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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations J. Removed by SAB 114
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Topic 5: Miscellaneous Accounting

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T. Accounting for Expenses or Liabilities Paid by Principal Stockholders Facts: Company X was a defendant in litigation for which the company had not recorded a liability in accordance with FASB ASC Topic 450, Contingencies. A principal stockholder 34 of the company transfers a portion of his shares to the plaintiff to settle such litigation. If the company had settled the litigation directly, the company would have recorded the settlement as an expense.
Question: Must the settlement be reflected as an expense in the companys financial statements, and if so, how?
Interpretive Response: Yes. The value of the shares transferred should be reflected as an expense in the companys financial statements with a corresponding credit to contributed paid-in capital.
The staff believes that such a transaction is similar to those described in FASB ASC paragraph 71810154
CompensationStock Compensation Topic, which states that share-based payments awarded to a grantee by a related party or other holder of an economic interest 35 in the entity as compensation for goods or services provided to the reporting entity are share-based payment transactions to be accounted for under this Topic unless the transfer is clearly for a purpose other than compensation for goods or services to the reporting entity. As explained in this paragraph, the substance of such a transaction is that the economic interest holder makes a capital contribution to the reporting entity, and the reporting entity makes a share-based payment to its grantee in exchange for goods or 34 The FASB ASC Master Glossary defines principal owners as owners of record or known beneficial owners of more than 10 percent of the voting interests of the enterprise.
35 The FASB ASC Master Glossary defines an economic interest in an entity as any type or form of pecuniary interest or arrangement that an entity could issue or be a party to, including equity securities; financial instruments with characteristics of equity, liabilities or both; longterm debt and other debt-financing arrangements;
leases; and contractual arrangements such as management contracts, service contracts, or intellectual property licenses. Accordingly, a principal stockholder would be considered a holder of an economic interest in an entity.

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services provided to the reporting entity.
The staff believes that the problem of separating the benefit to the principal stockholder from the benefit to the company cited in FASB ASC Topic 718
is not limited to transactions involving stock compensation. Therefore, similar accounting is required in this and other 36 transactions where a principal stockholder pays an expense for the company, unless the stockholders action is caused by a relationship or obligation completely unrelated to his position as a stockholder or such action clearly does not benefit the company.
Some registrants and their accountants have taken the position that since FASB ASC Topic 850, Related Party Disclosures, applies to these transactions and requires only the disclosure of material related party transactions, the staff should not analogize to the accounting called for by FASB ASC paragraph 71810154 for transactions other than those specifically covered by it. The staff notes, however, that FASB ASC Topic 850 does not address the measurement of related party transactions and that, as a result, such transactions are generally recorded at the amounts indicated by their terms.37 However, the staff believes that transactions of the type described above differ from the typical related party transactions.
The transactions for which FASB ASC
Topic 850 requires disclosure generally are those in which a company receives goods or services directly from, or provides goods or services directly to, a related party, and the form and terms of such transactions may be structured to produce either a direct or indirect benefit to the related party. The participation of a related party in such a transaction negates the presumption that transactions reflected in the financial statements have been consummated at arms length.
Disclosure is therefore required to 36 For example, SAB Topic 1.B indicates that the separate financial statements of a subsidiary should reflect any costs of its operations which are incurred by the parent on its behalf. Additionally, the staff notes that AICPA Technical Practice Aids 4160 also indicates that the payment by principal stockholders of a companys debt should be accounted for as a capital contribution.
37 However, in some circumstances it is necessary to reflect, either in the historical financial statements or a pro forma presentation depending on the circumstances, related party transactions at amounts other than those indicated by their terms.
Two such circumstances are addressed in Staff Accounting Bulletin Topic 1.B.1, Questions 3 and 4. Another example is where the terms of a material contract with a related party are expected to change upon the completion of an offering i.e., the principal shareholder requires payment for services which had previously been contributed by the shareholder to the company.

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compensate for the fact that, due to the related partys involvement, the terms of the transaction may produce an accounting measurement for which a more faithful measurement may not be determinable.
However, transactions of the type discussed in the facts given do not have such problems of measurement and appear to be transacted to provide a benefit to the stockholder through the enhancement or maintenance of the value of the stockholders investment.
The staff believes that the substance of such transactions is the payment of an expense of the company through contributions by the stockholder.
Therefore, the staff believes it would be inappropriate to account for such transactions according to the form of the transaction.

FR Doc. 202126027 Filed 113021; 8:45 am BILLING CODE P

DEPARTMENT OF HOMELAND
SECURITY
Coast Guard 33 CFR Parts 135, 138, and 153
Docket No. USCG20170788
RIN 1625AC39

Financial ResponsibilityVessels;
Superseded Pollution Funds Coast Guard, DHS.
Final rule.

AGENCY:
ACTION:

The Coast Guard is issuing regulations to expand vessel financial responsibility to apply to all tank vessels greater than 100 gross tons as required by statute, and to make other amendments that clarify and update reporting requirements, reflect current practice, and remove unnecessary regulations. These regulations ensure that the Coast Guard has current information when there are significant changes in a vessels operation, ownership, or evidence of financial responsibility, and reflects current best practices in the Coast Guards management of the Certificate of Financial Responsibility program.
DATES: This final rule is effective January 3, 2022.
ADDRESSES: To view documents mentioned in this preamble as being available in the docket, go to https
www.regulations.gov, type USCG2017
0788 in the search box and click Search. Next, in the Document Type SUMMARY:

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