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ACCOUNTING AND SEC HEADLINES:
Derivatives and Hedging -- FASB Proposes Update to List of Permissible Interest Rates for Hedge Accounting
The FASB issued a proposed Accounting Standards Update (ASU) that would expand the list of U.S. benchmark interest rates permitted in the application of hedge accounting. The comment due date is March 30, 2018.
FASB Accounting Standards Codification®
Topic 815, Derivatives and Hedging,
provides guidance on the risks associated with financial assets or liabilities that are permitted to be hedged. Among those risks is the risk of changes in fair values or cash flows of existing or forecasted issuances or purchases of fixed-rate financial assets or liabilities attributable to the designated benchmark interest rate (referred to as interest rate risk).
In the United States, eligible benchmark interest rates under Topic 815 are interest rates on direct Treasury obligations of the U.S. government (UST), the London Interbank Offered Rate (LIBOR) swap rate, the Overnight Index Swap (OIS) Rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate.
Based on concerns about the sustainability of LIBOR, a committee convened by the Federal Reserve Board and the Federal Reserve Bank of New York recently identified a broad Treasury repurchase agreement (repo) financing rate referred to as the Secured Overnight Financing Rate (SOFR) as its preferred alternative reference rate.
The proposed ASU would add the OIS rate based on SOFR as a fifth U.S. benchmark interest rate to help companies and other organizations avoid the potential cost and complexity associated with using different cash flows and discount rates to measure the hedged item and the hedging instrument.
Cybersecurity Disclosures -- SEC Issues Interpretive Guidance on Public Company Cybersecurity Disclosures
The SEC unanimously approved a statement and interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. SEC Chairman Jay Clayton indicated that “In today’s environment, cybersecurity is critical to the operations of companies and our markets. Companies increasingly rely on and are exposed to digital technology as they conduct their business operations and engage with their customers, business partners, and other constituencies. This reliance on and exposure to our digitally-connected world presents ongoing risks and threats of cybersecurity incidents for all companies, including public companies regulated by the Commission. Public companies must stay focused on these issues and take all required action to inform investors about material cybersecurity risks and incidents in a timely fashion.”
The interpretive guidance provides the SEC’s views about public companies’ disclosure obligations under existing law with respect to matters involving cybersecurity risk and incidents. It also addresses the importance of cybersecurity policies and procedures and the application of disclosure controls and procedures, insider trading prohibitions, and Regulation FD and selective disclosure prohibitions in the cybersecurity context. The SEC indicates that the SEC staff, through its Division of Corporation Finance filing review process, continues to monitor cybersecurity disclosures carefully.
The interpretive guidance is effective upon publication in the Federal Register.
Financial Instruments -- FASB Discusses Hedging Implementation and Other Matters
As reported in its "Summary of Board Decisions" publication, the FASB met on February 14, 2018, and discussed the status of and issues arising from implementation activities related to Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
The FASB discussed its staff’s response to:
AUDITING AND INTERNAL CONTROLS HEADLINES:
Engagement Standards -- Audit Engagements - AICPA Published
- General technical inquiries received that affect many stakeholders. No decisions were made.
- Technical inquiries received related to prepayable financial instruments. Specifically, the FASB staff presented its interpretation of which financial instruments meet the definition of the term prepayable in the FASB Accounting Standards Codification Master Glossary. Financial instruments that meet the definition of prepayable include the following: (a) instruments that are currently exercisable and prepayable at any time; (b) instruments with certain contingent prepayment features (that is, based on the passage of time, the occurrence of a specified event other than the passage of time, and the movement in a specified interest rate); and (c) instruments with conversion features.
We have published an updated edition of ARM Engagement Standards: Audit Engagements - AICPA.
ARM Engagement Standards helps a user quickly locate guidance and resolve practice issues relating to: (a) audit engagements, (b) attestation and nontraditional engagements, and (c) compilation and review engagements, conducted in accordance with U.S. professional standards. The "Audit Engagements-AICPA" section of Engagement Standards has been updated for the following:
- Continued coverage/discussion of AICPA Statements on Auditing Standards (SAS) s through SAS-133 (AU-C Section 945) titled, “Auditor Involvement With Exempt Offering Documents.”
- AU-C Section 570, “The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern,” which discusses the issuance of Statement on Auditing Standards (SAS) No. 132 of the same name.
- AU-C Section 800, “Special Considerations—Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks,” which discusses the treatment of special purpose financial statements that may or may not be prepared in accordance with an applicable financial reporting framework for which the going concern basis of accounting is relevant.
- AU-C Section 930, “Interim Financial Information,” which includes amendments to require performing review procedures to address the situations when the applicable financial reporting framework includes requirements for management to evaluate the entity’s ability to continue as a going concern for a reasonable period of time in preparing interim financial information.
- AU-C Section 945, “Auditor Involvement With Exempt Offering Documents,” which includes discussion of the auditor’s responsibilities with respect to all exempt offerings of securities undertaken pursuant to federal and state securities laws, and similar laws governing franchise offerings.
See our Literature Update for complete details.
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