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ACCOUNTING AND SEC HEADLINES:
A Closer Look – New Edition of A Closer Look Considers Russia-Ukraine War Disclosures
We have published a new edition of A Closer Look, The Russia-Ukraine War – Disclosure Considerations. This new edition identifies the financial reporting disclosure topics (U.S. GAAP and SEC) that may be relevant to many companies.
Climate-Related Disclosures – SEC Extends Comment Period for Proposed Rules to Enhance and Standardize Climate-Related Disclosures
The SEC announced that it has extended the public comment period on the proposed rulemaking to enhance and standardize climate-related disclosures for investors from May 20, 2022 until June 17, 2022. In March 2022, the SEC proposed for public comment rule changes that would require companies to include certain climate-related disclosures in their registration statements and periodic reports, including “information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.” The required information about climate-related risks also would include disclosure of a company’s greenhouse gas emissions, which have become a commonly used metric to assess a company’s exposure to such risks.
Regulation ATS and Private Fund Advisors – SEC Reopens Comment Periods for Proposed Rules Regarding Private Fund Advisers and Regulation ATS
The SEC announced that it will reopen the comment periods on the proposed rulemaking to enhance private fund investor protection and on the proposed rulemaking to include significant Treasury markets platforms within Regulation ATS for 30 days. SEC Chair Gensler noted commenters indicated they would benefit from additional time to review these proposals.
The public comment periods for the proposed rulemakings Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews and Amendments Regarding the Definition of 'Exchange' and Alternative Trading Systems (ATSs) That Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities, will be reopened for 30 days following publication of the reopening release in the Federal Register.
SEC Climate-Related Disclosures – New Edition of GAAP Update Service Published
We have published a new edition of the GAAP Update Service, SEC Climate Related Disclosures – Proposal (Part 1). This new edition discusses the SEC’s proposal on climate-related disclosures. The SEC’s proposal would require the following:
Intangible Assets – FASB Discusses Identifiable Intangible Assets
- Climate-related Risks: Disclose the material effects on business, strategy, and outlook. Discuss governance and risk-management.
- Greenhouse Gas (GHG) Emissions: Disclose direct (Scope 1) and indirect (Scope 2) emissions metrics. In some cases, disclose indirect emissions metrics from upstream and downstream activities (Scope 3.)
- Climate-related Expenditures: If amounts exceed a bright-line materiality threshold, disclose the financial effects of (i) climate-related events and (ii) activities to mitigate risks or achieve climate-related targets in the notes to the financial statements.
- Assurance Requirements: Climate-related expenditures in the notes to financial statements would be covered by the audit opinion. For larger companies, greenhouse gas emission metrics would eventually require a separate report from an independent third party.
As discussed in its “Summary of Board Decisions” publication, the FASB met on May 4, 2022, and discussed the presentation of goodwill amortization and provided its leanings to present goodwill amortization in the same location as goodwill impairment in the income statement and not in other comprehensive income. The FASB directed its staff to continue to evaluate other income statement presentation alternatives. No decisions were made.
Security-Based Swaps – SEC Chair Discusses Security-Based Swaps
SEC Chair Gary Gensler recently discussed security-based swap reforms, including those already implemented and the need for more. Gensler indicates that while the SEC has adopted “many reforms to the security-based swap market, we have work to do to further fulfill our obligations under Dodd-Frank and update rules for this marketplace. Thus, we are embarking on yet another “new era.”” Topics discussed by Gensler include:
- Risk reduction;
- Transparency; and
- Market integrity.
Gensler cautioned on the intersection of crypto assets with derivatives and securities laws, indicating that if “a swap is based upon a crypto asset that is a security, then that is a security-based swap. Thus, our rules apply to them. Any offer or sale to retail participants must be registered under the Securities Act of 1933 and effected on a national securities exchange.”
AUDITING AND INTERNAL CONTROL HEADLINES:
A Closer Look – New Edition of A Closer Look Considers Russia-Ukraine War Disclosures
As discussed above, we have published a new edition of A Closer Look, The Russia-Ukraine War – Disclosure Considerations. This new edition identifies the financial reporting disclosure topics (U.S. GAAP and SEC) that may be relevant to many companies.
Commercial Entities – New Edition of Knowledge-Based AuditsTM of Commercial Entities Published
We have published a new edition of Knowledge-Based AuditsTM of Commercial Entities. This publication is designed to help the auditor efficiently and effectively perform financial statement audits and, when applicable, audits of internal control over financial reporting, of nonpublic commercial entities in accordance with auditing standards generally accepted in the United States of America (U.S. GAAS).
