The Financial Accounting Standards Board
CLARIFYING DEFINITION OF A BUSINESS
Jan. 5: The Financial Accounting Standards Board issued a new Accounting Standards Update: ASU No. 2017-01: Business Combinations (Topic 805): Clarifying the Definition of a Business, that will especially affect real estate, biopharmaceuticals, and oil and gas companies defining a business. Companies and auditors have voiced concern that many transactions recorded as business acquisitions are more like asset acquisitions. FASB Chairman Russell Golden said that “the new standard addresses this by clarifying the definition of a business while reducing the cost and complexity of analyzing these transactions.”
PROPOSED ASU: INVENTORY
Jan. 10: FASB proposed a new ASU: Inventory (Topic 330): Disclosure Framework: Changes to the Disclosure Requirements for Inventory.
Manufacturers and retail companies like Walmart, Target and others would provide more details in their financial statement notes about inventory they hold. The proposed revisions would enable investors to better assess companies’ inventory changes and cash flow prospects. Currently, there are very little disclosures required for inventory under generally accepted accounting principles.
PROPOSED ASU: DEBT
Jan. 10: Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current Versus Noncurrent). This is supposed to be provide a less costly, simpler way for companies to determine whether to classify debt as due in the near term—meaning current—or long term—noncurrent—in a classified balance sheet.
Debt companies carry can total billions in dollars and can weigh on a corporation's profits. The rules would provide investors and other financial statement users with more useful information about debt.
For some companies the proposed changes could require them to reclassify short-term debt as a current liability if they've refinanced the debt on a long-term basis after the balance sheet date, according to the proposal.
The American Institute of CPA’s
Jan. 4: The American Institute of CPA’s issued the first edition of its on-line audit and accounting guide for revenue recognition. It offers general guidance on revenue reporting changes and specific how-to advice and financial reporting examples on asset management and aerospace and defense.
The group plans to publish draft guidance on revenue reporting, with a focus on other sectors in its 16-item industry list, on the first day of each month in 2017.
The effective date of the revenue accounting standard for public companies is January 2018.
ETHICS EXPOSURE DRAFT
Jan. 9: The AICPA’s professional ethics division issued an exposure draft with guidance for accountants to address pressure to knowingly insert misleading information into financial statements or records.
FAIR VALUE CREDENTIAL
Jan. 10: Investors, auditors and regulators may have more confidence in the determination of fair value measurement in financial statements thanks to the unveiling of a new uniform Certified in Entity and Intangible Valuations (CEIV credential to launch in the U.S.
The AICPA, the American Society of Appraisers (ASA) and the Royal Institution of Chartered Surveyors (RICS) collaborated to create this uniform standard for valuation specialists, pricing service firms, appraisers or CPAs who perform business valuations.
The Securities and Exchange Commission
Jan. 4: President-elect Donald Trump announced Jan. 4 that he will nominate Jay Clayton, currently a law partner at Sullivan & Cromwell LLP, to head the Securities and Exchange Commission. Clayton would replace Mary Jo White, if he is confirmed by the Senate. The Democrats fear that Clayton will favor the Wall Street giants he previously represented and assist in the deregulation of many of the Dodd–Frank Wall Street Reform and Consumer Protection Act regulations. The Volcker Rule, which restricts banks’ investments in hedge funds and private equity, is a target of Republicans for legislative rollback, as are provisions dealing with executive pay and corporate disclosure, and the conflicts mineral reporting requirements rule.
See previous blog report: Calling All Financial Regulatory Fortune Tellers: What Would Jay Clayton's Policy Be?
Bloomberg reporter Ben Bain reported that Clayton’s political leanings are unclear and that voter registration records show him as having no party affiliation.
Jan. 5: Outgoing SEC Chairman Mary Jo White made a policy statement strongly urging Clayton—President- elect Donald Trump’s choice to lead the SEC after her departure—to “build on our past efforts” to fully integrate the U.S. Generally Accepted Accounting Principles (GAAP) and international financial reporting standards. This “is imperative for the protection of U.S. investors and companies and the strength of our markets,” she said.
White’s statement seems in contradiction to the expected direction expressed in a Dec. 5 statement by SEC chief accountant Wesley Bricker. He said that the agency wouldn’t be taking any action anytime soon on adoption—or even some form of informal use—of rules issued by the International Accounting Standards Board.
FAILURE OF INTERNAL CONTROLS
Jan. 11: Defense contractor L3 Technologies Inc agreed to pay $1.6 million, without admitting or denying fault, to settle SEC charges that it didn’t have proper internal accounting controls in place resulting in improper revenue recognition. (In re L3 Technologies, Inc., SEC, Admin. Proc. File No. 3-17769, 1/11/17).
