a closer look at accounting for intangibles, distinguishing liabilities from equity, inventory and cost of sales, subsequent accounting for goodwill and financial performance.

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A publication of the Professional Standards Group
June 2017
Consolidation Proposal and Other Developments from Q2 2017
The second quarter of 2017 brought only two
accounting standards and might represent the calm
before the next storm. The Financial Accounting
Standards Board (FASB) currently has 24 projects in
various stages of development on its agenda and 10
research projects.
Major projects, including accounting updates to
hedging, consolidation and the disclosure framework
are still in the works, and research projects indicate that
the FASB may be taking a closer look at accounting
for intangibles, distinguishing liabilities from equity,
inventory and cost of sales, subsequent accounting
for goodwill and financial performance.
Accounting for Modifications to Stock
Compensation
One of the accounting standards issued this quarter
address when the modification accounting for a
stock based compensation arrangement applies. As
explained in our Messenger, the new standard clarifies
what types of changes will trigger the requirements
of modification accounting and is expected provide
a more uniform application of the guidance to all
companies. The change to the guidance is effective
for calendar years, including interim periods, ending
Dec. 31, 2018.
Service Concession Arrangements
Service concession arrangements are a unique area
of accounting for which little accounting guidance
exists in the United States. FASB Accounting
Standards Update 2017-10, Service Concession
Arrangements (Topic 853), Determining the Customer
of the Operation Services (ASU 2017-10), resolves
an issue identified by the FASB Emerging Issue
Task Force (EITF) in the fall of 2016. It clarifies how
to determine the customer in a service concession
arrangements involving public sector infrastructure in
light of ASC Topic 606 Revenues from Contracts with
Customers (Topic 606).
Concession arrangements involve situations where
a private entity (“the operating entity”) manages a
public entity (“the grantor”)’s infrastructure for a set
time. Infrastructure could include airports, roads,
bridges, tunnels, prisons and hospitals. During the
time the operating entity is managing the grantor’s
infrastructure, major maintenance may be required in
order to prolong the useful life of the infrastructure.
Accounting for the maintenance and the revenue from
the service concession arrangement produces some
accounting complexities, particularly with the new
revenue recognition guidance.
ASU 2017-10 clarifies that in these arrangements,
the grantor governmental entity is the customer of
the private entity in the arrangement. For example,
if a governmental entity enters into a public-private
partnership to operate a toll road the private company
must decide whether its customer is the governmental
entity that is granting the use of the toll road or the
individual drivers that utilize the toll road. Existing
practice allows for diversity in determining who the
customer is resulting in different revenue recognition
patterns. Under the revised guidance all entities
will consider the governmental entity, and not the
individual driver, as the customer.

