Accounting and Auditing Highlights Feb. 3 - Feb. 24, 2017


ACCOUNTING HIGHLIGHTS:

The Financial Accounting Standards Board

HEDGE ACCOUNTING

Feb. 15: The Financial Accounting Standards Board moved forward on its improvements to hedge accounting rules voting that  private companies that use derivatives to offset risk of financial loss should have a simpler process for documenting transactions that qualify for a business-friendly form of deferral accounting,.

The tentative decisions by the Financial Accounting Standards Board are part of its project to make targeted improvements to hedge accounting rules, which defer the booking of gains and losses. FASB hopes to issue a final standard in the second half of this year

Feb 22: FASB issued Accounting Standards Update 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets  (Subtopic 610-20). This means that companies in the real estate sector and others may have to change how they account for partial sales of nonfinancial assets, according to new FASB guidance.

Uncertainty arose following the issuance of the new revenue standard, Revenue from Contracts with Customers ASC 606, which replaces industry specific guidance. Some gaps were left in accounting that required more clarification. This ASU clarifies that gain recognized from partial sales is required only if the entity isn't consolidated. ASU No. 2017-05 has the same effective date of Jan. 2018 as the revenue recognition standard, but early adoption is allowed.

The Securities and Exchange Commission :

SMALL- BUSINESS ADVOCATE OFFICE

Feb 15: The Securities and Exchange Commission agency's interim leader, Piwowar said at a meeting of the SEC Advisory Committee on Small and Emerging Companies.

The commission will begin its search for a head for the Office of the Advocate for Small Business Capital Formation “in the near future,” he said. The new position was created by the SEC Small Business Advocate Act, which became law in December 2016.

March 1: The SEC announced that it will hold an open meeting to consider seeking comment on “possible revisions to statistical and other disclosures” for regulated financial-services firms. The SEC is currently acting as a two person commission with Acting Chairman Piwowar and Democratic Commissioner Kara Stein.

DODD- FRANK DISCLOSURE REPEAL

Feb. 8:  A leaked conflicts minerals executive order by President Donald Trump could waive the rule for up to two years, if he determines that it is in the national security interests of the U.S. based on the instability in the region. The order calls on the Secretary of State and the Secretary of Treasury to review ways to break the connection between the armed groups in the DRC and mining and trading of these minerals and within six months, to submit a plan to address these problems.

Feb. 14: President Trump signed a congressional resolution to repeal an SEC disclosure rule that was called for in the 2010 Dodd-Frank Act to overturn a rule that would have forced oil, gas and mining companies to disclose payments to foreign governments.

Backers of the SEC regulation say forcing companies to disclose foreign payments would curb corruption in resource-rich countries, such as Nigeria. The oil industry says the rule would put U.S. companies at a competitive disadvantage compared to state-run enterprises, such as Saudi Aramco, which are not subject to the disclosure rules.

Some of the industry's biggest players, including BP Plc and Royal Dutch Shell Plc., are already required to report taxes, bonuses and other payments to foreign governments, per anti-corruption rules adopted by the European Union and the U.K.

FINANCIAL REGULATIONS

Feb. 10: The Federal Reserve announced that Daniel Tarullo will step down as regulator of Wall Street banks.

The American Institute of CPA’s

GOING CONCERN GUIDANCE

Feb. 22: The AICPA issued Statement on Auditing Standards (SAS) No. 132, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern superseding  SAS No. 126 that had the same title and takes effect for financial reporting periods ending on or after Dec. 15, 2017.

AICPA issued this guidance partly to align its standard with FASB’s and the Governmental Accounting Standards Board’s going concern standards.

The guidance provides that auditors should check to see if their client's management has evaluated the company’s chances of remaining a going concern. If management has, the auditor should discuss the evaluation to see if management has identified any condition or events that might threaten the entity's ability to continue. If management has identified any threats to continuation, auditors should inquire how management plans to address them.

Auditors should “remain alert” during the audit for “evidence of conditions or events that raise substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time,” the guidance says but also doesn’t expect auditors to be fully aware of what future conditions a client might face that could bring into doubt its ability to continue as a business.

INTERNATIONAL ACCOUNTING HIGHLIGHTS

CYBER SECURITY RISKS

Feb. 6 : Deloitte LLP.’s survey showed that only five percent of large U.K. companies said their boards include directors with expertise in information technology or cyber security, even though the vast majority identified hacking and other digital threats as serious risks.

“With the pervasive nature of technology and the focus on cyber risk it is alarming that only one in 20 boards disclose that they currently have board members with specialist technology or cyber background,” said Phil Everson, head of cyber risk services at Deloitte. Deloitte said the most common cause of company data breaches are a firm's own employees.

FINANCIAL STATEMENTS

Feb. 13: Russia's Supreme Court ruled against a business in a legal dispute involving an insurance's company's failure to submit its financial statements along with the tender bid.

The Russian Supreme Court —in Ruling No. 304-KG16-20028—upheld the decisions of the anti-trust authority and lower courts that companies must submit their financial statements to compete for procurement tenders for government contracts.  

AUDITING HIGHLIGHTS

CROSS-BORDER AUDITS 

Feb 9: The Public Company Accounting Standards Board fined EY Indonesia $1M as a civil penalty in the U.S. audit watchdog's promised crack-down on “big four” cross-border audit failures.

“Wherever located, all audit firms that elect to register with the PCAOB must ensure that they and their personnel comply and cooperate with PCAOB inspections and investigations.” PCAOB Chairman James R. Doty said.

In 2011, the U.S. based EY partner performing a review of the Indonesian telecommunications company told the overseas engagement partner that he did not believe the company had provided sufficient evidence to support the accounting for more than 4, 000 leases for spaces on cellular towers.
Despite this objection, the regional professional practice director authorized the engagement partner to release the audit report.

Claudius Modesti, division of enforcement and investigations director, has repeatedly warned audit firms that document integrity is the key to a reliable audit. He also said that turning work papers in at the same time as the audit report is essential.

The PCAOB staff found that before a 2012 inspection of the audit, the Indonesian engagement team improperly created dozens of new audit work papers in violation of PCAOB rules.

Modesti said that “In their haste to issue audit reports for their client, the firm and two partners shirked their fundamental duty to obtain sufficient audit evidence.” Matters were made much worse when EY Indonesia and the engagement partner did not cooperate with the Board's inspection and investigation,“ he said.

“The conduct at issue here goes against EY's Global Code of Conduct, culture, values, policies and training,” John La Place, EY Associate Director told Bloomberg BNA..

EY settled the case without admitting or denying the allegations.

 

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

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