Flashline - Week ending July 31, 2014

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Flashline 07/31/2014 by Assurance services
Flashline - Week ending July 31, 2014

At a glance

This week's PwC update on financial reporting developments includes: Point of view: Accounting for income taxes - A case for simplification... IASB issues IFRS 9 - Financial instruments... New technology industry supplement to In depth on final revenue recognition 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: Accounting for income taxes - A case for simplification
  • In brief: SEC issues final rules to reform money market funds
  • In brief: IASB issues IFRS 9, “Financial instruments”
  • New technology industry supplement to In depth on final revenue recognition standard
  • Audit Committee Excellence Series—Achieving excellence: Overseeing internal audit
  • Revenue Transition Resource Group held first meeting July 18
  • FASB meetings and project updates
  • Final minutes of the June 2014 EITF meeting
  • IASB Update — July 2014
  • IFRIC Update — July 2014
  • IESBA publishes "2014 Handbook of the Code of Ethics for Professional Accountants"
  • ASB issues SAS No. 129 to amend comfort letter guidance
  • Appendix: Key dates in August

PwC

Point of view: Accounting for income taxes—A case for simplification

Significant changes in the business environment, including changes in tax laws and global expansion, have increased the complexity of accounting for income taxes.

The current income tax accounting standard, developed over two decades ago, includes many mechanical rules and “exceptions” which in today’s environment can make it difficult to apply and often yields information that is challenging to understand. Despite significant investment in training and the widespread use of outside service providers, accounting errors and internal control problems persist.

The Financial Accounting Foundation—the overseer of the FASB—recently completed a post-implementation review of the US income tax accounting guidance. The findings acknowledged the operational challenges. We commend the FASB for continuing to analyze the report and perform outreach to focus on aligning the income tax accounting model to meet stakeholders’ needs. We believe targeted improvements to certain areas can be implemented now to (1) reduce complexity for preparers, auditors and regulators and (2) enhance decision-usefulness to users.

Read our Point of view to learn more.

In brief: SEC issues final rules to reform money market funds

In an effort to address the risks of a run by investors on money market funds, the SEC issued final rules aimed at reforming money market funds.

The new rules mandate the use of a floating net asset value (NAV) for institutional prime money market funds. In addition, the rules provide boards the ability to impose liquidity fees, as well as implement redemption gates, for all non-government money market funds during periods of stress.

The rules are not expected to alter the designation of money market funds as cash equivalents; however, they are expected to have a significant impact on the current operations of institutional prime money market funds.

This In brief article provides an overview of the new rules.

In brief: IASB issues IFRS 9, “Financial instruments”

The IASB has published the complete version of IFRS 9, Financial instruments, which replaces the guidance in IAS 39. This final version includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the incurred loss impairment model used today. This In brief article provides a high-level summary of the new standard.

New technology 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 technology.

Audit Committee Excellence Series—Achieving excellence: Overseeing internal audit

PwC’s Center for Board Governance released the third edition of the Audit Committee Excellence Series (ACES) titled Achieving excellence: Overseeing internal audit. This latest edition discusses the directors’ role in maximizing internal audit’s value proposition, agreeing on internal audit’s mission, assessing leadership and resources, and other areas.

Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB)

Revenue Transition Resource Group held first meeting July 18

The FASB and IASB's Joint Transition Resource Group for Revenue Recognition (TRG) met for the first time on July 18, 2014. The TRG is intended as an educational forum to inform the FASB and the IASB about potential implementation issues with the new revenue standard (ASC 606 and IFRS 15, Revenue from Contracts with Customers). Importantly, the group will not issue authoritative interpretations of the new standard. Any such guidance would be promulgated through the boards’ existing processes or interpretive bodies (e.g., EITF, IFRIC).

The following four issues related to the new revenue recognition standard were discussed (click on the links to access the underlying discussion papers presented to the TRG):

TRG members offered a range of perspectives on the issues discussed but no conclusions were reached nor did the boards give any indication of possible future standard-setting action in relation to these items.

