On May 28 the FASB and the IASB issued a converged standard on the recognition of revenue. The standard is designed to improve the financial reporting of revenue and comparability of the top line in financial statements globally.
The existing rules under US GAAP and IFRS often result in different accounting for economically similar transactions. The new standard includes fully converged requirements for the recognition of revenue under both IFRS and US GAAP.
The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services, according to a FASB press release. Companies using IFRS will be required to apply the revenue standard for reporting periods beginning on or after January 1, 2017; public companies using U.S. GAAP will be required to apply it for annual reporting periods beginning after December 15, 2016.
To determine how this financial reporting standard change will affect your company, read PwC’s In depth: Revenue standard is final – A comprehensive look at the new model and related supplements on the following industries: automotive, communications, engineering and construction, entertainment and media, industrial products and manufacturing, pharmaceutical and life sciences, and retail and consumer.
On June 10, the Public Company Accounting Oversight Board (PCAOB or Board) adopted a new auditing standard and amendments to other auditing standards in three areas: related party transactions, significant unusual transactions, and a company's financial relationships and transactions with its executive officers.
According to a PCAOB press release, the Board took this action because these transactions and relationships could pose increased risk of material misstatement in company financial statements, The Board determined that its existing requirements in these critical areas did not contain sufficient required procedures and were not sufficiently risk-based.
"The new auditing standard and amendments we adopted today address transactions and relationships that have been contributing factors in a number of financial reporting frauds," said James R. Doty, PCAOB chairman. "Subjecting these areas to enhanced auditor scrutiny may help avert corporate failures and avoid harm to investors."
The Board initially proposed the standard and amendments on February 28, 2012, and reproposed them on May 7, 2013. Commenters widely supported the Board's efforts to improve its auditing standards in these areas.
Auditing Standard No. 18, Related Parties requires specific audit procedures for the auditor's evaluation of a company's identification of, accounting for, and disclosure of transactions and relationships between a company and its related parties. The new standard supersedes the Board's interim auditing standard, AU sec. 334 Related Parties.
The amendments regarding significant unusual transactions include specific audit procedures that are designed to improve the auditor's identification and evaluation of these transactions, and to enhance the auditor's understanding of the company’s business purposes.
For more information on these new PCAOB standards, read PwC’s In brief: PCAOB adopts final standard on related parties and related amendments.
As of June 2, roughly 1,300 companies had submitted conflict minerals filings to the SEC (almost 1,000 of which included a Conflict Minerals Report), according to a recent PwC report.
The conflict minerals disclosure rule, mandated by the Dodd-Frank Act, requires public companies to disclose whether they use conflict minerals (tantalum, tin, tungsten, and gold) and whether the minerals originated in the Democratic Republic of the Congo or adjoining countries.
The PwC report was based on a review of how 50 of the largest companies approached their conflict minerals filings(10 filings for each of the following five industries: aerospace & defense, automotive, industrial products, retail, and technology). Some insights from the report include:
One defense contractor’s conflict minerals report included a description of the company, background on the disclosure rule, a description of the due diligence process for the reasonable country of origin inquiry, and a list of steps taken to mitigate the risk that conflict minerals used in its products benefited armed groups.
One retailer’s conflict minerals report included a description of the company’s Conflict Minerals Compliance Policy, a nine-step process the company used to determine the reasonable country of origin inquiry, a conclusion about the use of conflict minerals in its supply chain, and a link to the conflict minerals report and conflict minerals policy.