PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
Dataline: Leases—The Great Divide: The new leases landscape
The FASB and IASB jointly issued a revised leases exposure draft in May 2013 (the "revised ED"). The proposal would fundamentally change the accounting for lease transactions and have significant business implications.
The revised ED would retain the "right of use" concept proposed in the initial ED issued in 2010, and lessees would reflect virtually all leases on the balance sheet. Some lessors would derecognize the underlying leased asset and record a receivable and residual, but others would continue to include it on the balance sheet.
The proposal reflects a number of changes from the initial ED, including: (1) a dual model for lessees and lessors, (2) a higher threshold for including extension options when measuring lease assets and liabilities, (3) simplified treatment of many types of variable lease payments, and (4) new guidance for determining whether a contract contains a lease.
Dataline 2013-13 puts together the pieces to the puzzle of understanding the proposed model for lease accounting. Also accompanying the Dataline is a supplement that provides illustrative examples of applying the proposed model.
Dataline: A summary of the FASB’s proposal on reporting discontinued operations
A recently-issued FASB exposure draft proposes to change the threshold for reporting discontinued operations and add new disclosures that would impact entities across all industries.
What are the key changes proposed? To be a discontinued operation, a component of an entity must be disposed of or classified as held for sale and be part of a single coordinated plan to dispose of a separate major line of business or a major geographical area of operations. This is expected to result in fewer disposals being reported as discontinued operations. However, information about individually material components that have been disposed of or are held for sale that do not meet the definition of a discontinued operation would need to be disclosed.
Having significant continuing involvement with a component after a disposal or failing to eliminate the operations or cash flows of a disposed component from an entity’s ongoing operations would no longer preclude presentation as a discontinued operation. However, having significant continuing involvement would trigger new disclosures.
In Dataline 2013-12, we outline the key details of the FASB’s proposal and share our insights about how the proposed changes may impact current practice.
Dataline: An exposure draft is expected in Q2 2013 that would significantly change accounting for insurance contracts
The FASB and IASB expect to issue exposure drafts on accounting for insurance contracts by the end of June 2013 with a 120-day comment period. The boards have developed a comprehensive proposal that would address recognition, measurement, presentation, and disclosure. "Insurance contracts" would be broadly defined, and the guidance would apply to contracts as opposed to a class of entities, unlike current U.S. GAAP, resulting in implications for entities that are not insurers, such as banks.
Key aspects of the proposal will include the requirement to use a “current value” discounted cash flow measurement for the insurance contract liability. Any excess of expected premiums over expected claims and expenses would be deferred as “margin" and amortized into income over future periods. Expected losses would be recognized immediately. A modified approach would apply for short duration contracts (e.g., property/casualty contracts) meeting specified criteria, similar to today’s unearned premium approach.
Dataline 2013-11 summarizes the proposed insurance contract models based on the boards’ tentative decisions to date. Given the potential implications of the changes being considered, entities should be engaged in assessing the impact to their products, systems, and investor reporting and consider commenting on the proposal.
Private company reporter: FASB endorses PCC proposals, plus other private company reporting updates
At its June 10 meeting, the FASB unanimously endorsed each of the proposed accounting alternatives previously approved by the Private Company Council (PCC). The proposed alternatives would permit a private company to apply simplified accounting treatments that would reduce cost and complexity in accounting and reporting. The FASB is expected to issue exposure drafts for each proposed alternative by the end of June. The proposed alternatives are as follows:
Intangible assets in a business combination
Subsequent accounting for goodwill
Interest rate swaps
The June 13 edition of our Private company reporter provides further information on the proposed alternatives, as well as highlights of other recent developments related to private company reporting.
Reminder: Q2-2013 Current Accounting and Reporting Developments webcast—June 19
At 1:00 pm ET on Wednesday, June 19, we will be hosting our second quarter 2013 'Current Accounting and Reporting Developments' webcast. This 90-minute webcast will provide insights and information about key emerging accounting, regulatory, and market developments impacting financial reporting. On the webcast, you’ll hear from a broad range of PwC specialists who will update you on matters that may impact your business. Additionally, we will offer this webcast in a self-study format to access at your convenience. The self-study version will be available after June 19. Participants in both the live and the self-study versions of the webcast will be eligible to receive 1.5 CPE credits.
PwC responds to IASB's request for information on rate regulation
The PwC global network of firms provided its response to the IASB’s request for information on the board’s reactivated rate-regulated activities research project. The response includes our network’s understanding of rate regulation in eight major jurisdictions, including: Brazil, Canada, Germany, Hong Kong, India, Italy, United Kingdom, and United States.
