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ACCOUNTING AND SEC HEADLINES:
Not-for-Profit Entities – FASB Issues ASU on Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets
The FASB issued Accounting Standards Update (ASU) No. 2020-07 Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, intended to improve transparency in the reporting of contributed nonfinancial assets, also known as gifts-in-kind, for not-for-profit organizations.
Examples of contributed nonfinancial assets include fixed assets such as land, buildings, and equipment; the use of fixed assets or utilities; materials and supplies, such as food, clothing, or pharmaceuticals; intangible assets; and recognized contributed services.
The ASU requires a not-for-profit organization to present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash or other financial assets. It also requires a not-for-profit to disclose:
Banking Registrants – SEC Modernizes Disclosures for Banking Registrants
- Contributed nonfinancial assets recognized within the statement of activities disaggregated by category that depicts the type of contributed nonfinancial assets; and
- For each category of contributed nonfinancial assets recognized (as identified in (a)):
- Qualitative information about whether the contributed nonfinancial assets were either monetized or utilized during the reporting period. If utilized, a description of the programs or other activities in which those assets were used.
- The not-for-profit’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets.
- A description of any donor-imposed restrictions associated with the contributed nonfinancial assets.
- The valuation techniques and inputs used to arrive at a fair value measure, in accordance with the requirements in Topic 820, Fair Value Measurement, at initial recognition.
- The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
- The amendments in this ASU should be applied on a retrospective basis and are effective for annual reporting periods beginning after June 15, 2021, and interim periods with annual reporting periods beginning after June 15, 2022. Early adoption is permitted.
The SEC announced that it has adopted rules to update and expand the statistical disclosures that bank and savings and loan registrants provide to investors, in light of changes in this sector over the past 30 years. The SEC indicates that the rules also eliminate certain disclosure items that are duplicative of other agency rules and requirements of U.S. GAAP or IFRS. The rules replace Industry Guide 3, Statistical Disclosure by Bank Holding Companies, with updated disclosure requirements in a new subpart of Regulation S-K. The rules are intended “to help ensure that investors have access to more meaningful, relevant information about these registrants to facilitate their investment and voting decisions.”
The SEC’s rules require disclosure about the following:
- Distribution of assets, liabilities and stockholders’ equity, the related interest income and expense, and interest rates and interest differential;
- Weighted average yield of investments in debt securities by maturity;
- Maturity analysis of the loan portfolio including the amounts that have predetermined interest rates and floating or adjustable interest rates;
- Certain credit ratios and the factors that explain material changes in the ratios, or the related components during the periods presented;
- The allowance for credit losses by loan category; and
- Bank deposits including average amounts and rate paid and amounts that are uninsured.
The rules will be effective 30 days after publication in the Federal Register and will apply to fiscal years ending on or after December 15, 2021. However, voluntary compliance with the new rules will be accepted in advance of the mandatory compliance date. Guide 3 is scheduled to be rescinded effective January 1, 2023.
Confidential Treatment – SEC Staff Updates Guidance on Confidential Treatment Orders
The staff in the SEC’s Division of Corporation Finance (Corp Fin) has updated its guidance in CF Disclosure Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2. This guidance addresses how and what to submit when filing an application objecting to public release of information otherwise required to be filed under the Securities Act and the Securities Exchange Act. Corp Fin indicates that this guidance replaces and supersedes the guidance provided in Staff Legal Bulletins No. 1 and No. 1A.
Corp Fin updated the guidance relating to options available to companies whose confidential treatment orders are about to expire. Companies that previously have obtained a confidential treatment order have three choices of what to do when the order is about to expire:
Cybersecurity – SEC Inspections and Examination Staff Issues Risk Alert on Cybersecurity
- Refile the unredacted exhibit;
- Extend the confidential period pursuant to Rules 406 or 24b-2; or
- Transition to the rules governing the filing of redacted exhibits under Regulation S-K Item 601(b)(10)(iv) and parallel rules.
The staff in the SEC’s Office of Compliance Inspections and Examinations (OCIE) has issued a Risk Alert, Cybersecurity: Safeguarding Client Accounts against Credential Compromise. This risk alert highlights “credential stuffing,” which is a method of cyber-attack to client accounts that uses compromised client login credentials, resulting in the possible loss of customer assets and unauthorized disclosure of sensitive personal information.