This new edition reflects current accounting authoritative literature including:
Reporting on Summary Financial Statements – New Edition of GAAS Update Service Published
- SAS No. 142, Audit Evidence (effective for periods ending on or after December 15, 2022);
- AICPA Ethics Interpretation, Staff Augmentation Arrangements (ET sec. 1.275.007).
We have published a new edition of the GAAS Update Service, Practice Issues and Questions & Answers Relating to AU-C Section 810, "Engagements to Report on Summary Financial Statements." This new edition discusses AU-C Section 810 which addresses the auditor’s responsibilities when reporting separately on summary financial statements that are derived from financial statements audited by that same auditor.
Annual Reports – AICPA Publishes TQA on Other Information Included in Annual Reports
The AICPA has published Technical Question and Answer (TQA) Section 9165, Other Information Included in Annual Reports. This TQA includes guidance on:
GASB Pronouncements – GASB Issues 2022 Omnibus on Practice Issues
- Auditor reporting when the entity issues its annual report subsequent to its financial statements;
- Reissuance of the auditor’s report on financial statements to address other information obtained after the original report date; and
- Dating a reissued auditor’s report to address other information obtained after the original report date.
The Governmental Accounting Standards Board (GASB) has issued GASB Statement No. 99, Omnibus 2022, which provides guidance addressing various accounting and financial reporting issues identified during the implementation and application of certain GASB pronouncements or during the due process on other pronouncements.
GASB No. 99 covers practice issues that include:
- Accounting and financial reporting for exchange or exchange-like financial guarantees;
- Certain derivative instruments that are neither hedging derivative instruments nor investment derivative instruments;
- Clarification of certain provisions of: (a) Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, (b) Statement No. 87, Leases, (c) Statement No. 94, Public-Private and Public-Public Partnership and Availability
- Payment Arrangements (PPPs), and (d) Statement No. 96, Subscription-Based Information Technology Arrangements (SBITAs);
- Replacing the original deadline for using the London Interbank Offered Rate (LIBOR) as a benchmark interest rate for hedges of interest rate risk of taxable debt, with a deadline of when LIBOR ceases to be determined by the ICE Benchmark Administration using the methodology in place as of December 31, 2021;
- Accounting for the distribution of benefits as part of the Supplemental Nutrition Assistance Program (SNAP);
- Disclosures related to nonmonetary transactions;
- Pledges of future revenues when resources are not received by the pledging government; and
- Updating certain terminology for consistency with existing authoritative standards.
The requirements of Statement No. 99 that relate to the extension of the use of LIBOR, accounting for SNAP distributions, disclosures for nonmonetary transactions, pledges of future revenues by pledging governments, clarifications of certain provisions in Statement No. 34, and terminology updates are effective upon issuance.
The requirements related to leases, PPPs, and SBITAs are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter.
The requirements related to financial guarantees and the other requirements related to derivative instruments are effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter.
Earlier application is encouraged and is permitted by individual topic to the extent that all requirements associated with an individual topic are implemented simultaneously.
Omnibus 2022 – OMB Issues 2022 Compliance Supplement
The White House Office of Management and Budget (OMB) has issued the 2022 Compliance Supplement.
This 2022 Supplement is effective for audits of fiscal years beginning after June 30, 2021, and supersedes the 2021 Compliance Supplement (dated August 2021) and its Addenda (dated December 2021 and January 2022).
The 2022 Compliance Supplement, like previous annual Compliance Supplements, identifies existing, important compliance requirements that the federal government expects to be considered as part of an audit required by the 1996 Amendments to the Single Audit Act. It adds, deletes, and modifies prior Supplement sections.
In addition, the 2022 Compliance Supplement follows the OMB mandate adopted in the 2019 Compliance Supplement that requires each federal agency to limit the number of compliance requirements subject to the audit to six, with the exception of the Research and Development cluster.
The Research and Development cluster is permitted to identify seven compliance requirements as subject to the audit. For this purpose, the requirements relating to A. Activities Allowed and Unallowed and B. Allowable Costs and Cost Principles are treated as one requirement. The Part 2 matrix and the related program sections in parts 4 and 5 reflect this OMB mandate. Additionally, this six-requirement mandate does not apply to programs not included in this Supplement.
Appendix V provides a list of changes from the 2021 Compliance Supplement. However, changes in the Matrix of Compliance Requirements are reflected in Part 2 of the 2022 Compliance Supplement.
Management, Discussion and Analysis – New Governmental GAAP Update Service Published
We have published a new edition of the Governmental GAAP Update Service, What Should be in Your Management’s Discussion and Analysis? This new edition discusses what should be in an MD&A and some of the pitfalls of an MD&A.
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