Some L3 employees told the contractor’s ethics department about concerns they had with the company’s accounting, according to the SEC. But ethics investigators didn’t find anything wrong, in part due to their failure to “adequately understand the billing process involved and their misinterpretation of statements made by witnesses,” the SEC said.
HOUSE PASSES COST-BENEFIT RULES
Jan. 12: H.R. 78, a bill to require the SEC to conduct more rigorous cost-benefit analysis in its rulemaking, passed the House 243-184, mostly along party lines. The increased scrutiny would also apply to rules by the Public Company Accounting Oversight Board, Municipal Securities Rulemaking Board and the Financial Industry Regulatory Authority.
The bill calls for the SEC to reassess all of its rules every five years to determine if they are “outmoded, ineffective, insufficient, or excessively burdensome” and alter them if that is the case.
INADEQUATE ACCOUNTING CONTROLS
Jan. 18: General Motors Co. will pay a $1 million penalty to settle charges with the SEC that inadequate internal accounting controls prevented the automaker from determining the potential financial impact of a deadly ignition-switch defect. GM.recalled 2.6 million U.S. cars with a switch defect in 2014.
INTERNATIONAL ACCOUNTING HIGHLIGHTS
The International Financial Reporting Standards Foundation
Jan 5: The IFRS Foundation, which supervises the standard setting of the International Accounting Standards Board, might consider moving overseas from London, a representative told Bloomberg BNA correspondent David Jones.
The foundation is considering options for moving from its current offices in London, where it has operated since its founding in 2001, although its preference is to remain in London, according to spokesman Mark Byatt Jan. 6.
“As an international organisation, it is prudent for the IFRS Foundation to consider all possible locations when reviewing our office requirements,” Byatt said in an e-mail response.
PROPOSED ANNUAL IMPROVEMENTS
Jan. 12: The International Accounting Standards Board’s proposed annual improvements would clarify the interaction of two standards in accounting for long-term interests in certain associates or joint ventures by amending IAS 28:
•IFRS 9: Financial Instruments, and
• International Accounting Standard 28: Investments in Associates and Joint Ventures.
By revising IAS 28, IASB would make clear that IFRS 9 covers only those interests to which the equity method is applied.
The other measures would amend:
• IAS 12: Income Taxes to address the income tax impacts of payments on financial instruments classified as equity; and
• IAS 23: Borrowing Costs to take into account borrowing costs that are eligible for capitalization.
FOREIGN CURRENCY, DEPRECIATION OF ASSETS
Jan. 12: The Russian Finance Ministry moved to approve new standards and amendments, based on International Financial Reporting Standards that govern accounting for assets and liabilities in foreign currencies, as well as depreciation of assets.
Jan. 17: The Australian Accounting Standards Board issued a consultation document that proposes narrow-scope amendments to three international accounting standards mirroring the ones issued by the IASB Jan. 12.
Jan. 18 : In a post-implementation review of its fair value standard IASB found that most constituents thought it is working well, but the board said it will continue assessing it.
AU DITING HIGHLIGHTS:
STANDARD-SETTING AGENDA REVISION:
Dec. 31: The Public Company Accounting Oversight Board posted a revised standard setting agenda. The release date for the final standard auditor’s reporting model has been pushed back for release until the end of the Ist quarter 2017 rather than by the end of 2016, as previously estimated in the September agenda.
The auditing accounting estimates, including fair value measurements proposal has been pushed back from the first quarter to the second quarter as has the proposal for the auditor’s use of the work of specialists.
INTERNATIONAL AUDITING HIGHLIGHTS
AUDIT COMMITTEES: U.K.
Jan. 11: The U.K. Financial Reporting Council found that 97 percent of FTSE 350 companies in 2016 adhered to the U.K.’s minimum provisions for audit committee composition—individuals with “a range of skills, experience, knowledge and professional qualifications to meet the requirements” of the U.K. Governance Code. This was the same percentage as in 2015.
Ninety three percent of FTSE small-capitalization and fledgling companies achieved the targets for audit committee composition, down slightly from 94 percent the previous year.
Though most large companies fulfilled requirements for audit committee membership, many fell short on audit retendering—a company’s periodic, fresh solicitation for audit services—which ranked among the top 10 areas of non-compliance with the code.
Composed and Compiled by Laura Tieger Salisbury, Accounting Policy and Practice reporter and editor.
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