This week's PwC update on financial reporting includes: The quarter close - A look at this quarter’s financial reporting issues - Q4 2013... Reminder: Q4 current accounting and reporting developments webcast – December 17... AICPA holds 41st Annual National Conference on Current SEC and PCAOB Developments... and more.
PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
The quarter close—A look at this quarter’s financial reporting issues—Q4 2013
This edition of The quarter close and related video perspectives covers the latest developments in financial reporting that will keep companies busy into 2014. Here’s a preview:
In this quarter’s video perspectives, we highlight the top five year-end financial reporting reminders for companies. We also discuss key accounting implications to consider before making changes to retiree healthcare plans. And, we take a look at the current FASB insurance contracts proposal and how it may impact non-insurance companies.
Reminder: Q4 current accounting and reporting developments webcast–December 17
Please plan to attend our fourth quarter 2013 'Current Accounting and Reporting Developments' webcast at 1:00 pm ET on Tuesday, December 17. This 90-minute webcast will provide insights and information about key emerging accounting, regulatory, and market developments impacting financial reporting. On the webcast, you’ll hear from a broad range of PwC specialists who will update you on matters that may impact your business. The webcast will provide 1.5 CPE credits to participants.
We invite you to pre-register for the webcast through the CFOdirect Network.
10Minutes on service provider transparency
Businesses depend on service providers to handle confidential data, run essential business processes, and manage critical technology. This can leave businesses vulnerable to service provider breakdowns. The result can be the providers’ clients violating regulations and even losing customer trust. Yet many businesses may know less than they realize about their service providers’ controls.
This 10Minutes discusses how Service Organizational Control reports (SOC 2 and SOC 3 reports) can give businesses the picture they need to have solid confidence in their service providers.
Dataline: Derivative valuation—The transition to OIS discounting
Derivative pricing practices have evolved in recent years as market participants refine their pricing approaches to capture the elements underlying the pricing of derivative transactions in a changing market. One area that has continued to evolve relates to pricing assumptions on collateralized derivatives. Following the lessons learned during the financial crisis, many market participants recognized that the funding advantages from collateral that may be rehypothecated have value that should be considered in derivative pricing.
The incorporation of these funding advantages has had a broad impact on derivative pricing as a result of the increasingly common use of collateral. The increased use of collateral has been driven by an increased focus in the OTC market on credit risk and funding risk management, as well as by the migration of derivative activity to clearing houses where transactions are typically fully collateralized. As a result, certain collateralized derivatives may be presumed to require valuation based on discounting at the Overnight Indexed Swap (“OIS”) rate.
The derivative pricing changes also impact uncollateralized transactions as market conventions for the way prices are quoted for reference instruments, such as interest rate swaps, have changed.
This Dataline addresses some of the key financial reporting implications relating to these evolving pricing conventions.
Dataline: Highlights of the 2013 AICPA National Conference on Banks and Savings Institutions
The 2013 AICPA National Conference on Banks and Savings Institutions provides banking regulators, the SEC, and standard setters the opportunity to share their views on the hot topics affecting financial institutions today. During this year’s conference, which was held in September, presenters covered the following key topics:
Our Dataline provides highlights of topics discussed at the conference.
In brief: PCAOB reproposes amendments to disclose name of engagement partner and certain other participants in audits
As highlighted in last week’s Flashline, the Public Company Accounting Oversight Board (PCAOB) reproposed for public comment amendments to its auditing standards that would require disclosure in the auditor’s report of the name of the engagement partner and information about certain other participants in the audit. This In brief article provides an overview of the reproposed amendments.
PwC comments on PCAOB’s proposed auditor reporting standards
PwC submitted a comment letter on the PCAOB’s proposed auditor reporting and other information standards. We commend the board for this significant step forward to increase the informational value of the auditor’s report, and we suggest certain changes to help reduce unintended consequences and costs while preserving the proposals’ benefits. Here’s a summary of some of our suggestions:
AICPA holds 41st Annual National Conference on Current SEC and PCAOB Developments
On December 9-11, members of various regulators and standard setters spoke at the AICPA's 41st Annual National Conference on Current SEC and PCAOB Developments. Themes highlighted throughout the conference were those of quality and transparency, which were broadly applicable to the spectrum of conference participants. Topics on quality included both financial reporting and auditing, while transparency was discussed in the context of regulatory practices, audits and disclosures. These themes were expressed in various forms by speakers from the Center for Audit Quality (CAQ), the SEC, and PCAOB, and echoed by others involved in the financial reporting process.
Look for a PwC Dataline coming early next week that will provide a summary and analysis of the key accounting, auditing, and reporting matters addressed at the conference.
FASB meetings and project updates
Meeting summaries: At its December 11 board meeting, the FASB discussed its project on consolidation—principal versus agent analysis. The board also ratified the four consensuses and one consensus-for-exposure reached at the November 14, 2013 Emerging Issues Task Force (EITF) meeting. See the FASB’s website for a summary of the items addressed. Also see the November edition of PwC’s EITF observer for a summary of the EITF items.
