This Dataline provides timely reminders for companies as they navigate the year-end financial reporting process. Topics include: cash flows, other comprehensive income, revenue recognition, income taxes, segments, impairment of long-lived assets, goodwill – qualitative impairment test, variable interest entities, equity method investments, asset acquisition versus business, accounting changes and error corrections, use of overnight index swap rate in derivatives valuation, fair value hierarchy, equity-linked financing instruments, extinguishment gain when debt holder owns equity, contingencies, and stock-based compensation.
Derivative pricing practices have evolved in recent years to reflect the funding benefit of collateral when that collateral can be rehypothecated. In fact, some collateralized derivatives may now need to be valued based on discounting at the Overnight Indexed Swap (“OIS”) rate.
On May 29, 2013, the AICPA's Financial Reporting Executive Committee issued the AICPA Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the Guide), which replaces the 2004 edition of the practice aid on this topic. The Guide (also known as the Cheap Stock Guide) provides nonauthoritative valuation guidance and illustrations for preparers, auditors, and valuation specialists related to the issuance of privately-held company equity securities for compensation. This Dataline provides a high level overview of the Guide.
On June 7, 2013, the FASB issued amendments to ASC 946 that modify the definition of an investment company under US GAAP. This Dataline looks at the key aspects of the new guidance and shares our insights on applying it.
On May 16, 2013 FASB and IASB a revised exposure draft for Leases. A final standard is not expected before 2014, and is unlikely to be effective before 2017. This Dataline puts together the pieces to the puzzle of understanding the proposed model for lease accounting. Also included is a supplement that provides illustrative examples of applying the proposed model.
PwC provides details and thoughtful insights on the FASB's proposal to change the reporting of discontinued operations. This Dataline outlines the key details of the FASB’s proposal and includes PwC’s insights about how the proposed changes may impact current practice.
On March 5, 2013 the FASB issued ASU No. 2013-05, which amends ASC 830, Foreign Currency Matters, and ASC 810, Consolidation,to address diversity in practice related to the release of cumulative translation adjustments ("CTA") into earnings upon the occurrence of certain derecognition events. This Dataline provides an overview of the ASU.
On May 14, 2013, COSO published an updated Internal Control-Integrated Framework and related illustrative documents. This Dataline highlights noteworthy updates to the Framework, summarizes the purpose of the illustrative documents, and highlights key considerations for clients.
In February 2013, the FASB issued a revised exposure draft of a proposed standard for the classification and measurement of financial instruments (the "C&M proposal"). A proposed impairment model for debt instruments was described in a separate exposure draft issued in December 2012 (the "impairment proposal"). This Dataline discusses how the classification, measurement, and impairment approaches described in those proposals might be applied by most not-for-profit organizations.
In March 2013, the IASB an exposure draft (ED), Financial Instruments: Expected Credit Losses, that proposes an expected loss model to replace the current incurred loss model of IAS 39, Financial Instruments: Recognition and Measurement. In December, 2012, the FASB also released a proposal on impairment of financial assets. This Dataline looks at the IASB's proposal and compares it to the IAS 39 model and the FASB's proposal.
In January 2013, the FASB issued Accounting Standards Update No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (the "ASU") and a number of implementation questions have arisen as companies begin drafting the new disclosures. The questions and interpretive responses in this Dataline may be helpful as companies finalize their disclosures.
Classification and measurement is an important part of the FASB and IASB’s joint project on financial instruments. The boards have agreed on changes that will broadly converge the accounting for debt investments and financial liabilities, but significant differences in accounting for equity investments will remain. The FASB issued its exposure draft on February, 14 2013 with a comment period ending May 15, 2013. The comment period on the IASB exposure draft, which was issued in November 2012, ends on March 28, 2013. This Dataline looks at FASB’s proposals as outlined in its exposure draft and compares them to the IASB's model.
The FASB and IASB substantively concluded redeliberations of their joint 2011 exposure draft, Revenue from Contracts with Customers, in February 2013. The boards reached decisions on the remaining key issues including disclosures, transition, and effective date at their most recent meetings. Details of these decisions, as well as a comprehensive look at the model at the end of the key redeliberations, are included in this Dataline. Any remaining “sweep” or new issues identified by the boards will be discussed at future board meetings, as needed.
The FASB issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, on February 5, 2013. The standard is effective for public entities for annual periods, and interim periods within those periods, beginning after December 15, 2012. Non-public companies will adopt the standard one year later, but would be exempt from certain interim disclosure requirements.
The FASB and IASB (the "boards") met in November and December 2012 to continue redeliberating their joint revenue recognition project. The boards reached tentative decisions on key remaining measurement and recognition issues, including the constraint for recognizing revenue from variable consideration, collectibility, licenses, allocation of transaction price, and contract acquisition costs.
Impairment is a major component of the FASB and IASB's (the boards’) joint project to revisit most aspects of financial instruments accounting. In the aftermath of the recent financial crisis, the current incurred loss approach has been criticized for delaying the recognition of credit losses. The FASB has issued a new exposure draft on financial asset impairment. Our Dataline explains their "current expected credit loss" model and how it differs from the IASB's model.
The 2012 AICPA National Conference on Current SEC and PCAOB Developments (the Conference) was held on December 3, 4, and 5, 2012. Conference presenters included representatives from regulatory and standard-setting bodies, auditors, users, preparers, industry experts, and an investor panel. Remarks centered mainly on the status of potential incorporation of IFRS into the U.S. financial reporting system, updates on regulatory and financial reporting matters, capital formation, and the auditing profession’s impact on the reliability and usefulness of financial statements.