The next TRG meeting is scheduled for October 31, 2014. For more information on the purpose of this group and how to submit issues or observe the group’s discussions, see the FASB’s website.

Financial Accounting Standards Board (FASB)

FASB meetings and project updates

Meeting summary: The FASB met on July 30. The board discussed its projects on (1) investment companies—disclosures about investments in another investment company, (2) technical corrections and improvements, (3) financial instruments— classification & measurement, (4) liabilities & equity—short-term improvements, and (5) pensions—cash balance plans. See the FASB’s website for the board’s meeting summary.

Next open board meetings: The FASB will not hold any board meetings next week. The next FASB meeting is scheduled for August 13. The topics for this meeting will be announced shortly before the meeting.

Project update: The FASB has updated the summary of its project on leases.

Emerging Issues Task Force (EITF)

Final minutes of the June 2014 EITF meeting

The FASB staff has published the final minutes of the June 2014 EITF meeting. At the meeting, the EITF reached final consensuses on two issues affecting consolidated collateralized financing entities, and government-guaranteed real estate mortgage loans. Discussions also continued on an issue related to determining whether a host contract in a hybrid instrument issued in the form of a share is more akin to debt or equity.

Also, see the June 2014 edition of PwC’s EITF observer for a synopsis of the discussions and decisions reached at the EITF's meeting.

International Accounting Standards Board (IASB)

IASB Update — July 2014

This issue of IASB Update, issued by the IASB staff, provides a summary of the IASB’s July 22-24 meetings. Some of the topics discussed were: (1) disclosure initiative, (2) insurance contracts, (3) annual improvements, (4) conceptual framework, (5) leases, and (6) rate-regulated activities.

IFRS Interpretations Committee

IFRIC Update — July 2014

The July 2014 edition of IFRIC Update provides a summary of the IFRS Interpretations Committee's July 15-16 meeting. The meeting included discussions of the Committee's current agenda items on:

  • IFRS 11 Joint Arrangements—analysis of implementation issues
  •  IAS 12 Income Taxes—measurement of current income tax on uncertain tax position
  • IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction—availability of refunds from a defined benefit plan managed by an independent trustee

Also covered were issues considered for the IASB’s annual improvements project and the Committee’s agenda, along with a discussion of other work in progress.

International Federation of Accountants (IFAC)

IESBA publishes "2014 Handbook of the Code of Ethics for Professional Accountants"

IFAC's International Ethics Standards Board for Accountants (IESBA) has published the 2014 Handbook of the Code of Ethics for Professional Accountants. The handbook contains the entire Code of Ethics for Professional Accountants (the Code). This edition incorporates several revised pronouncements that were published previously and are now effective—addressing a breach of a requirement of the Code, conflicts of interest, and the definition of “those charged with governance.” It also contains the revised definition of “engagement team” (effective for audits of financial statements for periods ending on or after December 15, 2014).

Auditing Standards Board (ASB)

ASB issues SAS No. 129 to amend comfort letter guidance

The ASB has issued Statement on Auditing Standards (SAS) No. 129, Letters for Underwriters and Certain Other Requesting Parties, to address the unintended changes to previous practice as a result of its Clarity project.

SAS 129 amends SAS 122, section 920, which addresses the auditor’s responsibilities when engaged to issue letters (commonly referred to as comfort letters) to requesting parties in connection with a nonissuer entity’s financial statements included in a registration statement or other securities offerings.

SAS No. 129 is effective for comfort letters issued on or after December 15, 2014. Early implementation is encouraged.

Appendix: Key dates in August

The table in this attachment lists meetings of standard-setting bodies, PwC webcasts and other events occurring in August 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:

Brad Mescher
Director
Phone: 1-973-236-7261
Email: brad.mescher@us.pwc.com

Saira Gilani
Senior Manager
Phone: 1-973-236-5811
Email: saira.s.gilani@us.pwc.com