Flashline - Week ending December 20, 2012 (No. 2012-50)

Flashline 12/21/2012 by Assurance services

PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters). This week's topics include:

  • Setting the standard: What you need to know about the FASB and IASB's standard setting activities
  • Point of view: Assessing going concern—Stakeholders would benefit from clarity in U.S. disclosure requirements
  • Tax accounting insights: Accounting for income taxes — 2012 year-end hot topics
  • The quarter close — Directors edition
  • BoardroomDirect: December 2012
  • Board Governance Series — Volume 22
  • IFRS news — December 2012 / January 2013
  • FASB proposes improvements to accounting for credit losses on financial assets
  • FASB meetings and project updates
  • Proposed agenda for the January 17 EITF Meeting
  • SEC approves PCAOB auditing standard on audit committee communications
  • Iran Threat Reduction and Syria Human Rights Act of 2012 Notice to be filed through EDGAR
  • IASB maps out future priorities and work plan
  • IASB issues two exposure drafts
  • IASB Update — December 2012
  • IFAC issues paper on effective governance, risk management, and internal control
  • IFAC News — December 2012
  • Key dates in January  

PwC

Setting the standard: What you need to know about the FASB and IASB's standard setting activities

There is no shortage of activity to report this quarter as the boards forged ahead on their major convergence projects. The FASB and IASB made several key decisions as they move closer toward issuing exposure drafts and final standards.

Revenue recognition, leases, and financial instruments occupied much of the boards’ joint agenda this quarter as they tackled a number of important redeliberation topics. The FASB also made meaningful progress on a number of its other projects this quarter including re-activating the project on discontinued operations and addressing the thorny topic of going concern. The board also made important clarifications related to disclosures on comprehensive income and balance sheet offsetting, both of which are slated to take effect next month.

Read the December 2012 edition of Setting the standard for the latest on these projects and more.

Point of view: Assessing going concern—Stakeholders would benefit from clarity in U.S. disclosure requirements

During the recent economic downturn, some stakeholders were surprised to learn that companies faced liquidity issues. As a result, the FASB and PCAOB are currently revisiting the accounting and auditing guidance around going concern assessments. Our Point of view on assessing going concern highlights that a standard that will require a company to provide earlier and more frequent, scalable disclosures that increase if conditions deteriorate will benefit stakeholders. However, we recognize that the auditor's role under the existing auditing standards is important to stakeholders. We believe improvements in the reporting model will be achieved most effectively by accounting and auditing standard setters working together to develop complementary standards.

Tax accounting insights: Accounting for income taxes — 2012 year-end hot topics

Calendar year 2012 has seen considerable activity across the global legislative and regulatory landscapes. In addition to one-off changes to tax laws in several key territories, certain legislative trends have had a significant impact on income tax accounting. These developments, combined with the continued economic uncertainty, have added to the complexity and judgment involved in accounting for income taxes.

This publication looks at topics we believe will be most relevant to the preparation of 2012 year-end financial statements including: tax law developments, SEC comment letter trends, uncertain tax positions, valuation allowances and much more.

The quarter close — Directors edition

The quarter close — Directors edition is designed to keep directors informed about the latest accounting and financial reporting issues. We create this version specifically for audit committee members and financial experts, basing it upon The quarter close, which is intended primarily for CFOs and Controllers.

Topics featured in the Q4 2012 directors edition include: (1) highlights from the AICPA National Conference on Current SEC and PCAOB Developments; (2) insights into the FASB's project on disclosure effectiveness; (3) accounting hot topics, including Eurozone crisis update, fair value, asset impairments, pensions, valuation allowances, and more; (4) the latest FASB releases and updates on key standard-setting projects; (5) recent SEC, PCAOB, and IFRS developments; and (6) lots more!

BoardroomDirect: December 2012

The December 2012 edition of BoardroomDirect, our monthly newsletter for corporate directors, includes articles on (1) how directors can leverage the CIO in their oversight of IT, (2) PwC’s Our focus on audit quality report, (3) the latest data on the SEC whistleblower program, (4) observations from the 2012 Spencer Stuart Board Index, (5) how the change in SEC leadership will affect future rulemaking, and (6) the recent release of a resource guide on the Foreign Corrupt Practices Act. It also highlights (1) a video of Mary Ann Cloyd, PwC Center for Board Governance Leader, speaking about the NACD's Blue Ribbon Commission on boardroom diversity and (2) an upcoming webcast on PwC’s year-end questions for audit committees.

