The Financial Accounting Standards Board
NOT- FOR- PROFIT-CONSOLIDATION PROPOSAL
Aug 3: The Financial Accounting Standards Board’s proposal Not-for-Profit Entities—Consolidation (Subtopic 958-810), Clarifying When a Not-for-Profit Entity That Is a General Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity would affirm that a not-for-profit entity that is a general partner would be presumed to control a limited partnership, unless the limited partner is able to exercise substantive kick-out or participating rights.
Situations in which a nonprofit serves as a general partner primarily relate to investments in qualified affordable housing projects established as limited partnerships.
FUTURE AGENDA: CONSULTATION PAPER
Aug. 4: FASB published a consultation paper Aug. 4 to solicit feedback whether to add these topics to its future agenda:
• intangible assets, including research and development;
• pensions and other postretirement benefit plans;
• distinguishing financial instruments with traits of liabilities and equity; and
• reporting performance and cash flows, including income statement, segment reporting, other comprehensive income and statement of cash flow.
CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
Aug. 11: FASB issued a proposed presentation chapter to complete Chapter 7 of Concepts Statement 8, Conceptual Framework for Financial Reporting. This addresses concepts or stipulations it would use to determine presentation requirements—how line items, totals and subtotals should be displayed in financial statements.
The proposed, nonauthoritative concepts are part of FASB’s work to develop chapters that aren't complete in its conceptual framework
The Securities and Exchange Commission
Aug. 8: The Securities and Exchange Commission handed KPMG LLP executives a harsher punishment on appeal than an in-house judge had given them, over the dissent of Commissioner Michael Piwowar (In re Aesoph, SEC, Admin. Proc. File No. 3-15168, 8/5/16).
The SEC alleged that the John Aesoph and Darren Bennett failed to properly audit TierOne Bank related to financial crisis losses. The agency said that the auditors relied on the bank managers' representations about the fair value of the collateral underlying the loans without sufficient evidence to back up those estimates—and ignored red flags in TierOne's 2008 financial statements and its internal controls.
Administrative Law Judge Carol Fox Foelak originally suspended Aesoph for a year and Bennett for six months, (10 APPR 639, 7/4/14). On appeal, the SEC Commission barred Aesoph from accounting practice for three years and Bennett for two.
SEC’s IN- HOUSE COURTS CONSTITUTIONAL
Aug. 9: The SEC’s in-house courts pass constitutional muster, the D.C. Circuit held Aug. 9 in the leading case challenging whether the agency's administrative law judges are improperly hired in violation of the Raymond J. Lucia Cos., Inc. v. SEC, 2016 BL 256510, D.C. Cir., No. 15-1345, opinion 8/9/16.
Judge Judith W. Rogers, D.C.’s first federal appeals court to rule on the issue, held that because administrative law judges don't issue “final” decisions on behalf of the agency, they can't be considered officers subject to the Appointments Clause of the Constitution and its restrictions on employment.
Aug. 9: The SEC's interim chief accountant Wesley Bricker told companies that they should heed the guidance of the Transition Resource Group for Revenue Recognition.
“Ignore them at your peril,” Bricker said at the American Accounting Conference in New York, reported Bloomberg BNA correspondent Steve Burkholder.
Thousands of commercial and non-commercial enterprises worldwide will start to apply the new revenue rules in 2018 with a big impact on companies in such sectors as media and entertainment, telecom, and aerospace and defense.
INTERNATIONAL ACCOUNTING HIGHLIGHTS
Aug 9: Hungarian companies wanting to adopt the international financial reporting standards as of Jan. 1, 2017 have until Sept. 30 to demonstrate their readiness to do so.
IFRS reporting is already mandatory, as of Jan. 1, 2016, for companies whose securities trade on any regulated market of the European Union. It is optional, also as of Jan. 1 2016, for companies whose ultimate parent company already consolidates financial statements under IFRS and also for companies entering into concession agreements, according to Ernst & Young Hungary.
