October 21, 2024
Chief of Taxonomy Development
File Reference No. 2024-ED100
FASB
801 Main Avenue
PO Box 5116
Norwalk, CT 06856
Sent via email to [email protected]
RE: Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606)
Dear Madam or Sir:
The Virginia Society of CPAs (VSCPA) Accounting & Auditing Advisory Committee has reviewed the Exposure Draft (ED) — Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606), issued by the Federal Accounting Standards Board. The VSCPA is the leading professional association in Virginia dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. The VSCPA membership consists of nearly 13,000 individual members who actively work in public accounting, private industry, government, and education.
Issue 1
The Committee generally supports the Derivatives Scope Refinement. Refining the derivatives scope is timely given the increasing number of bonds with interest payments tied to evolving metrics such as environmental, social, and governance (ESG)-linked metrics. The scoping out of contracts with “underlyings” based on operations or activities specific to one of the contract's parties should reduce the number of bifurcated derivatives. However, the Committee believes the expected benefits of the proposed amendments will not justify the costs due to the expected need to increase the use of valuation specialists by both entities and their accounting firms.
If the FASB reconsiders the requirement of fair-value-based predominant characteristics assessment, the benefits of the remaining changes might justify the costs.
Issue 2
The Committee is generally supportive of the Scope Clarification for a Share-Based Payment from a Customer in a Revenue Contract. We believe that this amendment will promote consistency and the benefits will outweigh the costs.
The Committee’s responses to the specific questions proposed are in the attachment to this email (see below).
The VSCPA appreciates the opportunity to respond to this ED. Please direct any questions or concerns to VSCPA Vice President, Advocacy & Pipeline Emily Walker, CAE, at [email protected] or (804) 612- 9428.
Sincerely,
Michael Phillips, CPA
Chair 2024-2025
VSCPA Accounting & Auditing Advisory Committee
VSCPA Accounting & Auditing Advisory Committee 2024-2025
Michael Phillips, CPA —Chair
Daniel Martin, CPA — Vice Chair
Zach Borgerding, CPA
Joshua Keene, CPA
Nick Kinsler, CPA
Brian Minor, CPA
Elisa Obillo, CPA
Krisia Raya, CPA
Charles Valadez, CPA
Natalya Yashina, CPA
Attachment
Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606)
As described in our letter, this attachment contains responses to individual questions.
Question 1 – The proposed scope exception likely captures the population of contracts that can be accounted for under other topics.
Question 2 – The proposed scope exception transition methods are clear and operable.
Question 3 – The proposed predominant characteristics assessment in paragraph 815-10-15-60 is operable, however will likely have the unintended consequence of increasing audit complexity leading to more audit costs.
Question 4 – We do not believe that the alternative the Board considered is viable as it could convolute what underlyings qualify and do not qualify.
Question 5 – We believe the proposed transition method is operable. The proposed transition disclosure would be decision useful.
Question 6 – We believe that a significant amount of lead time will be necessary for adopters given the complexity of the statement and the need for valuation specialists. The costs may outweigh the benefit for non-public entities.
Question 7 – We do not believe that the benefits outweigh the costs except with large entities. One-time and recurring costs will depend on how often entities are issuing the instruments so small entities could see the value if they only issue the instruments sparingly resulting in more one-time costs and less ongoing costs.
Question 8 – We agree that the share-based payment should be recognized as an asset under Topic 606 when an entity’s right to receive or retain the share-based payment from a customer is no longer contingent on the satisfaction of a performance obligation. This amendment seems to promote consistency.
Question 9 – Yes, topic 815 and topic 321 should be amended as amended, again to stay consistent.
Question 10 – We agree that the proposed amendments are clear and operable.
Question 11 – Yes, we believe that subtopic 610-20 should be amended for consistency and clarity in financial statements.
Question 12 – We agree that the proposed transition method is operable and the proposed transition disclosures are decision useful.
Question 13 – We believe that significant lead time should be allowed to implement the proposed amendments. The complexity here warrants enough time for coordinating with valuation experts.
Question14 – We believe the benefits here will outweigh the costs.