2016 Year-End Accounting and Auditing Highlights Dec.10-Dec.30


ACCOUNTING HIGHLIGHTS:Acct

The Financial Accounting Standards Board

SALES OF NON-FINANCIAL ASSETS

Dec. 14: The FASB advanced what will be a final accounting standards update aimed at following up its release in 2014 of rules on booking gains and losses from transfers of nonfinancial assets in contracts with non-customers under ASC 610-20.

This will mean that real estate investment trusts, pharmaceutical companies and electrical power producers will have clearer rules early in 2017 on how to account for certain sales of nonfinancial assets, after U.S. accounting standard-setters approve plans to issue new guidance on the topic.

Those rules are part of the new, far-reaching standard on revenue recognition—ASU 2014-09, ASC 606—which prescribe accounting for revenue from contracts with customers.

ACCOUNTING STANDARDS UPDATE

Dec.14: FASB issued technical corrections to multiple rules in the codification literature, ASU No. 2016-19, Technical Corrections and Improvements. The six Accounting Standards Codification topics where amendments might cause practice changes are:

Subtopics 350-40, Intangibles—Goodwill and Other—Internal-Use Software; 

Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales;

Topic 820, Fair Value Measurement;

Subtopic 405-40, Liabilities—Obligations Resulting From Joint and Several Liability Arrangements;

Subtopic 860-20, Transfers and Servicing—Sales of Financial Assets; and

Subtopic 860-50, Transfers and Servicing—Servicing Assets and Liabilities.

REVENUE RECOGNITION

Dec. 21: FASB issued ASU 2016-20, Technical Improvements to Topic 606, Revenue from Contracts with Customers. The changes are based on input received from FASB stakeholders and its Revenue Recognition Transition Resource Group.

DISCLOSURE FRAMEWORK: MATERIALITY

Dec.14: The FASB announced a roundtable March 17 that among other issues, will consider whether to align the concept of materiality under generally accepted accounting principles (GAAP) with the U.S. Supreme Court legal definition. This would bring FASB’s definition into accordance with the SEC and PCAOB literature that uses the Supreme Court's definition

The FASB proposals would replace the GAAP definition with language borrowed from the Supreme Court. The high court says that information will be material “if there is a substantial likelihood that the omitted or misstated item would have been viewed by a reasonable resource provider as having significantly altered the total mix of information.”

XBRL

Dec.15: FASB announced that The 2017 GAAP Financial Reporting Taxonomy, a list of computer-readable tags in eXtensible Business Reporting Language (XBRL) format, is now available—though pending final acceptance by the Securities and Exchange Commission. The identification of financial data through the XBRL tags allow companies to compare financial statements more readily and effectively.

The Securities and Exchange Commission

APPOINTMENT

Dec. 21: There is some speculation that President-elect Donald Trump is considering nominating ex-U.S. Attorney Debra Wong Yang to run the Securities and Exchange Commission, positioning her to be the second consecutive former federal prosecutor to lead Wall Street's top regulator, according to a news story by Bloomberg reporters.

Appointed by former president George Bush in 2002, Yang was the first Asian-American woman to be named a U.S. Attorney. At the Justice Department, she served on the Bush administration's corporate fraud task force, which was set up in the wake of Enron Corp.’s accounting scandal. Yang was a California state judge before becoming a federal prosecutor.

CONSTITUTIONALITY OF SEC IN-FORUM COURTS.

Dec. 16: A federal appeals court said in (Bennett v. SEC, 4th Cir., No. 15-2584, 12/16/16) that it was too soon for the Investment adviser's to bring constitutional claims against the SEC—that she must wait until administrative proceedings are concluded. The Second, Seventh, Eleventh and D.C. Circuits have reached similar conclusions in other cases raising the same issue.

IN- FORUM COURTS UNCONSTITIUTIONAL

Dec. 27: A federal appeals court in Denver found the use of in-house judges by the Securities and Exchange Commission to be unconstitutional in a ruling that conflicts with a panel in Washington, which sided with the regulator (Bandimere v SEC, 2016 BL 431259, 10th Cir., No. 15-9586, 12/27/16).

The final say on the use of the SEC judges may now be up to the U.S. Supreme Court.

ENFORCEMENT

Dec. 29: The SEC's strategy of imposing large corporate penalties, record yearly enforcement  totals and multi- million dollar settlements may well be over and replaced by an approach that will scrutinize the potential impact of hefty fines on shareholders, according to the latest analysis and interviews by Bloomberg BNA reporter Rob Tricchinelli.

Chairman Mary Jo White and Chairman Mary Jo White’s philosophy contradicts the concerns of previous SEC Commissioner Paul Atkins, who now serves on President-elect Trump’s transition team.

In his term at the SEC, Atkins was concerned about whether the penalties imposed upon corporations would really be felt by the shareholders. The potential shift back to the 2006 enforcement framework would be even more pronounced if a provision in legislation proposed by House Financial Services Committee Chairman Jeb Hensarling (R-Texas) becomes law. Part of Hensarling's Financial Choice Act would require agency economists to evaluate how much a corporate penalty in a given enforcement case would affect shareholders.

INTERNAL REVENUE SERVICE

PENSIONS

Dec. 28: Defined benefit plans are likely to have their funding and lump-sum payment costs rise under an IRS proposed rule updating the mortality tables plans use to calculate the present value of benefits.

