In the last week the International Accounting Standards Board published two exposure drafts. The first exposure draft, released on February 28, with a comment deadline of April 2, 2013, details   amendments to both of the board’s financial instruments accounting standards, International Accounting Standard 39  Financial Instruments: Recognition and Measurement and  IFRS 9 Financial Instruments. The proposed changes address the treatment of derivative instruments, held for hedge accounting purposes, subject to a novation agreement.If finalized by the board, the amendments will allow holders of over-the-counter derivatives—subject to conditions—to novate their holding to a central clearinghouse without being forced first to discontinue hedge accounting as currently required by IAS 39.

The second Exposure Draft  Financial Instruments: Expected Credit Losses, issued on March 7, 2013, with comments due July 5, 2013, is IASB’s revised set of proposals for the impairment of financial instruments. Rather than using the current incurred loss model, this model is designed, said Hans Hoogervorst, IASB chairman, to recognize credit losses on a timelier basis and is a simplified version of the expected credit loss approach that was jointly developed with the Financial Accounting Standards Board. 

In a statement released March 6, 2013, Leslie Seidman, the FASB chairman, responding to the Financial Accounting Foundation’s “Post Implementation Review”  Disclosures about Segments of an Enterprise and Related Information (Accounting Standards Codification 280), formerly FASB Statement of Financial Accounting Standard No. 31, said that FASB plans to consult with IASB and with the staff of the Securities and Exchange Commission as it considers making limited, mainly operational  improvements to the 1997 rules. 

On March 5, FASB issued Accounting Standard Update No. 2013-5, Foreign Currency Matters , (Topic 830), Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets Within a Foreign Entity or of an Investment in a Foreign Entity, a narrow-scoped provision to resolve diversity in practice for the treatment of business combinations achieved in stages—referred to as step acquisitions—involving a foreign entity.

The ASU clarifies that when a parent entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business ( other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, the parent is required to apply the guidance in Accounting Standards Codification 830-30 to release any related cumulative translation adjustment into net income.  The ASU provides that the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided.

On March 5, Paul Volcker, former Federal Reserve Board chairman as well as a former overseer of U.S. standards setters, expressed frustration with U.S. standard setters for failures to reach converged international accounting rules.

 There were some interesting developments regarding auditing in the People’s Republic of China. Practitioners from PricewaterhouseCoopers Consultants (Shenzhen) Ltd. said March 5 that Chinese tax authorities were increasingly targeting equity transactions for audit and will soon release a circular with new guidance on valuation methods for equity transfers.

On March 4  the U.S. District Court for the District of Columbia lifted the stay on the  Securities and Exchange Commission’s lawsuit against Deloitte Touche Tohmatsu CPA LLP (DTTC) seeking audit work papers in connection with the Longtop investigation.

Magistrate Judge Deborah Robinson weighed the competing interests of the SEC vs. DTTC  and rejected DTTC’s argument that there would be a “parallel litigation of core issues” in the case in point and in the consolidated omnibus administrative proceeding against the five major China-based audit firms In the Matter of BDO China Dahua CPA Co. Ltd., et al.

The district court’s opinion highlighted the very different statutory standards governing the two cases, compelling subpoena compliance  versus asking for administrative disciplinary sanctions. One factor given was that in the administrative proceeding the SEC’s allegations did not pertain to Longtop but rather to a different client of DTTC.  A heavily influential factor was the duration of the stay requested- at minimum almost a year-  which would neither promote judicial efficiency nor the purpose behind the SEC’s investigation of Longtop, that such an unreasonable delay in obtaining documents would harm investors.  

Therefore the U.S. District Court ordered the parties to return for a hearing on the merits of the case March 13, 2013.

Compiled by Laura Salisbury, Accounting Policy and Practice legal editor