OCIE indicates that it has observed in recent examinations an increase in the number of cyber-attacks against SEC-registered investment advisers and brokers and dealers using credential stuffing. Credential stuffing is “an automated attack on web-based user accounts as well as direct network login account credentials. Cyber attackers obtain lists of usernames, email addresses, and corresponding passwords from the dark web and then use automated scripts to try the compromised user names and passwords on other websites, such as a registrant’s website, in an attempt to log in and gain unauthorized access to customer accounts.”
OCIE cautions that credential stuffing is emerging as a more effective way for attackers to gain unauthorized access to customer accounts and/or firm systems than traditional brute force password attacks. When a credential stuffing attack is successful, “bad actors can use the access to the customer accounts to gain access to firms’ systems, where they are able to steal assets from customer accounts, access confidential customer information, obtain login credential/website information that they can sell to other bad actors on the dark web, gain access to network and system resources, or monitor and/or take over a customer’s or staff member’s account for other purposes.”
This guidance provides a summary of credential stuffing, highlights practices firms have implemented in response to help protect client accounts, and discusses other considerations for firms preparing for credential stuffing.
Pension and Profit Sharing Plans – New Edition of Interpretations on Pension and Profit Sharing Plans Published
We have published a new edition of the following Pension and Profit Sharing interpretations, including the requirements of Accounting Standards Update (ASU) No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans:
Interest Rates – Interpretation on Issues Raised by Declines in Short-Term and Long-Term Interest Rates Published
- Employers' Accounting for Other Postretirement Benefits - Interpretations of Subtopic 715-60;
- Other Postretirement Benefits - Subtopic 715-60 -- An Explanation and Background;
- Termination Indemnities;
- Employers' Accounting for "Cash Balance" Pension Plans;
- Defined Benefit Plans - Pensions -- Interpretations of Subtopic 715-30;
- Decision Tree for Determining Curtailment Gains and Losses; and
- Nonretirement Postemployment Benefits Interpretations of Subtopic 712-10.
We have published our Accounting Issues Raised by Declines in Short-Term and Long-Term Interest Rates interpretation. This new edition includes Accounting Standards Updates (ASUs) through June 30, 2020.
Liabilities vs. Equity – New Edition of Interpretation on Distinguishing Liabilities from Equity Published
We have published a new edition of our Distinguishing Liabilities from Equity - Interpretations of Subtopic 480-10 interpretation. This new edition includes ASUs through June 30, 2020, and updated examples.
FASB Projects – New Edition of GAAP Update Service Discusses FASB Agenda Projects
We have published a new edition of the GAAP Update Service that discusses FASB agenda projects. The FASB currently has 29 individual projects on its agenda. Topics range from the very broad (revisiting the accounting for goodwill) to the very narrow (effect of underwriter restrictions on fair value measures). Some of these projects are likely to be finalized soon. Others may not be finalized for years.
AUDITING AND INTERNAL CONTROLS HEADLINES:
Audit Evidence – New Edition of GAAS Update Service Discusses SAS 142
We have published a new edition of the GAAS Update Service that discusses AICPA Statement on Auditing Standards No. 142, Audit Evidence. Specifically, this GAAS Update discusses the following matters:
Staff Augmentation Arrangements – AICPA Ethics Division Proposes Staff Augmentation Arrangements Interpretation
- Considering the relevance, reliability, and source of information to be used as audit evidence, including corroborative or contradictory information;
- Evaluating whether the information is sufficiently precise and detailed for the auditor’s purposes;
- Obtaining audit evidence about the accuracy and completeness of the information; and
- Addressing inconsistency in, or doubts over reliability of, audit evidence.
The AICPA’s Professional Ethics Executive Committee (PEEC) has issued the Exposure Draft, Proposed Revised Interpretation: Staff Augmentation Arrangements. The comment deadline is December 8, 2020.
The Exposure Draft notes that the PEEC “is re-exposing for comment a new interpretation, “Staff Augmentation Arrangements.” If adopted as final, the new interpretation will be in ET sec. 1.275.007 of the AICPA Code of Professional Conduct.
