2022 Fourth Quarter Accounting and Tax Update

In this edition of the quarterly communication, we have provided information about financial reporting and accounting issues – some of which are currently being evaluated by regulatory agencies and not resolved at this time. We have also compiled a list of items for consideration in your financial reporting and disclosures for the fourth quarter and a summary of recently issued accounting pronouncements (see Appendices for summary of recently issued accounting pronouncements and the related effective dates).

If you have any questions regarding any of the items within, or if there are other areas where we might be of assistance, please reach out to Elliott Davis. We would be happy to help in any way we can. 

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.

This quarterly update is organized as follows:

• FASB Update
• Regulatory Update
• Other Developments
• On the Horizon

FASB Update

The following selected Accounting Standards Updates (ASUs) were issued by the Financial Accounting Standards Board (FASB) during the fourth quarter. A complete list of all ASUs issued or effective in 2022 is included in Appendix A. FASB Issues Standard to Enhance Transparency around Supplier Finance Programs In September, the FASB issued ASU 2022‐04, Disclosure of Supplier Finance Program Obligations, to enhance transparency about an entity’s use of supplier finance programs. Under the ASU, the buyer in a supplier finance program is required to disclose information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a roll‐forward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. When an entity purchases goods or services on credit from a supplier, a trade payable arises for the invoice amount owed to the supplier. Sometimes the buyer enters into an arrangement with a bank or other intermediary under which the intermediary offers to purchase the receivables held by the supplier. Such arrangements are known by various names, such as “structured payable arrangements,” “vendor payable programs,” “open account structured vendor payable programs,” “reverse factoring,” “supplier finance,” or “supplier‐chain finance.” Typically, the arrangement gives suppliers the option to settle trade receivables by obtaining a payment from the intermediary either (1) before the invoice due date at a discounted amount or (2) on the invoice due date for its full amount.

Depending on their terms, supplier finance programs offer the parties various potential benefits, such as:

• The ability of suppliers to monetize trade receivables and reduce the associated credit exposure—by selling their trade receivables to an intermediary, suppliers can receive payment before the invoice due date and reduce their credit exposure
• The ability of buyers of goods or services to obtain extended payment terms—suppliers may be more willing to offer extended payment terms to buyers of their goods or services if they can obtain early payment from intermediaries. Further, intermediaries may offer buyers extended payment terms
• The ability of intermediaries to benefit from early‐payment discounts, rebates, and transaction fees and charges— intermediaries earn a spread on the basis of the relationship between their funding costs and the amount of early‐payment discounts, rebates, and other fees and charges received from suppliers
• Operational benefits—because of an intermediary’s involvement, the arrangement may enhance the processing, administration, and control of the associated payments for buyers and suppliers
• An extended early‐payment discount period—if an intermediary pays a supplier within the period during which the supplier offers an early‐payment discount (e.g., a 2 percent discount for payment within 10 days of an amount due in 30 days, or “2/10 net 30”), the intermediary may offer the buyer a discount on the amount due for an extended period (e.g., a 1 percent discount for payment within 10 days of an amount due in 60 days, or “1/10 net 60”)
• A reduction of the amount due or other similar rebate—the intermediary may offer the buyer a reduction of the amount due or a reimbursement of part of the amount paid on the basis of net amounts paid to suppliers (a supplier may agree to pay the intermediary a fee or reduce the amount due because of benefits it receives from the arrangement, such as a lowered credit risk exposure on the amount due or earlier payment of such amount)

ASU 2022‐04 requires the buyer in a supplier finance program to disclose qualitative and quantitative information about the program. Such a program is defined as an arrangement that has all of the following characteristics:

• a. An entity enters into an agreement with a finance provider or an intermediary
• b. The entity confirms supplier invoices as valid to the finance provider or intermediary under the agreement described in (a)
• c. The entity’s supplier has the option to request early payment from a party other than the entity for invoices that the entity has confirmed as valid

At a minimum, the buyer in a supplier finance program is required to disclose the following information at least annually:

• The key terms of the program, including payment terms and assets pledged as security or other forms of guarantees 
• The amount of obligations outstanding at the end of the reporting period that the buyer has confirmed as valid and:
  • A description of where those obligations are presented in the balance sheet (if the obligations are included in more than one line item, the amount in each line item must be disclosed)
  • Roll‐forward information for the annual period showing the amount at the beginning of the period, the amount added during the period, the amount settled during the period, and the amount outstanding at the end of the period

Further, in each interim reporting period, the buyer must disclose the outstanding confirmed amount as of the end of the interim period.

The ASU requires the buyer to “consider the level of detail necessary to satisfy the disclosure objective,” which is “to enable users of financial statements to understand the nature, activity during the period, changes from period to period, and potential magnitude of the entity’s supplier finance programs.” A buyer that uses more than one supplier finance program “may aggregate disclosures, but not to the extent that useful information is obscured by the aggregation of programs that have substantially different characteristics.”

The ASU does not affect the recognition, measurement, or presentation of supplier finance program obligations on the face of the balance sheet or in the cash flow statement.

Effective Dates 

The amendments in ASU 2022‐04 are effective for all entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the disclosure of roll‐forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted.

With the exception of the amendment on disclosure of roll‐forward information, which entities only need to apply prospectively, entities must apply the amendments in the ASU retrospectively by providing the required disclosures for each period for which a balance sheet is presented. During the fiscal year of adoption, information about the key terms of the programs and the balance sheet presentation of the program obligations must be disclosed in each interim period.