Classification and measurement is an important part of the FASB and IASB’s joint project on financial instruments. This Dataline provides a summary of the boards' decisions that is based on the project summaries posted on their websites, our observations of their meetings, and our understanding of their intent.
This year end, entities continue to face many complex financial reporting issues such as providing new fair value disclosures, accounting for debt modifications, and evaluating revenue recognition guidance. Economic challenges around the world continue to have broad financial reporting implications. While not an all-inclusive list, this Dataline is intended to serve as a timely reminder of leading practices and lessons learned on key issues that companies should consider as they navigate the year-end financial reporting process.
The Eurozone debt crisis continues to persist, leading some to believe that the crisis might result in a country exiting the Euro and adopting a new local currency. Many companies that could be affected by a country's exit from the Euro have started to consider how that might affect their operations, financing, and business strategies. Companies should also consider the financial reporting implications of the creation of a new currency.
On December 19, 2011, COSO issued an exposure draft of the proposed Internal Control-Integrated Framework (the updated Framework) for public comments that ended on March 31, 2012. This Dataline highlights the more noteworthy changes to the updated Framework, including requirements set out for effective internal control. It also summarizes the purpose of the companion documents to the updated Framework and highlights key considerations for companies, including transition to the updated Framework.
Hurricane Sandy is expected to be the second-costliest Atlantic hurricane in history, only surpassed by Hurricane Katrina in 2005. Many businesses were disrupted by Hurricane Sandy and its aftermath including the New York Stock Exchange, which was closed for two days. While not all-inclusive, this Dataline discusses several accounting and disclosure-related matters companies may encounter in dealing with the financial reporting implications of Hurricane Sandy.
Market protocols for derivatives may be changing in the near future. Financial reform legislation could make novations (in this case, substitution of counterparties to a contract) more common as over-the-counter (OTC) transactions are migrated to central exchanges. In anticipation of these changes, the International Swaps and Derivative Association (ISDA) asked the SEC’s Office of the Chief Accountant if the novation of a bilateral OTC derivative contract to a central counterparty "on the same financial terms" would require the designation of a new hedging relationship.
The FASB and IASB (the “boards”) met in September and October 2012 to continue redeliberating their joint revenue recognition project. They reached tentative decisions on the constraint for recognizing variable consideration, certain issues related to collectibility, time value of money, distributor and reseller arrangements, contract modifications, and measuring progress toward satisfying a performance obligation. This Dataline summarizes the boards’ redeliberations and tentative decisions made at the September and October joint meetings and the potential implications for certain industries.
The 2012 AICPA National Conference on Banks and Savings Institutions was held September 10 through 12, 2012 in Washington, DC. Representatives from the banking regulators, SEC, and standard setters presented at the Conference along with auditors, users, preparers, and industry experts. Presenters expressed views on a wide range of important accounting, auditing, and financial reporting topics. This Dataline provides highlights of topics discussed at the Conference.
In August 2012, the FASB issued an exposure draft of a proposal requiring new footnote disclosures for reclassifications from accumulated other comprehensive income to net income. Among other things, an entity would be required to disclose, using a tabular format, the amount reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification. An entity would not need to show the income statement line item affected for certain components such as net periodic pension cost. This Dataline looks at the key provisions of the proposal and offers our observations.
In June 2012, the FASB issued a proposal that would require companies to provide new disclosures about liquidity and interest rate risks. The proposal calls for quantitative exhibits and qualitative disclosures about risks arising from an entity's recorded and unrecorded financial instruments and cash flow obligations. Additionally, it provides separate disclosure requirements for any entity or segment defined as a "financial institution." This Dataline looks at the proposed disclosures and offers our observations.
The FASB and IASB jointly issued the initial leases exposure draft in August 2010 (the "initial ED"). A majority of the over 800 comment letters received raised significant concerns about the proposals. Redeliberations began in January 2011 and were substantially completed in July 2012. A "revised ED" is planned for the end of November 2012 (although this may slip into early 2013), with a 120-day comment period. This Dataline looks at both the lessee and lessor proposed accounting models that will be included in the revised ED.
On August 22, 2012, the SEC approved a final rule requiring certain issuers to publicly disclose their use of conflict minerals [tantalum, tin, tungsten, and gold] and whether those minerals originated in the Democratic Republic of the Congo ("DRC") or adjoining countries (“covered countries”). This Dataline looks at the key provisions of the final rule. Also included is a supplement on frequently asked questions on conflict minerals.
On July 12, 2012, the FASB issued a Discussion Paper — Invitation to Comment on Disclosure Framework. In the Discussion Paper, the Board is seeking stakeholder feedback on twenty-two questions designed to identify information that should be disclosed in notes to the financial statements to make them more relevant, flexible, and better organized. Comments on the DP are due November 16, 2012. This Dataline takes a look at the topics on which the FASB is requesting comments and offers our observations.
The FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (the revised standard), on July 27, 2012. The revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment by providing entities with an option to perform a "qualitative" assessment to determine whether further impairment testing is necessary. The approach is similar to the guidance finalized last year for goodwill impairment testing. This Dataline looks at the key provisions of the revised standard and offers our observations.
The FASB and IASB met in July to begin redeliberating their joint revenue recognition project. This PwC Dataline summarizes the boards’ redeliberations and tentative decisions made during the July board meeting, and the potential effects on certain industries. It also includes audio links to additional information on selected topics.
The SEC Staff recently published its final Staff Report regarding the potential impact of incorporation of IFRS into the US financial reporting system. This Dataline looks at the six key areas covered in the Staff Report and offers our observations.