PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
10Minutes: How the new proposal on lease accounting could change your financials
After three years of outreach and deliberation, the FASB and IASB recently issued a revised proposal to overhaul the rules that would require most leases to be reflected on the balance sheet. With the exception of short term leases, the boards' new proposal will require recognition of both an asset and obligation – similar to how capital leases are treated today.
While the rules aren't final — and further debate is expected — companies should start thinking about the impact of the changes. Applying the guidance in the proposal will require additional data and the application of judgment. It is also likely to prompt greater focus with respect to "lease-buy decisions," taxes, accounting processes and controls, and supporting IT systems.
Our 10Minutes article provides an overview of the new proposed standards and how business could feel the impact.
Leasing webcast series: Impacts and action items—June 11…Be sure to join us for the next webcast in our Leasing Webcast Series, which will discuss the new proposed standards. The webcast will focus on how management can prepare to manage the changes to financial statements, operations, systems, and business processes in a measured way. The webcast will be held on June 11 from 1:00 pm to 2:00 pm ET. Participants will be eligible to receive 1.0 CPE credit. You can register for the webcast through the CFOdirect Network.
BoardroomDirect: May 2013 edition…plus special edition (Proxy Pulse)
The May 2013 edition of BoardroomDirect features an article focusing on illegal insider trading and what directors should do to address related risks. The newsletter also highlights other relevant topics for boards, including (1) two new PwC publications on governance for companies going public, (2) the viewpoints of experts on the challenges of realistically assessing the Chinese market as that economy matures, (3) a summary of the recent meeting of the National Association of Corporate Directors (NACD) Advisory Council on Risk Oversight, and (4) the Public Company Accounting Oversight Board’s (PCAOB) reproposed Related Parties standard and Unusual Transactions amendments.
We’ve also issued a Special Edition of BoardroomDirect. The Special Edition introduces ProxyPulse, a collaboration of PwC’s Center for Board Governance and Broadridge Financial Solutions that provides data and analysis on voting trends in the current proxy season. It is the first of two editions that will be published this year. The first edition covers 549 annual meetings held between January 1 and April 23, 2013. The analysis by PwC is based upon Broadridge’s processing of shares held in street name, which accounts for more than 80% of all outstanding public shares.
The Special Edition also highlights that PwC, Broadridge Financial Solutions, and the Society for Corporate Secretaries and Governance Professionals will air a webcast on the latest proxy voting data on June 10 from 3:30 pm to 4:30 pm ET. Participants will be eligible to receive 1.0 CPE credit.
Reminder: Insurance contracts webcast—June 12
We invite you to join our insurance contracts webcast, which will focus on the current views of the FASB and IASB on key components of their joint insurance contracts project. It will cover the FASB’s model and will provide observations on key differences from existing US GAAP and various business considerations and challenges. The webcast will be held on June 12 from 11:00 am to 12:30 pm ET. Participants will be eligible to receive 1.5 CPE credits. You can register for the webcast through the CFOdirect Network.
PwC comments on FASB's proposed ASU: Financial Instruments — Credit Losses
In our comment letter on the FASB's proposed Accounting Standards Update, Financial Instruments-Credit Losses (Subtopic 825-15), we do not support the FASB's proposed standard.
The FASB's proposed model requires recognition of the full lifetime of expected credit losses upon origination or acquisition of a financial asset. This would result in a "day 1 loss" on assets originated or purchased at market terms. As the transaction price contemplates the expected losses present at origination or purchase, we believe that recognition of a day 1 loss for the full lifetime of expected credit losses through the income statement does not accurately reflect the economics of lending transactions.
We believe that a threshold should be met before recording the full lifetime of expected credit losses. The IASB’s proposed model contains a threshold based on significant credit deterioration. While we generally support this concept, we believe the IASB’s model should be clarified to address significant deteriorations in credit that have occurred but are not yet identifiable on an individual asset basis.
We believe that the proposed IASB model represents a good platform for the boards to resume collaboration on a converged model. We believe that the IASB’s model, with the additional clarifications described above, results in a model that successfully achieves the principles established by the G20 subsequent to the financial crisis — primarily the need to establish a model that is based on expected losses, allows entities to look forward into future periods, and results in more timely recognition of credit losses.
PwC comments on FASB’s proposed deferral of the effective date of certain fair value disclosures for employee benefit plans
In our comment letter, we support the FASB’s proposal to defer certain of the fair value disclosures of FASB Codification Topic 820 for nonpublic employee benefit plans. We believe that the concerns raised about proprietary information becoming public through a plan’s regulatory filings are valid, and we support the deferral until further discussion occurs with plan regulators on how to address those concerns
We also support the inclusion of the new Master Glossary term, ‘Nonpublic Employee Benefit Plan,’ as well as its proposed definition. We recommend that the board use this definition in all areas of the FASB Codification applicable to employee benefit plans where there are distinct requirements for nonpublic entities.
