Accounting and Auditing Highlights: April 7- April 21, 2017


ACCOUNTING AND AUDITING HIGHLIGHTS April 7- April 21, 2017

ACCOUNTING HIGHLIGHTS:Acct

The Financial Accounting Standards Board

SHARE BASED COMPENSATION EFFECTS

April 18: The Financial Accounting Standards Board simplified in March 2016 various provisions related to how share-based payments are accounted for and presented in a company's financial statements. Many companies award business shares or the right to buy business shares to employees.

ASU No. 2016-09: Compensation--Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. 

This new standard led to Goldman's $475 million tax benefit in the first quarter of 2017, which was included in the company's overall net earnings of $2.3 billion, R. Martin Chavez, Goldman's deputy chief financial officer, said an April 18 conference call to discuss the company's first-quarter earnings.

JPMorgan Chase & Co. reported a benefit of $373 million. Bank of America Corp. got a $222 million increase, Wells Fargo & Co. $183 million, and Morgan Stanley $112 million. Citigroup Inc. wasn't affected.

LIABILITIES, EQUITY

April 19: FASB deliberated possible limited improvements for complex financing and investing arrangements that have traits of both liabilities and equity.

LIFE INSURANCE

April 19: Some of the nation's largest life insurance and annuities companies tacitly approved FASB’s efforts to produce better and more consistent information about the underlying economics of their products. The issue of retrospective or prospective application is one FASB will likely redeliberate, the discussions indicated.

The Securities and Exchange Commission

CONFLICT MINERALS

April 7:  Acting chairman Michael Piwowar said the SEC won’t recommend enforcement actions over companies that fail to comply with the “extensive and costly requirements for due diligence on the source and chain of custody of conflict minerals” in Form SD—the mineral reporting rule.

Piwowar stressed that the previous court decisions had found that some parts of the disclosures are unconstitutional. In January 2017 he had asked the staff to reconsider whether the 2014 guidance was still appropriate and asked for public comments.

Companies such as Intel and Apple have said they will continue to make these disclosures. Other companies’ decisions’ after this filing will be based on supply chain pressure from consumers, investors and each other—not from fear of SEC enforcement.

April 19: Global Witness, an independent, nonprofit group, continues its campaign for enforcement of these rules to end the use of the mineral trade to fund armed conflict in the Congo and surrounding areas.

INTERNATIONAL ACCOUNTING HIGHLIGHTS weirdglobe

INTERNATIONAL LEASING STANDARDS

April 7: An Institute of Chartered Accountants in England and Wales’s spokesman said that there will be significant differences between retailers using IFRS 16 and those who continue to report using U.K. GAAP (Generally Accepted Accounting Practice).

The IFRS leasing standard won't take effect for nearly two years. Nevertheless, auditors warn that it means that financial ratios and performance measures will look very different, and that companies should start to prepare now.

ENFORCEMENT

April 10: The European Markets and Securities Authority (ESMA)—an independent European Union authority that oversees securities markets—said  that national authorities in the European Economic Area brought more enforcement actions on financial statements against more  companies in 2016 than in 2015. ESMA also told companies to weigh the risks arising from Brexit—the UK’s decision to leave the EU—in their financial risk disclosures.

ALTERNATIVE PERFORMANCE MEASURES

April 12: U.K. entities that use alternative performance measures (APMs) should clearly explain why they include them in annual reports, the U.K. Financial Reporting Council said.

Companies use APMs to provide financial results that fall outside international financial reporting standards and, in the U.K., generally accepted accounting practice.

Investors “should expect to see disclosures that give a clear and complete understanding of the APMs presented, how they are calculated and why they are useful,” FRC chief executive Stephen Haddrill said, in an open letter to investors.

FINANCIAL INSTRUMENTS:

April 21: Companies that use international financial reporting standards could tap more options for measuring certain prepayable financial assets under an exposure draft (ED) the International Accounting Standards Board issued.

The proposal recommends tightly-drawn amendments toIFRS 9, IASB's pending standard on financial instruments.

AUDITING HIGHLIGHTS:auditimage

BREACH OF CONFIDENTIALITY

April 9-13: The Public Company Accounting Oversight Board and KPMG are working together to prevent future breaches of conduct that tipped off KPMG LLP about audit inspections and led to KPMG firing six employees April 11, including its chief U.S. auditor.

The PCAOB staff member—no longer at the board—leaked the confidential information to a former PCAOB employee who worked at KPMG.

PCAOB Chairman James Doty in a statement said, “The improper disclosure here was clearly a violation of that code and does not reflect the integrity and honor that the majority of PCAOB employees bring to their jobs every day.”

Lynne Doughtie, KPMG’s chairman and chief executive officer, said the firm is “taking additional steps to ensure that such a situation should not happen again.”

AUDIT ANALYTICS

April 13: A decrease this past year in the number of smaller U.S. public companies led to a slight increase in the top-10 CPA firms’ market share of audits of all public companies, Audit Analytics—a Massachusetts financial reporting research company—has found.

Together, the Big Four firms—along with BDO USA, Grant Thornton, MaloneBailey, Marcum, RSM US and Crowe Horwath—audit 3,985, or more than 61 percent of the 6,460 companies that file financial statements with the SEC, according to the Audit Analytics’ survey.

The contraction in the number of smaller companies helped the top 10 firms that audit public companies increase their total market share, the survey found.

The American Institute of CPAs

EMPLOYEE BENEFIT PLAN AUDITSdolsmall

April 20:The American Institute of CPAs’ Auditing Standards Board proposed improvements to the quality of financial statement audits of employee benefit plans subject to The Employee Retirement Income Security Act (ERISA) of 1974, also known as the Pension Reform Act.

Auditors will no longer be able to issue disclaimers and will have to file an extra report about whether the plan's provisions were followed if the April 20 proposalis adopted.

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

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