Flashline - Week ending October 31, 2013 (No. 2013-44)

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Flashline 10/31/2013 by Assurance services
Flashline - Week ending October 31, 2013 (No. 2013-44)

At a glance

This week's PwC update on financial reporting includes: In brief: Most money market funds to be scoped out of consolidation... PwC comments on FASB's proposal on insurance contracts... SEC staff release updated Financial Reporting Manual... and more.

PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).

This week's topics include:

  • In brief: Most money market funds to be scoped out of consolidation
  • PwC comments on FASB's proposal on insurance contracts
  • BoardroomDirect: October 2013 edition
  • SEC staff release updated Financial Reporting Manual
  • FASB meetings and project updates
  • PCAOB issues Staff Audit Practice Alert on considerations for ICFR audits
  • AICPA issues whitepaper on proposals to enhance the auditor’s report
  • Appendix: Key dates in November

PwC

In brief: Most money market funds to be scoped out of consolidation

At its October 24 meeting, the FASB tentatively decided to exclude money market funds that are registered with the Securities and Exchange Commission (SEC), as well as “similar” unregistered money market funds from the scope of the consolidation literature. The FASB also tentatively decided to rescind the 2010 deferral of the variable interest entity consolidation amendments from 2009. Many companies may not be consolidating registered and similar unregistered funds under the deferral of the adoption of the variable interest entity consolidation amendments issued in June of 2009. So for some companies, the temporary deferral may now be a permanent scope out of the consolidation model, while for other companies, the definition of “similar” will determine whether they are required to consider the consolidation model.

This In brief article provides an overview of the FASB's latest decisions.

PwC comments on FASB's proposal on insurance contracts

In our comment letter on the FASB’s proposed Accounting Standards Update, Insurance Contracts, we offer the board some observations and suggestions. Overall, we support the objective of developing a converged standard and encourage the FASB and IASB to resolve their remaining differences and to address certain of our concerns with both of their proposals. Some of those concerns relate to (1) the proposals’ broad scope and potential effect on fixed-fee service contracts of non-financial services entities, (2) the need to include an explicit risk adjustment in measuring insurance contracts, (3) the approach for recognizing margin in net income and whether to adjust the margin for changes in the present value of cash flow estimates, and (4) whether to defer a Day 1 loss that results from discounting at a liability rate.

If the FASB and IASB are not able to resolve their differences and reach a converged standard, then we urge the IASB to finalize and issue its insurance contracts standard once redeliberations and further testing are complete. We also recommend the FASB focus on making targeted, instead of wholesale, changes to current US GAAP. Those targeted changes would include measuring particular guarantee features consistently, enhancing disclosures, and enhancing guidance on the level at which to assess premium deficiency.

BoardroomDirect: October 2013 edition

The October 2013 edition of BoardroomDirect includes an article about what boards can do to help management with such transformational changes as M&A’s, new go-to market strategies, or significant technology rollouts. The newsletter also includes briefs on (1) what boards should know about the SEC’s proposed CEO pay ratio disclosure rules, (2) the results of an annual political spending disclosure index of S&P 500 companies, (3) the moves by a UK regulator on possible executive compensation amendments, (4) the popularity of the financial statement of cash flows, and (5) an upcoming FASB decision on US GAAP alternatives for private companies.

Securities and Exchange Commission (SEC)

SEC staff release 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) guidance for the JOBS Act and issues related to Form 8-K age of interim financial statements, (2) acquisitions of selected parts of an entity that may result in less than full financial statements, (3) Form 8-K requirements in reporting a disposition, (4) the effect of retrospectively applied changes in accounting principles on the significance test for equity method investees, and(5) registrations on Form S-8 for a new employee benefit plan.

The manual serves as an internal, 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.

Financial Accounting Standards Board (FASB)

FASB meetings and project updates

Meeting summaries: The FASB held the following meetings this week:

  • FASB board meeting – October 30: The board discussed its project on the definition of a nonpublic entity. See the FASB’s website for a summary of the decisions reached at the meeting.
  • FASB and IASB joint board meeting – October 30: The boards discussed their joint project on revenue recognition. See the FASB’s website for a summary of the decisions reached at the meeting.

Next open board meeting: The FASB will meet on November 6. The board will discuss its projects on: (1) revenue recognition, (2) going concern and (3) disclosure framework: board’s decision process.

See the FASB’s website for more information on the meeting.

Project update: The FASB has updated the summary of its project on not-for-profit financial reporting: financial statements.

Public Company Accounting Oversight Board (PCAOB)

PCAOB issues Staff Audit Practice Alert on considerations for ICFR audits 

The PCAOB issued Staff Audit Practice Alert No. 11, Considerations for Audits of Internal Control over Financial Reporting, in light of a significant number of audit deficiencies observed in the past three years related to audits of internal control over financial reporting (ICFR). The Alert discusses the application of certain requirements of Auditing Standard No. 5 and other PCAOB standards to specific aspects of audits of internal control, such as:

  • Auditors' risk assessment and the audit of internal control
  • Selecting controls to test
  • Testing management review controls
  • Information technology considerations, including system-generated data and reports
  • Roll-forward of control testing performed at an interim date
  • Using the work of others
  • Evaluating identified control deficiencies

American Institute of Certified Public Accountants (AICPA)

AICPA issues whitepaper on proposals to enhance the auditor’s report

The AICPA staff issued a whitepaper, titled Proposals to Enhance the Auditor’s Report, to provide information about the ongoing projects of the International Auditing and Assurance Standards Board (IAASB) and the PCAOB related to enhancing auditor reporting.

Appendix: Key dates in November

The table in the attachment lists meetings of standard-setting bodies, PwC webcasts and other events occurring in October 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.

Edited by:

Brad Mescher
Director
Phone: 1-973-236-7261
Email: brad.mescher@us.pwc.com

Saira Gilani
Senior Manager
Phone: 1-973-236-5811
Email: saira.s.gilani@us.pwc.com


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.