The new tables, reflect the longer life expectancy of plan participants and are also used by plan sponsors to calculate how they fund their pension plans.

The proposed rule would require that sponsors use the updated tables for plan years beginning on or after Jan. 1, 2018.

INTERNATIONAL ACCOUNTING HIGHLIGHTS

EMPLOYEE BENEFITS

Dec.13: The International Accounting Standards Board unanimously approved a series of small revisions to International Accounting Standard 19: Employee Benefits and an interpretation of IAS 19 by IASB's IFRS Interpretation Committee (IC)—the board's interpretive panel—known as IFRIC 14 IAS 19.

The revision means that an entity would have the right to receive a refund of an employee benefits plan's surplus if other parties can terminate the plan without the entity's consent.

INTERNATIONAL FIANCIAL REPORTING STANNDARDS

Dec. 13: TheIASB voted to consider next month whether to make minor changes to its International Financial Reporting Standard 9: Financial Instruments. IASB instructed staff to draft a paper addressing how entities should classify financial assets with particular contractual prepayment options.

The question to be decided will be whether an entity must measure a debt instrument at amortized cost because the instrument's contractual cash flows meet the “solely payments of principal and interest” (SPPI) benchmark.

MATERIALITY

Dec.14: The IASB voted unanimously to move ahead with drafting a final practice statement on applying the concept of materiality to financial statements. The non-mandatory practice statement will serve as a guide to managers in using materiality—which comprises items in a financial statement significant enough to influence investor decisions—to prepare financial statements.

IASB members also agreed without dissent to release a separate exposure draft designed to hone the definition of materiality and clarify its key characteristics.

BREXIT

Dec.15: The U.K. Financial Reporting Council issued a 28-page work plan detailing how it will collaborate with other enforcement authorities over the next few years to smooth the U.K.’s withdrawal from the European Union, a process known as Brexit.

ACCOUNTING MISCONDUCT

Dec. 20: Toshiba Corp.—which paid a record 7.4 billion yen in December last year after Japanese regulators found the manufacturer misled investors by filing false financial statements for its bookkeeping practices—warned that it may now have to take another charge of several billion dollars related to an acquisition made by U.S. unit Westinghouse.

The loss is related to a dispute over the value of an acquisition by Westinghouse of a nuclear construction company called CB&I Stone & Webster Inc. The Nikkei newspaper said the write-down would come to about 100 billion yen, while Japanese broadcaster NHK said the charge may total as much as 500 billion yen.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

Dec. 21:The IFRS Foundation said that Saudi Arabia has added several provisions to international financial reporting standards to meet the requirements of Sharia or local law. Iran directed all listed companies to use IFRS starting next year.

In Kazakhstan, the Ministry of Finance, the National Bank of Kazakhstan and the Kazakhstan Stock Exchange have implemented IFRS and IFRS for SMEs without changes, the foundation said.

 

AUDITING HIGHLIGHTS:

REVENUE RECOGNITION

Dec. 13: The Center for Audit Quality issued Preparing for the New Revenue Recognition Standard—A Tool for Audit Committees to help audit committees assist auditors and management meet the Jan. 1, 2018 date the revenue recognition standard takes effect. A compilation of audit committee resources is on the CAQ website at http://www.thecaq.org/policy-issue/audit-committee-issues.

BUDGET

Dec. 14: The Public Company Accounting Oversight Board chairman James R. Doty presented 2017’s  $268.5M budget justification to the Securities and Exchange Commission. He said that the PCAOB will inspect in more jurisdictions than ever before.

CROSS- BORDER AUDITS

The inspections team needs to inspect the work of affiliates in cross-border or multi-national audits, Doty testified to the SEC. Enforcement Director Claudius Modesti has also said cross- border audits will continue to be the top priority in 2017, just as it was in 2016.

RESIGNATION

Dec. 23: PCAOB Board Member Jay D. Hanson notified the PCAOB of his resignation from the Board. The five PCAOB members are appointed to staggered five-year terms by the SEC. Hanson was appointed by the SEC in Jan. 2011 and reappointed for a second term that would have ended in Oct. 2018.

Hanson was the only member to vote against the proposed 2017 $268.5 million budget Nov. 17.

INSPECTIONS

Dec. 27: PCAOB posted three expanded inspections reports and 34 new inspections reports. Inspections staff continue to find audit firms falling short of the engagement quality review standard.

Auditing Standard No.7 establishes that the Engagement Quality Reviewer  has qualifications or technical expertise to be able to evaluate the significant judgments and conclusions made by the engagement team before providing concurring approval.

INTERNATIONAL AUDITING HIGHLIGHTS

CROSS-BORDER AUDITS

Dec. 16:   The Internal Revenue Service’s deputy commissioner of the Large Business and International Division Rosemary Sereti, said that U.S. distributors of a foreign parent company's goods are among those the IRS is targeting for its brand-new audit campaigns that will be unveiled in late January 2017.

This means the IRS will scrutinize both foreign corporations with U.S. activities or income and U.S. companies with operations or income abroad, Sereti said at a conference held by George Washington University Law School and the IRS.

 

Composed and Compiled by Laura Tieger Salisbury, Accounting Policy and Practice reporter and editor.

 

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