On July 8, 2013 the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-09—Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04.

Specifically, ASU No. 2013-09 defers indefinitely certain disclosures about investments held by nonpublic employee benefit plans in their plan sponsors’ own nonpublic equity securities. The amendments do not defer the effective date for other nonpublic entity equity securities held in the nonpublic employee benefit plan, nor do they defer any qualitative disclosures.

Also this week International Accounting Standard Board’s recently issued recent impairment proposals have revealed support among its constituents for an expected-loss model that will force entities to book 12 months' losses—as opposed to lifetime losses—upfront. Speaking July 3 during a meeting of the board’s Accounting Standards Advisory Forum, IASB director Sue Lloyd said, “So far the vast majority of our constituents support a model that distinguishes between financial assets that have deteriorated in quality and those that have not.”

This further questions whether FASB and IASB will be able to reach a converged solution. FASB’s competing proposal would require entities to book a larger allowance equivalent to full lifetime expected losses on an instrument.FASB and IASB are expected to discuss feedback on their impairment proposals during the third week of July.

On the auditing front recent highlights have included the Securities and Exchange Commission’s July 2 announcement of three new enforcement initiatives, including a task force aimed at rooting out potential fraud involving issuer disclosures and audit failures.

On July 8 2013, the House of Representatives took a definitive stand to preempt the Public Company Accounting Oversight Board from moving forward on their mandatory auditor rotation proposal by voting 321-62 to pass the Audit Integrity and Job Protection Act (H.R.1564).

 In August 2011, the PCAOB issued a Concept Release on Auditor Independence and Audit Firm Rotation which sought public comment on “whether mandatory auditor rotation would significantly enhance auditors’ objectivity and ability and willingness to resist management pressure.”

H.R.1564 would amend the Sarbanes-Oxley Act of 2002 to prohibit the PCAOB from requiring public companies to use a specific auditor or mandate that different auditors be used on a rotation basis. The bill presents the position that this requirement could lead to degraded audit quality and increased costs and  requires the General Accountability Office to update its November 2003 “Study on the Potential Effects of Mandatory Audit Firm Rotation,” to consider the costs, benefits and impacts of the requirement.

According to the bill’s sponsor Rep. Robert Hurt (R-Va.), “This bill will make clear that Congress does not think that mandatory audit-firm rotation will protect investors.”

Giving her reasons for voting for the bill, Rep. Maxine Waters (D-Calif.), ranking member of the House Financial Services Committee, said she does not like limiting the authority of a regulator but in this case believed that changing auditors would lead to diminished information, increased costs without necessarily improving audit quality.   

Critics of the House action such as Barbara Roper, director of investor protection for the Consumer Federation of America, suggest a more sinister reason for the bill —more of the on-going attempt to nullify the PCAOB’s oversight power.  

Another auditing issue brought up recently by the Government Accountability Office is their July 3, 2013 report and recommendation to the Securities and Exchange Commission to require companies to directly state whether they received an auditor's attestation about internal controls, and allow the PCAOB to seek feedback on that mandate.  

Section 404(b) of the Sarbanes-Oxley Act of 2002 requires a public company to have its external auditor attest to and report on management’s internal control over financial reporting. However, the 2010 Dodd-Frank corporate reform law exempted registrants with a public float of less than $75 million from the attestation requirement.

In its report the GAO research showed that since the implementation of the auditor attestation requirement, firms that do not have to carry out that task have had to make more financial restatements than nonexempt companies. The report also stated that a majority of empirical studies GAO reviewed suggest that compliance with the auditor attestation requirements contributed to greater investor confidence in the quality of financial reports.

The SEC noted in a June 20 letter to GAO that this information on auditor attestation about management’s internal control over financial reporting is already available in companies’ annual reports and in commission filings. 

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