PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
10Minutes on whistleblower reform
Whistleblower reform is having significant impact. The SEC’s Office of the Whistleblower has one full year of operation under its belt, and with it 3,001 tips and two awards to date. Leading companies are looking closely at the Office’s first-year report and drawing lessons for building stronger ethics and compliance programs. They’re also considering what it takes to create a highly ethical culture. This 10Minutes highlights the importance of having an ethical culture at the workplace.
Observations from the front lines–A higher bar for reporting discontinued operations
The FASB has recently proposed to redefine discontinued operations to include only those disposals of components that represent a significant strategic shift in the business. Disposing of a component that represents a separate major line of business or major geographic area of operations is viewed as a significant strategic shift. This “raising of the bar” from current requirements is expected to result in fewer asset disposals qualifying for discontinued operations presentation.
Financial reporting implications may be significant under the new guidance. Companies may use the proposed standard to rethink disposal strategies and consider how it impacts their communication plan to investors for qualifying transactions. Companies should start to plan now for the potential impact on their business. This issue of Observations from the front lines discusses what the FASB’s proposed changes could mean to companies.
Q2 Current Accounting and Reporting Developments webcast — on-demand option available
Did you miss our Q2 2013 "Current Accounting & Reporting Developments" webcast on June 19? If so, you still have an opportunity to view the webcast and earn CPE credit. We are offering the Q2 2013 webcast in an on-demand format for your convenience. You can access this on-demand version whenever it works best for you. A post-event questionnaire, when completed, qualifies participants for 1.5 CPE credits.
BoardroomDirect Special Edition (Proxy Pulse, second edition)
PwC’s Center for Board Governance issued a Special Edition of BoardroomDirect, the Center’s newsletter for directors and executives. The Special Edition provides a deep dive into shareholder voting patterns and includes the second edition of ProxyPulse, a collaboration between PwC’s Center for Board Governance and Broadridge Financial Solutions that provides data and analysis on voting trends in the current proxy season. The second edition covers the 2,858 annual meetings held between January 1 and May 23, 2013. The analysis is based upon Broadridge’s processing of shares held in street name, which accounts for more than 80% of all outstanding public shares.
PwC comments on proposed auditing standard on using the work of internal auditors
PwC submitted a comment letter on the ASB’s proposed Statement on Auditing Standards, Using the Work of Internal Auditors. In the letter, we express support for the proposal, including that the auditor should evaluate the application by the internal audit function of a systematic and disciplined approach, including quality control. We do not believe this represents a significant change in practice when the internal audit function will be used in the audit of the financial statements. We also support the differences in the proposed SAS from International Standard on Auditing 610 (Revised 2013), Using the Work of Internal Auditors, with respect to using internal auditors in a direct assistance capacity. We agree that these differences are responsive to longstanding practices in the United States and are appropriate.
We also offer suggestions to improve the proposed SAS in finalizing it for issuance, including clarifying that the auditor may be able to use the work of the internal audit function if the nature of the internal audit function’s responsibilities and assurance activities is related to the entity’s financial reporting, even if the internal audit function does not perform all of the activities identified in the definition.
FASB issues final ASU on uncertain tax benefits
On July 18, the FASB issued Accounting Standard Update 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force).
This new standard requires the netting of unrecognized tax benefits (UTBs) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. Under the new standard, UTBs will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. This is a change from prior guidance provided by the FASB staff.
FASB updates hedging guidance to allow Fed Funds (or overnight index swap rate) as a benchmark interest rate
The FASB issued final guidance allowing companies to designate the Federal Funds Effective Swap Rate (which is the Overnight Index Swap rate or OIS in the US) as a benchmark interest rate for hedge accounting purposes, effective immediately. The ASU also removes the restriction on different benchmark rates for similar hedges.
Also, read PwC’s In brief article for an overview of the final guidance.
PCC proposes changes to consolidation of variable interest entities
On July 16, the Private Company Council (PCC) voted to expose a proposed alternative within U.S. GAAP for applying consolidation guidance for leasing entities under common control. The PCC and the FASB also voted to finalize the Private Company Decision-Making Framework.
The proposed GAAP alternative would exempt private companies from applying the consolidation guidance for variable interest entities under common control leasing arrangements. A variable interest entity is an organization in which consolidation is not based on a majority of voting rights. The disclosures to be provided under the alternative would better align the information that lenders and other users of private company financial statements typically use in assessing the cash flows of a reporting entity.
FASB issues U.S. GAAP Financial Reporting Taxonomy Implementation Guide and two proposed guides
The objective of the FASB’s US GAAP Financial Reporting Taxonomy (UGT) Implementation 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 are documents that communicate how the UGT is designed.
