This week's PwC update on financial reporting developments includes: Point of view: Non-GAAP financial measures - Enhancing their usefulness... In depth: Private company VIE relief for certain common control leasing arrangements... FASB issues proposals to simplify inventory measurement and eliminate requirements for extraordinary items... 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: Non-GAAP financial measures — Enhancing their usefulness
Companies often disclose non-GAAP financial measures to provide additional insight into their business. The comparability of non-GAAP financial measures varies from one industry to another, as well as from one company to another. In addition, a lack of transparency regarding their determination, along with inconsistency in how the measures are calculated may limit their efficacy. Further, the subjectivity inherent in how non-GAAP financial measures are calculated could make them susceptible to bias or misinterpretation without proper context and explanation.
When presenting non-GAAP financial measures, it is important to give equal or greater prominence to the most comparable GAAP measures, ensure that appropriate disclosures are provided, accurately label the non-GAAP measures and identify an adjustment as non-recurring, only if that is the case.
Non-GAAP financial measures are most effective when they are accompanied by clear and transparent disclosure of what is included or excluded from the measure and the supporting rationale. A robust discussion of how management uses non-GAAP financial measures, if applicable, and the context in which they should be considered increases their usefulness.
Read our Point of view to find out more.
In depth: Private company VIE relief for certain common control leasing arrangements
The FASB issued a new standard in March 2014 to provide private companies relief from the variable interest entity (VIE) model. The new guidance is likely to result in reduced consolidation of lessor entities by lessees. The purpose of the standard was to reverse these consolidations since users indicated the resulting financial statements were not useful. Adoption of the new standard is optional. Private companies that elect to adopt the new standard must meet specific criteria. Those that qualify will likely need to classify and record the lease (as capital or operating) and account for any executory contracts between the lessee and lessor (that had previously been eliminated in consolidation).
The standard is effective from the beginning of 2015 for calendar year-end companies and requires full retrospective application. Early adoption is permitted if a company’s financial statements have not yet been made available for issuance. This In depth provides an overview of the new standard.
Reminder: Participate in the PwC/FEI revenue recognition survey
The new Revenue Recognition standard will affect nearly all companies on some level. What level of impact does your company expect from the new standard?
PwC, along with Financial Executives International (FEI) and their Financial Executives Research Foundation, are conducting a survey to gauge the impact of the new standard on companies’ financials and operations. The survey will also attempt to gauge any concerns companies have with the new standard and/or the transition timeline. When available, the results will be summarized in a report and shared.
The survey can be accessed on CFOdirect.
PwC guide: Bankruptcies and liquidations — 2014 Edition
PwC is pleased to offer this accounting and financial reporting guide for Bankruptcies and liquidations. This edition of the guide furthers our aim of helping companies and other interested parties apply the accounting and reporting standards for bankruptcies and liquidations.
New aerospace and defense industry supplement to In depth on final revenue recognition standard
In depth US2014-01 summarizes the FASB and IASB’s converged standard on revenue recognition, including several industry-specific supplements containing examples and insight on the revenue standard. This week we’ve released an additional industry supplement focusing on aerospace and defense.
Practical tip 2014-04: Presenting less than 12 month financial statements of an acquired business
Rule 3-06(b) of Regulation S-X ("S-X 3-06(b)") provides that financial statements covering a period of nine to twelve months may satisfy a one-year financial statement requirement under S-X 3-05. This Practical tip explains this guidance and includes an example to help you apply it in practice.
CPE eligible webcasts available now — Current accounting and reporting developments, Revenue recognition, and IPOs
In case you missed the live versions, you can access the following webcasts at your convenience and earn CPE credit:
PwC comments on FASB's "Conceptual Framework" exposure draft on notes to financial statements
PwC submitted comments on the FASB's 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 board 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.
We provided comments noting that we are broadly in support of the Disclosure Framework project as well as areas where the exposure draft could be further refined. Key themes of our response include: (1) boundary for disclosures, (2) preparer flexibility, and (3) consideration of existing disclosure requirements.
FASB issues proposals to simplify inventory measurement and eliminate requirements for extraordinary items
As part of its simplification initiative, the FASB issued the following two proposed Accounting Standards Updates (ASUs):
Comments on both proposed ASUs are requested by September 30, 2014.
Meeting summary: The FASB met on July 16. The board discussed its projects on (1) consolidation—principal versus agent analysis and (2) insurance—disclosures about short-duration contracts. The board also discussed whether to ratify the consensuses reached at the June 12 Emerging Issues Task Force meeting. 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 these meetings.
AICPA issues further information on Attest clarity project
At the 2014 AICPA National Advanced Accounting and Auditing Technical Symposium, experts from the AICPA discussed the ongoing Attestation clarity project. During this session, an informational presentation was provided, detailing updated information on the project. The AICPA is making this presentation available in order to keep members abreast of recent changes and to highlight the progress of the project.
The objective of the clarity project is to redraft all AT sections in clarity format to make them easier to read, understand and apply. The final clarified Statements on Standards for Attestation Engagements (SSAE) will contain all attestation standards, even though more than one exposure draft will be issued. The estimated issuance of the final SSAE is expected to be in the second half of 2015.
IAASB meeting highlights and decisions — March 2014
The IFAC’s International Auditing and Assurance Standards Board (IAASB) met on March 17-21, 2014 and discussed: (1) auditor responsibilities relating to other information, (2) disclosures, (3) auditor reporting, (4) updates from the Innovation, Needs and Future Opportunities (INFO) Working Group, and (5) improving the efficiency of the board. See IFAC’s website for highlights of the meeting.