Accounting & Auditing Highlights Week Ending December 8, 2017


 

Accounting Highlights:  

 

Securities and Exchange Commission

 

December 1: Mark Kronforst, chief accountant of the Securities and Exchange Commission's Division of Corporation Finance, will leave that job in early January. Kyle Moffatt, associate director of the SEC's disclosure operations unit, will serve as acting chief accountant of the division after Kronforst's departure. Click here to see the full story (Subscription required). 

 

December 4: The SEC ratified the appointment of its five agency administrative law judges Nov. 30 in an effort to head off a challenge to the constitutionality of its hearing process. “By ratifying the appointment of its ALJs, the Commission has resolved any concerns that administrative proceedings presided over by its ALJs violate the Appointments Clause,” the SEC said in a statement. Click here to see the full story (Subscription required). 

 

December 5: Current securities laws, financial reporting requirements, and auditing are sufficiently robust to meet challenges arising from increased use of cryptocurrencies and blockchain ledger technology. “We don't need a whole lot [of changes] because we have a pretty good long standing body of law on dealing with securities,” SEC Chairman Jay Clayton told the American Institute of CPA's conference on SEC and Public Company Auditing Oversight Board developments. Click here to see the full story (Subscription required). 

 

December 6: The SEC Chairman Jay Clayton said he will be disappointed if a new auditor's reporting model produces “boilerplate” rather than insights into difficult auditing matters that warrant discussion with a company's board. “If it results in quality, I'll be happy,” he said. “And if it results in boilerplate, I'll be really bummed out.” Click here to see the full story (Subscription required). 

 

December 7: U.S securities regulators will continue to closely check alternative performance measures companies report to ensure they are properly anchored in generally accepted accounting principles. “I think the staff pays very close attention to non-GAAP measures, and will continue to do so,” Mark Kronforst, chief accountant of the SEC's Division of Corporation Finance said. Click here to see the full story (Subscription required). 

 

December 8: The SEC intends to name a long-time Republican Senate aide to head the watchdog over public company auditors, two people familiar with the matter told Bloomberg Tax. William Duhnke, an assistant to former Senate Banking Committee Chairman Richard Shelby (R-Ala.), is to be appointed chairman of the Public Company Accounting Oversight Board. Click here to see the full story (Subscription required). 

 

December 8: The U.S. corporate community would welcome new SEC guidance for reporting risks of cyberattacks and how successful ones occurred. “If the guidance is clear and can be implemented in a practical and operational way, then it may be helpful both to companies and investors,” Robert Herz, former chairman of the Financial Accounting Standards Board, told Bloomberg Tax. Click here to see the full story (Subscription required).

 

December 8: The SEC Division of Enforcement will continue to detect and prosecute “white collar” crime at consistent rates, but their methods for finding those types of crime could change. “We continually develop technology and data analytics to cover the most ground, the most efficient way possible,” Stephanie Avakian, division co-director, said. Click here to see the full story (Subscription required). 

 

Foreign Corrupt Practices Act

 

December 1: The Justice Department is extending an Obama-era program that encourages companies to admit to foreign bribery, with a twist. As before, the U.S. will consider reducing financial penalties for companies that come clean. Now, the feds will be more likely to consider forgoing criminal charges as well. Click here to see the full story (Subscription required).

 

Whistle Blowers

 

December 4: U.S. Supreme Court justices signaled they will narrow an anti-retaliation provision in the 2010 Dodd-Frank financial law, hearing arguments in a case that could insulate publicly traded companies from some whistle-blower lawsuits. Click here to see the full story (Subscription required).

 

December 8: A former UBS Group AG strategist told a New York jury that the Swiss bank deprived him of millions of dollars in pay and pushed him into a long-lasting depression by firing him five years ago after he blew the whistle on efforts to influence his published research. Click here to see the full story (Subscription required).

 

Tax Reform

 

December 5: U.S. company accountants are closely following how a cut in the corporate tax rate from the expected tax law overhaul will affect disclosure requirements for deferred tax assets that they must make in financial statements. Companies that have deferred tax assets on their balance sheets would see the benefits of that net position lessen considerably when the tax rate is reduced, as prescribed in tax legislation the House and Senate have approved. Click here to see the full story (Subscription required).