Regulatory Update

SEC Issues 2022‐2026 Strategic Plan

In November, the Securities and Exchange Commission (SEC) issued its 2022‐2026 strategic plan. Among other goals, the commission cites efforts to modernize its rules, including disclosures of climate change, cybersecurity and human capital management. The strategic plan for fiscal years 2022 to 2026 also echoes what SEC Chairman, Gary Gensler, has been saying in public speaking engagements in the past year and a half. The SEC’s new five‐year plan establishes three primary goals:

• Protect the investing public against fraud, manipulation, and misconduct
• Develop and implement a robust regulatory framework that keeps pace with evolving markets, business models and technologies
• Support a skilled workforce that is diverse, equitable, and inclusive and is fully equipped to advance agency objectives

The SEC issued a proposal on climate disclosure in March in Release No. 33‐11042, The Enhancement and Standardization of Climate‐ Related Disclosures for Investors. It has disclosure requirements inside and outside the financial statements, including information on greenhouse gas emissions. The commission originally wanted to finalize the rules by the end of the year, but it is unclear if it will meet its initial goal given the high volume of comment letters and a recent internet glitch that forced the SEC to open up the comment period for a brief period on certain proposals, including this one.

As for cybersecurity, a proposal was also issued in March in Release No. 33‐11038, Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, and the market regulator wants to finalize the rules in the spring of 2023. The proposal would require public companies to disclose material cybersecurity breaches in a timely manner. Companies, among other things, must periodically report information about policies and procedures to manage cybersecurity risks as well as updates about previously disclosed incidents.

The SEC has not issued a workforce disclosure proposal yet, but the staff is working on a proposed recommendation for the commission’s consideration in the coming months.

Labor Department Issues Final Rules on ESG

In November, the Department of Labor (DOL) finalized its environmental, social and governance (ESG) investing rules for retirement plan fiduciaries. The final rule, entitled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” walks back two Trump‐era rules that had been widely criticized as restricting fiduciaries from making ESG‐based investment decisions or casting proxy votes on ESG‐related matters. The Labor Department’s Employee Benefits Security Administration (EBSA), which crafted the latest changes, had already implemented a non‐enforcement policy on those two rules.   The final rule under the Employee Retirement Income Security Act (ERISA) stems from a Biden administration executive order in May 2021 on mitigating climate‐related financial risk. The rule is designed to clarify the application of ERISA’s fiduciary duties of prudence and loyalty in picking investments and investment courses of action and exercising shareholder rights, which the DOL stated is necessary due to the chilling effect and other potential negative consequences caused by the current regulation with respect to the consideration of climate change and other ESG factors in connection with these activities.

Among other changes, the final rules alter the current regulations to make it clear that a fiduciary’s determination with respect to an investment or investment course of action must be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis and that such factors may include the economic effects of climate change and other environmental, social, or governance factors on the particular investment or investment course of action.

Republicans on the House Education and Labor Committee, which has oversight responsibilities over the DOL, blasted the rule as jeopardizing the financial security of many retirement savers, especially workers and retirees who may be put into ESG investments by default. The sentiment is part of a broader ESG backlash that is expected to intensify under a republican majority in the next Congress. Republicans have already taken aim at the SEC’s proposed rules in Release No. 33‐11042, The Enhancement and Standardization of Climate‐Related Disclosures for Investors, which sets out a broad new set of public company disclosure mandates around climate risk and greenhouse gas (GHG) emissions. 

Other Developments

Concerns Over Data Transparency Act Implications for GASB

The GASB is monitoring the process of the Financial Data Transparency Act of 2022 (FDTA) that was floated by Congress earlier this year to see what that means for financial reporting. The FDTA was introduced in May by Senators Mark Warner and Mike Crapo and would require the Municipal Securities Rulemaking Board (MSRB) to establish data standards, and scale reporting requirements for smaller regulated entities. Companion legislation, introduced by Representatives Carolyn Maloney and Patrick McHenry was recently included in the House version of the chamber’s National Defense Authorization Act (NDAA).

Groups such as the Government Finance Officers Association (GFOA) said they take issue with the provisions in Section 203 of the legislation, stressing it may create more confusion or reduce transparency of publicly available information because most state and local governments adhere to governmental reporting standards established by the GASB. Among provisions in Section 203 that is said to be concerning is the timing ‐ as it requires joint rulemaking for regulated entities that will take place for two years after passage and then providing two years for implementation. Full implementation and compliance would be required beginning 2027.

Other concerns include the involvement of the MSRB, which was established through Dodd‐Frank to regulate broker‐dealers, municipal advisors and protect issuers and investors. If another entity is also setting data standards for what information users need and the GASB was not involved in that process then it would affect the board’s mission, which is to ensure that users receive the right financial information out of government reports.  

GASB Proposes Guide to Address Questions Raised on Various Accounting Standards

In November, the GASB published a proposal, Implementation Guidance Update—2023, to solicit public input about answers it provided to certain questions that were raised on related GASB statements. Specifically, the proposed guide addresses the following questions related to Statement 87, Leases:

• A lease contract states that it will remain in effect for three years unless terminated before then. The contract allows the lessee to terminate the lease for any reason with 60 days’ notice. The contract allows the lessor to terminate the lease with 60 days’ notice only if the lessee defaults on payments. Is this a short‐term lease?
• A lease has a noncancellable period of 36 months, and the lessee has an option to extend the lease for an additional 12 months. At commencement of the lease, it is not reasonably certain that the lessee will exercise that option. At the end of the non cancellable period, the lessee exercises the option to extend the lease. Does exercising the option to extend result in a change to the maximum possible term?
• In what circumstances does a lease modification (as described in paragraph 71 of Statement 87) result in a short‐term lease?
• A government leases a building. The lease term is 10 years. At the commencement of the lease, the government provides payment for the first three years and recognizes a liability for the present value of the payments for the remaining seven years, which will be paid starting in the fourth year of the lease. Should the government recognize interest expense during the first three years of the lease?
• A public university enters into a lease of a building in Europe for its study abroad program. The lease requires the university to make payments of 5,000 euros per month. The university prepares its financial statements in U.S. dollars. Because the lease payment is required to be made in euros, the amount of the payment in U.S. dollars is subject to change throughout the lease as exchange rates fluctuate. Are those lease payments variable payments that depend on an index or a rate?
• Paragraph 54 of Statement 87 requires that the deferred inflow of resources related to a lease be recognized as inflows of resources (for example, revenue) over the term of the lease. If reported as revenue, should a business‐type activity or enterprise fund report those inflows of resources as operating revenue?

