ACCOUNTING & AUDITING HIGHLIGHTS WEEK ENDING SEPTEMBER 29, 2017


 

ACCOUNTING HIGHLIGHTS:

 

CREDIT CRUNCH

 

September 25: Companies that hold large amounts of debt could see working capital dwindle after applying proposed debt classification rules. The changes could require companies to classify more debt as current after certain loans have been refinanced. This could reduce reported working capital, which is often used by analysts to help assess a company's operating cycle and liquidity needs. Click here to see the full story (Subscription required).

 

DISCLOSURE

 

September 25: The Securities and Exchange Commission (SEC) has issued guidance meant to make it easier for companies to disclose the pay gap between top executives and typical workers. The guidance offers advice on issues such as how to determine which employees to count toward determining a median, or middle, worker's pay. Click here to see the full story (Subscription required).

 

September 26: The summary annual report for defined contribution plans—mostly 401(k) plans—is required to be sent out to participants each year by September 30, but lately employers are questioning what value it provides their workers. Much of this information is now available online, or duplicated in other disclosures that provide participants information that's more specific to their plan account. Click here to see the full story (Subscription required).

 

CLIMATE CHANGE

 

September 26: The insurance industry faces a dilemma when it comes to climate change: fundamentally, companies understand the risk natural disasters intensified by climate change can pose, but they see relatively little risk to their business in the near future. However, the industry faces a long-term challenge to maintain market share in areas that could become increasingly harder to insure as climate change makes natural disasters more severe and more frequent. Click here to see the full story (Subscription required).

 

EARNINGS REPORT

 

September 25: General Electric Co.’s cost-cutting plan is claiming a high-profile victim: the company's corporate-jet fleet. Under new Chief Executive Officer John Flannery, the manufacturer is turning the page on an era when it would hand top bosses the keys to its private aircraft. Flights will be scaled back and replaced as needed by charter services. GE said it intends to sell the jets. Flannery is considering all options as he seeks to shore up earnings and reverse this year's biggest stock slide on the Dow Jones Industrial Average. Click here to see the full story (Subscription required).

 

CYBERSECURITY

 

September 26: Following record results that flagged the growth of its cyber security business, Deloitte LLP has revealed that it has been successfully targeted by a cyberattack that let hackers access data from an internal email platform. The auditing and consulting firm is currently informing the clients affected and has notified governmental authorities after it became aware of the incident. Click here to see the full story (Subscription required).

 

September 26: The SEC hails its database of company filings as an innovation that's dramatically boosted corporate transparency. But a hack that led to the theft of market-moving secrets is the latest sign that technology also brings dangers the SEC is struggling to combat. The cyberattack could cast doubt on the SEC's ability to safeguard data that fuels billions of dollars in daily financial transactions. Click here to see the full story (Subscription required).

 

September 27: The SEC said that it will build up its Enforcement Division with the creation of a Cyber Unit and a Retail Strategy Task Force. The Cyber Unit will focus on market manipulation schemes involving false information, hacking to obtain confidential information, violations involving distributed ledger technology and initial coin offerings, misconduct carried out using dark web intrusions into retail brokerage accounts, and cyber-related threats to trading platforms and other critical market infrastructure. Click here to see the full story (Subscription required).

 

September 27: The SEC told government cybersecurity officials about a hack into its database of corporate filings soon after it happened last year, but months before the agency's new chairman made the breach public. Since disclosing the incident, Jay Clayton has come under mounting pressure to provide additional details about intrusion into the Edgar system that may have led to illicit trades. Click here to see the full story (Subscription required).  

September 27: SEC Chairman Jay Clayton faced criticism from both sides of the political aisle over his agency's handling of a 2016 cyberattack that may have allowed hackers to profit from trading on nonpublic information. Senate Banking Committee Chairman Mike Crapo (R-Idaho) told Clayton that he was disturbed to learn that the SEC had suffered a breach of the Edgar system for corporate filings in 2016, but didn't inform the public until last week. Crapo was followed by Senator Sherrod Brown (Ohio), the panel's top Democrat, who questioned the agency's ability to hold companies responsible in light of its own failings. Click here to see the full story (Subscription required).

 

September 29: The Trump administration opened a new front in its feud with China this week, urging Beijing not to implement a cybersecurity law that would restrict routine data transfers for most U.S. technology companies. The U.S. said China's 2016 Cybersecurity law forces companies such as Amazon.com Inc. and Microsoft Corp. to store their data on servers based in China and subjects them to overly burdensome security restrictions. Click here to see the full story (Subscription required).

 

MERGERS & ACQUISITIONS

 

September 29: The Financial Accounting Standards Board (FASB) may simplify the accounting for intangible assets. The FASB recently said it would consider rules that could reduce cost and complexity for public companies when recognizing and measuring some noncompetition agreements, customer-related intangible assets, and other intangible assets like goodwill. Rules would simplify the determination of which intangible assets go on balance sheets. Click here to see the full story (Subscription required).    

DIGITAL CURRENCY

 

September 29: Wall Street's top regulator has a warning for mom-and-pop investors who are rushing into the booming market for initial coin offerings: the space is probably full of fraud. “It would shock me if you don't see pump-and-dump schemes in the initial coin offering space,” SEC Chairman Jay Clayton said. “This is an area where I'm concerned about what's going to happen to retail investors,” he added. Click here to see the full story (Subscription required).

