This week's PwC update on financial reporting includes: Point of view: Insurance contract accounting—The path forward... EITF observer—November 2013... IASB issues final standard on hedge accounting... and more.
PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
Point of view: Insurance contract accounting—The path forward
The FASB and IASB have been jointly deliberating insurance contract accounting since 2008. The intent was to issue a single standard that reflects a converged accounting model. However, the models the boards proposed in June are not converged in several important respects.
In our Point of view, we encourage the boards to continue to work together with a goal of issuing a single, high-quality global standard on insurance contract accounting. High-quality global accounting standards would improve the ability of stakeholders to compare companies across territories and would enhance the efficiency of capital allocation around the world.
If the boards cannot achieve the goal of a single, high-quality standard, we do not believe the FASB should forge ahead with a new model. Rather, we recommend the FASB make targeted enhancements to its existing standards in a few key areas. These would address some of the more significant limitations of the current model in a cost-beneficial way. Read our Point of view to learn more.
Dataline: Evaluating accounting errors in previously-issued financial statements
Potential restatements of previously issued financial statements are often challenging situations. To help companies navigate these challenging situations, Dataline 2013-22 outlines the accounting framework for evaluating errors in previously-issued financial statements.
Under the accounting literature, errors in US GAAP financial statements filed with the SEC must be evaluated using both the "iron curtain" method and the "rollover" method. Many companies whose financial statements are not filed with the SEC also evaluate errors using both of these methods. The use of both methods is commonly referred to as the "dual" method of evaluating errors.
When errors in previously-issued financial statements are identified, they must be assessed to determine whether the affected financial statements are materially misstated. If the previously-issued financial statements are materially misstated, they should be corrected promptly. If the previously-issued financial statements are not materially misstated, then the error may be corrected prospectively.
BoardroomDirect: Special edition (Audit committee disclosure)
PwC’s Center for Board Governance issued a special edition of BoardroomDirect, the Center’s newsletter for directors and executives. It examines a release from the Center for Audit Quality (CAQ) titled Enhancing the Audit Committee Report: A Call to Action, on the importance of audit committees voluntarily and proactively enhancing their proxy report and other disclosures. The paper is the product of the Audit Committee Collaboration, a group formed in 2012 comprising, The National Association of Corporate Directors, Corporate Board Member/NYSE Euronext, Tapestry Networks, the Association of Audit Committee Members, Inc., and the CAQ.
The special edition of BoardroomDirect provides a summary of key topics and leading practices featured in the call to action. In addition, it provides questions that audit committees might consider addressing in their disclosure to increase transparency.
Director dialogue with shareholders—what you need to consider
PwC’s Center for Board Governance released a new publication titled Director dialogue with shareholders–what you need to consider. The publication, written jointly with attorneys in the Corporate Law practice at law firm Weil Gotshal & Manges, LLP, addresses issues around director and shareholder communications. It analyzes the public company-shareholder communications environment and provides a framework for boards considering whether, when, and how to communicate with shareholders. Among other issues, the publication describes how director dialogue with shareholders can be handled while complying with Regulation Fair Disclosure, or Reg FD.
In brief: Discontinued operations—FASB to issue final standard
As highlighted in last week’s Flashline, the FASB completed its redeliberations and voted to issue a final standard that will change the criteria for determining which disposals are presented as discontinued operations. This In brief article provides an overview of the FASB's decision and the key provisions expected to be included in the final standard.
Private company reporter: PCC approves alternative that exempts certain arrangements from VIE guidance
At its November 12 meeting, the Private Company Council (PCC) voted to finalize an Accounting Standards Update (ASU) that would offer private companies an exemption from applying the variable interest entity (VIE) consolidation model to certain common control leasing arrangements. The approved alternative is now subject to final endorsement by the FASB. If endorsed, the final ASU would likely be issued in either late 2013 or early 2014, and early adoption would be permitted.