FASB responds to post-implementation review of Statement 141R on business combinations
The FASB released its response to the Post-Implementation Review (PIR) of its business combinations reporting standard. In its response, the FASB acknowledged the PIR findings that some participants expressed difficulty in (1) applying the definition of a business, (2) accounting for purchased loans, and (3) separately reporting some intangibles and goodwill. The board said it will consider the PIR report’s findings in relation to other projects that are currently underway and the results of the IASB’s review of IFRS 3, Business combinations.
The FASB also acknowledged the PIR findings related to the cost and complexity of applying the fair value measurement guidance in FASB Statement No. 157, Fair Value Measurements (now included in Codification Topic 820), to certain types of assets and liabilities acquired in a business combination. The FASB said it will review the findings of the forthcoming PIR on Statement 157, and will coordinate with the IASB once the review of IFRS 3 is complete, before deciding whether to undertake any standard-setting action.
FASB meetings and project updates
Meeting summary: The FASB met on June 6. The board discussed its project on the definition of a nonpublic entity. A summary of the decisions reached at the meeting will be posted to the FASB’s website as soon as it is available.
Next open board meetings: The FASB will hold the following board meetings:
See the FASB’s website for further information on the meetings.
Project updates: The FASB has updated its summaries of the following projects:
Materials for the June 11 EITF meeting
The FASB staff has published the following additional materials for the June 11 EITF meeting:
See the FASB’s website for all of the EITF meeting materials.
SEC staff issues FAQs on conflict minerals and resource extraction disclosure rules
On May 30, the SEC's Division of Corporation Finance published two frequently asked questions (FAQ) documents:
Note: PwC has updated Dataline 2012-10, SEC adopts conflict minerals rule—Public and nonpublic companies in many industries are affected, to reflect certain clarifications provided by the above conflict minerals FAQ document.
AICPA issues conflict minerals Q&As on auditor independence
The AICPA has published a set of questions and answers (Q&As) that provide nonauthoritative guidance about various questions surrounding auditor independence when performing, or considering whether to accept an engagement to perform, an Independent Private Sector Audit of a client’s conflict minerals report. Accompanying the Q&As are a flowchart that depicts the process of considering what mix of conflict mineral-related services can be provided to an issuer client, and a matrix that shows illustrative services and whether the mix of services is permissible or prohibited from an independence perspective.
IASB issues narrow-scope amendments to IAS 36 on impairment of assets
The IASB published amendments to IAS 36, Recoverable Amount Disclosures for Non-Financial Assets. The amendments clarify that the scope of required disclosure of information about the recoverable amount of impaired assets is limited to the recoverable amount of impaired assets that is based on fair value less costs of disposal. The amendments are to be applied retrospectively for annual periods beginning on or after January 1, 2014.
IFRS Foundation charts progress towards global adoption of IFRSs
The IFRS Foundation has completed the first phase of an initiative to assess the progress towards global adoption of IFRSs. The G20 has called for global adoption of a single set of high quality financial reporting standards. The IASB’s initiative is intended to provide a central source of information that permits interested parties to chart jurisdictional progress towards the achievement of that goal.
The output of the first phase of the project is the publication of IFRS profiles for all G20 jurisdictions, as well as profiles for an additional 46 jurisdictions who responded to a survey of national and regional bodies with overall responsibility for accounting standards within their jurisdiction. A second phase of the project is under way and further profiles will be published during the coming months with the goal of providing profiles for most jurisdictions in the world by the end of 2013.
IASB Update — May 2013
This issue of IASB Update, issued by the IASB staff, provides a summary of the IASB’s May 21-24 meeting. The FASB joined the IASB for some of the sessions. The topics discussed at the FASB/IASB joint sessions were: (1) revenue recognition and (2) financial instruments: classification and measurement.
Some of the topics discussed at the IASB-only sessions included: (1) fair value measurement, (2) business combinations, (3) financial instruments, (4) interim reporting, (5) macro hedging, and (6) separate financial statements.
IFRS for SMEs Update — May 2013
The May 2013 edition of the IASB's IFRS for SMEs Update covers, among other things, (1) the IASB’s discussions on the comprehensive review of the IFRS for SMEs, (2) a status report on IFRS for SMEs translations, and (3) where to obtain IFRS for SMEs materials.
IESBA publishes 2013 Handbook of the Code of Ethics for Professional Accountants
IFAC's International Ethics Standards Board for Accountants (IESBA) has published the 2013 Handbook of the Code of Ethics for Professional Accountants. The handbook brings together for continuing reference information about the role of IFAC and the official text of the Code of Ethics for Professional Accountants, which has been effective since January 1, 2011.
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. It is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. To access additional content on financial reporting issues, register for CFOdirect Network (www.cfodirect.pwc.com), PwC’s online resource for financial executives.