This week's PwC update on financial reporting includes: Dataline: Implications of recent events in Venezuela—Modifications to SICAD... Dataline: Assets acquired to be used in research and development activities - AICPA’s Accounting & Valuation Guide... Dataline: Accounting for investments in qualified affordable housing projects... BoardroomDirect: January 2014... and more.
PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
Dataline: Implications of recent events in Venezuela—Modifications to SICAD
In December 2013, the Venezuelan regulation that created the SICAD mechanism was amended to expand its use, and to require publication of the average exchange rate implied by transactions settled in SICAD auctions. SICAD is not a free market auction because participation is controlled by the Venezuelan government, and the bidder that offers the highest price does not necessarily win. Companies that use US GAAP should not use the published SICAD rate to remeasure their BsF denominated monetary balances as of December 31, 2013.
This Dataline highlights the key financial reporting impacts of these developments.
Dataline: Assets acquired to be used in research and development activities—AICPA’s Accounting & Valuation Guide
The AICPA’s Financial Reporting Executive Committee (FinREC) recently issued an Accounting and Valuation Guide covering acquired in process research and development assets. The Guide, which is non-authoritative, replaces a 2001 AICPA practice aid on this topic.
What are the key changes from the 2001 practice aid? They include:
This Dataline summarizes key aspects of the Guide and offers insights into key challenges companies may face.
Dataline: Accounting for investments in qualified affordable housing projects
The FASB issued Accounting Standards Update (ASU) No. 2014-01 in mid-January 2014 to revise the accounting for investments in qualified affordable housing projects. It reflects the final consensus reached by the FASB’s Emerging Issues Task Force (EITF) at its November 2013 meeting. The ASU is effective for annual periods beginning after December 15, 2014; early adoption is permitted.
The ASU modifies the conditions that must be met to present the pretax effects and related tax benefits of investments in qualified affordable housing projects as a component of income taxes (“net” within income tax expense). It is expected that the new guidance will enable more investors to use a “net” presentation for investments in qualified affordable housing projects. Investors that do not qualify for “net” presentation under the new guidance will continue to account for such investments under the equity method or cost method, which results in losses recognized in pretax income and tax benefits recognized in income taxes (“gross” presentation of investment results).
For investments that qualify for the “net” presentation of investment performance, the ASU introduces a “proportional amortization method” that can be elected to amortize the investment basis. If elected, the method is required for all eligible investments in qualified affordable housing projects.
This Dataline highlights key provisions of the new guidance.
Dataline: Accounting for hedging activities—IASB new general hedge accounting requirements
The IASB’s amendment to IFRS 9 (issued in November 2013) addresses inconsistencies and limitations in the current IFRS hedge accounting model in several ways. It replaces today’s 80% to 125% bright line test and introduces ‘hedge ratio’ based on the quantity of the hedged item and hedging instrument. It allows risk components of non-financial items to be designated as hedged items. Aggregated exposures that include derivatives can also be hedged items. The time value of options, the forward element of a forward contract and currency basis spreads arising from foreign currency interest-rate derivatives can be addressed in a manner that minimizes volatility in the income statement.
The amendment also removed IFRS 9’s previous mandatory effective date of January 1, 2015, but the standard is available for immediate application. The amended standard provides an accounting policy choice for an entity to continue to apply hedge accounting (and hedge accounting only) under IAS 39 instead of IFRS 9 until the IASB completes its separate macro hedging project.
This Dataline highlights key provisions of the IASB's new guidance
BoardroomDirect: January 2014
The January 2014 edition of BoardroomDirect includes an in-depth discussion on board effectiveness, shareholder communications, risk oversight, and board diversity. The newsletter also includes briefs on (1) a federal appeals court hearing on the SEC’s conflict minerals rule, (2) ISS’s release of an FAQ on corporate bylaws that disqualify prospective directors who are paid by activist shareholders, (3) A CII petition asking the SEC to adopt universal proxy cards in contested elections, (4) a revision to the Volcker rule, (5) an SEC staff report on public company disclosure, (6) a CAQ alert on the 2013 audit cycle, and (7) the SEC’s 2014 examination priorities.
FASB issues final guidance on service concession arrangements
The FASB has published Accounting Standards Updates No. 2014-05, Service Concession Arrangements (the ASU), to codify a consensus reached by the EITF at its November 2013 meeting. The ASU provides criteria for determining whether an arrangement qualifies as a service concession arrangement within the scope of the new guidance. For arrangements within the scope, entities are prohibited from accounting for them as leases.