Board Governance Series — Volume 22

In this edition of Board Governance Series, PwC’s Center for Board Governance Leader Mary Ann Cloyd discusses what directors need to know about conflict minerals. Other articles in this volume include the basics of compensation for compensation committee members and an interview on dealing with cyber risk at the board level.

IFRS news — December 2012 / January 2013

This issue of IFRS news includes articles on (1) the IASB’s progress on financial instruments; (2) the FASB and IASB's progress on revenue; (3) IAS 19 and discount rates; (4) impairment of non-financial assets; (5) recent activity at the IASB re: agenda consultation, rate regulated activities, narrow scope amendments, annual improvements exposure draft, and acquisitions of interests in joint operations; and (6) know your IFRS 'ABC' with our new questions-and-answers series.

Financial Accounting Standards Board (FASB)

FASB proposes improvements to accounting for credit losses on financial assets

This week, the FASB issued a proposal that introduces a new model for accounting for credit losses on debt instruments. The proposal calls for an entity to recognize an allowance for credit losses based on its current estimate of contractual cash flows not expected to be collected.

Many believe that the global economic crisis exposed weaknesses in the "incurred loss" model currently used to account for credit losses on financial instruments. Under the "incurred loss" model, losses are not recorded until it is probable that a loss event has occurred. This model has been criticized as having too high of a threshold to recognize a credit loss such that losses are recorded too late in the credit cycle.

The FASB’s proposed model eliminates any threshold required to record a credit loss and allows entities to consider a broader information set when establishing their allowance for loan losses. In addition, the model aims to simplify current practice by replacing today’s multiple impairment models with one model that applies to all debt instruments.

Comments on the proposal are due by April 30, 2013.

FASB meetings and project updates

Meeting summaries: The FASB held the following board meetings over the past week:

  • FASB and IASB joint board meeting — December 17: The boards discussed their project on revenue recognition. See the FASB’s website for a summary of the decisions reached at the meeting. Also see PwC’s In brief article, Boards conclude redeliberations on key revenue measurement and recognition issues.
  • FASB board meeting —December 19: The board discussed its projects on (1) presentation of comprehensive income: reclassification out of accumulated other comprehensive income and (2) nonpublic entities—clarification of a fair value disclosure requirement. See the FASB’s website for a summary of the decisions reached at the meeting. Also see PwC’s In brief article, FASB clarifies scope of nonpublic entity fair value disclosure exemption.

Next open board meetings: The next scheduled FASB meetings are on January 2 and 4, 2013. Topics for those meetings have not yet been announced. The topics will be announced at a future date (typically a few days before a meeting) and included on the FASB calendar. 

Emerging Issues Task Force (EITF)

Proposed agenda for the January 17 EITF Meeting

The FASB staff has released the proposed agenda and certain meeting materials for the EITF’s January 17 meeting. The Issues to be discussed at the January 17 meeting include the following:

  • Issue No. 11-A, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity”
  • Issue No. 12-B, "Not-for-Profit Entities: Personnel Services Received from an Affiliate for Which the Affiliate Does Not Seek Compensation”
  • Issue No. 12-D, "Accounting for Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date"
  • Issue No. 12-H, "Accounting for Service Concession Arrangements”
  • Issue No. 12-F, "Recognition of New Accounting Basis (Pushdown) in Certain Circumstances”
  • Issue No. 13-A, "Inclusion of the Fed Funds Rate as a Benchmark Interest Rate for Hedge Accounting Purposes"

To obtain copies of this information, visit the FASB’s website.

Securities and Exchange Commission (SEC)

SEC approves PCAOB auditing standard on audit committee communications

The SEC has published an order approving the PCAOB's Auditing Standard No. 16, Communications with Audit Committees (AS 16). The PCAOB adopted AS 16 on August 15, 2012 to establish requirements aimed at enhancing the relevance and quality of the communications between the auditor and the audit committee. It is intended to foster constructive dialogue between the two on significant audit and financial statement matters. The enhanced communications may benefit audit committees in their oversight responsibilities and auditors in conducting effective audits.