The proposal is part of the PEEC’s project to converge its standards with the Code of Ethics for Professional Accountants of the International Ethics Standards Board for Accountants (IESBA), specifically Section 525, Temporary Personnel Assignments.
For purposes of the proposal, a “staff augmentation arrangement,” also referred to as a loaned staff arrangement, occurs when a firm provides human resource capital as a resource to clients. Generally, if a member firm provides a nonattest service to an attest client, the member firm is responsible for the direction and supervision of the staff performing the service. Under the IESBA standards, however, in a staff augmentation arrangement, the client is responsible for the direction and supervision of the activities of the loaned, or augmented, staff.
The Exposure Draft indicates that staff augmentation arrangements would be prohibited for an attest client except in limited circumstances. The proposal provides that staff augmentation arrangements would impair independence unless certain safeguards are provided. These include:
GOVERNMENTAL GAAP HEADLINES:
GAO Professional Standards – GAO Issues Professional Standards Update No. 78
- The staff augmentation arrangement is being used due to an unexpected situation that would cause significant hardship for the attest client to make other arrangements;
- The arrangement is not expected to recur;
- The arrangement is performed only for a short period of time, with a rebuttable presumption that a “short period of time” does not exceed 30 days;
- The augmented staff does not participate in and is not in a position to influence any attest engagement occurring while the staff is in position;
- The augmented staff does not perform activities prohibited by the nonattest services subtopic of the PEEC”s Independence Rule; and
- The member firm is satisfied that client management designates personnel who possess the suitable skill, knowledge and/or experience to determine the nature and scope of the activities to be provided by the augmented staff, supervise and oversee those activities, and evaluate the adequacy of the activities and the findings that result from them.
The Government Accountability Office (GAO) has published Professional Standards Update (PSU) No. 78, covering standards published from April through June 2020.
PSUs provide brief summaries of recently issued standards of major auditing and accounting standard setting bodies, including, among others, the GAO, the FASB, GASB, AICPA, and PCAOB. These updates alert users to changes in professional standards. Auditors may use the GAO’s Generally Accepted Governmental Auditing Standards (Yellow Book) in connection with professional standards issued by the GAO and other authoritative bodies.
PSUs inform Yellow Book users of important changes to professional requirements and highlight some key points of recent standards. They do not establish new professional standards, reflect GAO official views on these requirements, nor provide a complete summary of the standards.
The content in PSU 78 is divided into three sections:
- Section I, which identifies selected standards and guidance relevant for audits of financial statements for periods that ended in June 2020 through September 2020 that are coming into effect for the first time.
- Section II, which identifies selected standards and guidance relevant for audits of financial statements for periods ending June 2020 through September 2020 that would have been effective but as of August 2020 have been deferred.
- Section III, which identifies selected standards and guidance that were issued from April 2020 through June 2020 for financial audits and attestation engagements.
Users should refer to the original, authoritative standards for details on those standards and for purposes of implementing them.
Capital Assets – New Edition of Governmental GAAP Update Service Discusses GASB Guidance on Reporting Capital Assets
We have published a new edition of the Governmental GAAP Update Service that discusses GASB Cod. Sec. 1400, Reporting Capital Assets, and some of the areas where there may be some improvement in the future.
OMB Compliance Supplement – AICPA’s GAQC Issues Table of Programs Expected to be Included in Compliance Supplement Addendum
The AICPA’s Government Audit Quality Center (GAQC) has issued the table, Federal Programs Expected to be Included in the 2020 OMB Compliance Supplement Addendum – as of 8/18/20.
The White House Office of Management and Budget (OMB) issued the 2020 Compliance Supplement in mid-August. The OMB indicated that it would issue an addendum to the 2020 Compliance Supplement sometime in the fall. The Addendum is expected to address issues under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and other programs affected by COVID-19.
As provided in a note to the table, the table is not authoritative guidance. As provided in the note, the table “identifies new COVID-19 Federal programs with COVID-19 related changes that are expected to be included in the upcoming addendum to the 2020 Supplement expected this Fall.” The OMB provided the table to the GAQC for auditor use in planning. The table provides the following information on affected programs:
- The agency that administers the Federal program;
- The assistance listing number and title; and
- The funded amount.
The list of included programs. The OMB may add other programs, delete programs currently listed, or make other changes.
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