The ASU is effective for a public business entity for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. For an entity other than a public business entity, the amendments are effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early adoption is permitted.
Also see the November 2013 edition of PwC’s EITF observer for a high-level overview of the new guidance.
FASB votes on new agenda priorities
This week, the FASB voted to reorganize its agenda to focus more closely on the issues most important to FASB stakeholders. As a result, the FASB made many changes to its technical agenda. For example, it added a project to develop guidance for disclosure requirements related to government assistance, and removed numerous projects such as: earnings per share, emissions trading, and the short-term convergence project on income taxes.
The FASB also decided to remove a number of projects from the EITF agenda including, for example, commodity inventories of brokers and dealers (EITF 06-12), interpretation of constraining conditions of a transferee in a CBO structure (EITF 03-15), and multiple foreign exchange rates (EITF 10-B).
The FASB chairman, with input from other board members, also decided that the FASB will perform research on several projects, such as: accounting for financial instruments (hedging, liquidity and interest rate disclosures), conceptual framework, and financial statement presentation.
For more information on the agenda changes, see the FASB’s website.
FASB meetings and project updates
Meeting summaries: The following meetings were held over the past week:
Next open board meetings: There are no FASB meetings scheduled for next week. The next FASB meeting is scheduled for February 12.
Project updates: The FASB has updated the summaries of its projects on:
SEC staff publishes new compliance and disclosure interpretations
The SEC's Division of Corporation Finance (Corp Fin) issued a new Compliance and Disclosure Interpretations (C&DIs) publication on Exchange Act Rule 14a-4(a)(3) which deals with the “unbundling” of separate matters that are submitted to a shareholder vote by a company or any other person soliciting proxy authority.
Corp Fin also added two new questions to its C&DI publication on Securities Act Rules. Questions 260.33 and 260.34 were added under Section 260. Rule 506 – Exemption for limited offers and sales without regard to dollar amount of offering.
ASB proposes clarified standards as part of attestation clarity project
The ASB issued the second exposure draft of proposed Statement on Standards for Attestation Engagements (SSAE) titled Subject-Matter Specific Attestation Standards: Clarification and Recodification, resulting from its clarity project. The proposal would restructure the content of three subject-matter-specific standards: (1) AT section 301, Financial Forecasts and Projections, (2) AT section 401, Reporting on Pro Forma Financial Information, and (3) AT section 601, Compliance Attestation.
Comments are requested by May 27, 2014.
IASB begins public consultation on Post-implementation Review of IFRS 3
The IASB began the public consultation stage of its review of IFRS 3, Business Combinations, by publishing a Request for Information on experience with, and the effect of, implementing the standard. The Request for Information seeks feedback on whether IFRS 3 provides information that is useful to users of financial statements, whether there are areas of the standard that represent implementation challenges, and whether unexpected costs have arisen when preparing, auditing or enforcing the requirements of the IFRS 3. In addition, the IASB will undertake a range of outreach activities to gather further feedback on the effect of implementing IFRS 3.
IASB issues interim standard on rate-regulated activities
The IASB issued an interim standard — IFRS 14, Regulatory Deferral Accounts. The aim of this interim standard is to enhance the comparability of financial reporting by entities that are engaged in rate-regulated activities. IFRS does not provide any specific guidance for rate-regulated activities. The IASB has a project to consider the broad issues of rate regulation and plans to publish a Discussion Paper on this subject in 2014. Pending the outcome of this comprehensive rate-regulated activities project, the IASB decided to develop IFRS 14 as an interim measure.
IFRS 14 permits first-time IFRS adopters to continue to recognize amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognize such amounts, the standard requires that the effect of rate regulation must be presented separately from other items. An entity that already presents IFRS financial statements is not eligible to apply the standard.
IFRS 14 is effective from January 1, 2016, with early application permitted.
IASB Update — January 2014
This issue of IASB Update issued by the IASB staff, provides a summary of the IASB’s January 21-23 meetings. The FASB joined the IASB in a joint session to discuss their projects on (1) insurance contracts and (2) leases.
Some of the topics discussed were: (1) the use of information by capital providers, (2) financial Instruments: classification and measurement and impairment, (3) sale or contribution of assets between an investor and its associate or joint venture, (4) proposed amendments to IAS 28, Investments in Associates and Joint Ventures, (5) amendments to IFRS 11, Joint Arrangements, and (6) amendments to IAS 1.
PAIB eNews—January 2014
This issue of IFAC's PAIB Committee eNews addresses various topics including:
The table in the attachment lists meetings of standard-setting bodies, PwC webcasts and other events occurring in February 2014 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:
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.