AS 16 is effective for public company audits of fiscal periods beginning on or after December 15, 2012, including interim periods. The SEC determined that the standard will apply to audits of "emerging growth companies" under the Jumpstart Our Business Startups Act of 2012. The approval does not include audits of brokers and dealers as the SEC has not yet approved the use of PCAOB auditing standards for audits of such entities.

Note: For an overview of AS 16, see PwC’s In brief article.

Iran Threat Reduction and Syria Human Rights Act of 2012 Notice to be filed through EDGAR

On August 10, 2012, the President signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, which requires an issuer that files Exchange Act periodic reports to provide disclosure in its periodic report if during the reporting period it or any of its affiliates has knowingly engaged in certain specified activities involving contacts with or support for Iran or other identified persons involved in terrorism or the creation of weapons of mass destruction.

In addition to disclosure in its periodic report, an issuer must concurrently file a notice with SEC that identifies the issuer and indicates that disclosure of the activity has been included in its periodic report. The SEC's Division of Corporate Finance issued an announcement stating that such notices should be filed through EDGAR using a new form that will be available for use in mid-January 2013.

International Accounting Standards Board (IASB)

IASB maps out future priorities and work plan

On December 18, the IASB rounded off its far-reaching public consultation on its future agenda by releasing a Feedback Statement that maps out its future priorities. The public consultation featured a program of public discussions, meetings with investors and online discussion forums that involved thousands of interested parties across more than 80 countries. The IASB received more than 240 comment letters in response to the consultation document that it had published in July 2011.

IASB issues two exposure drafts

The IASB has published the following two exposure drafts for public comment:

  • Acquisition of an Interest in a Joint Operation (Proposed amendment to IFRS 11)
    The objective of the proposed amendments is to add new guidance to IFRS 11 on accounting for the acquisition of an interest in a joint operation in which the activity of the joint operation constitutes a business, as defined in IFRS 3 Business Combinations. The IASB is proposing that acquirers of such interests apply the relevant principles on business combination accounting in IFRS 3 and other Standards, and disclose the relevant information specified in these Standards for business combinations.
  • Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Proposed amendments to IFRS 10 and IAS 28)
    The objective of the proposed amendments is to address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of a subsidiary. The main consequence of the proposed amendments is that a full gain or loss would be recognized on the loss of control of a business (whether it is housed in a subsidiary or not), including cases in which the investor retains joint control of, or significant influence over, the investee.

Comments on both exposure drafts are due by April 23, 2013.

IASB Update — December 2012

This issue of IASB Update, issued by the IASB staff, provides a summary of the IASB’s December 13-17 meetings. The FASB joined the IASB for some of the sessions. The IASB and FASB continued their discussions on their project on revenue recognition.

The topics discussed at the IASB-only sessions were (1) conceptual framework, (2) recognition of deferred tax assets for unrealized losses, (3) IFRIC update, (4) accounting for macro hedging, (5) financial instruments: impairment, (6) insurance contracts, (7) revenue recognition, (8) recoverable amount disclosures for non-financial assets, (9) bearer biological assets, and (10) rate-regulated activities.

International Federation of Accountants (IFAC)

IFAC issues paper on effective governance, risk management, and internal control

IFAC published Policy Position Paper 7 to highlight the role of professional accountants in business in effective governance, risk management, and internal control. IFAC believes integrated and effective governance, risk management, and internal control within a robust ethical culture make an invaluable contribution to achieving sustained organizational success. At the same time, organizations often fail because of poor governance and/or ineffective and disconnected risk management and internal control.

IFAC News — December 2012

This edition of IFAC News includes updates from IFAC’s standard-setting boards and committees, a message from new President Warren Allen, and coverage of recent IFAC events, including the 2012 IFAC Council Meeting.

Appendix: Key dates in January

To view a calendar that lists the meetings of standard-setting bodies, PwC webcasts and other events occurring in January 2013 that may be of interest to you, please download the PDF file. Click on the name of the meeting, webcast or event for more information. For additional events, see the events calendar on PwC's CFOdirect Network.

Edited by:

Brad Mescher
Director
Phone: 1-973-236-7261
Email: brad.mescher@us.pwc.com

Saira Gilani
Senior Manager
Phone: 1-973-236-5811
Email: saira.s.gilani@us.pwc.com

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.