Also at the November PCC meeting, the FASB staff provided an update on the status of the two previously approved accounting alternatives, related to the accounting for goodwill subsequent to a business combination and the simplified hedge accounting approach for certain interest rate swaps. The FASB plans to discuss the endorsement of these alternatives at its November 25 board meeting. If endorsed, it is expected that final ASUs for these alternatives could be released before the end of 2013. The alternatives would be effective for fiscal years beginning after December 15, 2014 with early adoption permitted.
This edition of Private company reporter provides further information on the PCC meeting.
EITF observer—November 2013
At its November 14 meeting, the FASB’s Emerging Issues Task Force (EITF) reached final consensuses on four issues affecting consolidated collateralized financing entities, service concession arrangements, low income housing tax credit investments, and collateralized consumer residential mortgage loans. A consensus-for-exposure was reached on an issue pertaining to the classification of certain government guaranteed residential mortgage loans upon foreclosure by a creditor. Discussions also continued on an issue affecting the application of the pushdown basis of accounting. The final consensuses and consensus-for-exposure must first be ratified by the FASB at its December 11 meeting before becoming final accounting standards updates (ASUs) or being exposed for public comment.
This edition of EITF observer provides a synopsis of the discussions and decisions reached at the November 14 EITF meeting.
FAF issues post-implementation review report on income taxes and announces next standard for review
The Financial Accounting Foundation (FAF), the oversight body of the FASB, published a post-implementation review report (PIR) on FASB Statement No. 109, Accounting for Income Taxes (now part of FASB Accounting Standards Codification Topic 740). Overall the report finds that FAS 109 generally achieves its purpose. However, the report also notes that accounting for income taxes remains complex, some of the tax information may not be sufficiently aligned with investor needs, and stakeholders incur significant ongoing costs to comply with FAS 109. The PIR team had no significant standard-setting process recommendations as a result of the review.The FAF also announced that the post implementation review team will begin a review of FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, after completing their review of FASB Statement No. 157, Fair Value Measurements, early next year.
FASB meetings and project updates
Meeting summaries: The FASB and IASB met on November 20 to discuss their projects on (1) financial instruments: classification & measurement, and (2) leases. See the FASB’s website for a summary of the items addressed.
Next open board meeting: The FASB will meet on November 25. The board will discuss whether to endorse two Private Company Council (PCC) decisions resulting from the September 30 and October 1 PCC meetings. See the FASB’s website for more information on the meeting.
Project update: The FASB has updated the summary of its project on: private company decision-making framework.
IASB issues final standard on hedge accounting
The IASB released new guidance on hedge accounting under IFRS that more closely aligns it with an entity’s risk management strategies. The new guidance establishes a more principle-based approach to hedge accounting and addresses inconsistencies and limitations in the current IFRS hedge accounting model.
See PwC’s In brief article that provides an overview of the key provisions of the IASB’s final standard.
IASB issues narrow scope amendments to IAS 19, Employee benefits
The IASB issued narrow scope amendments to IAS 19 Employee benefits. The narrow scope amendments apply to contributions from employees or third parties to defined benefit plans. The objective of the amendments is to simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. The amendments are effective July 1, 2014, with earlier application permitted.
PCAOB to meet on November 25 to consider 2014 budget and strategic plan
The PCAOB has scheduled an open meeting for Monday, November 25, to consider adoption of the PCAOB budget for the 2014 fiscal year and the related strategic plan. The budget will form the foundation for the PCAOB 2014 accounting support fee assessments. If the budget and strategic plan are approved by the board, the strategic plan will guide the board's use of resources funded by the 2014 budget.
FAF issues new policy on GASB scope of authority
The FAF Board of Trustees adopted a new policy that clarifies the characteristics of the information the GASB may incorporate into the financial accounting and reporting concepts, standards, and guidance that it issues for state and local governments. The new policy, described in GASB Scope of Authority: Consultation Process Policy, is effective immediately. The policy outlines a pre-agenda consultation process for the GASB and the FAF’s Standard-Setting Process Oversight Committee to follow in determining whether information the GASB might consider for standard-setting activity is “financial accounting and reporting information” within the scope of the GASB’s standard-setting mission.
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.