Aug. 11: The Russian Finance Ministry issued an Order that authorized implementation of international financial reporting standard 16: Leases, and described how businesses should recognize, measure, present and disclose leases. The ministry also issued amendments to international accounting standard 12: Recognition of Deferred Tax Assets for Unrealized Losses and IAS 7: to assist users of financial statements to evaluate changes in liabilities arising from financing activities.
Aug. 8: $5.5 Billion case began in Miami against PricewaterhouseCoopers LLP for its failure to detect a fraud that led to the collapse of Taylor Bean- a Florida mortgage company- and Colonial Bank, an Alabama bank that held securitized assets pegged to the mortgage firm's loans (Taylor Bean & Whitaker Plan Trust v. PricewaterhouseCoopers LLP, Fla. Cir. Ct., 2011-030967 CA 01, 8/1/16).
Taylor Bean, once the 12th-largest U.S. mortgage lender, collapsed after federal regulators uncovered in 2009 a $3 billion scheme involving fake mortgage assets. Taylor Bean and Colonial went bankrupt. The bankruptcy trustee sued in 2013 seeking $5.6 billion in damages. Six Taylor Bean executives were convicted and jailed for their roles in the fraud, including former chairman Lee Farkas, who was sentenced to 30 years in prison.
Aug. 9: A lawyer for the lender's bankruptcy trustee told a Miami jury that PwC negligently failed to spot for seven years a multibillion fraud that led to the demise of Taylor Bean & Whitaker Mortgage Corp.
“Year after year, Pricewaterhouse didn't do their job, they didn't follow the rules and they failed to detect the fraud,” Steven Thomas, an attorney for the trustee, said in opening statements, according to Bloomberg reporters Susannah Nesmith in Miami and Sophia Pearson in Wilmington, Del.,.
PwC maintained it complied with auditing standards in the Taylor Bean case and accused the mortgage issuer of being responsible for its own losses.
“Remember, Taylor Bean's owner and half of its board of directors were criminals,” Beth Tanis, an attorney for the accounting firm, told jurors. “They didn't rely on Pricewaterhouse's audit report because they knew about the fraud they were committing.”
INTERNATIONAL AUDITING HIGHLIGHTS
Aug. 8: Some of the challenges U.S. audit firms face when conducting multinational audits stem from culture and language differences of a foreign jurisdiction, according to an American Accounting Association panel discussion in New York, as reported by Bloomberg BNA correspondent Denise Lugo.
Challenging or questioning a superior isn't part of normal practices in some foreign restrictions, said panelists. In an auditing environment where skepticism is important, this adds complexities and would likely have an impact on audit quality, panelists from EY, Grant Thornton and Brigham Young University said about the challenges of auditing in a global environment.
Aug. 9: Chinese firms listed in the U.S. stock exchanges— through a reverse merger—report less effective internal controls than their U.S. based counterparts, according to a panel discussion at an American Accounting Association conference, as reported by Bloomberg BNA’s accounting editor Xing Gao.
Chinese researchers' studies indicate that a strong internal control based on the U.S. standards is not the highest priority of Chinese firms listed in the U.S.
Compliance with U.S. norms isn't a high priority of foreign investors who don’t feel part of the “in” group, according to Ineffective Internal Control Reporting by Chinese U.S. Listed Firms, by Biddle and Michelle Lowry from the University of Hong Kong, Raymond Baker from Xiamen University.
Richard Macve, an attendee from the London School of Economics and Political Science, said, “The ‘Big Four’ accounting firms are not among the most used audit firms. It doesn't necessarily mean that the audits conducted by the local firms produce lower quality audits. However, it's much harder to hold local firms liable than ‘Big Fours’ when there is something wrong. Therefore, the local audit firms have less incentive to pursue higher audit quality.”
Composed and Compiled by Laura Tieger Salisbury, Accounting Policy and Practice reporter and editor
Continue the discussion at Bloomberg BNA Accounting LinkedIn.
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