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MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that is a member firm of Kreston International Limited, a global network of independent accounting firms.
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Entities that have not yet adopted revenue recognition
changes may adopt ASU 2017-10 early without also
adopting revenue recognition. If early adopting the
standard, entities may use a modified retrospective
approach and use a cumulative effective adjustment
to equity beginning in the fiscal year of adoption. Or,
an entity may use a retrospective approach, which
would apply the new guidance to all years presented
in the financial statements in the year of adoption.
Disclosures for early adoption would depend on the
transition method.
Alternatively, entities should adopt the update at the
same time as the adoption of ASC Topic 606, in which
case the transition method should align with the
method of adoption used for ASC Topic 606.
Transitioning to New Standards
Although the FASB hasn’t released major new
standards this quarter, entities should be preparing
for the implementation of the numerous significant
accounting standards updates issued over the past
few years. Revenue recognition, leasing and financial
instruments, including credit loss changes, will be
taking effect in close succession to one another.
To efficiently and effectively implement all of the
new guidance, it is essential that entities develop
a timeline, consider their staffing levels, including
project resources and training, and perform a
risk assessment. They should also scope the
implementation process, and determine their fraud
risk. An evaluation of internal controls is important
as well. Entities may need software upgrades to
address the new procedures and processes that
will be required to keep in compliance with the new
standards.
An assessment of the disclosure effectiveness and
completeness will also be important. Working with key
stakeholders, including financial statement users and
auditors can help ensure that your implementation
process is thorough.
Consolidation: Proposed Accounting
Improvements
A recently released exposure draft seeks to improve
implementation for ASU 2015-02, Consolidation
(Topic 810) Amendments to Consolidation Analysis.
A change to the private company accounting
alternative would provide private business companies
an accounting election to forgo the Variable Interest
Entity (VIE) guidance for legal entities under common
control if both the parent company and the legal entity
were private companies. Once made, the accounting
election would apply to all similar current and future
arrangements. The change would expand the
alternative for common control leasing arrangements
in ASU 2014-07, Consolidations (Topic 810): Applying
Variable Interest Entities Guidance to Common
Control Leasing Arrangements. It would also simplify
the cost and complexity of implementing the VIE
guidance for private companies. A private company
would still be required to follow other consolidation
guidance, including the voting interest entity guidance.
Another proposed update affects decision-maker
and service provider fees (“fees”). When a reporting
entity has a fee with a legal entity that has been
invested in by other entities that are under common
control with the reporting entity, the interests held
by the sister entities of the reporting entity would be
evaluated on a proportional basis in determining if the
reporting entity holds a variable interest. The change
would align the analysis of assessing whether a fee
is a variable interest with the assessment of the fee
when determining whether the reporting entity is the
primary beneficiary of a VIE. It could result in fewer
fees being classified as variable interests, which
would reduce the instances where an entity receiving
a fee will be found to be a primary beneficiary of a VIE
under the related party tie breaker test and reduce
the instances where disclosure of a relationship with
a VIE is required.

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MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that is a member firm of Kreston International Limited, a global network of independent accounting firms.
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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please
contact your MHM auditor to further discuss the impact on your audit or audit report.
The VIE related party tie breaker test would also be
updated to eliminate the mandatory consolidation
in situations where power is shared among related
parties and no one member has a controlling
financial interest over a VIE. A reporting entity who
shares power over a VIE with a related party or
whose common control related party group has the
characteristics of a primary beneficiary, but for which
no individual entities has those characteristics, would
determine whether it is the primary beneficiary by
considering:
• The purpose and design of the VIE
• The relationship and significance of the activities
of the VIE to the related parties
• The nature of the reporting entity’s exposure to
the VIE (for example, through pro rata equity,
senior interest, subordinated interest, and so
forth)
• The magnitude of the reporting entity’s exposure
to the variability associated with the anticipated
economic performance of the VIE (for example,
whether the reporting entity’s exposure is greater
than a majority of the variability associated with
the anticipated economic performance of the
VIE).
When the related parties under common control
determine that as a group, they have a controlling
financial interest, then the parent entity would
consolidate the VIE. The change is intended to clarify
practice and reduce instances when a reporting entity
recognizes assets that it does not control and records
liabilities for which it has no obligation.
Comments on the changes are due to the FASB by
Sept. 5, 2017. Adoption would be required at the same
time as the consolidation guidance if the entity has
not yet adopted the consolidation guidance.
PCAOB Update
During the second quarter the Public Company
Accounting Oversight Board (PCAOB) issued updates
to the auditor’s report for audits of public companies.
The update language incorporates improvements
designed to provide investors additional information
to investors about the work the auditor performed
including the duration of service of the auditor and
critical audit matters (CAMS). Updated wording for
the auditor report is applicable for audits for periods
ending Dec. 31, 2017, with the requirement to report
required in subsequent periods. For additional
information read our Messenger.
In addition to the update to the auditor’s report
the PCAOB also issued proposals to improve the
requirements for the auditing of estimates, including
fair value, and the use of specialists, which are
designed to address audit deficiencies and diversity
in practices that have been identified during the
inspection process.
For More Information
MHM will monitor accounting standards changes and
other trends to help you stay informed of the shifting
accounting landscape. For more information, please
see our webinar. For specific comments, questions or
concerns, please contact Mark Winiarski of MHM’s
Professional Standards Group. Mark can be reached
at mwiniarski@cbiz.com or 816.945.5614.