Further, the guide addresses Statement 96, Subscription‐Based Information Technology Arrangements, related to:

• Is a licensing agreement for a vendor’s computer software that automatically renews until canceled a licensing agreement that provides a perpetual license?
• A government enters into a six‐year subscription‐based information technology arrangement (SBITA) contract with no options to extend or terminate the contract and begins making semiannual subscription payments to the SBITA vendor immediately after the contract takes effect. The initial implementation stage is not completed until the end of the second year after the contract takes effect. What is the subscription term?

Related to Statement 100, Accounting Changes and Error Corrections, the guide addresses:

• Upon completion of a capital project during the year, a government closes out a major capital projects fund and moves remaining resources to the general fund. Does this circumstance constitute a change to or within the financial reporting entity?

On the Horizon

The following selected FASB exposure drafts and projects are outstanding as of December 31, 2022.

FASB Issues Proposal to Improve Disclosures about Reportable Segments

In November 2022, the FASB issued a proposed ASU intended to improve accounting guidance for arrangements between entities under common control.

During the FASB’s post‐implementation review (PIR) of ASU 2016‐02, Leases, stakeholders expressed concerns with applying ASC 842 to related party arrangements between entities under common control. Specifically, those areas are (1) which terms and conditions should be considered when determining whether a lease exists and, if so, the classification and accounting for the lease and (2) the accounting for leasehold improvements associated with leases between entities under common control.

The proposed ASU would provide private companies and not‐for‐profit organizations that are not conduit bond obligors with a practical expedient that would allow those entities to use the written terms and conditions of an arrangement between entities under common control to determine whether a lease exists and, if so, the classification of and accounting for that lease.

The proposed ASU also would change the accounting for leasehold improvements associated with leases for all entities (that is, including public companies) under common control. Leasehold improvements associated with those leases would be amortized by the lessee over the economic life of the leasehold improvements as long as the lessee controls the use of the leased asset.

FASB Issues Proposal to Improve Disclosures about Reportable Segments

In October 2022, the FASB issued a proposed ASU that is intended to (1) provide investors and other allocators of capital (collectively, investors) with more decision‐useful information in a joint venture’s separate financial statements and (2) reduce diversity in practice in this area of financial reporting.

The proposed ASU would apply to the formation of entities that meet the definition of a joint venture (or a corporate joint venture) as defined in the FASB Accounting Standards Codification Master Glossary. While joint ventures are defined in the Master Glossary, there is no specific guidance in the Codification that applies to the formation accounting by a joint venture in its separate financial statements, specifically the joint venture’s recognition and initial measurement of net assets, including businesses contributed to it. Stakeholders noted that the lack of guidance has resulted in diversity in practice in how contributions to a joint venture upon formation are accounted for by a joint venture. To reduce diversity in practice and provide decision‐useful information to a joint venture’s investors, the amendments in this proposed ASU would require that a joint venture apply a new basis of accounting. As a result, a newly formed joint venture would initially measure its assets and liabilities at fair value (with certain exceptions that are consistent with the business combinations guidance) upon information.

FASB Issues Proposal to Improve Disclosures about Reportable Segments

In October 2022, the FASB issued a proposed ASU that would improve the disclosures about a public entity’s reportable segments and address requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses.

Investors and other allocators of capital have observed that segment information is critically important in understanding a public entity’s different business activities. That information enables investors to better understand an entity’s overall performance and assists in assessing potential future cash flows. In addition, investors have observed that although information about a segment’s revenue and measure of profit or loss is disclosed in an entity’s financial statements, there generally is limited information disclosed about a segment’s expenses.

The amendments in the proposed ASU respond to feedback received from investors and other allocators and would improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The key amendments in the proposed ASU would:

• Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss
• Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss
• Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by ASC 280, Segment Reporting, in interim periods
• Clarify that if the CODM uses more than one measure of a segment’s profit or loss, at least one of the reported segment profit or loss measures (or the single reported measure if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in a public entity’s consolidated financial statements
• Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the proposed ASU and all existing segment disclosures in ASC 280

The amendments in the proposed ASU would apply to all public entities that are required to report segment information in accordance with ASC 280.

FASB Begins Deliberating Project on Digital Assets

In August 2022, the FASB began deliberating its project on the accounting for and disclosure of digital assets. Specifically, the Board tentatively decided that a digital asset held by an entity that meets all the following criteria would be within the scope of the project:

• It meets the U.S. GAAP definition of an intangible asset
• The holder is not provided with enforceable rights to, or claims on, goods, services, or other assets
• The asset resides on a blockchain or other distributed ledger
• It is secured by cryptography
• It is fungible

The Board also tentatively decided that the scope of the project would apply to all entities. However, the Board acknowledged that it may need to address industry‐specific issues in the future. Given its decision to limit the scope of the project to certain digital assets, the Board decided to change the name of the project to the “Accounting for and Disclosure of Crypto Assets.” The accounting for crypto assets, including potential measurement alternatives for such assets, will be discussed at a future Board meeting. Because the FASB decided to include in the scope’s project only digital assets that are considered fungible crypto assets that meet the definition of an intangible asset, questions remain on the accounting for other digital assets that are not within the scope of the project. For example, the accounting for and disclosure of nonfungible tokens (NFTs) will be outside the scope of the project on crypto assets. As a result, financial statement preparers accounting for transactions involving NFTs will need to fully understand the rights represented and what has actually been transferred.

Proposed ASU on Accounting for Investments in Tax Credit Structures

In August 2022, the FASB issued a proposed ASU on use of the proportional amortization method to account for investments in tax credit structures. The proposed ASU would permit reporting entities to elect to account for their tax equity investments, regardless of the program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.

