This week's PwC update on financial reporting developments includes: In depth: Consolidation—a new standard is imminent—Highlights of the expected changes... Insights from the Investment Community: Non-GAAP financial measures—Investor and analyst perspectives... FASB issues final guidance on measuring financial assets and financial liabilities of a consolidated collateralized financing entity... and more
PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
In depth: Consolidation—a new standard is imminent—Highlights of the expected changes
The FASB completed deliberations on its consolidation project in July 2014 and expects to issue a final standard in the coming months. The new standard will make targeted changes to the current consolidation guidance and end the deferral granted to investment companies from applying the variable interest entities (VIE) guidance. It is primarily intended to limit the circumstances where asset managers will consolidate funds they manage, but the changes will apply to all entities. As such, consolidation conclusions, as well as applicable disclosure requirements, could change for entities in all industries. Companies involved with partnerships and investment companies may be the most affected. Given the changes impact several steps in the VIE model, all companies will need to revisit their previous consolidation analyses, which may be time consuming. In addition, as companies enter into new transactions, they should consider the consolidation conclusions under the new guidance.
The new standard will be effective in 2016 for calendar year-end public companies, and early adoption will be permitted.
Read our In depth for an overview of the expected changes.
Insights from the Investment Community: Non-GAAP financial measures—Investor and analyst perspectives
Companies often disclose non-GAAP financial measures to provide additional insight into the business. These measures may facilitate a user’s understanding of a company’s underlying operational performance or financial position. Most investment professionals we spoke with said they find non-GAAP financial measures helpful. However, nearly all said they would like management to enhance their disclosures of the nature and the rationale for the adjustments to reported GAAP results. Find out more about these and other perspectives from the investment community.
FASB issues final guidance on measuring financial assets and financial liabilities of a consolidated collateralized financing entity
The FASB issued Accounting Standards Update (ASU) No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity, to codify the consensus reached by the FASB’s Emerging Issues Task Force (EITF) at its June 2014 meeting. The final consensus will allow (i.e., not require) a reporting entity to measure the financial assets and financial liabilities of a consolidated collateralized financing entity within the scope of the new guidance based on either the fair value of the financial assets or financial liabilities, whichever is more observable (referred to as a “measurement alternative”).
The effective date will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 for public business entities. For all other entities, the effective date will be for fiscal years ending after December 15, 2016, and interim periods thereafter. Early adoption will be permitted.
Also see the June 2014 edition of PwC’s EITF observer for an overview of the new guidance.
FASB meetings and project updates
Meeting summary: The FASB did not hold any board meetings this week.
Next open board meeting: The FASB will meet on August 13. The board will discuss the results of staff research and analysis of several potential new projects and decide which, if any, meet the criteria to be added to the agenda. The board will also discuss its projects on (1) financial instruments—impairment, and (2) insurance—disclosures about short-duration contracts. See the FASB’s website for the board’s meeting agenda.
Project updates: The FASB has updated the summary of its project on:
AICPA seeks comments on private-entity audit improvement efforts
The AICPA released a discussion paper seeking input on its Enhancing Audit Quality initiative, a major effort to coordinate resources and further improve audits of private entities, which are defined as non-SEC registrants, including not-for-profits, employee benefit plans and governmental entities.
Comments are requested by November 7, 2014.
IIA seeks input on proposed changes to global internal audit framework
The IIA has released an exposure draft outlining proposed enhancements to the International Professional Practices Framework (IPPF). Some of the proposed enhancements are to introduce: (1) a Mission of Internal Auditing that underpins and supports the entire framework, (2) core Principles for the Professional Practice of Internal Auditing, and (3) a new element of guidance to provide advice on emerging issues.
The IIA seeks input on these proposed IPPF enhancements by November 3, 2014.
IIRC release papers on understanding the role of assurance on Integrated Reporting
The IIRC released two papers to help stakeholders understand the role of assurance on Integrated Reporting and to initiate a global discussion on its benefits and challenges. The papers discuss issues such as: (1) the nature of assurance and how different mechanisms contribute to credibility and trust, (2) methodology issues dealing with, for example, future-oriented information, soft narrative and completeness of a report, and (3) the level of assurance that is appropriate.
Feedback is requested by December 1, 2014.