The FASB has issued a final U.S. GAAP Financial Reporting Taxonomy (UGT) Implementation Guide, Insurance Industry: Concentration of Credit Risk, which provides examples of how the UGT may be used to model disclosures of reinsurance-related concentrations of credit risk.
The FASB has also issued the following proposed UGT Implementation Guides:
Comments on both proposed guides are requested by September 6.
FASB meetings and project updates
Meeting summary: The FASB met on July 17 and decided to add the following issue to the EITF agenda: “Determining Whether the Host Contract in a Hybrid Financial Instrument Is More Akin to Debt or Equity”. The FASB also considered but decided not to add to the EITF’s agenda an issue that would attempt to clarify whether the deferred tax liability associated with an asset corresponding to an asset retirement obligation should consider the limited deductibility of the future asset retirement expenditures. See the FASB’s website for a summary of the decisions reached at the meeting.
Next open board meetings: The FASB has the following meetings scheduled for next week:
See the FASB’s website for more information on the meetings
Project updates: The FASB has updated the summaries of its projects on:
Final minutes of the June 11 EITF meeting
The FASB staff has published the final minutes of the June 11 EITF meeting. At the meeting, the EITF finalized consensuses on issues affecting interest rate hedges and uncertain tax benefits. It also reached consensuses-for-exposure on issues affecting collateralized financing entities, service concession arrangements, and collateralized mortgage loans. Discussions also began on an issue involving share-based awards with performance targets.
Also, see the June 2013 edition of PwC’s EITF observer for a synopsis of the discussions and decisions reached at the EITF's meeting.
IASB issues Discussion Paper on Conceptual Framework
The IASB issued a Discussion Paper exploring possible changes to the IASB’s Conceptual Framework for Financial Reporting. The objective of this project is to improve financial reporting by providing the IASB with a complete and updated set of concepts to use when it develops or revises International Financial Reporting Standards (IFRSs).
This Discussion Paper is designed to obtain initial views and comments on important issues that the IASB will consider as it develops an exposure draft of a revised Conceptual Framework. The issues include:
Comments on the Discussion Paper are due by January 14, 2014.
IASB completes Post-Implementation Review of operating segments
The IASB announced the completion of its Post-implementation Review of IFRS 8, Operating Segments. This was the first Standard subjected to such a review by the IASB since the requirement to do so was added to its due process by the Trustees of the IFRS foundation in 2007.
The review report of IFRS 8 concluded that the Standard was generally functioning as anticipated. Some limited areas, such as clarifying the concept of a chief operating decision maker (CODM), and enhancing the usefulness of segment disclosures, were noted where further investigation is warranted will also be subject to liaison with the FASB and will be considered within the context of the convergence with US GAAP achieved by IFRS 8.
SEC staff releases updated Financial Reporting Manual
The SEC's Division of Corporation Finance has published an updated version of its Financial Reporting Manual. Some of the notable updates relate to (1) real estate acquisitions, (2) determining significance for equity method investees, and (3) non-GAAP measures, among other changes.
The manual serves as an internal, and informal, reference document to provide general guidance to SEC staff when reviewing for compliance with SEC reporting rules. Though non-authoritative, the manual is a helpful source for companies and auditors to reference for general information on SEC reporting matters.
SEC staff publishes summary of observations re: disclosures of non-traded REITs
The SEC's Division of Corporation Finance released Staff Observations Regarding Disclosures of Non-Traded Real Estate Investment Trusts — the sixth in its Corporation Finance Disclosure Guidance series. The release summarizes the Division of Corporation Finance’s observations in the review of Securities Act and Exchange Act filings of non-traded real estate investment trusts (REITs).
While this Disclosure Guidance Topic is focused on disclosures by non-traded REITs, it also may be applicable to disclosures in connection with offerings by traded REITs or other registrants. Each registrant should consider its own facts and circumstances when preparing its filings.
FAF to conduct post-implementation review of GASB standard on impairment of capital assets
The Financial Accounting Foundation (FAF)—the oversight body of the GASB - announced that it will conduct a Post-Implementation Review (PIR) of the GASB’s standard on impairment of capital assets and insurance recoveries.
Issued in 2003, GASB Statement No. 42 establishes measurement guidance for capital asset impairments and requires governments to report the effects of those impairments when they occur, rather than as a part of the ongoing depreciation expense for the capital asset or upon disposal of the capital asset. It also provides uniform reporting guidance for insurance recoveries of state and local governments.
The FAF expects to issue the review report in August.
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.