In 2014, the FASB issued a standard that introduced an option allowing reporting entities to elect to apply the proportional amortization method to account for investments made primarily for the purpose of receiving income tax credits and other income tax benefits. The guidance limited the proportional amortization method to investments in low‐income housing tax credit (LIHTC) structures. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit). Investments in other tax credit structures are typically accounted for using the equity or cost method, which results in investment gains and losses and tax credits being presented gross on the income statement in their respective line items.

In recent years, stakeholders have asked the FASB to allow reporting entities to elect to apply the proportional amortization method to tax equity investments that generate tax credits through other programs, such as the New Markets Tax Credit (NMTC) program, the Historic Rehabilitation Tax Credit (HTC) program, and Renewable Energy Tax Credit (RETC) programs. These stakeholders noted that the proportional amortization method provides financial statement users with a better understanding of the returns from investments that are made primarily for the purpose of receiving income tax credits and other income tax benefits than the equity or cost methods.

The amendments in this proposed ASU would allow reporting entities to elect to account for their tax equity investments using the proportional amortization method if certain conditions are met, regardless of the program from which the income tax credits are received. The election would be on a program‐by‐program basis. The proposed amendments would also require disclosures to enable financial statement users to better understand the nature and effects of the entity’s investments that generate income tax credits and other income tax benefits.

Potential GAAP Guidance on Government Grants

In June 2022, the FASB published an Invitation to Comment (ITC), Accounting for Government Grants by Business Entities: Potential Incorporation of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, into Generally Accepted Accounting Principles. The ITC gives stakeholders the opportunity to provide feedback on whether IAS 20 represents a workable solution for improving GAAP in the U.S. financial reporting environment for business entities as it relates to the accounting for government grants. In 2021, the FASB issued the Invitation to Comment, Agenda Consultation, which gave all stakeholders the opportunity to provide input on what the Board’s future priorities should be. The 2021 ITC asked stakeholders to weigh in on a broad range of issues, including whether the FASB should pursue a project on the recognition and measurement of government grants—and, if so, whether it should leverage an existing grant or contribution model or develop a new accounting model. Approximately three‐quarters of stakeholders who provided specific feedback on that question, including investors, practitioners, preparers, and state certified public accounting societies, preferred that the FASB leverage International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance.

In response to this feedback, the FASB added a project, Accounting for Government Grants, Invitation to Comment, to the research agenda. Published as part of that research project, the government grants ITC solicits additional feedback from stakeholders on relevant requirements in IAS 20 and includes specific questions for investors about the importance and utility of government grants information to their analysis of a company’s financial performance.

Projects on Environmental Credits, Consolidation, and KPIs

In May 2022, the FASB added a project to its technical agenda on the recognition, measurement, presentation and disclosure of environmental credits that are legally enforceable and tradeable, following a review of the staff’s initial research on accounting for environmental credits, including feedback that there is diversity in practice in this area. The project will address the accounting by participants in compliance and voluntary programs, as well as by creators of environmental credits. In addition, the FASB added a project on consolidation for business entities to its research agenda after removing its project on consolidation reorganization and targeted improvements from the technical agenda. The new project will explore whether a single consolidation model could be developed for business entities. In response to feedback received on the FASB’s Invitation to Comment, Agenda Consultation, the FASB also added a project on financial key performance indicators to the research agenda to explore standardizing the definitions of financial key performance indicators.

Improvements to Income Tax Disclosures

In 2016, the FASB issued a proposed ASU that would modify existing and add new income tax disclosure requirements. After passage of the Tax Cuts and Jobs Act in December 2017, the FASB, in 2019, issued a revised proposed ASU. The revised proposed ASU would

(1) remove disclosures that no longer are considered cost beneficial or relevant and (2) add disclosure requirements identified as relevant to financial statement users. On March 23, 2022, the FASB discussed the project’s next steps.

GASB Issues Proposal to Enhance Concepts for Notes to Financial Statements

In July 2021, the GASB issued a proposed Concepts Statement to guide the Board when establishing note disclosure requirements for state and local governments. The document is part of the GASB’s response to the results of its research reexamining existing note disclosure requirements. The proposed concepts primarily are intended to provide the GASB with criteria to consistently evaluate notes to financial statements in the standards‐setting process. They also may help stakeholders to understand the fundamental concepts underlying future GASB pronouncements.

The Revised Exposure Draft (RED), Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements, proposes concepts such as:

• The purpose of notes to financial statements
• The intended users of note disclosures
• The types of information that should be disclosed in notes
• The types of information that are not appropriate for note disclosures.

A key element of the proposed Concepts Statement is the concept of essentiality. The RED would establish that notes to financial statements are essential to making economic, social, or political decisions or assessing accountability. The RED also identifies the characteristics that indicate information is essential to users:

• Users utilize the information in their analyses for making decisions or assessing accountability or would modify those analyses to incorporate the information if it were made available.
• The information has or would have a meaningful effect on users’ analyses for making decisions or assessing accountability.
• A breadth or depth of users utilize or would utilize the information in their analyses for making decisions or assessing accountability.

The GASB issued an Exposure Draft (ED) on this topic in early 2020. The Board has issued this RED to incorporate feedback received from stakeholders on the previous ED and to seek feedback on the resulting proposed revisions, which the Board believes will improve the final concepts.

