PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
Point of view: Lease accounting — Enhancing the financial reporting model
The FASB and IASB's lease proposal requires substantially all leases to be reported on a company’s balance sheet. In the income statement, the results of the lease transaction would be recognized under a dual model. In our Point of view, we support the principle that a company should recognize the right to use an asset along with the contractual liability on its balance sheet. And, since not all leases are economically similar, we support a dual model for income statement recognition. However, we recommend an alternative approach that is based on whether the lease, in effect, transfers the risks and rewards of ownership such that the company that is leasing the asset has, in substance, purchased the asset. Our alternative eliminates the quantitative bright-lines in existing US lease accounting standards, is familiar to those accustomed to the international lease accounting standards, better reflects the economics of the arrangement, and provides more transparency to users of financial statements.
Private company reporter: PCC votes to finalize standards on goodwill and interest rate swaps
Last week, the Private Company Council (PCC) voted to finalize two standards that would provide private companies alternatives for accounting for goodwill and, separately, for a simplified hedge accounting approach for certain interest rate swaps.
The FASB will discuss the proposed alternatives and also consider the applicability of these alternatives to publicly traded companies and not-for-profit organizations in the coming weeks. If the FASB decides to endorse the alternatives, they will be issued as final Accounting Standards Updates.
This edition of Private company reporter provides further information on the proposed alternatives and other topics discussed at last week’s meetings, as well as highlights the upcoming November PCC meeting.
In brief: FASB changes course on repurchase agreement project
At its October 2 meeting, the FASB tentatively decided to retain some aspects of the accounting model for repurchase agreements that it proposed in an exposure draft issued in January 2013. This is a significant change from the board’s tentative decision in May 2013 when, after reviewing comment letter feedback, it decided not to modify the accounting for transfers of financial assets and only require additional disclosures.
Our In brief article provides an overview of the FASB’s latest decisions on the project.
Boardroom Direct: Special edition (Proxy Pulse, third edition)
PwC’s Center for Board Governance issued a special edition of BoardroomDirect, the Center’s newsletter for directors and executives. It highlights the third and final edition of ProxyPulse for the 2013 proxy season. ProxyPulse is a collaboration of PwC’s Center for Board Governance and Broadridge Financial Solutions that provides data and analysis on voting trends of institutional and retail shareholders covering 4,037 annual meetings held between January 1 and June 29, 2013. It offers insight on director elections, say on pay, proxy material distribution, and the mechanics of shareholder voting. In addition, the edition provides key questions directors might ask.
IFRS news — October 2013
This issue of PwC’s IFRS news looks at (1) the IFRS Interpretations Committees’ progress report, (2) the end of an era of joint standard setting, (3) an academic view of the Conceptual Framework project, (4) IASB’s revenue and financial instruments projects, (5) proposed IAS 1 amendments, (6) proposed IAS 19 amendments, and (7) joint protocols with IOSCO.
PwC comments on ASEC's proposed Trust Services Principles and Criteria exposure draft
In our comment letter to the AICPA’s Assurance Services Executive Committee (ASEC) on its proposed Trust Services Principles (TSP) and Criteria exposure draft, we offer the ASEC some observations and suggestions. While overall we agree with the restructuring and revised TSP and Criteria, within our response we specifically highlighted and provided examples where some criteria could be further enhanced. In addition, we note that the current effective date could present significant challenges to service organizations that have recurring trust services reports or who are currently in the process of preparing for their initial trust services report. Accordingly, we suggest the ASEC consider a phased rollout of the revised TSP and Criteria.
PwC comments on FASB's proposed definition of a public business entity
In our comment letter on the FASB’s proposed Accounting Standards Update (ASU), Definition of a Public Business Entity, an Amendment to the Master Glossary, we agree with most of the proposed criteria that would comprise a definition of a public business entity. However, we have a concern with the criterion "other entities whose financial statements or financial information are required to be or are included in a filing." Based on that criterion, a private company could be considered a public business entity as a result of an acquisition or investment by a public company, in which case the private company's historical financial statements would be required to be prepared pursuant to the public company requirements. Preparers could face significant challenges in unwinding previously elected private company accounting alternatives. We recommend that the board focus on the complexities created in financial reporting for both public and private companies in circumstances where the "status" of a private company changes due to such events.
In addition, we point out that the term "unrestricted securities" conveys an important distinction in the proposed criteria, but it is not defined in US GAAP. As such, we recommend that this term be included in the Master Glossary of the FASB’s Accounting Standards Codification.
FASB meetings and project updates
Meeting summary: The FASB met on October 9 and discussed its project on disclosure framework. See the FASB’s website for a summary of the decisions reached at the meeting.
Next open board meeting: There are no FASB board meetings scheduled for next week. The FASB’s next board meeting is scheduled for October 23. The topics for this meeting will be announced shortly before the meeting.
Project update: The FASB has updated the summary of its project on transfers and services: repurchase agreements and similar transactions. Also see PwC’s In brief article above.
IASB announces new staff group to focus on disclosure initiative
The IASB announced the formation of a new staff group to work on its disclosure initiative. The IASB has been developing short- and medium-term strategies to address concerns about how financial information is disclosed. The initiative brings together members of the IASB’s standard-setting team with the eXtensible Business Reporting Language (XBRL) team to jointly focus on financial statement disclosures and electronic reporting of financial information.
PCAOB adopts standards for broker-dealer audits and supplemental information
The PCAOB has adopted two attestation standards pertaining to audits of brokers and dealers intended to help protect customer funds by enhancing the quality of compliance information provided to the US Securities and Exchange Commission (SEC) and used in its regulatory oversight of broker-dealers.
The PCAOB also adopted an auditing standard applicable when auditors are engaged to perform audit procedures and report on supplemental information that broker-dealers and others file with the SEC. The PCAOB also adopted related amendments to other PCAOB standards.
All new standards and amendments adopted by the PCAOB are submitted to the SEC for approval. The above standards and amendments will be effective, subject to approval by the SEC, for examination engagements and review engagements of fiscal years ending on or after June 1, 2014.
PCAOB updates standard-setting agenda
The PCAOB issued an updated standard-setting agenda, which provides a brief project overview of the board's current standard-setting agenda and outlines key milestones on various standard-setting project.
IESBA eNews — September 2013
This issue of IESBA eNews provides a summary of decisions reached at the September 16-18 meeting of the IFAC's International Ethics Standards Board for Accountants (IESBA). Some of the topics discussed include the following:
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, visit CFOdirect Network (www.cfodirect.pwc.com), PwC’s online resource for financial executives.