Last month’s top story had to be the joint leasing proposal issued May 16, 2013 by both the International Accounting Standards Board and the Financial Accounting Standards Board. The boards had been working jointly on this since the March 2009 discussion paper.

This proposal would make drastic changes to accounting for leasing. Historically companies were able to structure most leases as operating leases rather than capital leases.  The new rules require that any lease over a year must be recorded on the balance sheet like a mortgage and amortized as an asset on a balance sheet, thus “grossing up” the balance sheet. Comments are due September 13, 2013.   

Golden, currently a member of FASB but who will assume the role of chairman July 1, after Seidman vacates the seat June 30, speaking May 30, 2013 at the 32nd Annual SEC and Financial Reporting Institute Conference in Pasadena, California, said FASB’s top priority for the remainder of this year and for 2014 will be to complete this 10 year- plus period of intense, bi-lateral standard setting. 

Golden stated that once FASB completes the issuance of the four convergence standards—revenue recognition, financial instruments (classification and measurement and impairment), leasing and insurance, the board’s goal is to continue working with IASB through the new Accounting Standards Advisory Forum (ASAF).  

Golden addressed the importance of continuing to work on the question of incorporation of the International Financial Reporting Standards into U.S. generally accepted accounting principles (GAAP) which was not achieved during the ten year partnership.  FASB’s membership in ASAF, he said, will enable the board to continue that process while representing those who invest in the U.S. markets.

 A recent area of agreement between the two boards included credit card reward programs which will be explained in soon-to-be-released revenue recognition standard. Credit card issuers will be required to account for award credits granted to credit card holders in accordance with the model laid out in the new standard, the boards agreed May 24, 2013.

FASB Chairman Leslie Seidman May 30 made a formal response to the “post-implementation review” by its parent group, the Financial Accounting Foundation, of ASC 805, Business Combinations. The formal response described the board’s already-initiated efforts to better define “business” and plans for further work resolving practice issues in fair value measurements.

Recent auditing developments include the announcement by the Public Company Accounting Oversight Board May 24, 2013, that it had entered into a pact with regulators in the People’s Republic of China which might give PCAOB inspectors access to audit documents preciously denied them.  It is hard to be particularly optimistic about the result of this recent pact, given the impasse for over 7 years now, between Chinese regulatory authorities battling the PCAOB about inspection of audits of U.S. companies doing business in China. This battle is best reflected in the on-going since September 2011 case of the Securities and Exchange Commission trying to compel Deloitte’s Shanghai affiliate to produce subpoenaed work papers related to audit client Longtop Financial Technologies which has now expanded into the December 2012 consolidated omnibus administrative action brought by the SEC against the China–based affiliates of five major U.S. audit and accounting firms. 

In other SEC activity, on May 30, 2013, long-awaited guidance on the conflicts minerals and resource extraction disclosure rule issued in August 2012 was released clarifying the most frequently asked questions. Those included a response as to whether issuers must take into account their products’ packaging when assessing the use of the metals.  The guidance given is that packaging or containers sold with a product are not considered part of the product and therefore do not have to be taken into account.  The packaging or container sold with a product is considered separate as it is often discarded after purchase. If, however, an issuer independently manufactures and sells packaging or containers then they would be considered a product.

This guidance was released the day after the release of results of a survey by the risk management consultant Aravo Solutions Inc. which found that most public companies are falling behind in their compliance with the minerals disclosure rule and have yet to begin their reasonable country –of –origin inquiries and due diligence processes.

Compiled by Laura Tieger-Salisbury, Accounting Policy and Practice Report Copy Editor