PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters). This week's topics include:
In brief: FASB moving forward on “going concern” standard
Years after adding the going concern project to its agenda, the FASB took a significant step forward at its November meeting toward developing a new going concern standard. With the stated objectives of bringing increased discipline, structure, and consistency to existing disclosure practices, the FASB decided to require management to formally perform going concern assessments and provide related footnote disclosures. This In brief article provides an overview of the FASB's key decisions and what's next.
Dataline: Implications to hedge accounting of changes to derivative counterparties or hedging relationships
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 SEC staff responded that it does not object, under certain limited circumstances, to a conclusion that, for accounting purposes, the original contract has not been terminated and replaced with a new derivative contract, nor would the staff object to the continuation of the existing hedging relationship, provided that the other terms of the contract have not been changed.
BoardroomDirect — November 2012
The November edition of BoardroomDirect highlights the release of PwC’s book Directors and IT - What Works BestTM. This book offers an IT Oversight Framework for directors designed to bridge the “IT confidence gap.” Other items featured this month include (1) board oversight risks related to income tax accounting, (2) Nasdaq's and New York Stock Exchange's new listing standards for compensation committees, (3) Institutional Shareholder Services' proposed recommendation policy changes for the 2013 proxy season, and (4) a group of seven organizations' release of a new evaluation tool for external auditors.
IFRS news — November 2012
The November issue of IFRS news looks at (1) IASB exemption from consolidating investment entities, (2) PwC partner Peter Holgate's personal view of criticisms of IFRS, (3) revenue update, (4) insurance contracts – proposal re-exposed, and (4) IFRS Foundation response to SEC 'work plan.' Also included…know your IFRS 'ABC' with our new questions-and-answers series. This month: A is for 'associates'.
FASB extends disclosure framework comment period to November 30
The FASB announced that is has extended the deadline for commenting on its Invitation to Comment, Disclosure Framework to November 30, 2012. The FASB decided to extend the deadline to provide those affected by Hurricane Sandy more time to submit their feedback.
In July 2012, the FASB issued the Invitation to Comment on developing an overarching framework to use in establishing requirements for disclosures in the notes to the financial statements. That paper asks for stakeholder input on ways to improve effectiveness of disclosures in notes to financial statements of public, private, and not-for-profit organizations.
FASB meetings and project updates
Meeting summary: The FASB held the following board meetings over the past week:
Next open board meeting: The FASB’s next open board meeting is scheduled for November 14. The board plans to discuss its projects on (1) presentation of comprehensive income: reclassification out of accumulated other comprehensive income, (2) technical corrections (next phase), and (3) insurance contracts. See the FASB’s website for more information on the meeting.
Project updates: The FASB has updated the following project summaries:
IASB finalizes definition of an “investment entity”
The IASB issued amendments to existing guidance to define an “investment entity.” The purpose of the amendments is to provide an exception for such entities from the existing IFRS requirement to consolidate certain subsidiaries. Investment entities will instead report all investments at fair value through profit or loss. The amendments also introduce new disclosure requirements for an investment entity's unconsolidated interest in a subsidiary.
See PwC’s In brief article for an overview of the IASB's amendments. It also includes a summary of significant differences between the IASB's final IFRS guidance and the FASB’s tentative decisions to date in its US GAAP project on investment entities.
IFRS Foundation publishes proposals to create an accounting standards advisory forum
The IFRS Foundation published for public comment a proposal to create a new advisory group to the IASB consisting of national accounting standard-setters and regional bodies with an interest in financial reporting. The creation of such an advisory group was one of the main recommendations of the IFRS Foundation Trustees’ strategy review, published in February 2012. The principle purpose of the new advisory group, to be known as the Accounting Standards Advisory Forum (ASAF), is to provide technical advice and feedback to the IASB.
Comments on the proposal are requested by December 17, 2012.
Enhanced Disclosure Task Force issues Report on bank risk disclosures
The UK's Financial Stability Board (FSB) announced the release of the Enhanced Disclosure Task Force (EDTF) report titled Enhancing the Risk Disclosures of Banks (the Report). The EDTF was formed at the initiative of the FSB in May 2012 to investigate ways to improve the quality of risk disclosures for banks. The Report includes a number of recommendations aimed at enhancing the clarity, comparability and timeliness of information that banks provide to their investors. The IASB recently started a revision of its Conceptual Framework and plans to consider the EDTF recommendations as it develops new financial reporting disclosure principles.
AICPA seeks feedback on its proposed Financial Reporting Framework for small- and medium-sized entities
The AICPA issued an exposure draft of its proposed Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs). The FRF for SMEs is intended to provide a financial reporting alternative for private companies not required to prepare US GAAP financial statements. It is a self-contained, special purpose framework that uses historical cost as its primary measurement basis. The
AICPA requests that preparers, auditors, and users of the financial statements of privately owned SMEs submit comments on the proposed framework by January 30, 2013.
See PwC’s In brief article highlighting the key features of the proposed framework.
CAQ publishes highlights of September 25 SEC Regulations Committee meeting
The AICPA’s Center for Audit Quality (CAQ) SEC Regulations Committee meets periodically with the staff of the SEC to discuss emerging financial reporting issues relating to SEC rules and regulations. Highlights of the September 25 meeting are now available.
Numerous financial reporting matters were discussed during the meeting, including (1) fair value disclosures, (2) the JOBS Act, (3) recommendations by the SEC Advisory Committee on Small and Emerging Businesses, (4) confidential reviews of initial registration statements, (5) rulemaking for conflict minerals and extractive industry payments, (6) the Iran Threat Reduction and Syria Human Rights Act of 2012, and (7) the contractual obligations table presentation.
IAASB issues Q&As on quality control standard
IFAC's International Auditing and Assurance Standards Board (IAASB) has published a Q&A document that addresses how the design of International Standard on Quality Control 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements (issued by the IAASB under the Clarity Project) enables it to be applied in a manner proportionate with the nature and size of a firm.
Flashline is a weekly alert highlighting current financial-reporting developments (including accounting, auditing and regulatory matters) and is produced by the National Professional Services Group of PwC. This publication has been prepared for general information on matters of interest only, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this material was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PwC, its members, employees and agents shall not be responsible for any loss sustained by any person or entity who relies on this publication.