EITF Agenda Items

The Emerging Issues Task Force met on December 1, 2022 and deliberated the following topic:

• Issue No. 21‐A, “Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” The Task Force reached a final consensus on the following issues:
  • To affirm the Task Force’s consensus‐for‐exposure reached at the June 16, 2022 EITF meeting, which included the following issues:
    • The proportional amortization method should be elected by entities on a tax‐credit‐program‐by‐tax‐credit‐ program basis.
    • The criteria in paragraph 323‐740‐25‐1(a), (b), and (c) should be retained with no additional clarification to those criteria (other than conforming edits).
    • The criterion in paragraph 323‐740‐25‐1(aa) should be retained with a clarification that the criterion would be evaluated in relation to the operating and financial policies of the underlying project.
    • When applying the criterion in paragraph 323‐740‐25‐1(aaa), the existence of refundable tax credits does not automatically preclude an investor from applying the proportional amortization method. Clarification to this criterion would also include that:
      • Projected benefits refer to total return, including tax credits, other tax benefits, and non‐tax‐ related cash flows (including refundable tax credits). Additionally, the Task Force clarified that refundable tax credits should be included in the denominator but not in the numerator when performing the substantially all test.
      • “Substantially all” should be determined using discounted amounts, and the discount rate to be used should be consistent with the cash flow assumptions used by the investor in making the investment decision.
      • The existing reassessment requirement in paragraph 323‐740‐25‐1C should be retained with no additional clarifications. That is, entities would reassess whether a tax credit investment meets the proportional amortization method criteria only upon a change in the nature of the investment or a change in the relationship with the project sponsor.
      • Entities should apply the flow‐through method to tax equity investments that qualify for and are accounted for using the proportional amortization method.
  • To remove the cost method in Subtopic 323‐740.
  • To remove the equity method example in Example 1 in Subtopic 323‐740.
  • To require that the delayed equity contribution guidance be applied to all investments that qualify for and are accounted for using the proportional amortization method.
  • To affirm the Task Force’s consensus‐for‐exposure that an entity may apply the modified retrospective approach or the retrospective approach upon transition.
  • To allow the amendments to the cost method, equity method example, and delayed equity contributions in Subtopic 323‐740 to be applied using either (a) the entity’s general transition method or (b) a prospective transition method.
  • To affirm the Task Force’s consensus‐for‐exposure on disclosures that would retain the disclosure objective and require certain disclosures for all investments in tax credit programs for which an entity has elected to use the proportional amortization method, regardless of whether the specific investment meets the criteria to apply the proportional amortization method.
  • To require adoption for public business entities for fiscal years beginning after December 15, 2023, including interim periods in those fiscal years.
  • To require adoption for other‐than‐public entities for fiscal years beginning after December 15, 2024, including interim periods in those fiscal years.
  • To permit early adoption for all entities, including early adoption in any interim period after the issuance of a final Update as of the beginning of the fiscal year that includes that interim period.

The FASB meeting to consider ratification of the final consensus on Issue 21‐A is tentatively scheduled for January 2023.

PCC Activities

The Private Company Council (PCC) met on September 22 and September 23, 2022. Below is a summary of topics addressed by the PCC at the meeting:

• Targeted Improvements to Income Tax Disclosures: PCC members discussed the two areas of income tax disclosures that the Board is considering for potential improvements (specifically, income taxes paid and rate reconciliation). PCC members who are users noted that disaggregated income tax information would help them better understand a company’s tax risks and opportunities, assess trends, or highlight areas where to ask management for more information. Some PCC members who are preparers noted that although information about income taxes paid by jurisdiction is readily available, they question the relevance of disclosing such information. Those PCC members also expressed concern that while a quantitative rate reconciliation could be provided, it would create undue costs compared to the narrative disclosures currently required for private companies. PCC members agreed that it is important to assess the costs and benefits of those potential improvements for private companies.
• Leases (ASC 842): Common Control Arrangements: FASB staff highlighted the Board’s recent decision to add a project to its technical agenda (tentative decisions here) to address the following issues related to arrangements between entities under common control: (1) what terms and conditions an entity should consider for determining whether a lease exists and, if a lease does exist, the classification and accounting for that lease, and (2) accounting for leasehold improvements associated with leases between entities under common control. Most PCC members were supportive of the practical expedient that would allow private companies and not‐for‐profit entities that are not conduit bond obligors, on an arrangement‐by‐ arrangement basis, to use written terms and conditions to (1) determine whether an arrangement is a lease, and, if so, (2) classify and account for that lease. Under the practical expedient, an entity would not have to determine whether the written terms and conditions are legally enforceable. However, if no written terms and conditions exist, an entity would continue to use enforceable rights and obligations to apply ASC 842, which is consistent with the requirements for all other arrangements. One PCC member expressed concern that written terms alone may not reflect the economic substance of the lease. PCC members also discussed specific challenges when accounting for leasehold improvements in arrangements between entities under common control, including the determination of an appropriate lease term, and the need for sufficient disclosures to provide decision‐useful information to financial statement users.
• Accounting for and Disclosure of Software Costs: FASB staff summarized the Board’s recent decision to add a project on software costs to its technical agenda and potential alternatives being explored by the staff. Some PCC members expressed concerns that significant judgment may be required to identify capitalizable software costs, such as labor costs. PCC members also noted that additional disclosures about software costs may be decision useful. PCC members expressed mixed views on whether a principles‐based model for capitalization or an alternative to expense all software costs would be operable or more relevant. Some PCC members asserted that software costs are not a prevalent issue for private companies and that it may be difficult for preparers to determine a useful life for certain software assets.
• Profits Interests: PCC members provided input about (1) potential illustrative examples to clarify how an entity would apply the existing scoping guidance in Topic 718, Compensation—Stock Compensation, to various profits interest awards and (2) potential transition guidance for those examples. Overall, PCC members were supportive of the illustrative examples and the staff’s approach to align those examples with the current scoping guidance in Topic 718. Some PCC members suggested that the FASB staff consider whether additional fact patterns should be incorporated into the examples. Overall, PCC members were supportive of a prospective transition method with qualitative disclosures. A few PCC members indicated that retrospective application should be a permitted transition method.
• Accounting for and Disclosure of Crypto Assets: FASB staff summarized the Board’s decisions to add a project on crypto assets to its technical agenda and to establish the scope of the project. FASB staff provided an overview of current practices for accounting for crypto assets under ASC 350, Intangibles—Goodwill and Other. Some PCC members questioned whether the scope of the project, which excludes nonfungible assets, will sufficiently address the need for standard setting in this area. FASB staff and Board members noted that the project’s scope would represent a significant portion of crypto asset market capitalization. PCC members were generally supportive of including public and nonpublic entities within the project’s scope.
• Conceptual Framework: The Reporting Entity; Recognition and Derecognition: FASB staff provided an overview of the Conceptual Framework and its role in standard setting. FASB staff summarized recent decisions on two of the Board’s current Conceptual Framework projects: (1) the reporting entity and (2) recognition and derecognition.
• Stock Compensation Disclosures: FASB staff and members of the stock compensation disclosures working group provided the PCC with an update on the working group’s progress. The working group has met twice since the June 2022 PCC meeting to analyze the user relevance of the current disclosure requirements and the cost and complexity to prepare and audit those disclosures. The working group will conduct outreach with various types of private company financial statement users to solicit feedback on an illustrative example.
• Other Business: A PCC liaison meeting will be held with members of the Risk Management Association (RMA) on October 13, 2022. RMA members who are expected to participate in the liaison meeting represent lenders and creditors to private companies.

