This week's PwC update on financial reporting developments includes: Shareholder questions: Management's considerations for 2014 annual meetings... M&A snapshot: Cross-border acquisitions — Due diligence and pre-acquisition risk considerations... PwC comments on International Valuation Standards Council’s credit and debit valuation adjustments exposure draft... and more
PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
Shareholder questions: Management's considerations for 2014 annual meetings
PwC’s Shareholder questions: Management's considerations for 2014 annual meetings publication is intended to help management and the board of directors of public companies prepare for the annual meeting of shareholders. It contains example questions on topics that may be top-of-mind for shareholders, along with background information and suggested actions for management's consideration.
M&A snapshot: Cross-border acquisitions — Due diligence and pre-acquisition risk considerations
In today’s global economy, companies do not hesitate to look beyond their borders to find the right acquisition to grow their business. Buyers of foreign businesses need to have a comprehensive understanding of global accounting differences, regulatory requirements, foreign and domestic tax considerations, and the impact the acquisition will have on its financial reporting. A lack of knowledge in these areas could cause last-minute surprises that delay a deal’s timing and result in a buyer over- or under-valuing the target.
This edition of Mergers & acquisitions — a snapshot is the first in a series focused on navigating the waters of a cross-border acquisition. The series will look at various aspects along the deal continuum, including pre-acquisition due diligence and strategies, financial reporting requirements, tax implications, and post-acquisition considerations. This edition focuses on the pre-acquisition phase, including how GAAP differences can impact valuation and how a company can manage the financial risk exposure that arises from a cross-border acquisition.
PwC comments on International Valuation Standards Council’s credit and debit valuation adjustments exposure draft
PwC submitted a comment letter to the Standards Board of the International Valuation Standards Council (IVSC) on its exposure draft (ED) of proposals aimed at providing information on credit and debit valuation adjustments. While we agree with the Standards board that the valuation of derivatives is a complex area and that information aimed at improving the general understanding of complex valuation concepts is beneficial, we have laid out three fundamental concerns with the exposure draft that we believe the board should address before proceeding with its issuance.
First, it is not clear what valuation standard this document is interpreting. Without that clarity, it is difficult for a reader to understand the conceptual framework that underpins the document, and may interfere with the stated goal of reducing diversity. We believe that the Standards Board should be more disciplined in its use of Technical Information Paper (TIPs), and be sure to provide clear linkage to a related valuation conceptual standard.
Second, the TIP states that the issue applies not only to financial institutions, but to corporate entities as well. It is unclear whether the views of those corporate entities have been fully considered in the document, and we suggest that the Standards Board specifically solicit and incorporate those views prior to release.
Finally, we do not believe a TIP should dictate or prescribe what model or technique is appropriate for a given user. Rather, it is more appropriate to provide information about the valuation standard that enables users to make an informed decision based on their specific facts and circumstances.
FASB issues Conceptual Framework exposure draft on notes to financial statements
The FASB issued an exposure draft of the Conceptual Framework for Financial Reporting: Notes to Financial Statements (the “Proposal”). The Proposal is intended to make financial statement disclosures more effective and less redundant. It details a framework to be used by the FASB in its standard-setting activities for determining what information is relevant to the users of financial statements and should be included in the notes. The framework will not only be used as a basis for establishing future disclosure requirements, but can be used to evaluate existing disclosures.
The exposure draft focuses on:
Comments are requested by July 14, 2014.
Also see PwC’s In brief article for a high-level summary of the key aspects of the Proposal.
FASB meetings and project updates
Meeting summary: The FASB did not hold any board meetings in the past week.
Next open board meeting: The FASB will meet on March 12. The board plans to discuss its projects on (1) accounting for financial instruments—classification and measurement, (2) accounting for financial instruments—impairment, (3) consolidation—principle versus agent analysis, (4) transfers and servicing—repurchase agreements and similar transactions, and (5) financial statements of not-for-profit entities. See the FASB’s website for further information on the meeting.
Project updates: The FASB has updated the summaries of its projects on:
Materials for the March 13 EITF meeting
The FASB staff has published the following materials for the March 13 EITF meeting:
To obtain all of the materials for the EITF meeting, visit the FASB’s website.
IFRS Foundation and International Valuation Standards Council coordinate on fair value
The IFRS Foundation and the IVSC announced a joint statement of protocols for cooperation on International Financial Reporting Standards (IFRS) and International Valuation Standards (IVS). The aim of the agreement is to ensure that both organizations are able to cooperate effectively with respect to fair value measurement, with each organization continuing to assume sole responsibility for their standards.
IFRS Foundation publishes 2014 Taxonomy
The IFRS Foundation has published the IFRS Taxonomy 2014. The IFRS Taxonomy is a translation of IFRS into eXtensible Business Reporting Language (XBRL). The IFRS Taxonomy 2014 consolidates all IFRS Taxonomy Proposed Interim Releases issued since the publication of the IFRS Taxonomy 2013. It also includes new concepts that reflect some industry practices.
The IFRS Taxonomy 2014 follows a different format than the IFRS Taxonomy 2013, with separated modules for full Standards, IFRS for SMEs and IFRS Practice Management Commentary.
IFRS for SMEs Update — February 2014
This edition of the IASB's IFRS for SMEs Update covers, among other things, (1) upcoming comment deadline on the proposed amendments to the IFRS for SMEs, (2) updated terms of reference and operating procedures for the SME Implementation Group, and (3) a status report of IFRS for SMEs translation.
GASB proposes new GAAP hierarchy for State and Local Governments and issues proposed Implementation Guide
The GASB has published an exposure draft which is intended to reduce the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and non-authoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP.
The GASB also issued an accompanying proposed implementation guide which is a culmination of all implementation guidance to date. The board’s decision to elevate the level of the implementation guidance in the GAAP hierarchy would require that implementation guides be exposed for a period of broad public comment, as with other GASB pronouncements. The change in the authoritativeness level of implementation guidance necessitated certain changes to the existing guidance.Comments are requested by December 31, 2014.