Accounting and Auditing Highlights June- July 2017


 ACCOUNTING HIGHLIGHTS:Acct

The Financial Accounting Standards Board

HEDGE ACCOUNTING

June 7:  The Financial Accounting Standards Board (FASB) plans to change aspects of hedge accounting rules to bring them more in line with how companies manage their risks. The new standard would revise hedge accounting for both financial and commodity risks.

Update: On July 13 Topic 815 on Derivatives and Hedging was released as part of the Accounting Standards Update (ASU) 2017-11.

NON PROFITS

June 7: The FASB moved to clarify what grants and contributions are covered under the upcoming revenue recognition rules (Accounting Standard Codification (ASC 606) and what would remain covered under current accounting rules (ASC 605) on contributions.

CREDIT LOSSES

Jun. 15: The FASB’s Financial Instruments—Credit Losses (ASC 326), issued in June of last year, takes effect, for public companies, on Jan. 1, 2020.

Queries on applying new accounting credit losses rules to troubled debt restructurings, and estimating repayments associated with credit cards requires more research, FASB Chairman Russell Golden said.

CONSOLIDATIONS

June 21: The FASB voted to propose restructuring consolidation guidance—currently in ASC 810—to a new codification number, ASC 812. The board intends for the revisions to make the FASB guidance, particularly portions relating to variable interest entities, easier to understand.

The FASB agreed to issue the proposal in later July or early August for a 45-day comment period.

June 22: The FASB issued consolidations proposal (ASC 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. Private companies should find it easier to determine if they have to consolidate into their balance sheets a separate, common controlled variable interest entity. The FASB’s private company council advised the FASB that applying current VIE guidance to common control arrangements was too costly for private companies.

LEASES

June 21: The FASB said it will propose narrow technical clarifications to sixteen sections of the new lease accounting standard (ASC 842)  to prevent misapplication.

Among the clarifications include: the definition of the phrase “rate implicit in the lease”; subsequent measurement of variable lease payments that depend on an index or rate; and lease term and purchase option.

LEASES: COMPANIES’ CONCERNS

June 22 : John Bober, global technical controller for General Electric’s capital division, told members, at a meeting between the FASB and the Financial Executives International’s financial corporate reporting committee, that companies are concerned their IT systems will not be ready by Jan. 1, 2019 for the transition to IT systems capable of cataloging and tracking leases.

“They're concerned that the systems are not in the proper state, they will not have a good quality control system over financial reporting when they go live on Jan. 1, 2019,” Bober said.

FASB chairman Golden said that companies “need to make sure that they have the IT systems in place in a timely manner.”

American Institute of CPAs

FINANCIAL INSTRUMENTS VALUATION

July 6: The AICPA proposed a framework for certified public accountants (CPA’s) and financial professionals to assist them in valuing complex financial instruments, and to determine the value of mortgage-backed securities, credit default swaps, derivatives and other complex financial instruments.

The guidance will serve as the basis for a new CPA certification that will be launched later this year—Certified in Valuation of Financial Instruments (CVFI), the AICPA said.

The Securities and Exchange Commission

FINANCIAL STATEMENT WAIVER

June 8:  Mark Kronforst, chief accountant of the Securities and Exchange Commission's Division of Corporation Finance, said that the Corporation Finance office may be willing to consider less than three years of prior year financials under certain circumstances.

Rule 3-13 of Regulation S-X of the 1933 Securities Act allows for the possibility of a waiver to file certain financial statements under circumstances that won't harm investors and still convey useful information.

Governmental Accounting Standards Board

PROPOSAL: CERTAIN DEBT EXTINGUISHMENT ISSUES

June 28: The Governmental Accounting Standards Board’s proposal will require state and local governments to comply with the new lease accounting rules, which  eliminate the current distinction between operating and capital leases. All leases will now appear on governmental balance sheets. The guidance is expected to better align the accounting and financial reporting of nonfinancial leasing arrangements with the underlying economics of such transactions.

