ACCOUNTING AND AUDITING HIGHLIGHTS SEPT. 20- SEPT. 30, 2016

ACCOUNTING HIGHLIGHTS:

The Financial Accounting Standards Board

CASH FLOW STATEMENTS

Sept. 22: The Financial Accounting Standards Board’s technical task force approved FASB’s proposal for users of cash flow statements and companies to effectively communicate cash inflows and outflows as a whole, without regard to whether cash is restricted. The FASB earlier this year issued a proposal to clarify how restrictions on cash and cash equivalents should be classified on the statement of cash flows.

INSURANCE

Sept. 22: FASB proposed to shorten the period for which callable debt securities can be spread out in financial statements.

The period for callable debt securities—the ones purchased at a premium—would be shortened to the earliest date the bond is redeemed. For securities purchased at a discount, however, there wouldn't be a change. The discount would continue to be amortized to the maturity date.  

DISCLOSURES:

Sept. 26: FASB  Vice Chairman James Kroeker said  at a financial reporting conference in New York that FASB will hold a roundtable later this year to bring together investors, financial reporting professionals, preparers, auditors, and others interested in the rulemaker's year-old proposed materiality disclosures rules.

This move comes after strong public outcry over its proposed provisions.

Kroeker also said that companies would generally see an increase in financial reporting under FASB’s proposals addressing disclosure requirements in four areas: fair value measurement, employee benefit plans, income taxes and inventory.

INSURANCE

Sept. 29:  FASB issued proposal:  Financial Services–Insurance (ASC 944): Targeted Improvements to the Accounting for Long-Duration Contracts to revise accounting rules for long-term insurance. Insurance companies that issue long-term contracts—such as life insurance and annuities—would have to provide investors and other financial statement users with more information about the amount, timing and uncertainty of cash flows related to those contracts.

The Securities and Exchange Commission

DISCLOSURES

Sept. 26: The Securities and Exchange Commission should scrutinize whether Yahoo! Inc. adequately disclosed the widespread data breach it suffered in 2014, Sen. Mark Warner (D-Va.) said.

Sept. 27: Weatherford International will pay $140 million to settle SEC allegations it used deceptive income tax accounting to meet earnings expectations.

The oilfield service company inflated earnings by more than $900 million from 2007 to 2012 by lowering its effective tax rate, the SEC said in a statement.

SUSTAINABILITY

Sept. 27: Companies' financial reporting disclosures on environmental and social responsibility (sustainability) issues cut across 79 different industries and aren't suited to a constant set of rules, an SEC official said at an industry conference in New York.

 “Everyone recognizes that one-size-fits-all disclosure is likely not to be so effective in the sustainability area—others recognize the enormity of that task,” SEC Division of Corporation Finance Director Keith Higgins said.

Governmental Accounting Standards Board

PROPOSAL: OMNIBUS TECHNICAL PROPOSAL

Sept. 26: The Governmental Accounting Standards Board’s proposed technical clarifications to enhance consistency in the application of accounting and financial reporting requirements in certain practice areas for state and local authorities.

The revisions, part of an omnibus project, address items raised in implementing the following GASB pronouncements:

• reporting component units;

• reclassification of good will;

• fair value measurement; and

• post-employment benefits.

 Comments are requested by Nov. 23.

INTERNATIONAL ACCOUNTING HIGHLIGHTS

WORLD STANDARD-SETTERS CONFERENCE

FINANCIAL INSTRUMENTS

Sept. 26: The International Accounting Standards Board Chairman Hans Hoogervorst said that the European Parliament won't block two-year-old accounting rules on loan losses and other aspects of financial instruments.

The European Parliament's Committee on Economic and Monetary Affairs essentially gave the cautious green light to the financial-instruments standard, IFRS 9.

INTERNATIONAL STANDARDS

Sept. 26:  Japan is the “country of volunteer IFRS adoption,” Hoogervorst said at the annual IASB gathering of World Standard-Setters, in London. One hundred and forty one “big Japanese companies,” accounting for almost 30 percent of Japanese market capitalization, have either adopted IFRS or announced that course, he told attendees.

Almost 120 jurisdictions around the world now require use of the IASB’s international financial reporting standards, Hoogervorst said.  