The Private Company Council (PCC) met on December 16, 2022. Below is a summary of topics addressed by the PCC at the meeting:

• Leases (ASC 842): Common Control Arrangements: The PCC discussed the post‐implementation review activities related to Topic 842, Leases, including the proposed Accounting Standards Update to improve accounting guidance for arrangements between entities under common control. PCC members were supportive of the proposed practical expedient that would allow nonpublic entities to use written terms and conditions of an arrangement between entities under common control to determine whether a lease exists. Some members discussed the degree of formality required in documenting agreed upon terms and conditions, with those members observing that entities have latitude to use reasonable judgment when deciding how the terms and conditions of the arrangement are conveyed in writing. Under the proposed Update, leasehold improvements associated with arrangements between entities under common control would be amortized by the lessee over the economic life of the leasehold improvements as long as the lessee controls the use of the leased asset. PCC members discussed the judgment required under current GAAP to determine the owner of improvements made by a lessee to the leased asset in a common control lease for purposes of determining whether the lessee capitalizes those improvements as leasehold improvements. Those PCC members acknowledged that the issue with that determination is not unique to common control arrangements or the adoption of Topic 842 (that is, that same determination also was being made under Topic 840, Leases).
• Accounting for Government Grants, Invitation to Comment: The PCC reviewed a summary of the feedback received in response to the Invitation to Comment—Accounting for Government Grants by Business Entities: Potential Incorporation of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, into Generally Accepted Accounting Principles. Overall, PCC members were supportive of a project that would result in the development of accounting guidance for recognition, measurement, and presentation of government grants with IAS 20 as a starting point. Given the pervasiveness of government grants, some PCC members noted that IAS 20 permits different recognition, measurement, and presentation based on the type of grant, which could result in a workable solution to account for various types of grants. Some PCC members stated that there are challenges with certain aspects of IAS 20, such as applying the reasonable assurance threshold for recognition. PCC members discussed how additional examples could be helpful when accounting for various types of government grants. PCC members who are users emphasized the need for conservatism and consistency in the accounting, in addition to understanding the predictability and risk related to future cash flows.
• Revenue—Implementation Issues: The PCC discussed the post‐implementation review activities completed to date for Topic 606, Revenue from Contracts with Customers. PCC members were generally supportive of the revenue standard. PCC members also observed some ongoing implementation challenges for private companies in the following areas: insufficient familiarity with Topic 606, especially by smaller companies/firms; disclosures about opening contract balances; and principal versus agent determination in service transactions.
• Scope Application of Profits Interests Awards: Compensation—Stock Compensation (Topic 718): The PCC reviewed the Board’s recent decision to add a project to its technical agenda that would add illustrative examples to the Codification to demonstrate how an entity would apply the scope guidance in Subtopic 718‐10, Compensation—Stock Compensation— Overall, to determine whether a profits interest or similar award should be accounted for by applying Topic 718. A proposed Update is expected to be issued in the first quarter of 2023 with a 60‐day comment period. PCC members expressed support for the project and related Board decisions on the illustrative examples and transition. Some PCC members suggested that the FASB increase communication about the project with smaller entities who may not be aware of the proposed guidance.
• Accounting for and Disclosure of Software Costs: The PCC reviewed and discussed recent outreach and the alternatives being explored by the staff for future consideration by the Board. Many PCC members supported the initial development cost model. One PCC member supported a model that would expense all software development costs, while other PCC members acknowledged the lack of a conceptual basis in that model. PCC members discussed the challenges with distinguishing between maintenance and enhancements, tracking software development activities, and determining a useful life for software with continued enhancements under a capitalization model. PCC members who are users supported increased transparency about software costs and highlighted that their focus is to predict future cash flows.
• Accounting for and Disclosure of Crypto Assets: The PCC reviewed the Board’s recent decisions on scope, measurement, presentation, and disclosure. One PCC member commented on the Board’s decision to exclude a disclosure about the nature and purpose of crypto asset holdings. In contrast, another PCC member observed that users of private company financial statements have access to management that allows them the opportunity to ask questions about the nature and purpose of crypto asset holdings.

Important Implementation Dates

The following table contains significant implementation dates and deadlines for standards issued by the FASB and others.

Click to View Dates

Appendix B Illustrative Disclosures for Recently Issued Accounting Pronouncements, continued For the Quarter Ended December 31, 2022

ASU 2018‐14 ― Applicable to employers that sponsor defined benefit pension or other postretirement plans:

In August 2018, the FASB amended the Compensation—Retirement Benefits—Defined Benefit Plans Topic of the Accounting Standards Codification. The amendments remove, modify, and add certain disclosure requirements for employers that sponsor defined benefit pension plans or other postretirement plans. The amendments are effective [fiscal years ending after December 15, 2020.‐public business entities] [fiscal years ending after December 15, 2021‐all other entities]. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2018‐15 ― Applicable to all entities:

In August 2018, the FASB amended the Intangibles—Goodwill and Other Topic of the Accounting Standards Codification to 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. The amendments will be effective for the Company for [fiscal years beginning after December 15, 2019.‐public business entities] [fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021‐all other entities]. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2018‐17 ― Applicable to all entities:

In October 2018, the FASB amended the Consolidation topic of the Accounting Standards Codification for determining whether a decision‐making fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety. [The amendments will be effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.‐public business entities] [The amendments also provide a nonpublic entity with the option to exempt itself from applying the variable interest entity consolidation model to qualifying common control arrangements. The amendments will be effective for the Company for annual periods beginning after December 15, 2020, and interim periods within annual reporting periods beginning after December 15, 2021.‐all other entities] Early adoption is permitted. The Company will apply a full retrospective approach in which financial statements for each individual prior period presented and the opening balances of the earliest period presented are adjusted to reflect the period‐specific effects of applying the amendments. [The Company does not expect these amendments to have a material effect on its financial statements.] [The Company is currently evaluating the effect that implementation of the new standard will have on its financial statements.]

