NEW ACCOUNTING STANDARDS

3 Months Ended

Feb. 02, 2020

NEW ACCOUNTING STANDARDS

NEW ACCOUNTING STANDARDS

(3)  New Accounting Standards

New Accounting Standards Adopted

In the first quarter of 2020, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which supersedes Accounting Standards Codification (ASC) 840, Leases. This ASU was adopted using a modified-retrospective approach. The ASU’s primary change is the requirement for lessee entities to recognize a lease liability for payments and a right of use asset during the term of operating lease arrangements. The ASU did not significantly change the lessee’s recognition, measurement, and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. The ASU adds new disclosures about the Company’s leasing activities. The Company elected the optional practical expedients to not reassess whether existing contracts contain leases, not reassess lease classification, and not reassess initial direct costs for existing leases. The Company did not elect the hindsight practical expedient. In addition, the Company elected to combine lease and non-lease components for all asset classes and to not recognize a right of use asset or lease liability for arrangements that qualify as short-term leases.

The operating lease liabilities are recorded in “Accounts payable and accrued expenses” and the operating lease right of use assets are recorded in “Other assets.” The finance lease liabilities are recorded in “Short-term borrowings” or “Long-term borrowings” based on the remaining lease term, and the finance lease right of use assets are recorded in “Property and equipment - net.” In addition to the lease liabilities and right of use assets, land use rights were reclassified from “Other intangible assets - net” to “Other assets” and finance lease liabilities were reclassified from “Accounts payable and accrued expenses” to “Short-term borrowings” and “Long-term borrowings.” The effect of adopting the ASU on the consolidated balance sheet follows in millions of dollars:

	November 3, 2019		Cumulative Effect from Adoption		November 4, 2019
Assets
Other intangible assets - net	$	1,380	$	(23)	$	1,357
Other assets		1,899		402		2,301
Liabilities
Short-term borrowings	$	10,784	$	11	$	10,795
Accounts payable and accrued expenses		9,656		348		10,004
Long-term borrowings		30,229		20		30,249

The Company implemented a new system for lessee accounting with new processes and controls at the time of adopting the ASU. The adoption did not have a material effect on the Company’s operating results or cash flows. See Note 15 for additional information.

The Company also adopted the following standards in the first quarter of 2020, none of which had a material effect on the Company’s consolidated financial statements:

Accounting Standards Updates

2017-08	Premium Amortization on Purchased Callable Debt Securities, which amends ASC 310-20, Receivables – Nonrefundable Fees and Other Costs
2018-07	Improvements to Nonemployee Share-Based Payment Accounting, which amends ASC 718, Compensation – Stock Compensation
2019-04	Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The adoption was for clarifications to ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities

New Accounting Standards to be Adopted

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes ASC 326, Financial Instruments – Credit Losses. The ASU revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss to an expected loss methodology. The ASU affects receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. The effective date will be the first quarter of fiscal year 2021. The ASU will be adopted using a modified-retrospective approach. The Company is developing models to estimate expected credit losses, assessing appropriate assumptions, designing new procedures and controls, and evaluating the potential effects on the consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software. This ASU requires customers in a hosting arrangement that is a service contract to evaluate the implementation costs of the hosting arrangement using the guidance to develop internal-use software. The project development stage determines the implementation costs that are capitalized or expensed. Capitalized implementation costs are amortized over the term of the service arrangement and are presented in the same income statement line item as the service contract costs. The effective date will be the first quarter of fiscal year 2021, with early adoption permitted. The Company will adopt the ASU on a prospective basis. The Company is evaluating the potential effects on the Company’s consolidated financial statements.

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The effective dates for the separate portions of the ASU and the expected effect on the consolidated financial statements are as follows for the portions that have not yet been adopted: (1) clarifications to ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, is the first quarter of fiscal year 2021, which is under evaluation, and (2) clarifications to ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities is the first quarter of fiscal year 2021, which will not have a material effect on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which amends ASC 740, Income Taxes. This ASU simplifies the accounting for income taxes by modifying the treatment of intraperiod tax allocation in certain circumstances, eliminating an exception to recognizing deferred tax liabilities for outside basis differences for foreign equity method investments and foreign subsidiaries when ownership or control changes, and modifying interim period tax calculations when a loss is forecast. In addition, the ASU also provides guidance for the accounting of a franchise tax that is partially based on income, requires that enacted changes in tax laws or rates be included in the annual effective rate determination in the period that includes the enactment date, and clarifies the tax accounting of a step up in tax basis of goodwill. The effective date will be the first quarter of fiscal year 2022, with early adoption permitted. The guidance related to the foreign equity method investments, foreign subsidiaries, and franchise taxes will be adopted using a modified-retrospective approach. The remaining provisions will be adopted prospectively. The adoption is not expected to have a material effect on the Company’s consolidated financial statements.