INTERNATIONAL ACCOUNTING HIGHLIGHTS

INCOME TAXES: IAS 12

June 7:  The International Accounting Standards Board issued a new rule to clarify how companies can determine when they are allowed to recognize a current tax asset or liability if tax laws require that they make an immediate payment on a disputed amount.

“IAS 12 Income Taxes includes requirements on recognition and measurement of tax assets and liabilities, but does not specifically address how

  • to reflect uncertainty” about whether a tax authority will accept a certain tax treatment, the IASB said in explaining the rationale for the new guidance.

In these situations, according to the new rule, an entity should recognize and measure its current or deferred tax asset or liability by applying IAS 12 requirements based on taxable profit or tax loss, tax bases, unused tax losses, unused tax credits, and tax rates determined by applying the interpretation.

AMENDMENT TO IAS 16

June 20:  Under this proposal, the IASB would prohibit companies under international financial reporting standards (IFRS) from deducting the net proceeds that the property, plant and equipment generates from the cost before the asset can operate as management intends. 

The exposure draft's (ED) narrow-scope amendment to International Accounting Standard 16: Property, Plant and Equipment, for instance, would affect how a mining company would account for the sale of products generated from activities necessary to construct a mine.

 “The proposed amendments to IAS 16 are narrow in scope and are expected to mainly affect a few industries, such as the extractive and petrochemical industries,” read the ED.

Comments on the proposal are due by Oct. 19, 2017.

INTERNATIONAL STANDARDS: INSURANCE

June 29: The new IFRS on insurance contracts will bolster global financial stability, IASB Chairman Hans Hoogervorst said at the annual conference in Amsterdam of the IFRS Foundation.

Hoogervorst said that companies’ use of differing accounting practices over the past decade have made it tough to compare insurance companies’ financial statements.

FINANCIAL INSTRUMENTS: LOSSES

June 30: U.K. companies won't have to report expected losses on financial instruments as originally envisioned by the Financial Reporting Council.

As a result, the council won't be issuing a planned exposure draft in the third quarter of 2017 to incorporate into FRS 102 the principles of IFRS 9: Financial Instruments, IFRS 10: Consolidated Financial Statements or IFRS 16: Leases. The council had contemplated incorporating the principles of the expected-loss model of IFRS 9: Financial Instruments and IFRS 16: Leases, into FRS 102 as part of its proposals.  Commentators urged the council to gain more experience with implementing IFRS before it considered whether—and if so, how—to incorporate additional IFRS-based requirements into FRS 102.

AUDITING HIGHLIGHTS:

The Securities and Exchange Commission

June 8:  Auditors should plan their work carefully so deadline pressures for reports don't impede pursuit of accounting mischief, including earnings manipulation, the SEC's top accountant Wesley Bricker urged.

“This may require emphasis in the current and next year's audit cycles as audit engagement teams prepare to audit management's application of the new” generally accepted accounting principles, Bricker said at an annual University of Southern California accounting conference.

Identifying and addressing audit “deadline pressures” are especially important “because manipulation of financial results typically occurs near the end of a reporting period,” he said.

Bricker pointed to the 2018 application of the new revenue standard, the 2019 application of the new rules on leases and in 2020, bigger banks and all public companies shift to the standard on accounting for loan and other credit losses. The latter set of rules represents the biggest change in banks’ accounting in decades, the American Bankers Association said.

INTERNATIONAL AUDITING HIGHLIGHTS

ENFORCEMENT

June 5:   The U.K. Financial Reporting Council has ended its investigation into the role PricewaterhouseCoopers LLP played in auditing U.K. retail giant Tesco plc.

FRC concluded that there isn't a “realistic prospect” that an independent tribunal would issue an adverse finding against PwC LLP or some members of the Institute of Chartered Accountants in England and Wales for their audit of Tesco, the council said.

     

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

Continue the discussion at Bloomberg BNA Accounting LinkedIn.        

 

Rely on expert practitioners for practical guidance and real-world approaches to complex accounting issues with Bloomberg BNA’s Financial Accounting Resource CenterTake a free trial today.