Accounting Standards Update: 3/7/24

The Financial Accounting Standards Board (FASB) regularly issues Accounting Standards Updates (ASUs) to make changes to the FASB Accounting Standards Codification (ASC), the primary source of Accounting Principles Generally Accepted in the United States (GAAP).

Below highlights the recently issued ASUs, including:

• ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative
• ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
• ASU 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets
• ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures

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ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative

The FASB has issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU was issued to incorporate into the ASC certain U.S. Securities and Exchange Commission (SEC) disclosure requirements that overlap with, but require incremental information to, GAAP.

Summary

This ASU incorporates 14 SEC disclosure requirements into the ASC, which relate to various topics in the ASC. The amendments are summarized in a table included within the ASU and represent clarifications, technical corrections, and incremental disclosures. Since the amendments modify several topics, a broad range of entities will be impacted. The ASU primarily impacts nonpublic companies, which were not previously subject to these SEC disclosure requirements.

Effective Date and Transition

For entities subject to the SEC’s disclosure requirements, the effective date of each amendment will be the effective date of the SEC’s removal of the related disclosure from Regulation S-X or Regulation S-K, with early adoption prohibited. For all other entities, each amendment is effective two years later. If by June 30, 2027, the SEC has not removed the related disclosures from Regulation S-X or Regulation S-K, the amendments will not become effective for any entity and will be removed from the ASC.

The amendments should be applied prospectively.

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ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

The FASB has issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU was issued to address feedback from financial statement users requesting enhanced segment information for public companies, particularly related to reportable segment expenses.

Summary

ASU 2023-07 only impacts public entities that are required to report segment information as outlined in Topic 280, Segment Reporting. The ASU expands disclosures related to reportable segments, primarily through enhanced disclosure requirements about significant segment expenses. The ASU is intended to provide investors with valuable information that may be used in financial analyses.

Effective Date and Transition

ASU 2023-06 is effective for fiscal years beginning after Dec. 15, 2023, and interim periods within fiscal years beginning after Dec. 15, 2024, with early adoption permitted.

The ASU should be applied retrospectively to all prior periods presented in the financial statements. Upon transition, prior period categories and amounts should be based on significant segment expense categories identified and disclosed in the period of adoption.

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ASU 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets

The FASB has issued ASU 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. This ASU was issued to provide accounting and disclosure guidance for crypto assets that better reflect the economics of such assets while also reducing the cost and complexity of accounting for the crypto assets.

Summary

Previously, the cost-less impairment accounting model used for indefinite-lived intangible assets was required to be used for crypto assets except as otherwise provided in GAAP for certain specialized industries. Using the cost-less impairment accounting model means that only the decreases in the value of the assets could be recognized while held by the entity with no corresponding increase recognized if the value subsequently improved. Any increases in the value of crypto assets could not be recognized until the assets were sold. Financial statement users provided feedback that this accounting model did not provide decision-useful information.

Once effective, the ASU will require crypto assets that meet certain criteria to be measured at fair value with changes in fair value recognized in net income each reporting period.

The ASU also requires separate presentation of crypto assets measured at fair value from other intangible assets on the balance sheet and separate presentation of changes in the carrying amounts of crypto assets from changes in the carrying amounts of other intangible assets on the income statement.

Finally, the ASU includes various disclosure requirements for crypto assets, including the name, cost basis, fair value, and number of units of significant crypto assets and aggregate cost bases and fair values for other crypto asset holdings and information on any contractual sale restrictions. In addition, entities will be required to provide a rollforward (in the aggregate) of crypto assets, information on disposals, identification of the line item in which gains and losses are reported (if not presented separately) and the method for determining the cost basis of crypto assets.

Effective Date and Transition

ASU 2023-08 is effective prospectively for all entities for fiscal years beginning after Dec. 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for financial statements that have not yet been issued (or been made available for issuance.)

A cumulative-effective adjustment to the opening balance of retained earnings as of the beginning of the annual reporting period in which the entity adopts the amendments will be required upon transition.

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ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures

The FASB has issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU is intended to provide more transparency related to income taxes through enhanced disclosure requirements.

Summary

This ASU applies to all entities subject to Topic 740, Income Taxes, with certain disclosure requirements only being applicable to public business entities.

Rate Reconciliation

Currently, public business entities are required to provide a numerical reconciliation of reconciling items between the reported amount of income tax expense from continuing operations and the amount of income tax expense that would result from applying the federal statutory tax rate to pretax income from continuing operations (the rate reconciliation). This ASU will require public business entities to disclose on annual basis specific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold. Additionally, public business entities will be required to include a qualitative description of states and local jurisdictions that make up the majority of the effect of the state and local income tax category. If not otherwise evident by the rate reconciliation, public business entities will also be required to provide explanations of individual reconciling items.

The amendments do not expand the rate reconciliation requirement to entities other than public business entities; however, these entities will be required to disclose qualitative information about specific categories of reconciling items and individual jurisdictions that result in a significant difference between the federal statutory tax rate and the effective tax rate.

Income Taxes Paid

All entities will be required to disclose on an annual basis the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes. Income taxes paid (net of refunds received) will need further disaggregated for individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received).

Other Disclosures

The ASU requires that all entities disclose income from continuing operations before income tax expense disaggregated between domestic and foreign. The ASU also requires disclosure of income tax expense from continuing operations disaggregated by federal, state, and foreign.

The ASU eliminates the disclosure of the nature and estimate of the range of the reasonable possible change in the unrecognized tax benefits balance in the next 12 months or the statement that an estimate of the range cannot be made.

The ASU also removes the disclosure requirement of the cumulative amount of temporary differences when a deferred tax liability is not recognized due to exceptions to comprehensive recognition of deferred taxes related to subsidiaries and corporate joint ventures.

Effective Date and Transition

For public business entities, the ASU is effective for annual periods beginning after Dec. 15, 2024. For all other entities, the ASU is effective for annual periods beginning after Dec. 15, 2025. Early adoption is permitted for financial statements that have not yet been issued (or been made available for issuance.)

The ASU should be applied on a prospective basis; however, retrospective application is permitted.

For questions on how to implement these new accounting standards, please contact your KSM advisor or complete this form.