ASU 2018‐18 ― Applicable to all entities:

In November 2018, the FASB amended the Collaborative Arrangements Topic of the Accounting Standards Codification to clarify the interaction between the guidance for certain collaborative arrangements and the new revenue recognition financial accounting and reporting standard. The amendments will be effective for the Company for [fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.‐public business entities] [fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.‐all other entities] Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2018‐19 ― Applicable to entities that hold financial assets and net investment in leases that are not accounted for at fair value through net income:

In November 2018, the FASB issued guidance to amend the Financial Instruments—Credit Losses topic of the Accounting Standards Codification. The guidance aligns the implementation date of the topic for annual financial statements of nonpublic companies 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 topic, but rather, should be accounted for in accordance with the leases topic. The amendments will be effective for the Company for [reporting periods beginning after December 15, 2019, including interim periods within those fiscal years.‐SEC filers] [reporting periods beginning after December 15, 2020, including interim periods within those fiscal years.‐public business entities that are not SEC filers] [fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.‐all other entities] Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of adoption of this guidance on the financial statements.

ASU 2019‐05 ― Applicable to entities that hold financial instruments:

In May 2019, the FASB issued guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument‐by‐instrument basis for eligible instruments, upon adoption of ASU 2016‐13, Measurement of Credit Losses on Financial Instruments. The amendments will be effective for the Company for [fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.‐entities that have adopted ASU 2016‐13] {For entities that have not yet adopted ASU 2016‐13: [reporting periods beginning after December 15, 2019.‐SEC filers] [reporting periods beginning after December 15, 2020.‐public business entities that are not SEC filers] [fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.‐all other entities]}. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2019‐09 ― Applicable to insurance entities that issue long‐duration contracts:

In November 2019, the FASB issued guidance to defer the effective date of ASU 2018‐12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long‐Duration Contracts. The new effective date will be [for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.‐public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC] [for fiscal years beginning after December 15, 2023, and interim periods within fiscal year beginning after December 15, 2024.‐all other entities] The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2019‐10 ― Applicable to all entities:

In November 2019, the FASB issued guidance to defer the effective dates for private companies, not‐for‐profit organizations, and certain smaller reporting companies applying standards on current expected credit losses (CECL), leases, hedging. The new effective dates will be CECL: [fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.‐public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC] [fiscal years beginning after December 15, 2022 including interim periods within those fiscal years.‐all other entities]; Hedging: [fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021.‐entities other than public business entities]; Leases: [fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.‐all entities other than public business entities; not‐for‐profit entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over‐the‐counter market; and employee benefit plans that file or furnish

financial statements with or to the SEC] The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2019‐11 ― Applicable to all entities:

In November 2019, the FASB issued guidance that addresses issues raised by stakeholders during the implementation of ASU 2016‐ 13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments affect a variety of Topics in the Accounting Standards Codification. [For entities that have adopted the amendments in ASU 2016‐13, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years] [For entities that have not yet adopted the amendments in ASU 2016‐13, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years‐public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC] [fiscal years beginning after December 15, 2022 including interim periods within those fiscal years‐all other entities]. Early adoption is permitted in any interim period as long as an entity has adopted the amendments in ASU 2016‐13. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2019‐12 ― Applicable to entities within the scope of Topic 740, Income Taxes:

In December 2019, the FASB issued guidance to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments are effective for [fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.‐public business entities] [fiscal years beginning after December 15, 2021, and interim periods within annual reporting periods beginning after December 15, 2022‐all other entities]. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2020‐01 ― Applicable to all entities:

In January 2020, the FASB issued guidance to address accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments are effective for [fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.‐public business entities] [for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years‐all other entities]. Early adoption is permitted, including early adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2020‐03 ― Applicable to all entities:

In March 2020, the FASB issued guidance that makes narrow‐scope improvements to various aspects of the financial instrument guidance, including the current expected credit losses (CECL) guidance issued in 2016. The amendments related to conforming amendments: For public business entities, the amendments are effective upon issuance of this final ASU. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2020. Early application is permitted. The effective date of the amendments to ASU 2016‐01 is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For the amendments related to ASU 2016‐13, public business entities that meet the definition of an SEC filer, excluding eligible smaller reporting companies (SRCs) as defined by the SEC, should adopt the amendments in ASU 2016‐13 during 2020. All other entities should adopt the amendments in ASU 2016‐13 during 2023. Early adoption will continue to be permitted. For entities that have not yet adopted the guidance in ASU 2016‐13, the effective

dates and the transition requirements for these amendments are the same as the effective date and transition requirements in ASU 2016‐13. For entities that have adopted the guidance in ASU 2016‐13, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For those entities, the amendments should be applied on a modified‐retrospective basis by means of a cumulative‐effect adjustment to opening retained earnings in the statement of financial position as of the date that an entity adopted the amendments in ASU 2016‐13. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2020‐04 ― Applicable to all entities:

In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2020‐05 ― Applicable to all entities:

In June 2020, the FASB issued guidance to defer the effective dates for certain companies and organizations which have not yet applied the revenue recognition and leases guidance by one year. The new effective dates will be: Revenue Recognition: annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020; Leases: fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2020‐06 ― Applicable to all entities:

In August 2020, the FASB issued guidance to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The amendments are effective for [fiscal years beginning after December 15, 2021, including interim periods within those fiscal years – public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC] [fiscal years beginning after December 15, 2023, including interim periods within those fiscal years – all other entities]. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2020‐07 ― Applicable to not‐for‐profit entities:

In September 2020, the FASB issued guidance to improve financial reporting on contributed nonfinancial assets, also known as gifts‐ in‐kind donations. The amendments will be effective for annual periods after June 15, 2021 and interim periods within fiscal years after June 15, 2022. Early adoption is permitted. The Organization does not expect these amendments to have a material effect on its financial statements.

