Accounting and Auditing Highlights: Jan. 30-Feb. 3, 2017


ACCOUNTING HIGHLIGHTS:

The Financial Accounting Standards Board

Feb. 1: The Financial Accounting Standards Board approved issuing a new rule that will allow investment banks, insurers, and others with debt securities held as investments to avoid recording a loss when a premium bond is called earlier than its maturity date. The amortization period would be shortened to the earliest date the bond could be called.

REGULATIONS

Jan. 30: President Donald Trump issued an executive order reducing regulation and controlling regulatory costs requiring federal agencies to identify at least two rules to be repealed for each new rule created. The order doesn’t apply to military, national security, and foreign affairs functions. Nor does it apply to independent regulatory agencies such as the Securities and Exchange Commission or the Public Company Accounting Oversight Board—a private-sector, nonprofit corporation created by the Sarbanes–Oxley Act (SOX) of 2002. Before 2002, auditors were self-regulating. Since 2010, the PCAOB also oversees the audits of broker-dealers. The SEC must approve all the PCAOB’s rules and standards.

Subject to congressional oversight, independent regulatory agencies fall within the Executive Branch of government but generally have more autonomy than federal agencies such as the Department of State that are headed by cabinet members and report directly to the President.

Feb. 1: The House voted to revoke a Securities and Exchange Commission disclosure rule for oil, gas and mining companies, part of the Republican agenda to roll-back portions of the dismantling the Dodd–Frank Wall Street Reform and Consumer Protection Act—signed into federal law by President Barack Obama in 2010—after the 2008-2009 financial crisis. The revocation measure was proposed under the Congressional Review Act, which allows a new session of Congress to undo some executive actions from the previous session.

The rule, that was set to take effect in 2018, requires companies to disclose payments they make to foreign governments to develop natural resources. It was required by Dodd-Frank and has been vigorously contested since its inception. Votes mostly split across party lines as the House passed a resolution, 235-187, to disapprove the SEC’s rule.

Oil and gas producers such as Exxon Mobil Corp. and Chevron Corp. have pushed back against the SEC's reporting rule over concerns about competition. But peers BP Plc and Royal Dutch Shell have already reported more than $150 billion in payments to governments of more than 100 countries under similar disclosure regimes in Canada and Europe, according to the Natural Resource Governance Institute.

“Investors are just starting to get this information,” Freeman, a former State Department official, told Bloomberg BNA reporter Andrea Vittorio. Without the U.S. rule, investors may be left with incomplete and inconsistent payment reports.

Feb. 3: President Trump signed an executive order—fulfilling a campaign promise—to begin a review of the 2010 Dodd-Frank Wall Street reform regulations that he earlier called a “disaster.” The order directs the Treasury Secretary to consult with regulatory agencies and the Financial Stability Oversight Council and report back to the president about how to fix it.

Rep. Jeb Hensarling (R-TX), chairman of the Financial Services Committee, is expected to unveil his modestly revamped Financial Choice Act this month legislation this month to overhaul Dodd--Frank, according to a statement made by Rep. Sean Duffy (R-Wis.) Jan. 31 at a U.S. Chamber of Commerce event.  

The Governmental Accounting Standards Board

FIDUCIARY ACTIVITIES

Jan. 31: The Governmental Accounting Standards Board released GASB Statement No. 84 to end different accounting by government entities on identifying a fiduciary activity and the reporting of such activities.

A fiduciary is responsible for prudently investing the money in a trust or other fund for the benefit of the beneficiary of the trust or fund.

Governments are required to report fiduciary activities in fiduciary fund financial statements. The standard spells out, among other things, when liabilities to beneficiaries should be recorded.

The GASB standard is effective for financial- reporting periods starting after Dec. 15, 2018. The board encourages earlier application.

State and local governments now have clearer guidance on how to identify and treat fiduciary activities in their financial reporting.

American Institute of CPAs

REVENUE RECOGNITION

Feb. 1: The AICPA’s Financial Reporting Executive Committee (FinREC) released two working drafts of accounting issues related to complicated questions of implementation for the software and the insurance industries. The AICPA is requesting Informal feedback informal feedback on the implementation issues for insurance and software industries by April 3, 2017.

Many contracts,—not only insurance contracts—that fall within the scope of Topic 944, Financial Services  won’t fall under the new revenue recognition rules, according to the working draft.

Topic 944 covers life and health insurance; property and liability insurance among others. A contract for administrative or other service arrangements without any insurance element should continue to be recognized as a revenue recognition arrangement under Topic 606.

The new rule requires a software company to consider if each of their contracts with customers provide a significant benefit of financing to either party of the contract. The draft gives various examples of when to assess a contract for a significant financing component, and how this changes under circumstances such as when there are multiple performance obligations or when payments are in arrears. The working group concluded that assessing whether the financing component is significant needs only to be made at the contract level—not at the business level, portfolio level, segment level, entity level, or at the performance obligation level. The draft assessed the impact of the implementation issues they considered on the software accounting practices as low. FASB, however, has said that the revenue recognition rules would have a high impact on the software industry.  

INTERNATIONAL ACCOUNTING HIGHLIGHTS

GLOBAL REGULATORY COOPERATION

Jan. 30: Former top U.S. securities and auditing regulators warned about the high cost of the U.S. retreating from tasks of global regulatory cooperation that help ensure smooth working of global markets. “I worry very much about our withdrawal as a country from international organizations that are responsible for making sure that capital markets can work effectively without borders,” Mary Schapiro—former Securities and Exchange Commission chair from 2009 through 2012—said.

INSURANCE

Jan. 31: The International Accounting Standards Board staff presented a paper to the IFRS Foundation—which supervises IASB activities—on whether the forthcoming International Financial Reporting Standard 17 “might give rise to changes to the design and price of insurance products that would affect the insurance products available to policyholders.”

IASB expects to issues IFRS 17 by mid-2017 and to publish the effects analysis as a separate document at the same time.

INTERNATIONAL AUDITING HIGHLIGHTS

DATA ANALYTICS

Jan. 30: The Financial Reporting Council’s study of the six largest audit firms in the U.K. found data analytics have been used with success to uncover fraud; assist auditors in exercising professional skepticism; focus audit testing on areas of greatest risk by breaking down large amounts of data; and strengthen auditors’ communications with audit committees.

The study also found firms’ use of audit analytic tools less widespread, more inconsistent than investors and audit committees expected. The FRC offered firms’ suggestions for boosting the use and quality of analytics, such as limiting ADA development to a small number of analytical tools and launching initiatives for putting them into use.

INSURANCE

Feb. 1: The Financial Reporting Council published revisions to Practice Note 20, guidance for audits of insurers in the U.K. that have to apply European Union requirements for public reporting in the insurance sector—international auditing standards (ISA (UK) 800 and 850—since they became effective in the U.K. Jan. 1, 2017.

The guidance contains instructions on applying the two ISAs to entities offering insurance in the U.K. that are authorized by the Prudential Regulation Authority (PRA), which is part of the Bank of England. It also covers audits of overseas companies that sell insurance in the U.K., as well as Lloyd's syndicates and entities called friendly societies—mutual societies providing such financial services as savings accounts, insurance and pensions plans—with U.K. insurance operations.

   

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

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