 

December 6: Companies must study the tax reform effort moving through Congress for its potential widespread accounting consequences, SEC Deputy Chief Accountant Sagar Teotia said. One area for companies to gauge is the legislation's impact on deferred tax liabilities if the corporate tax rate changes. Click here to see the full story (Subscription required).

 

December 7: Partners in small law and accounting firms may favor the Senate tax bill's pass-through provisions over the House versions. Neither bill gives much, if anything, for high-income partners in services businesses. But people with more modest incomes would benefit more from the Senate bill‘s provisions. Click here to see the full story (Subscription required).

 

Public Company Accounting Oversight Board

 

December 5: New accounting reporting standards that require more transparency in audits overseas will increase investor confidence and improve credibility of the audit profession long term. “Bringing accountability to these cross-border auditors contributes to public trust in the standards of U.S. practice,” PCAOB Chairman James Doty said during a keynote address at the American Institute of CPAs conference on SEC and PCAOB developments. Click here to see the full story (Subscription required).

 

December 5: The SEC is near a decision on the replacement of James Doty as chairman of the PCAOB and on other board appointments, SEC Chairman Jay Clayton said. Clayton told reporters that he “can't give you a precise sense to timing” on naming new members to the board, which the SEC oversees. Click here to see the full story (Subscription required).

 

December 5: Auditors have new guidance for applying the U.S. audit overseer's rule on a revamped audit reporting model. The PCAOB guidance contains explicit examples of how the new rules should appear in the auditor's report. Click here to see the full story (Subscription required).

 

December 7: Staffing pressures, the challenges of accounting estimates, use of specialists, and the need to sharpen scrutiny on outside audit firms are among the items on the PCAOB’s priority list in 2018. While much progress has been made in the 15 years since the passage of the Sarbanes-Oxley Act, auditors “must not become complacent,” PCAOB board member Jeanette Franzel told an American Institute of CPAs conference. “In fact, the current level of economic, political, technological, and demographic change presents significant stress to the system.” Click here to see the full story (Subscription required).

 

Credit Losses

 

December 5: U.S. banks need to gather pertinent data now for a significant change in accounting in 2020 as new rules to record loan and other credit losses take effect. The new credit-loss rules might cause thousands of banks to book reserves earlier against potential losses on loans and credit instruments than under current rules. Click here to see the full story (Subscription required).

 

December 6: Accounting firms and their clients in banking, finance, and other industries continue to search for answers about how to carry out new rules for earlier reporting of credit losses on financial instruments. All have been working collaboratively “to get the questions out on the table” in the early phase of the credit loss standard's implementation, said Frederick Currie, a partner at the PricewaterhouseCoopers LLP. Click here to see the full story (Subscription required).

 

Lease Accounting   

December 5: New lease accounting rules will drive more companies to buy assets—like equipment or cars—that previously they would have leased. The new rules bring onto balance sheets for the first time operating leases that companies don't have to record under today's rules. Some companies fear the balance sheet changes could weaken their stock value by negatively changing their liquidity ratios and subsequently trigger sell offs, practitioners interviewed by Bloomberg Tax said. Click here to see the full story (Subscription required).

 

December 5: Accounting software vendors say companies that utilize a bonus system that's tied to their balance sheet could see those compensation figures wiped out—or substantially dip—after applying the new leases standard. Bonuses dip because the leases rules bring additional assets on balance sheet, and that changes the ratios companies use to determine the bonus figure, practitioners told Bloomberg Tax. Click here to see the full story (Subscription required).

 

December 8: Companies can continue to apply historical accounting policy where there are no explicit lease accounting transition rules, an SEC accountant said. Office of Chief Accountant's Michael Berrigan, speaking on Current SEC and PCAOB Developments said that as companies adopt the new lease accounting standards, ASC 842, some lessees are including the total rental payments as minimum lease payments. Click here to see the full story (Subscription required).

 

December 7: Companies might incur thousands of dollars of additional costs in adopting new lease accounting rules because of the substantial increases in software and other resources they require. Companies with large lease portfolios could see costs exceed $250,000 to adopt the new rules, ASC 842. Click here to see the full story (Subscription required).

