Accounting and Auditing Highlights week ending July 14, 2017


ACCOUNTING HIGHLIGHTS:

CONSTRUCTION INDUSTRY

July 11: Potential accounting rule changes to debt classification could result in more debt being determined as current, possibly boosting costs and creating operational issues for the construction industry, according to discussions of the Financial Accounting Standards Board (FASB) and the Private Company Council. FASB earlier this year proposed simpler, less costly rules for determining whether to classify debt as short or long term on the balance sheet.

ACCOUNTING STANDARDS

July 12: State and local governments should disclose bank loans and direct placements separately from other debt, the Governmental Accounting Standards Board proposed. Investors have expressed concern about the potential risk that bank loans, other forms of direct borrowings and private placements can pose to municipal borrowers. GASB proposal would require municipalities to disclose information regarding direct borrowings and direct placements in a separate note in their financial statements.

DISCLOSURE

July 12: The Securities and Exchange Commission is considering new disclosure measures that would improve on the information provided to investors and could ease reporting burdens for companies, suggested Chairman Jay Clayton. In a speech at the Economic Club of New York, Clayton said that the commission, lawmakers and other regulators have “slowly but significantly expanded the scope of required disclosures beyond the core concept of materiality.”

PRIVATE COMPANY REPORTING

July 12: Private company reliance on cloud systems to store data, rather than buying internal software systems themselves, will continue to grow, which will probably require greater accounting clarity on how to record upfront cloud service implementation costs. Rapid technological changes are the forces driving more companies—including small community banks—toward cloud systems despite substantial set-up fees.

CLIMATE CHANGE

July 12: Eleven major banks including Barclays Plc, Citigroup Inc. and UBS AG said they'll seek ways to address the financial risks of global warming, after Bank of England Governor Mark Carney urged investors to act on the threat.

DISCLOSURE

July 13: The nation's largest pension funds and other institutional investors want the Securities and Exchange Commission to make listed companies provide more information on their “human capital.” Improved transparency on issues such as workforce diversity, pay practices and corporate culture could help investors see which companies carry a competitive advantage and which ones face reputational or legal risks. But “human capital is nearly invisible in the commission's disclosure rules,” the group of investors with more than $2.8 trillion in assets said in a recent petition asking the SEC for a new reporting rule.

FINANCIAL INSTRUMENTS

July 13: Companies that issue financial instruments with characteristics of both equities and liabilities will have protection against market-price falls, FASB said. The FASB published amended rules July 13 applying to instruments with “down round” features. These are assets in which a convertible instrument or warrant calls for the strike price to adjust downward based on the pricing of future equity offerings. The new rules will eliminate an earnings impact for stand-alone warrants that include down round features.

CREDIT LOSSES

July 14: Smaller credit unions want the FASB to provide them with relief on the amount and complexity of disclosures and with more implementation guidance on upcoming rules for reporting losses. Credit unions say current disclosure requirements for credit-loss rules are already lengthy and costly. They fear the new rules might add more burdens.

FINANCIAL INSTITUTIONS

July 17: The House Appropriations Committee approved a spending bill that would curb the Consumer Financial Protection Bureau's authority and repeal Volcker Rule limitations on proprietary trading. The spending bill to fund the Securities and Exchange Commission and other financial regulators also includes several dozen policy provisions from the Financial Choice Act, House Republicans’ signature Dodd-Frank Act rollback legislation.

DISCLOSURES

July 19: U.S. accounting rule makers are studying a request by 16 House members for U.S. multinational companies to publicly disclose “meaningful country-by-country” information on foreign and domestic earnings, assets, numbers of employees and taxes paid year by year. The FASB, which writes U.S. accounting rules, has proposed audited disclosure requirements that would require financial reporting on income and income tax expense to be broken down between foreign and U.S. operations.  

TREASURY DEPARTMENT

July 20: President Donald Trump's choice for Treasury assistant secretary for tax policy, David J. Katter, said he regrets not doing more to speak out against Ernst & Young LLP's tax shelter practices while he was at the firm. In 2013, the accounting firm admitted wrongful conduct by some of its partners and employees in connection with the firm's participation in promoting abusive tax shelters used by clients in an effort to defer, reduce, or eliminate tax liabilities.

INTERNATIONAL ACCOUNTING HIGHLIGHTS:

INTERNATIONAL DEVELOPMENTS

July 11: Russia has amended international financial reporting standards to clarify that asset transfers into or out of investment properties should be made only when the use of a property has changed. Russia also amended International Financial Reporting Interpretations Committee 22, which clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency.

DISCLOSURES

July 13: New optional, easier accounting disclosure requirements appear poised to save U.K. lessors and lessees money, according to the U.K.'s Financial Reporting Council (FRC). Following its annual review of U.K. Financial Reporting Standard 101: Reduced Disclosure Framework, the U.K. FRC unveiled amendments to FRC 101 that ease disclosure requirements for International Financial Reporting Standard 16: Leases.

INTERNATIONAL DEVELOPMENTS

July 13: European Banking Authority's (EBA) estimate for increases in bank provisions to cover potential loan losses under IFRS 9 accounting standard is lower than earlier estimated. EBA releases a second assessment of IFRS 9 accounting standards that will require banks to cover potential losses as soon as a loan is made. EBA study is based on data from about 50 institutions across Europe.

INTERNATIONAL STANDARDS

July 18: The pending international accounting standard on insurance contracts will make financial reporting among insurers easier to decipher, investors and other analysts told the International Accounting Standards Board (IASB). International Financial Reporting Standard 17: Insurance Contracts has gained widespread support from investors and analysts, staff said at a meeting in London.

FINANCIAL INSTRUMENTS

July 19: Banks and other entities that manage financial assets containing certain prepayment options could find it easier to implement an international financial reporting standard on financial instruments. The International Accounting Standards Board July 19 gave staff the go-ahead to draft tightly-drawn amendments to IFRS 9: Financial Instruments.

INTERNATIONAL STANDARDS

July 19: German insurer Munich Re has already started gearing up to put into practice the international financial reporting standard on insurance contracts, the company told Bloomberg BNA, coming on the heels of an international financial stability advisory group urging intensified preparation for the rule. “Munich Re is currently preparing for the implementation of IFRS 17,” the company said in a July 18 email response to questions, and is assessing “its impacts on the overall accounting, actuarial and IT systems as well as any business implications.”

INTERNATIONAL DEVELOPMENTS

July 20: Russian authorities have revised the country's accountancy and consolidated financial reporting laws to amend provisions that govern regulations adopted by the Russian Central Bank, as well as the reporting period for the purposes of consolidated financial reporting.

International Auditing Highlights

AUDITOR OVERSIGHT

July 12: U.K. companies and their investors could gain greater insight into the roles of company audit committees and how the committees’ work can be improved under a new U.K. Financial Reporting Council (FRC) project. FRC has launched a pilot project designed to explore how audit committees can increase investors’ confidence in audits.

INTERNATIONAL DEVELOPMENTS

July 14: Large U.K. and Irish companies whose financial statements must be audited have fewer choices than in recent years in selecting an auditor, a study by the U.K. FRC has found. The number of registered audit firms in the U.K. and the Republic of Ireland (ROI) that are authorized to conduct statutory audits—those required by a government agency—continues to drop.

 

 

Composed and Compiled by Gery Brownholtz, Accounting Editor, Bloomberg BNA

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