PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
Dataline: Going concern — FASB issues exposure draft on going concern assessment and disclosures
In June 2013, the FASB issued a proposal that would require management to assess a company's ability to continue as a going concern and provide related footnote disclosures under certain circumstances.
Under the proposal, footnote disclosure would be required if a company determines it is either 1) more likely than not that it will be unable to meet its obligations within 12 months of the financial statement date or 2) known or probable that the entity will be unable to meet its obligations within 24 months after the financial statement date without taking actions outside the ordinary course of business.
SEC filers would be required to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, if so, express that conclusion in the footnotes using the term "substantial doubt" and specific phrases that use the term "going concern."
Currently, U.S. GAAP and the SEC’s rules on MD&A require companies to disclose all matters that are material. However, there is no financial statement disclosure requirement in the United States specific to going concern. The proposal provides guidance on management’s responsibilities for evaluating and disclosing going concern uncertainties.
This Dataline provides a high level summary of the proposal.
Dataline: Valuation of Privately-Held-Company Equity Securities Issued as Compensation — AICPA issues updated Accounting and Valuation Guide
On May 29, the AICPA's Financial Reporting Executive Committee issued the AICPA Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the Guide), which replaces the 2004 edition of the practice aid on this topic.
The Guide (also known as the Cheap Stock Guide) provides nonauthoritative valuation guidance and illustrations for preparers, auditors, and valuation specialists related to the issuance of privately-held company equity securities for compensation. It highlights practice issues related to estimating the fair value of a minority interest in a company’s privately issued securities. The Guide also illustrates techniques used to determine the fair value of a company and the methods used to allocate the company’s fair value to the components of its capital structure.
This Dataline provides a high level overview of the Guide.
Private company reporter: Private Company Council proposes alternative for applying certain variable interest guidance
At its July 16 meeting, the Private Company Council (PCC) proposed to the FASB an alternative for applying the variable interest entity (VIE) guidance to common control leasing arrangements. The FASB staff will now draft an Accounting Standards Update (ASU) based on the PCC proposal for consideration by the FASB. If endorsed by the FASB, the draft ASU will be exposed for public comment.
The following is a summary of the alternative proposed by the PCC:
The PCC also redeliberated the private company decision-making framework. It reaffirmed many of the decisions previously reached and decided to make some modifications to the framework based on comments received. The framework is expected to be issued in final form during the third quarter of 2013.
This edition of Private company reporter provides further information on the proposed alternative, as well as highlights of other recent developments related to private company reporting.
IFRS news—July/August 2013
This issue of PwC’s IFRS news looks at (1) the IASB's Discussion Paper on Conceptual Framework, (2) the IASB Chairman's 'ten-point' plan to improve disclosures, (3) proposals for insurance contracts, (4) the IFRS Foundation on global adoption of IFRS, (5) the exposure draft on bearer plants, (6) IAS 39 amendments for novation of derivatives, and (7) EU requirements on payments to governments.
PwC issues comments on the IIRC's draft International Integrated Reporting Framework
The PwC global network of firms submitted comments on the IIRC’s consultation draft of its proposed International Integrated Reporting Framework. In the letter, the PwC global network expressed support for the framework. Integrated reporting has the potential to enhance the depth, breadth and quality of corporate reporting and a principles-based framework is a major step in its development. However, integrated reporting is in the development stage and the expansion of reporting to cover environmental, social, governance and other nonfinancial matters will be an evolutionary process that will be guided by stakeholders. As such, the PwC network of member firms believes, among other things, that:
FASB seeks comments on three EITF consensuses-for-exposure
The FASB has issued, for public comment, three proposed Accounting Standards Updates (ASUs) that contain the consensuses-for-exposure reached at the June 2013 EITF meeting. The proposed ASUs are:
Comments on the proposed ASUs are due on September 17.
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.
FASB meetings and project updates
Meeting summaries: The following meetings were held over the past week:
Next open board meeting: The FASB will meet on July 31 to discuss its project on transfers and servicing: repurchase agreements and similar transactions. See the FASB’s website for more information on the meetings.
Project updates: The FASB has updated the summaries of its projects on:
IASB begins Post-Implementation Review of business combinations
The IASB announced that it has begun its Post-Implementation Review of IFRS 3, Business Combinations. IFRS 3 sets out how an entity should account for the acquisition of another entity. It was developed in two stages: the first in 2004 and the second in 2008. The IASB has confirmed that this Post-Implementation Review will look at the changes introduced in both stages, including changes to the presentation of consolidated financial statements that were made at the same time.
Conflict minerals rule upheld in court
The DC District Court this week rejected a lawsuit brought against the SEC's conflict minerals rule by the US Chamber of Commerce and the National Association of Manufacturers. The May 31, 2014 filing requirement therefore stands. Ahead of that, companies must examine their supply chains to identify whether any conflict minerals (tungsten, tin, tantalum and gold) used in their products originated in covered countries—and whether they are “conflict-free” or not. This due diligence takes time, and while an appeal to the court's ruling is possible, companies should not wait on the outcome to get started. For resources, visit PwC's conflict minerals website.
CAQ issues highlights of June 18 meeting of SEC Regulations Committee
The AICPA’s Center for Audit Quality (CAQ) SEC Regulations Committee meets periodically with the staff of the SEC to discuss emerging financial reporting issues relating to SEC rules and regulations. Highlights of the June 18 meeting are now available.
Numerous financial reporting matters were discussed during the meeting, including the following topics:
ASB issues proposed clarified Statement on Standards for Attestation Engagements
The ASB released for comment a proposed clarified Statement on Standards for Attestation Engagements (SSAE) titled Clarification and Recodification. To address concerns over the clarity, length, and complexity of its standards, the ASB has undertaken a significant effort to clarify the professional standards it issues. This proposed SSAE has been drafted in accordance with the ASB’s clarity drafting conventions.
The proposed SSAE restructures the content of various AT sections and specifically requests readers to indicate whether they are supportive of the proposed restructuring. Comments on the exposure draft are requested by October 24.
IAASB reports on findings from post-implementation review of the clarified ISAs
IFAC's International Auditing and Assurance Standards Board (IAASB) released a document titled The Clarified ISAs—Findings from the Post-Implementation Review. The report highlights the findings of the IAASB’s efforts to learn whether the clarified ISAs are being consistently understood and implemented in a way that achieves the IAASB’s goals in clarifying and revising them. The report summarizes the feedback from those most directly involved in the audit process in jurisdictions that have implemented the clarified ISAs. It also describes the IAASB’s process in summarizing the comments and identifies the main themes that have emerged.
The post-implementation review is the second phase of the IAASB’s efforts to monitor the implementation of the clarified ISAs. The report on the first phase of IAASB’s work, undertaken in 2009 and 2010, was published in November 2010.
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.