This week's PwC update on financial reporting developments includes: Point of view: Financial statement disclosures... Dataline: Implications of recent events in Venezuela... PwC comments on proposed amendments to ASB's comfort letter standard... 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: Financial statement disclosures - Enhancing their clarity and understandability
Preparers can take actions today to make sure they are preparing clear and understandable disclosures based on the facts and circumstances. Other capital market participants also have a role to play by encouraging disclosure of only important, relevant information. Within established rules and legal requirements, exercising well-reasoned judgment to determine relevant disclosures should streamline financial statement presentation and provide users with the information that is most important for decision making. Organization, formatting and cross-referencing also can enhance navigation within the financial statements. Read our Point of view to find out more.
Dataline: Implications of recent events in Venezuela—Multiple legal exchange rates exist as of March 31, 2014
At March 31, 2014, there were three legal exchange mechanisms administered by the Venezuelan government, each with a different exchange rate: the fixed official CENCOEX rate, the variable auction-like SICAD1 rate, and the variable transaction-based SICAD2 rate.
The recent introduction of the variable SICAD1 and SICAD2 mechanisms requires reporting entities to exercise considerable judgment to determine which rate to utilize to remeasure their bolivar denominated monetary assets and liabilities, and to record associated revenues and expenses. There will likely be significant diversity among reporting entities in the March 31, 2014 financial reporting cycle.
It remains imperative that reporting entities provide robust footnote disclosure regarding their operations in Venezuela.
This Dataline highlights key financial reporting impacts of the recent events in Venezuela.
PwC comments on proposed amendments to ASB's comfort letter standard
PwC submitted a comment letter supporting the Auditing Standards Board’s (ASB) proposed Statement on Auditing Standards (SAS) to amend AU-C section 920, Letters for Underwriters and Certain Other Requesting Parties, As Amended (the proposed SAS). We support the objectives of the proposed SAS to avoid unintended changes to previous practice and to enhance the clarity of the guidance. We recommend that the ASB do the following in finalizing the SAS:
Our letter also identifies a number of editorial changes for the ASB’s consideration.
On demand webcast version: Q1-2014 Current Accounting and Reporting Developments
Did you miss our Q1-2014 "Current Accounting & Reporting Developments" webcast on March 18? If so, you still have an opportunity to view the webcast and earn CPE credit!
PwC is offering the Q1-2014 webcast in an on-demand format for your convenience. You can access this on-demand version whenever it works best for you. A post-event questionnaire, when completed, qualifies participants for 1.5 CPE credits.
FASB issues final standard redefining discontinued operations
The FASB issued Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity which changes the threshold for reporting discontinued operations and adds new disclosures. These changes will impact entities across all industries, particularly those that actively divest.
The new guidance defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The standard states that a strategic shift could include a disposal of: a major geographical area of operations; a major line of business; a major equity method investment; or other major parts of an entity. Although “major” is not defined, the standard provides examples of when a disposal qualifies as a discontinued operation.
Having significant continuing involvement with a component after a disposal or failing to eliminate the operations or cash flows of a disposed component from an entity’s ongoing operations no longer will preclude presentation as a discontinued operation. However, having significant continuing involvement triggers new disclosures.
Individually significant components that have been disposed of or are held for sale that do not meet the definition of a discontinued operation require new disclosures.
The standard is required to be adopted by public business entities (and not-for-profit entities that issue securities or are conduit bond obligors) in annual periods beginning on or after December 15, 2014, and interim periods within those annual periods. It is effective for all other entities in annual periods beginning on or after December 15, 2014, and interim periods beginning on or after December 15, 2015. However, all entities may early adopt the guidance for new disposals (or new classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance.
Also, read PwC's In brief article that provides an overview of the FASB’s change to which disposals qualify as a discontinued operation and describes some of the new disclosures.
FASB meetings and project update
Meeting summary: The FASB met on April 16 and discussed its projects on (1) consolidation-principal versus agent analysis and (2) insurance contracts. See the FASB’s website for the board’s meeting summary.
Next open board meetings: The following meetings will be held next week:
See the FASB’s website for further information on the meetings.
Project update: The FASB has updated the summary of its project on: Consolidation: Principal versus agent analysis
Final minutes of the March 2014 EITF meeting
The FASB staff has published the final minutes of the March 2014 EITF meeting. At the meeting, the EITF reached final consensus on one issue affecting share-based payments when the terms of an award include a performance target that could be achieved after the requisite service period. A consensus-for-exposure was reached on an issue pertaining to the recognition of new accounting basis (pushdown) in certain circumstances. Discussions also continued on two other issues. One issue relates to determining whether a host contract in a hybrid instrument issued in the form of a share is more akin to debt or equity, and the other issue relates to the measurement of financial assets and financial liabilities of a consolidated collateralized financing entity (CFE).
Also, see the March 2014 edition of PwC’s EITF observer for a synopsis of the discussions and decisions reached at the EITF's meeting.
Appeals court issues decision on SEC conflict minerals regulation
On April 14, the US Circuit Court of Appeals for the District of Columbia issued a decision in the conflict minerals case that requires at least one aspect of the rule be revisited. The three-judge panel found that a central part of the rule violates the First Amendment by requiring that companies describe their products as not being "DRC [Democratic Republic of the Congo] conflict free." It is too soon to know how the SEC and lower court will react to the ruling. For now, one element of the rule has been nullified, but the May 31, 2014 deadline remains in place for the others.
SEC staff issues updated compliance and disclosure interpretations on Securities Act Rules
The SEC's Division of Corporation Finance (Corp Fin) published new and revised questions to its C&DI publication on Securites Act Rules. Question 141.03 was revised and new questions 141.04 and 141.05 were added under Section 141, Rule 147 — “Part of an Issue,” “Person Resident,” and “Doing Business Within” for Purposes of Section 3(a)(11). Section 3(a)(11) provides an exception for certain securities offered and sold only to persons resident within a single state or territory where the issuer is a resident incorporated and doing business within that state or territory.
SEC no longer includes "glossy" annual reports on its website
The SEC announced that "glossy" annual reports to security holders submitted to the SEC in paper will no longer be viewable on the SEC’s website. In recent years, the SEC staff scanned paper copies of the glossy annual reports received by mail and posted them with the companies’ other filings via the EDGAR facilities on the SEC website. In an effort to reduce costs and simplify administrative processes, and in light of the availability of these annual reports on other websites, the staff has decided to discontinue this practice.
GASB issues Concepts Statement on measurement of assets and liabilities
The GASB issued Concepts Statement No. 6, Measurement of Elements of Financial Statements, which will guide the GASB in establishing accounting and financial reporting standards for US state and local governments regarding the measurement of assets and liabilities. Concepts Statement 6 augments the framework the board employs in order to promote consistency in setting accounting and financial reporting standards and is primarily intended for the board’s use. The new concepts also may benefit preparers and auditors of financial statements when evaluating transactions for which there are no existing standards.
IASB publishes discussion paper on accounting for macro hedging
The IASB published for public comment a discussion paper titled Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging that explores an approach to better reflect entities' dynamic risk management activities in their financial statements, otherwise known as macro hedging. The DP addresses the accounting for dynamic risk management strategies on open portfolios (that is, portfolios that change over time). Dynamic risk management is a continuous process that involves identifying, analyzing and deciding on whether, and how, to mitigate a risk. The DP presents a dynamic risk management strategy commonly used by financial institutions for illustrative purposes. The IASB’s intention, however, is to explore whether macro hedging could be applied on a broader basis – for example, by non-financial entities hedging commodity price risk.
Comments are requested by October 17, 2014.