ASU 2020‐08 ― Applicable to all entities:

In October 2020, the FASB issued guidance to clarify the FASB’s intent that an entity should reevaluate whether a callable debt security that has multiple call dates is within the scope of FASB Accounting Standards Codification (FASB ASC) 310‐20‐35‐33 for each reporting period. The amendments will be effective for [fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 – public business entities] [fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application is permitted for all other entities for fiscal years, and interim periods within those fiscal years,

beginning after December 15, 2020 ‐ all other entities]. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2020‐10 ― Applicable to all entities:

In October 2020, the FASB issued amendments to clarify the Accounting Standards Codification and make minor improvements that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments are effective for [annual periods beginning after December 15, 2020. Early application is permitted for any annual or interim period for which financial statements have not been issued ‐ public business entities] [annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. Early application is permitted for any annual or interim period for which financial statements are available to be issued ‐ all other entities]. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2020‐11 ― Applicable to insurance entities that issue long‐duration contracts:

In November 2020, the FASB issued guidance to defer the effective dates for insurance entities which have not yet applied the long duration contracts guidance by one year. The new effective dates will be [fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.‐public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC] [for fiscal years beginning after December 15, 2024, and interim periods within fiscal year beginning after December 15, 2025.‐all other entities] The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2021‐04 ― Applicable to Entities that issue freestanding written call options that are classified in equity

In May 2021, the FASB issued amendments that clarify an issuer’s accounting for certain modifications or exchanges of freestanding equity‐classified written call options that remain equity classified after modification or exchange. The amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2021‐05 ― Applicable to lessor entities

In July 2021, the FASB issued amendments to require lessors to classify and account for a lease with variable payments as an operating lease if (a) the lease would have been classified as a sales‐type lease or a direct financing lease and (b) the lessor would have otherwise recognized a day‐one loss. The amendments are effective for [fiscal years beginning after December 15, 2021 – all entities] [interim periods within fiscal years beginning after December 15, 2021 – public business entities] [interim periods within fiscal years beginning after December 15, 2022 – all other entities]. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2021‐07 ― Applicable to private companies and not‐for‐profit entities that elect the accounting alternative

In October 2021, the FASB issued guidance that provides the option to elect a practical expedient to determine the current price input of equity‐classified share‐based awards issued as compensation using the reasonable application of a reasonable valuation method. The practical expedient is effective prospectively for all qualifying awards granted or modified during fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2021‐08 ― Applicable to all entities that enter into a business combination

In October 2021, the FASB amended the Business Combinations topic in the Accounting Standards Codification to require entities to apply guidance in the Revenue topic to recognize and measure contract assets and contract liabilities acquired in a business combination. The amendments are effective for [fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ‐ public business entities] [fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. ‐ all other entities] The amendments are applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2021‐09 ― Applicable to lessees that are private companies or not‐for‐profit entities

In November 2021, the FASB amended the Leases topic in the Accounting Standards Codification to allow lessees that are not public business entities to make an accounting policy election to use a risk‐free rate as the discount rate by class of underlying asset, rather than at the entity‐wide level. The amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2021‐10 ― Applicable to all entities except for not‐for‐profit entities and employee benefit plans

In November 2021, the FASB added a topic to the Accounting Standards Codification, Government Assistance, to require certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2021. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2022‐01 ― Applicable to entities that elect to apply the portfolio layer method of hedge accounting

In March 2022, the FASB issued amendments which are intended to better align hedge accounting with an organization’s risk management strategies. The amendments are effective for [fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ‐ public business entities] [fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. ‐ all other entities]. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2022‐02 ― Applicable to entities that hold financial assets and net investment in leases that are not accounted for at fair value through net income:

In March 2022, the FASB issued amendments which are intended to improve the decision usefulness of information provided to investors about certain loan re‐financings, restructurings, and write‐offs. The amendments are effective for [fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ‐ entities that have adopted the amendments in ASU 2016‐ 13] [fiscal years beginning after December 15, 2022 including interim periods within those fiscal years.‐entities that have not yet adopted the amendments in ASU 2016‐13]. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2022‐03 ― Applicable to all entities:

In June 2022, the FASB issued amendments to clarify the guidance on the fair value measurement of an equity security that is subject to a contractual sale restriction and require specific disclosures related to such an equity security. The amendments are effective for [fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. ‐ public business entities] [fiscal years beginning after December 15, 2024 including interim periods within those fiscal years. ‐ all other entities]. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2022‐04 ― Applicable to all entities that use supplier finance programs in connection with the purchase of goods and services: In September 2022, the FASB issued amendments to enhance the transparency about the use of supplier finance programs for investors and other allocators of capital. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll‐forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

Applicable to all:

Other accounting standards that have been issued or proposed by the FASB or other standards‐setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements

NOTE: The disclosures in the previous appendix are not intended to be all inclusive. All pronouncements issued during the period should be evaluated to determine whether they are applicable to your Company. Through December 31, 2022, the FASB has issued the following Accounting Standard Updates during the year.

• ASU 2022‐04, Liabilities—Supplier Finance Programs (Subtopic 405‐50): Disclosure of Supplier Finance Program Obligations
• ASU 2022‐03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
• ASU 2022‐02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
• ASU 2022‐01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method