This week's PwC update on financial reporting includes: Dataline: 2013 year-end financial reporting considerations—Leading practices, lessons learned, and reminders... Tax accounting insights: Income tax disclosure... 2014 U.S. GAAP Financial Reporting Taxonomy now available... FASB meetings and project updates... and more.
PwC's weekly alert highlighting current financial reporting developments (including accounting, auditing and regulatory matters).
This week's topics include:
Dataline: 2013 year-end financial reporting considerations—Leading practices, lessons learned, and reminders
In this Dataline, we take a look at aspects of financial reporting that have continued to present challenges to financial statement preparers, and transactions and arrangements prevalent in today’s economic environment that have unique or complex accounting implications.
While not an all-inclusive list, the Dataline provides timely reminders for companies navigating the year-end financial reporting process. While many of the topics are not new, they continue to be challenging, based on SEC staff comment letters, restatements, revisions, and our own observations.
Topics include: cash flows, other comprehensive income, revenue recognition, income taxes, segments, impairment of long-lived assets, goodwill—qualitative impairment test, variable interest entities, equity method investments, asset acquisition versus business, accounting changes and error corrections, use of overnight index swap rate in derivatives valuation, fair value hierarchy, equity-linked financing instruments, extinguishment gain when debt holder owns equity, contingencies, and stock-based compensation.
Dataline: Highlights of the 2013 AICPA National Conference on Current SEC and PCAOB Developments
The 2013 AICPA National Conference on Current SEC and PCAOB Developments (the Conference) brought together presenters from across the accounting landscape: regulatory and standard-setting bodies, auditors, users, preparers, and industry experts.
The SEC staff provided an update on regulatory and financial reporting matters including areas of frequent comment and consultation trends. They emphasized the need for high quality, concise disclosures, focusing on ways registrants can improve communications throughout their filings. They also stressed the continued importance of internal controls over financial reporting, asking participants to remain vigilant in order to maintain the gains made over the past decade.
Quality and transparency were themes highlighted throughout the Conference, and were broadly applicable to the spectrum of conference participants. Topics on quality included both financial reporting and auditing, while transparency was discussed in the context of regulatory practices, audits, and disclosures. These themes were emphasized by speakers from the Center for Audit Quality, the SEC, and PCAOB, and echoed by others involved in the financial reporting process.
Our Dataline provides highlights from the Conference and our observations.
Dataline: Supply chain finance—Analyzing structured payable programs
When implementing a structured vendor payable program, companies should be mindful that changes to the terms of the trade payable could impact its balance sheet classification. The introduction of “specialized” financing terms may change the economic substance of a company’s liability, thus requiring reclassification of the trade payable as debt. Given the significance of most companies’ accounts payable balances, reclassification of trade payables as debt could significantly impact a company’s leverage and covenant ratios.
Our Dataline sets forth an analytical framework to evaluate structured vendor payable programs.
Point of view: Cash flow reporting—A call to action
The statement of cash flows is regarded by many users of the financial statements in a number of industries as the most important financial statement. In fact, it is often the foundation by which users evaluate a company’s performance. Accounting standards provide a principles-based framework for presenting sources and uses of cash. We support principles-based standards, although we recognize that their application can be complex. This often leads to diversity in how cash flows are reported and reduces the comparability of financial reporting. Our Point of view focuses on the importance of the disclosure of cash flow information to enhance the utility of the statement of cash flows.
Companies can improve the usefulness of their cash flow information—and enhance the understanding of their businesses—in a variety of ways, such as disclosing their cash flow presentation policies and the location of specific transactions within the statement of cash flows. Additional ways consist of providing a more robust and transparent discussion of the primary drivers of cash flow results, including cash inflows and outflows from operating activities, enhanced interim cash flow reporting, and more.
Enhancing the transparency of a company’s cash flow information will help users to better understand the company’s relative performance and increase the predictive value of its cash flow results. This may benefit the company in the form of greater access to the capital markets and a lower cost of capital.
Regulatory and standard-setting developments—December 2013
Regulatory and Standard-Setting Developments provides a summary of the activities of the PCAOB, SEC, and FASB, and describes related international developments that are of interest to audit committees, companies, and their stakeholders. It includes some of the relevant regulations, standards, and guidance recently issued or on the horizon.
Some of the topics covered in this edition include: the SEC’s final approval of the Volcker Rule, the PCAOB’s proposed standards to enhance auditor reporting and transparency, progress on audit reforms in Europe to require mandatory audit firm rotation, and updates on the status of the FASB and IASB’s priority convergence projects.
Key considerations for board and audit committee members
We are pleased to announce the release of the 2013-2014 edition of our popular publication Key considerations for board and audit committee members. This publication addresses today’s changing boardroom agenda, provides important insights and considerations about the many issues impacting corporate boards and their audit committees. It also focuses on topics that can provide a basis to help enhance the quality of board and management discussions.