 

INSIDER TRADING

 

September 26: A California-based consultant to an advertising technology concern traded on inside information about an acquisition offer from a rival company, the SEC alleged. Certified public accountant Justin Samuel Cary, who provided accounting services to Adaptive Medias Inc., made approximately $8,140.25 in illegal profits through trades he made after receiving an unpublished press release from the company's controller regarding the merger proposal, the SEC said. Click here to see the full story (Subscription required).

 

LEASE ACCOUNTING

 

September 27: Pipeline and utility operators, under a new accounting proposal, would have to assess all new or modified land easements to see if they are leases. The FASB proposed the change to the new lease accounting rules to clarify how companies would account for easement transactions. The new rules might force a change in practice. Some companies currently view land easements as leases, others as costs incurred to bring a pipeline to the condition and location necessary for its intended use. Others assess prepaid land easements as intangible assets. Click here to see the full story (Subscription required).

 

AUDITING HIGHLIGHTS:

 

AUDITING

 

September 25: KPMG LLP is coming under increasing pressure in South Africa over work done for the wealthy Gupta family. An influential business lobby group suspended the company's membership and the governor of the central bank said it was concerned that KPMG's internal standard controls aren't of an acceptable quality. Click here to see the full story (Subscription required).

 

DATA ANALYTICS

 

September 26: Emerging data analytics technology promises to detect fraud or other accounting anomalies in financial statements much earlier, thus protecting investors and the capital markets. Sampling of high risk audit areas may become obsolete as technological capacities expand to analyze huge amounts of data, possibly 100 percent of a client's audits, with increased speed, accuracy and reliability. Click here to see the full story (Subscription required).

 

AUDITING STANDARDS

 

September 27: The SEC in October will decide the fate of a proposal to expand the auditor's report that some of the largest U.S. companies oppose. However, investors and accounting firms generally support the Public Company Accounting Oversight Board's (PCAOB) enhanced auditor's report, which will have auditors go beyond the traditional simple pass/fail determination and offer information on what areas of a company's financial reporting kept the auditor and audit committee up at night. Click here to see the full story (Subscription required).

 

INTERNATIONAL ACCOUNTING HIGHLIGHTS:

 

INSURANCE

 

September 25: The United Kingdom (U.K.) plans to thoroughly examine its options in deciding whether to adopt wholly the new International Financial Reporting Standard (IFRS) on insurance contracts as it exits the European Union. The U.K. Financial Reporting Council (FRC) currently is assembling a group of insurers and investors to consult on IFRS 17: Insurance Contracts. The FRC sets and enforces accounting and auditing standards for the U.K. and the Republic of Ireland. Click here to see the full story (Subscription required).

 

September 28: The International Accounting Standards Board (IASB) is launching a series of initiatives to support implementation of its new standard on insurance contracts. The board is taking steps to help insurers and investors prepare for IFRS 17: Insurance Contracts. Insurers are encouraged to take final implementation steps by 2019. Click here to see the full story (Subscription required).

 

September 28: The new international accounting standard on insurance contracts will create significant future costs for insurers, a trade organization representative told Bloomberg BNA. IFRS 17: Insurance Contracts marks a considerable change in insurance accounting that hasn't been tested adequately, Olav Jones, deputy director general of Insurance Europe, said in response to questions. “The implementation cost and effort for it will be substantial,” Jones said. Click here to see the full story (Subscription required).

 

GLOBAL TAX REPORTS  

September 28: The Internal Revenue Service (IRS) is developing a training program for its auditors who will have access to the country-by-country reports (CBCR) filed by U.S. multinationals. “CBCR will be used for high-level risk assessment,” Brian Jenn, an attorney-adviser in Treasury's Office of Tax Policy said.  U.S. multinationals worry reports will mislead auditors. Click here to see the full story (Subscription required).

 

INTERNATIONAL STANDARDS

 

September 25: The U.K. Financial Reporting Council is streamlining and making more efficient its rules outlining best practices for companies listed on the London Stock Exchange. The FRC said it remains on schedule for issuing proposed revisions to its corporate governance code by the end of the year. Click here to see the full story (Subscription required).   

INTERNATIONAL BANKING

 

September 26: After tackling billions of dollars in bad loans, Italian banks are moving on to a somewhat less risky but possibly trickier category of distressed debt as they seek to clean up their balance sheets. “Unlikely-to-pay loans are the next challenge for banks,” said Riccardo Serrini, chief executive officer of the asset manager Prelios Credit Servicing. “They are usually corporate loans, with some sort of real estate collateral.” Click here to see the full story (Subscription required).

 

DERIVATIVES

 

September 27: The Bank of England said an agreement is needed as part of the Brexit process to protect the “long-term validity” of 20 trillion pounds ($27.1 trillion) of existing derivative contracts. The BOE's Financial Policy Committee said that after the U.K.’s withdrawal from the European Union, it will be “complex and difficult” for financial firms themselves to tackle the risks to continued servicing of contracts between counterparties in the U.K. and the remaining 27 EU countries. “Impairment to the servicing of these contracts could disrupt market functioning and make it more expensive for firms and households to insure against risks,” the BOE said in a statement. Click here to see the full story (Subscription required).  

INTERNATIONAL AUDITING HIGHLIGHTS:

 

AUDITOR OVERSIGHT

 

September 25: The U.K. FRC is considering strengthening the penalties it metes out under its authority for enforcing audit standards. “We're reviewing our sanctions to ensure they have a deterrent effect,” FRC chairman Sir Winfried Bischoff said in a speech to the council's annual general meeting in London. The council can fine companies, professional accountants, and some board members for violations. It can also ban individuals from participating in accounting activities for set lengths of time. Click here to see the full story (Subscription required).  

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

 

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