Accounting and Auditing Highlights June 6-10, 2016


 ACCOUNTING HIGHLIGHTS:

 The Financial Accounting Standards Board

 REVENUE RECOGNITION

June 6: The Financial Accounting Standards Board proposed clarifications for how companies should record gains and losses from partial sales of nonfinancial assets, such as real estate. FASB proposed that a company would recognize a gain from partial sales of nonfinancial assets only if the legal entity isn't consolidated by the seller and other criteria in revenue accounting are met. The guidance is aimed to help companies uncertain how to account for those types of transactions because they're not specifically addressed under forthcoming revenue rules, Revenue from Contracts with Customers (Topic 606).

June 10: FASB member Thomas Linsmeier quashed rumors of longer revenue recognition deferral. Meanwhile, accountants in rulemaking circles are talking more about widespread lack of preparation for the shift to the new rules.   

DISCLOSURE

June 8: Potential rules being developed to require companies to disclose the magnitude of the government assistance they receive won't include arrangements that fall under income tax accounting, the FASB voted. FASB’s original 2015 proposal aimed to provide rules that would bring transparency about billions of dollars companies receive in government aid such as tax incentives, cash grants and low interest loans. FASB voted to reverse its previously proposed decision to include arrangements that fall under its income-tax accounting standard—Topic 740—because companies expressed concerns that including them would impose significant cost burdens.

COMMUNITY BANKS

June 8: FASB said that a proposal in July to change the disclosure requirements for income taxes would apply to some private community banks that fit the definition of a public business entity.

Community banks that are required to file their annual audit financial statements with the Federal Deposit Insurance Corp. and have securities not subject to contractual restrictions on transfer should be aware of the forthcoming proposal. The forthcoming proposal would require community banks to make certain existing and potential new disclosures on income taxes relevant to public companies, such as a rate reconciliation and a roll forward to a future period on unrecognized tax benefits, FASB said.

LOAN LOSSES

June 10: FASB told Bloomberg BNA that new rules on how banks and other moneylenders would recognize loan and credit losses will be issued on June 16. The guidance would be applicable to banks that offer mortgages—such as Wells Fargo & Co., Chase, Bank of America, community banks, and credit unions—and other business entities that hold financial instruments.

The rules will provide investors with timelier financial reporting of losses on loans because they will require banks and other financial institutions to estimate those losses when they are incurred, based on their expected future performance.

CASH FLOW STATEMENTS

June 10: FASB’s task force approved FASB proposal intended to clear up confusion about eight classifications of certain cash receipts and cash payment, with some recommended revisions for the board’s June 29 consideration. The guidance was issued to address diversity in practice—stemming from lack of specific guidance under U.S. generally accepted accounting principles--.in how some cash receipts and cash payments are presented.   

The Securities and Exchange Commission

CYBERSECURITY

June 6:The Securities and Exchange Commission’s David Glockner, head of the Chicago Regional Office predicted more cybersecurity enforcement cases for companies that are not acting reasonably to avoid such attacks. “We expect firms to be diligent, we expect them to be thinking about this area, we expect that companies' procedures both from a policy perspective and a technology perspective are proportional to their risk,” he said at a Practising Law Institute conference in New York.

INTERNAL CONTROLS

June 9: SEC’s Wesley Bricker, Deputy Chief Accountant, said that the staff is checking to ensure companies meet the legal requirements for gauging the adequacy of their internal controls over financial reporting.

NON-GAAP METRICS

June 9: Mark Kronforst, chief accountant of the SEC’s Division of Corporation Finance, said that “There are a growing number of companies that are engaged in practices that are troubling.” Kronforst gave an example of a fictional company's manipulation of earning results using its own alternate measures to GAAP. His example was of a company having a $5 billion operating loss under GAAP and “turning that into $10 billion operating income under non-GAAP.”

The non-GAAP results will be displayed more prominently than amounts under GAAP, in violation of the SEC reporting rule known as “Regulation G,” he said. “It'll be packaged in something that looks very much like a GAAP income statement,” he added.

Valeant Pharmaceuticals International Inc’s quarterly report from June 7 illustrates the very different results between GAAP and adjusted figures. Valeant presented investors with two sets of first-quarter figures. Under the adjusted method Valeant favors, it earned $1.27 per share. Under GAAP, it lost $1.08.

June 9: The SEC would get a $50 million budget cut for fiscal year 2017, under a spending bill approved by the House Appropriations Committee.

The financial services appropriations bill would fund the agency at $1.555 billion, down from the $1.605 billion level enacted in 2016 and well below the $1.78 billion the agency and White House requested.

Chair Mary Jo White will testify June 14 at the Senate Banking Committee's oversight hearing. Following that, the Senate Appropriations Committee will mark up the financial services appropriation bill for fiscal year 2017, which includes the SEC’s budget.

REVENUE RECOGNITION

June 9: SEC’s Wesley Bricker advised companies against denial and delay in asking questions about application of new revenue reporting rules. He warned that companies run risk of financial restatements if they don’t start planning to change current accounting practices and pursuing answers to revenue questions soon. He said that “the time to escalate implementation questions is now” as a special advisory group of the FASB prepares to meet, if necessary, later this year.

INTERNATIONAL ACCOUNTING HIGHLIGHTS

IFRS TAXONOMY

June 7:  The International Accounting Standards Board staff told its IFRS Taxonomy Consultative Group that the use of electronic tags to meet international financial reporting standards has generated benefits, but significant challenges persist. Fourteen securities regulators worldwide currently are using the IFRS taxonomy, but there are “significant differences in implementation by securities regulators,” staff said.

SIMPLIFIED FINANCIAL REPORTING

June 9: The Russian Finance Ministry issued Order No. 64n that revises earlier regulations applicable to simplified financial reporting. Businesses are allowed to either assess inventory at purchasing cost or at prices as quoted by suppliers. Annual depreciation may be calculated as on Dec. 31 of the reporting period.

NON-FINANCIAL REPORTING

June 9: Large public-interest companies must report a far greater range of non-financial information under a proposed amendment that inserts European Union directive 2014/95/EU into the Czech Republic's Accounting Act. If amendment becomes law, the law will require information on environmental, social, and anti-corruption programs.

EMPLOYEE BENEFITS

June 9: New Indian accounting rules will hurt companies such as ITC that have large outstanding employee stock options, which will need to be recorded as staff costs, according to analysts Mahesh Nandurkar, Abhinav Sinha and Alok Srivastava said.    

AUDITING HIGHLIGHTS

INSPECTIONS

June 9: Public Company Accounting Oversight Board member Jay Hanson told the 35th annual SEC and Financial Reporting Institute Conference that the audit inspection process may need to “evolve” and shift to a focus on quality control rather than individual inquiries . Hanson said that, in 2016, the PCAOB's inspectors will again focus on recurring inspection findings.

“We're going to have similar recurring themes—income control, the risk assessment standards, all things fair value and estimates—as well as a smattering of other things—the strength of the dollar today certainly is raising concerns with many companies,” said Hanson.

   

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

 

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