Tax accounting insights: Income tax disclosure
Users of financial statements continue to emphasize the importance of informative, decision-useful disclosures. This focus often extends to the reporting of income taxes, a material component of most financial statements. Tax laws can be difficult to understand due to their complexity, compounded by the multitude of taxing jurisdictions throughout the world. Connecting the effects of those laws with financial accounting principles adds to the challenge.
Numerous income tax accounting matters require the use of estimates, judgments, and other subjective information that can obscure the presentation in the financial statement accounts. Clarifying disclosures can enable users to gain a better understanding of the reporting entity’s income tax environment.
This publication discusses disclosure of income tax information in the financial statements, SEC filings, and certain other documents.
2014 U.S. GAAP Financial Reporting Taxonomy now available
The Financial Accounting Standards Board (FASB) announced the availability of the 2014 U.S. GAAP Financial Reporting Taxonomy pending final acceptance by the SEC. The FASB is responsible for the ongoing development and maintenance of the taxonomy applicable to public issuers registered with the SEC. The taxonomy contains updates for accounting standards and other improvements to the 2013 taxonomy currently used by SEC issuers.
FASB meetings and project updates
Meeting summaries: At its December 18 board meeting, the FASB discussed its projects on (1) not-for-profit financial reporting—financial statements, (2) transfers and servicing—repurchase agreements and similar transactions, (3) accounting for financial instruments—classification and measurement, and (4) accounting for financial instruments—impairment. See the FASB’s website for a summary of the items addressed.
Next open board meeting: The next scheduled FASB meeting is on January 2, 2014. Topics for the meeting have not been announced. The topics will be announced at a future date (typically a few days before a meeting) and included on the FASB calendar.
Insurance contract roundtable: On December 16, the FASB will host a second public roundtable meeting on the boards' exposure draft on insurance contracts. See the FASB’s website for more information.
Project updates: The FASB has updated the summary of its project on consolidation: principal versus agent analysis.
CAQ issues Alert on auditing considerations for the 2013 audit cycle
The AICPA Center for Audit Quality (CAQ) published a CAQ Alert intended to help public company auditing firms address risks in a proactive and accelerated manner. The alert, which will be updated at least annually, and more frequently as needed, identifies and addresses some of the more judgmental or complex auditing areas, including those that are the focus of regulators. Some of the areas discussed include:
SEC proposes rules to increase access to capital for smaller companies
The SEC proposed rules are intended to increase access to capital for smaller companies. The SEC’s proposal would build upon Regulation A, which is an existing exemption from registration for small offerings of securities up to $5 million within a 12-month period. The updated exemption would enable companies to offer and sell up to $50 million of securities within a 12-month period. The rules are mandated by Title IV of the Jumpstart Our Business Startup (JOBS) Act.
The SEC’s proposal will undergo a 60-day public comment period after it is published in the Federal Register.
IASB Update — December 2013
This issue of IASB Update, issued by the IASB staff, provides a summary of the IASB’s December 12 meetings. Some of the topics discussed were: (1) post-implementation review of IFRS 3 Business Combinations, (2) equity method: share of other net assets changes, (3) clarification of acceptable methods of depreciation and amortization, (4) actuarial assumptions: discount rate, and (5) financial instruments: impairment and classification and measurement.
IFAC's Ethics Board consults on future strategy and work plan
The International Ethics Standards Board for Accountants (IESBA) released for public comment its consultation paper, Proposed Strategy and Work Plan, 2014-2018. The consultation paper lays out the following four proposed strategic themes to reflect the Ethics Board’s vision for the medium to longer term and to guide its work plan over the five-year period:
Comments are requested by February 28, 2014.
IAASB consults on five-year strategic objectives and work priorities
The International Auditing and Assurance Standards Board (IAASB) released for public comment its Proposed Strategy for 2015–2019 and Proposed Work Program for 2015–2016. The IAASB has identified the following three strategic objectives for the period:
Comments are requested by April 4, 2014.
OMB releases final changes for Circular A-133 and Cost Principles
The Office of Management and Budget (OMB) issued final guidance on Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. This guidance provides a government-wide framework for grants management which will be complemented by additional efforts to strengthen program outcomes through innovative and effective use of grant-making models, performance metrics, and evaluation.
The table in the attachment lists meetings of standard-setting bodies, PwC webcasts and other events occurring in January 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.
Flashline is a weekly alert highlighting current financial-reporting developments (including accounting, auditing and regulatory matters) and is produced by the National Professional Services Group of PwC. It is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. To access additional content on financial reporting issues, visit CFOdirect Network (www.cfodirect.pwc.com), PwC’s online resource for financial executives.