 

Cybersecurity  

December 7: Cybercrime against companies is getting worse and hugely expensive. Cybersecurity issues cost companies millions of dollars, and they are finding it difficult to keep up, FBI Supervisory Special Agent Peter Cordero told the American Institute of CPAs conference on SEC and PCAOB developments Dec. 6. “That's starting to scare me quite a bit—the cost of breeches,” he said. Click here to see the full story (Subscription required).

 

Emerging Technology

 

December 7: Online sites that exchange bitcoins and other digital assets will face heightened legal and regulatory challenges in 2018, regardless of whether the value of the assets continues to skyrocket. Hundreds of companies and people raised funds in 2017 through the sale of the assets, known as cryptocurrencies, coins, or tokens. Click here to see the full story (Subscription required).

 

Auditing Highlights:

 

December 7: Steinhoff International Holdings NV plunged after its chief executive officer resigned amid accounting irregularities, rocking a company that's rapidly expanded from its roots in South Africa into a retail empire spanning Australia, Europe and the U.S. CEO Markus Jooste quit as auditor PwC was appointed to probe the matter. Click here to see the full story (Subscription required).  

December 8: Auditors feeling today's growing cyclone of new technology must brace themselves for changes, but needn't worry they'll be completely blown away. Innovations such as blockchain, data analytics, and robotics will change how auditors work but won't eliminate the profession, panelists assured auditors at the American Institute of Certified Public Accountants conference. Click here to see the full story (Subscription required).    

International Accounting Highlights:

 

International Developments

 

December 1: Russian rules unveiled Nov. 30 stipulate that businesses hedging risks in assets and liabilities denominated in foreign currencies can account for exchange-rate differences in accordance with international financial reporting standards. Click here to see the full story (Subscription required). 

 

December 6: Large banks, insurers, and other big companies in the U.K. must await action from Parliament next year before the nation's accounting regulator gives them guidance on non-financial reporting. The U.K. Financial Reporting Council said that it has put on hold its plans to implement guidance on non-financial reporting—which covers such company activities as environmental protection and anti-corruption efforts—pending government action. Click here to see the full story (Subscription required). 

 

Digital Currency

 

December 6: The International Accounting Standards Board doesn't have plans to create a rule for digital currencies. The issue didn't emerge as a priority item on the board's agenda for future accounting projects. IASB tries to be “quite disciplined in what we take on,” IASB Vice-Chair Sue Lloyd said. “So what we agreed to do is watch what happens and keep an eye on it.” Click here to see the full story (Subscription required). 

 

International Standards  

December 4: Investors and analysts may be able to determine more easily the pension-fund risks of companies that file digital reports under proposed changes to international financial reporting standards. Click here to see the full story (Subscription required).   

December 5: The IASB plans to pursue a limited number of activities in 2018, including release early in the year of its conceptual framework that will form the underlying principles for setting future standards. Among those activities could be new international financial reporting standards for utilities and other businesses providing vital goods and services at government-regulated prices. Click here to see the full story (Subscription required).

 

United Kingdom  

December 1: The private tax reports that global businesses will send to governments this year will become public, according to Vodafone Group Plc's group tax director. “Our assumption is that this information will leak, we are working on the basis that it will become public one way or another,” John Connors said in a panel discussion at the U.K. Chartered Institute of Taxation and International Fiscal Association's Cross Atlantic and European Tax Symposium. Click here to see the full story (Subscription required). 

 

December 5: The U.K. will begin preparing in 2018 to adopt a new system for setting accounting standards as the country moves toward separating from the European Union. Companies are in limbo as to what will happen with financial reporting once the country leaves the EU. Click here to see the full story (Subscription required). 

 

December 8: The U.K. aims to maintain its prominent role in providing accounting and other services that meet the needs of Islamic finance after the country leaves the European Union. The U.K. outpaces any nation outside the Muslim world in supporting Islamic, or Sharia-compliant, finance, the treasury department said in its report, Investment Management Strategy II. Click here to see the full story (Subscription required). 

 

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

 

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