Sept. 27:  The Securities and Exchange Commission isn't showing any movement toward acceptance of international accounting standards for financial reporting by U.S. public companies, IASB’s chairman told Bloomberg BNA correspondent Steve Burkholder in London at the World Standard-Setters Conference.

OPERATING PROFIT OR LOSS

Sept. 27:  The IASB should think about defining operating profit or loss as part of its work on primary financial statements, IASB member Stephen Cooper told Bloomberg BNA correspondent David Jones.

During the conference session on operating profit, Cooper quoted a May speech by board chairman Hans Hoogervorst in which the chairman said IASB might need to develop a principle-based definition of operating income that prevents obscuring of restructuring or impairment charges (12 APPR 10, 5/20/16).

BUSINESS COMBINATIONS

Sept. 30: Proposed parallel changes to the definition of a business by FASB and IASB met with approval at the IASB’s Accounting Advisory Forum, where leaders of accounting boards in Italy, Germany, and Australia, along with the chief of a technical accounting panel that advises the European Commission, discussed the draft standards.

The standard being prepared by FASB probably will lead to more asset classifications and fewer dispositions or acquisitions treated as business combinations (12 APPR 17, 8/26/16).

AUDITING HIGHLIGHTS:

TRANSPARENCY, DISCLOSURE

Sept. 22:  The public has right to know of “egregious” conduct investigations, the Public Company Accounting Oversight Board chairman James R. Doty told House Financial Services Committee's Subcommittee on Capital Markets and Government Sponsored Enterprises.

The present silence surrounding a PCAOB disciplinary investigation is “an anomaly” compared with way other U.S. financial regulators operate and “protects the bad apple,” Doty said. Auditors should be under the same disciplinary scrutiny as registered broker-dealers.

BUDGET INCREASE

Sept. 22: PCAOB Chairman Doty requested an increase in its budget for 2017. The PCAOB, which oversees audits and auditors of public companies and broker-dealers, received $257.7 million to fund operations in 2016 (12 APPR 06, 3/25/16)

The increase, which is subject to SEC approval and paid with fees, would go toward cybersecurity and facilities upgrades, inspects, and cost of living and salary increases, Doty told the House Financial Services Capital Markets Subcommittee.

ENFORCEMENT: RISK ASSESSMENT  

Sept 23: Helen Munter, director of PCAOB’s Division of Registration and Inspections, said Sept. 22 at the American Law Institute's Accountants Liability 2016 conference in Washington that “risk assessment may be the new internal controls over financial reporting.”

Auditors should test both high and low risk areas when they are evaluating issuers financial statements for the potential for material misstatement. Without testing in the areas of lower risk, auditors may be found deficient by the PCAOB inspections staff, Munter told attendees.

CROSS BORDER AUDITS 

Sept. 23: Claudius Modesti, director of the PCAOB’s Enforcement division told attendees at the ALI conference that cross-border audits are highest priority and the principal auditor is responsible for foreign affiliates’ compliance and production of documents.  

Sept. 23: Oversight functions—such as improper alteration of documents—and quality control issues remain at the top of the problem list, Modesti said. He urged firms to stop allowing late archiving of work papers after 45 days as that opens door to misconduct.

Sept. 28: Capital Markets and Government Sponsored Enterprises Subcommittee Chairman Scott Garrett (R-N.J.) introduced H.R. 6251 bill to make PCAOB proceedings open once the PCAOB has formally brought disciplinary action against an auditor of a publicly traded company.

Garrett said at a Sept. 22 hearing of his subcommittee that he couldn't find a “good reason why an enforcement proceeding against an auditor should be treated any differently than a proceeding against a broker-dealer or an investment adviser.”

PCAOB chairman Doty said at that hearing that he agreed with the thrust of the proposed legislation. 

The dwindling number of legislative days in the current Congress make chances of enactment remote.

American Institute of Certified Public Accountants

Sept. 29: The AICPA’s Center for Audit Quality Main Street Investor Survey found that investors’ confidence in audited financial reports is the strongest since 2007. Highest approval ratings went to independent auditors at eighty-one percent, then audit committees at 77 percent. Investors rated congress the lowest at 34 percent followed by government regulators at 54 percent.

Cindy Fornelli, executive director of CAQ noted that millennial voters expressed more confidence in the capital markets than the baby boomer generation and that men expressed more confidence than women.

     

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

 

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