The Financial Accounting Standards Board
May 10: TheFinancial Accounting Standards Board issued Accounting Standards Update 2017-09—Compensation—Stock Compensation (Topic 718): Scope of Modification- which changes the terms or conditions of a share based payment and requires a company to apply ‘‘modification accounting’’ in its share-based payment.
May 16: FASB issued Accounting Standards Update 2017-10—Service Concession Arrangements (Topic 853): Determining the Customer of the Operation- the grantor of the service-should be accounted for as the customer and not as a user of toll roads and other infrastructure-meaning a third party user-in operating agreements that companies have with the governments.
Governmental Accounting Standards Board
May 15: The Governmental Accounting Standards Board issued Statement No. 86, Certain Debt Extinguishment Issue effective for periods beginning after June 15, 2017.
The guidance provides reporting clarity about transactions in which cash and other monetary assets acquired with only existing resources are placed in an irrevocable trust for the sole purpose of extinguishing debt prior to its maturity.
The Securities and Exchange Commission
May 8: SEC Staff Accounting Bulletin No. 74 requires companies to disclose in their filings whether they expect the impact of the new rules, Accounting Standards Codification 606, Revenue from Contracts with Customers, to be material.
Companies providing transition disclosures in their 10-K and 10-Q filings to indicate the impact of new revenue recognition rules should also consider whether there has been a material impact on the related footnote disclosures, stated Sylvia Alicea, professional accounting fellow in the SEC’s office of the chief accountant, at a co-hosted Deloitte and Bloomberg BNA revenue recognition conference.
May 12: IRS official asked practitioners for feedback on their proposed guidance about how to request an accounting method change related to adoption of FASB’s revenue recognition rules. The proposed IRS Notice 2017-7 provides guidance for when the change is made for the same year for which the taxpayer adopts the FASB’s new financial accounting revenue recognition standards. In the notice, the IRS said it realized that “adoption of the new standards may create or increase differences between financial accounting and tax accounting rules.”
INTERNATIONAL ACCOUNTING HIGHLIGHTS
May 5: International Financial Reporting Standard 9: Financial Instruments, that comes into force for accounting periods starting on or after Jan. 1, 2018, makes critical changes in classifying and measuring financial instruments—in particular, a shift from IAS 39’s impairment model based on incurred losses to IFRS 9’s impairment model, which must reflect expected losses.
“There is a real concern in the banking and financial services industry that at least in some cases they may be pushing water uphill in terms of their preparedness,” said Brendan Sheridan of Deloitte Ireland in an analysis posted on the Chartered Accountants Ireland web site.
May 11: IASB appointed Jianqiao Lu, director of the accounting regulatory department at the Chinese Ministry of Finance, as a board member for an initial five-year term starting in August.
MEMORANDUM OF UNDERSTANDING
May 15: The IFRS Foundation and the World Bank signed a memorandum of understanding (MoU) to promote greater IFRS use in developing countries by strengthening cooperation between the two organizations.
UKRAINE: FINANCIAL REPORTING
May 15: The Ukrainian National Bank released a new regulation—aimed at combating terrorism—that requires financial and banking businesses to report information disclosed during the reporting period at the request of foreign financial monitoring or tax authorities.
May 16: The International Accounting Standards Board approved a proposal: International Accounting Standard 28 would be amended to clarify that IFRS 9, including its requirements on impairment, applies to long-term interests in certain associate or joint ventures to which the equity method is not applied. Effective date will be Jan. 1, 2019, as the effective date for the amendments, with earlier application allowed.
May 16: IASB voted to approve a measure to draft an amendment to clarify IAS 12: Income Taxes. Now if a company concludes that it is unlikely a taxation authority will concur with its uncertain tax treatment, the company should incorporate the impact of this uncertainty into its related tax positions, staff said.
A company should use either a method that predicts the most likely result among an array of possible outcomes or, alternately, the expected value approach.
May 18: IASB issued International financial reporting standard 17, Insurance Contracts.
IASB chairman Hans Hoogervorst told Bloomberg BNA that the long-awaited insurance standard will replace the interim IFRS 4 from 2004—that Hoogervorst called “a mixed bag of antiquated reporting provisions and differing national standards.”
The standard aims to require greater clarity in insurers’ financial reporting by making their balance sheets and financial performance more comparable for investors. Insurers have to combine the present value of their future cash flows with a risk adjustment to create fulfillment cash flow.
PROFESSIONAL SKEPTICISM: REVENUE RECOGNITION
May 8: The Public Company Accounting Oversight Board’s deputy chief auditor, Patrick McNamee, told a Deloitte/Bloomberg BNA conference on revenue recognition that auditors must remain independent, exercise professional skepticism, and not capitulate to management's assumptions, especially under the pressure of a new standard.
While the revenue rules have changed the audit rules have not. McNamee referred auditors to Staff Practice Alert No. 10: Maintaining and Applying Professional Skepticism in Audits, which he said was “more relevant and urgent today” than when written in 2012.
May 8: Involve auditors early about applying the new revenue recognition rule to their customer contracts, speakers at the Deloitte/Bloomberg BNA conference advised attendees. John Hollister, chief financial officer and senior vice president of Silicon Labs—a worldwide semiconductor company—said his company develops preliminary views before involving the auditors, then tries to ensure auditor alignment on most points before heading into the audit committee. He said that he expected a debate with his auditor over how Silicon labs would determine transaction price of contracts, where the amount of compensation the company ultimately receives could change depending on different performance outcomes.
May 9: SEC staff is working on proposed changes to an auditor independence rule that is causing mutual funds “substantial practical challenges,” Commissioner Michael Piwowar said.
The regulation bars accounting firms from auditing an entity if they have a loan from another entity that owns 10 percent or more of their client.
Composed and Compiled by Laura Tieger Salisbury, Accounting Policy and Practice reporter and editor.
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