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's and IASB's standard-setting activities
There continues to be no shortage of significant accounting and reporting changes being contemplated by the FASB and IASB. In the June edition of Setting the standard, we boil things down and help you understand how these changes may affect your company’s financial statements.
First, we walk through where the FASB and IASB stand in their efforts toward completing the major joint projects, including financial instruments, revenue, leases, and insurance contracts. We then give you the latest on a variety of other FASB projects, including the new standards finalized on investment companies and liquidation basis, and a variety of proposals underway, including discontinued operations, going concern, repurchase agreements, and private company reporting.
BoardroomDirect: June edition
The June 2013 edition of BoardroomDirect features an article that describes how companies have been making more sustainability disclosures, but stopping short of full integrated reporting. The newsletter also highlights other relevant topics for boards, including (1) Congressional testimony on the power and influence of proxy advisory firms, (2) a new FAQ by the SEC on its conflict minerals rule, (3) NASDAQ’s decision to withdraw its internal audit function proposal, and (4) FASB’s decision to increase disclosure for repurchase agreements.
Dataline: Investment companies—FASB modifies definition of an "investment company”
On June 7, 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 updates 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 that they would look to develop a consistent approach for determining whether an entity is an investment company. They agreed on a principles-based approach to defining investment entities, but significant differences remain between the IASB’s final guidance and 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.
This Dataline looks at the key aspects of the FASB’s new guidance and shares our insights on applying it.
FASB and IASB issue exposure drafts on insurance contracts
The FASB and IASB separately published exposure drafts (ED) of proposals that would fundamentally change the accounting by all entities that issue insurance contracts. The IASB ED would replace IFRS 4, which currently permits a wide variety of practices in accounting for insurance contracts. The IASB is seeking comments on the five key areas that have significantly changed since its previous exposure draft on insurance contracts, while the FASB ED requests feedback on the entire model.
The exposure drafts represent the next step in the FASB and IASB efforts to develop a comprehensive standard on accounting for insurance contracts that would address recognition, measurement, presentation, and disclosure. Based on the views expressed during deliberations and the differences in the respective exposure drafts, the FASB and IASB will likely not achieve a converged standard.
Comments on both exposure drafts are requested by October 25.
FASB seeks feedback on proposed new standard on going concern
On June 26, the FASB issued an exposure draft of a proposed new standard that would require management to perform going concern assessments and provide related footnote disclosures in certain circumstances.
Under US GAAP, financial statements are prepared under the inherent presumption that the reporting entity will be able to continue as a going concern; that is, the entity will continue to operate such that it will be able to realize its assets and meet its obligations in the ordinary course of business (the going concern presumption). The going concern presumption is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, there is no guidance in US GAAP about management’s responsibilities in evaluating or disclosing going concern uncertainties. The proposed new standard would fill that void.
Comments on the exposure draft are requested by September 24.
Also, see PwC’s In brief article for an overview of the proposal.
FASB publishes US GAAP Financial Reporting Taxonomy Implementation Guide and UGT Style Guides
The objective of the FASB’s US GAAP Financial Reporting Taxonomy (UGT) Implementation and Reference Guides is to provide preparers with additional insight and supplemental guidance for utilizing the UGT as they create their XBRL documents. The guides are not authoritative; rather, they communicate how the UGT is designed.
The FASB issued the following final guides:
The FASB also issued a proposed UGT Style Guide titled Period Type Selection (Context) that provides guidance for FASB staff members in selecting the appropriate period type—instant or duration—when modeling elements for inclusion in the UGT. It also may serve as a reference to constituents and explains why certain Item Types always default to duration. Comments on the proposed Style Guide are due by August 18.
FASB meetings and project updates
Meeting summary: The FASB met on June 26. The board ratified the two consensuses and three consensuses-for-exposure reached on Issues discussed at the June EITF meeting. See the FASB’s website for further information on the board meeting. (Also see PwC’s EITF observer for discussion of each EITF Issue.)
Next open board meeting: There are no board meetings scheduled for the week of July 1. The next board meeting is scheduled for July 10.
Project update: The FASB has updated the summary of its project on accounting for financial instruments.
IASB proposes amendments to IAS 16 re: bearer plants
The IASB published for public comment an exposure draft proposing to include bearer plants within the scope of IAS 16, Property, Plant and Equipment. Bearer plants are a class of biological assets that, once mature, are held by an entity solely to grow produce over their productive life. Examples include grape vines, rubber trees and oil palms.
IAS 41, Agriculture, requires all biological assets that are related to agricultural activity, including bearer plants, to be measured at fair value less costs to sell. This requirement is based on the principle that biological transformation is best reflected by fair value measurement. However, once mature, bearer plants no longer undergo significant biological transformation. Rather, their operation is similar to that of manufacturing. As such, the exposure draft proposes that bearer plants be accounted for under IAS 16 instead of IAS 41, thus permitting the use of either a cost model or a revaluation model. The produce growing on the bearer plants would remain under IAS 41’s fair value model.
Comments on the exposure draft are requested by October 28.
IASB publishes guide for micro-sized entities applying the IFRS for SMEs
The IASB has developed a guide to help micro entities that are within the scope of the IFRS for SMEs (i.e., who do not have public accountability, and are either required to prepare general purpose financial statements in accordance with the IFRS for SMEs, as issued in July 2009, or choose to do so) to identify more easily the requirements of the IFRS for SMEs that are relevant to them.
IASB Update—June 2013
This issue of IASB Update, issued by the IASB staff, provides a summary of the IASB’s June 18-19 meetings. The FASB joined the IASB in a joint session to discuss their projects on accounting for financial instruments: classification and measurement.
The topics covered at the IASB-only sessions were:
COSO issues thought paper on managing sustainability risks
In response to the growing number of organizations integrating sustainability into their business operations, COSO has published a new thought paper titled Demystifying Sustainability Risk: Integrating the triple bottom line into an enterprise risk management program. The thought paper leverages COSO’s Enterprise Risk Management—Integrated Framework to offer insight on how organizations can develop interrelated strategies and objectives across the enterprise that create a strong context for risk consideration.
GASB issues proposals on measurement of assets and liabilities and measurement and application of fair value
The GASB has issued the following documents for public comment:
Comments on both documents are requested by September 30.
The table in the attachment lists meetings of standard-setting bodies, PwC webcasts and other events occurring in July 2013 that may be of interest to you. 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.
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.