In our response, the PwC network also suggests that the IASB focus its efforts on the rights and obligations and the accounting consequences that might arise from price regulation, rather than how the overall framework might be categorized. Our network of firms also recommends that the board explore the potential overlap between the accounting for service concession arrangements and the potential accounting for rights and obligations arising from price regulation.
IFRS news—June 2013
This issue of IFRS news looks at (1) the joint IASB and FASB revised leases exposure draft, (2) how the role of the IFRS Interpretation Committee has changed over the last two years and the road ahead, (3) the IASB’s Feedback Statement on disclosures, (4) the new members recently appointed to the IASB and IFRS Interpretation Committee, (5) the new IFRIC interpretation on levies, (6) the IASB’s amendments to the disclosures required by IAS 36, Impairment of Assets, (7) the IASB’s and FASB’s continuing deliberations on the joint revenue recognition project, and (8) the accounting for government grants.
FASB indefinitely defers certain disclosures for nonpublic employee benefit plans
This week, the FASB voted to indefinitely defer certain fair value disclosures about investments held by a nonpublic employee benefit plan in its plan sponsor’s own nonpublic equity securities. The indefinite deferral is intended to allow time for discussions among employee benefit plan regulators and stakeholders about the proprietary nature of the information in the fair value disclosures. The FASB said it will issue a final Accounting Standards Update titled Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in the next few weeks.
Also, see PwC's In brief article for more information on the deferred disclosures.
FASB issues final standard on investment companies
The FASB issued Accounting Standards Update No. 2013-08, Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements. The final standard modifies the criteria used in defining an investment company under US GAAP. It also sets forth certain measurement and disclosure requirements.
As part of their joint project on consolidation, the FASB and IASB agreed to develop a consistent approach for determining whether an entity is an investment company. The boards agreed on a principles-based approach to defining investment entities, but there are differences between their respective guidance.
Under the FASB’s final standard, an entity regulated under the Investment Company Act of 1940 is automatically an investment company under the new US GAAP definition. For all other entities, the FASB decided to apply a blended approach. That is, the definition includes certain aspects that are required to be present, along with additional characteristics that allow for judgment.
The requirements of the FASB’s final standard are effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013.
Also, see PwC's In brief article for an overview of the key provisions of the FASB’s final standard.
FASB meetings and project updates
Meeting summaries: The FASB held the following board meetings over the past week:
Next open board meetings: The FASB will hold the following board meetings next week:
See the FASB’s website for further information on the meetings.
Project updates: The FASB has updated its summaries of the following projects:
SEC proposes money market fund reforms
The SEC published for public comment a proposed rule titled Money Market Fund Reform; Amendments to Form PF. The proposed rule aims to reform the way that money market funds operate in order to make them less susceptible to runs that could harm investors. The proposal includes two principal alternative reforms that could be adopted alone or in combination. One alternative would require a floating net asset value (NAV) for prime institutional money market funds. The other alternative would allow the use of liquidity fees and redemption gates in times of stress. The proposal also includes additional diversification and disclosure measures that would apply under either alternative. A fact sheet containing an overview of the proposed rule is available on the SEC’s website.
The public comment period for the proposal will last for 90 days after its publication in the Federal Register.
AICPA launches new framework for small-business financial reporting
The AICPA issued its Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs), which is designed to help small businesses prepare streamlined, relevant financial reports. The framework is intended for private companies that do not need GAAP financial statements. The AICPA said the framework is complementary to the efforts of the Financial Accounting Foundation's Private Company Council (PCC), which is considering potential US GAAP exceptions and modifications for private companies.
COSO issues article on transitioning to updated internal control framework
COSO published an article titled “The 2013 COSO Framework & SOX Compliance—One Approach To An Effective Transition.” The article outlines an approach to transitioning to COSO’s 2013 Internal Control–Integrated Framework (the “Framework”) from the original framework published in 1992.
COSO believes that users should transition their applications and related documentation to the updated Framework as soon as is feasible under their particular circumstances. COSO will continue to make the original framework available through December 15, 2014, after which time COSO will consider it as superseded by the 2013 edition.
IAASB publishes 2012 annual report
IFAC’s International Auditing and Assurance Standards Board (IAASB) published its 2012 Annual Report—Responding to the Needs of An Interconnected World. It highlights the IAASB’s work to enhance the quality and consistency of practice throughout the world, and thereby strengthen the public’s confidence in the global auditing and assurance profession. The annual report covers new and enhanced international standards issued by the IAASB during the year, and the board’s progress on its current standard-setting projects and related initiatives. It also summarizes the IAASB’s outreach activities to obtain input on its deliberations and to keep stakeholders informed of its activities.
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.