PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
Now available: 2013 editions of three PwC Guides to Accounting
Additionally, to assist you in understanding the U.S. GAAP and IFRS guidance for fair value measurements, we have issued the 2013 edition of our publication, A Global Guide to Accounting for Fair Value Measurement, the inaugural global edition. This new global guide replaces the prior 2012 U.S. GAAP edition of Guide to Accounting for Fair Value Measurement.
Our Guides to Accounting describe, in detail, PwC's guidance and insight with respect to accounting for specific areas under U.S. GAAP (and IFRS for fair value measurement), primarily by interpreting and supplementing the FASB Accounting Standards Codification and SEC guidance.
Webcast: Conflict minerals—Looking ahead to the first deadline — September 17
Almost 9 months into the first year of compliance, where does your company stand? Do you have a clear path forward to your first conflict minerals filing deadline? Now that the DC District Court has rejected a lawsuit brought against the SEC’s conflict minerals rule, companies should be pressing forward to meet the May 31, 2014 filing requirement.
Join us on this webcast as we share our perspective on the latest developments (including the legal challenge), considerations as you close out your first year of compliance, what to expect in the independent private sector audit – and how to prepare, and examples of how leading companies are addressing their compliance efforts. We invite you to register for the webcast through the CFOdirect Network.
Tax accounting insights: Patent box technology incentives—Tax and financial reporting considerations
This publication discusses key tax and financial reporting considerations of patent box regimes and other technology incentives.
Business expansion and transformation attributable to technological advances have escalated the competition among governments to attract research investments through the use of tax subsidies. The historic focus of incentives towards front-end expenditures has now evolved towards the use of income-based incentives such as patent box regimes. Depending on the terms and operation of each specific incentive, varying financial reporting impacts may occur. The incentives may yield potentially disparate results, depending on the industry and the existing accounting profile and policies of a particular company.
It is more important than ever for companies to understand, and continually assess, the financial accounting for credits and incentives to ensure timely identification, reporting, and disclosure of such benefits. Financial reporting considerations are similarly being given increased attention by policymakers in the design of tax law incentives, which may again become apparent in the context of US tax reform proposals.
PwC comments on three Private Company Council proposals
We submitted comments on the following proposed Accounting Standards Updates (ASU) covering proposals developed by the Private Company Council (PCC):
We express concerns that the proposed standards would create substantial differences between public and private companies in the recognition and measurement of identifiable intangible assets and goodwill. The proposed standards would fundamentally change the current financial reporting models. We are not convinced that either the accounting for identifiable intangible assets or the accounting for goodwill should be one of those rare instances where a substantial difference in recognition and measurement between private companies and public companies is justified. Rather, we would be supportive of the FASB undertaking for all entities a more comprehensive reconsideration of the existing models for the recognition and measurement of intangible assets in a business combination and the post-acquisition financial reporting model for goodwill.
We recognize that the PCC and, in turn, the FASB may decide to move forward with the proposed standards for private companies only. If that is the case, we have provided specific comments in our letters with respect to the implementation of the proposals. Also, given the fundamental differences that the proposed standards would create in the financial reporting for identifiable intangible assets and goodwill between private and public companies, it will be impracticable, in many cases, for a private company that applies the proposed standards to retrospectively adjust its financial statements as a public company. As such, transition guidance or an accommodation should be provided.
We offer the FASB and PCC some observations and suggestions. First, while the combined instruments approach in the proposal may seem like a significant simplification, we believe it is of marginal benefit given that the settlement value of the interest rate swap must still be determined and disclosed. We propose that “settlement value” be replaced with the discounted present value of the remaining estimated cash flows under the agreement using mid-market pricing for creditworthy counterparties. This amount would likely be more effective at arriving at the goals of the standard, and it should be readily determinable by private companies or easily obtainable from outside sources.
The second alternative, the proposed simplified hedge accounting approach, eliminates the burden of preparing and documenting effectiveness testing, while maintaining the FASB’s core principle that all of an entity’s financial instruments should be recognized in the financial statements. This approach is not significantly different from the critical terms match method that is applied in practice today. Accordingly, we not only support this alternative, we recommend the board make it available to all entities, not just private companies.
FASB issues exposure draft of PCC proposal on consolidation of variable interest entities
The FASB issued for public comment an exposure draft of a proposed Accounting Standards Update containing a Private Company Council (PCC) proposal to provide an alternative within U.S. GAAP for applying consolidation guidance to leasing companies under common control. The proposed alternative would exempt many private companies from applying variable interest entity guidance to lessor companies under common control. A variable interest entity is a company in which controlling financial interest is not established based on a majority of voting rights.
Comments on the exposure draft are due by October 14.
FASB meetings and project updates
Meeting summary: The FASB did not hold any board meetings this week.
Next open board meeting: The FASB’s next board meeting will be held on September 4. The board plans to consider whether to add a project to its agenda on determining the grant date in a share-based payment arrangement when there are discretionary provisions and clawback features. It also plans to discuss its project on not-for-profit financial reporting—financial statements. See the FASB’s website for more information.
Project update: The FASB has updated the summaries of its projects on:
IFRS for SMEs Update — July/August 2013
This edition of the IASB's IFRS for SMEs Update includes items on (1) the status of the IASB's discussions on the comprehensive review of the IFRS for SMEs, (2) proposals for private entities in Malaysia, (3) the status of IFRS for SMEs translations, and (4) where to obtain IFRS for SMEs materials
IESBA releases 2012 annual report
IFAC's International Ethics Standards Board for Accountants (IESBA) released its 2012 Annual Report, Connecting and Engaging with Our Global Stakeholders. The report introduces Jörgen Holmquist, the first independent chair of the Ethics Board, and details the board’s ongoing commitment to developing high-quality ethics standards for the global accountancy profession. It emphasizes the board’s further commitment to promoting and facilitating the adoption and effective implementation of these standards around the world, thus supporting professional accountants in their commitment to act in the public interest within their diverse roles in business and practice.
The report summarizes the progress made on the IESBA's Work Plan, which in 2012 included finalizing three pronouncements—breach of a requirement of the Code of Ethics for Professional Accountants (the Code), conflicts of interest, and a revised definition of the term “engagement team.” The report also highlights the board’s efforts in exploring appropriate ethics standards for professional accountants in one of the most challenging projects the board has undertaken so far—responding to a suspected illegal act.
The table in the attachment lists meetings of standard-setting bodies, PwC webcasts and other events occurring in September 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.