Next open board meeting: The FASB will meet on December 18. The board plans to discuss its projects on: (1) not-for-profit financial reporting—financial statements, (2) transfers and servicing—repurchase agreements and similar transactions, (3) accounting for financial instruments—classification and measurement, and (4) accounting for financial instruments—impairment. See the FASB’s website for more information on the meeting.
Insurance contract roundtable: On December 16, the FASB will host a second public roundtable meeting on the boards' exposure draft on insurance contracts. See the FASB’s website for more information.
Project updates: The FASB has updated the summaries of its projects on:
IASB concludes 2010-2012 and 2011-2013 annual improvements cycles; publishes proposed amendments for 2012-2014 cycle
The IASB has issued Annual Improvements to IFRSs 2010–2012 Cycle and Annual Improvements to IFRSs 2011–2013 Cycle. The IASB uses the Annual Improvements process to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of any other project.
Annual Improvements to IFRSs 2010–2012 Cycle is a collection of amendments to IFRSs in response to eight issues addressed during the 2010–2012 cycle for annual improvements to IFRSs. Annual Improvements to IFRSs 2011–2013 Cycle is a collection of amendments to IFRSs in response to four issues addressed during the 2011–2013 cycle. The effective date of each amendment is included in the IFRSs affected.
The IASB also published for public comment an exposure draft of proposed amendments to four IFRSs under its 2012-2014 annual improvements project. Comments on the exposure draft are requested by March 13, 2014.
IIRC releases International Integrated Reporting Framework
The International Integrated Reporting Council (IIRC) has published its International Integrated Reporting Framework. Integrated Reporting promotes a more cohesive and efficient approach to corporate reporting and aims to improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital.
The purpose of the Framework is to establish Guiding Principles and Content Elements that govern the overall content of an integrated report, and to explain the fundamental concepts that underpin them. The Framework identifies information to be included in an integrated report for use in assessing the organization’s ability to create value; it does not set benchmarks for such things as the quality of an organization’s strategy or the level of its performance. It is written primarily in the context of private sector, for-profit companies of any size but it can also be applied, adapted as necessary, by public sector and not-for-profit organizations.
Federal agencies issue final rules implementing the Volcker Rule
On December 10, the SEC and four other federal agencies issued final rules developed jointly to implement section 619 of the Dodd-Frank Act (the “Volcker Rule”).
The final rules prohibit insured depository institutions and companies affiliated with insured depository institutions (banking entities) from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures and options on these instruments, for their own account. The rules also impose limits on banking entities’ investments in, and other relationships with, hedge funds or private equity funds. Like the Dodd-Frank Act, the rules provide exemptions for certain activities, including market making, underwriting, hedging, trading in government obligations, insurance company activities, and organizing and offering hedge funds or private equity funds.
The compliance requirements under the final rules vary based on the size of the banking entity and the scope of activities conducted. Banking organizations covered by section 619 will be required to fully conform their activities and investments by July 21, 2015.
PCAOB issues report on implementation of AS 7 on engagement quality review
The PCAOB released a report that provides information about registered audit firms' implementation of, and compliance with, Auditing Standard No. 7, Engagement Quality Review (AS 7), based on its 2011 inspections of registered public accounting firms. The engagement quality review is an important aspect of an audit, because it can serve as an important safeguard against erroneous or insufficiently supported audit opinions and, accordingly, can contribute to audit quality.
According to the report, while firms' methodologies generally were consistent with the requirements of AS 7, they did not always result in an appropriately executed engagement quality review. The report notes that in a number of engagements in which the PCAOB Inspection staff identified audit deficiencies, the staff concluded that the audit deficiency should have been identified by the engagement quality reviewer. Also, observations from the board's 2012 inspections indicated that audit deficiencies and the related deficiencies in engagement quality reviews continued to be high, according to the report.
PCAOB issues FAQs on broker-dealer funding rules
The PCAOB has published a frequently asked questions (FAQs) document that sets forth the staff's views on issues related to the implementation of the PCAOB's funding rules as they relate to brokers and dealers.
IAASB publishes standard for assurance engagements other than audits or reviews of historical financial information
IFAC's International Auditing and Assurance Standards Board (IAASB) released an updated and enhanced International Standard on Assurance Engagements (ISAE) 3000 (Revised), Assurance Engagements Other Than Audits or Reviews of Historical Financial Information. The standard covers both reasonable and limited assurance engagements, and introduces guidance designed to help readers better understand these two levels of assurance. ISAE 3000 is effective for assurance engagements where the assurance report is dated on or after December 15, 2015.
IFAC releases new guide on review engagements
IFAC has released a Guide to Review Engagements to help professional accountants conducting review engagements in compliance with International Standard on Review Engagements (ISRE) 2400 (Revised), which is effective for periods ending on or after December 31, 2013. The guide includes illustrative examples alongside relevant extracts from the standard, practical points for practitioners’ consideration, and tips on how to efficiently implement the standard.
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.