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ACCOUNTING AND SEC HEADLINES:
Debt – FASB Issues Revised Proposal to Improve Balance Sheet Debt Classification
The FASB issued for public comment a proposed Accounting Standards Update (ASU) intended to improve guidance used to determine whether debt should be classified as a current or noncurrent liability in a classified balance sheet. Stakeholders are encouraged to review and comment on the proposed ASU by October 28, 2019.
In January 2017, the FASB issued its first proposal on the project, which contained provisions to replace the current, fact-specific guidance with an overarching, cohesive principle for determining whether debt, or other instruments within the scope of the proposal, should be classified as a current or noncurrent liability as of the balance sheet date.
Much of the guidance in this revised proposal is similar to the original 2017 proposal on which the FASB has received extensive feedback. Based on input received from stakeholders, including the Private Company Council, the FASB added proposed requirements related to unused long-term financing arrangements, such as a line of credit, and grace periods. The revised proposal reflects and seeks comments on these changes, as well as the expected costs and expected benefits of the proposed amendments.
Banking – SEC Proposes Rules to Update Statistical Disclosures for Banking Registrants
The SEC announced that it has proposed rules to update the statistical disclosures that bank and savings and loan registrants provide to investors, and eliminate disclosures that overlap with SEC rules, U.S. GAAP or IFRS. If adopted as proposed, the rules would replace Industry Guide 3, Statistical Disclosure by Bank Holding Companies
, with updated disclosure in a new subpart of Regulation S-K. The proposed rules would apply to bank holding companies, banks, savings and loan holding companies, and savings and loan associations.
According to the SEC, the proposal reflects “the significant financial reporting changes, including the issuance of new accounting standards that have taken place for banking registrants since the agency last updated Industry Guide 3. The proposed rules are also part of an initiative by the Division of Corporation Finance to review disclosure requirements applicable to issuers to consider ways to improve the requirements for the benefit of investors and registrants.”
The SEC’s proposed rules would 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;
- An allocation of the allowance for credit losses and certain credit ratios; and
- Information about bank deposits including amounts that are uninsured.
The proposal will have a 60-day public comment period following its publication in the Federal Register
Checklist – New Edition of Variable Interest Entity Checklist Published
We have published a new edition of our Variable Interest Entity Checklist
. This new edition is designed to aid the reporting entity in evaluating and documenting the VIE consolidation decision under the variable interest model in FASB Accounting Standards Codification Topic 810, Consolidation
, including the guidance in ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities
See our Literature Update for complete details.
Fair Value Measurement – New Edition of Interpretations of Topic 820 Published
We have published a new edition of Interpretations of Topic 820, Fair Value Measurement
. This new edition has been updated for requirements issued through and including ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
See our Literature Update for complete details.
Derivatives Markets – SEC Commissioner Peirce Discusses International Derivatives Markets
SEC Commissioner Hester M. Peirce recently discussed international derivatives markets and the need for a level of unity around the globe on regulating these markets. Peirce indicated that the shared concern “for global derivatives markets serves not only to help those markets function well, but to deepen cross-border relationships. I know that we will learn much from each other in the process and expect that the end result will be a system in which we all work together—each within our own jurisdiction—to achieve the goal of a shared financial market that is robust and focused on facilitating, not undermining, the broader economy.”
Income Taxes – New Edition of GAAP Update Service Discusses FASB Proposal on Simplifying the Accounting for Income Taxes
We have published a new edition of the GAAP Update Service
. This new edition discusses the FASB’s proposed ASU, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes
(released May 14, 2019).
To reduce the complexity and cost of its accounting rules on income taxes, the FASB has proposed several changes to US GAAP that would apply equally to public and private companies. The proposed changes would simplify the accounting for a potpourri of topics, some of which are quite narrow. But we believe several of the topics are likely to be relevant to many companies:
AUDITING AND INTERNAL CONTROLS HEADLINES:
Accounting Estimates – AICPA Publishes Supplementary Materials for Proposed SAS on Auditing Accounting Estimates
- Accounting for franchise taxes that are partially based on income;
- Allocating income taxes between a loss in continuing operations and income in other categories, such as discontinued operations;
- Accounting for income taxes in interim periods when year-to-date losses exceed the total anticipated loss for the year;
- Reporting income taxes in the separate financial statements of legal entities that are not subject to income taxes; and
- Accounting for enacted changes in tax laws during interim periods.
The AICPA’s Auditing Standards Board (ASB) has published four supplemental files related to the Exposure Draft, Proposed Statement on Auditing Standards: Auditing Accounting Estimates and Related Disclosures
. The Exposure Draft was issued in August 2019, and the comment deadline is November 22, 2019.
The Exposure Draft is part of the ASB’s Enhancing Audit Quality Initiative project to enhance the auditing standards relating to auditing accounting estimates. As noted in the Background discussion in the Exposure Draft, the project should “enable auditors to appropriately address the increasingly complex scenarios that arise from new accounting standards that include estimates and related disclosures and to enhance the auditor’s focus on factors driving estimation uncertainty and potential management bias.” Further, global regulators have identified “accounting estimates as a key area where enhancing standards was needed to improve audit performance.” The Initiative has noted that nonconformity in accounting for audit estimates “is the most common audit issue detected by practice monitoring programs worldwide.”
The proposed SAS is based upon and converges the AICPA’s standard with that of the International Auditing and Assurance Standards Board (IAASB), with language changes to follow usage in the U.S. The proposed SAS, if adopted as proposed, would supersede SAS 122, Statements on Auditing Standards: Clarification and Recodification
, as amended, section 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures
(AU-C section 540). The ASB used elements of the PCAOB’s related Auditing Standard (AS) No. 2501, Auditing Accounting Estimates, Including Fair Value Measurements, and Amendments to PCAOB Auditing Standards
(PCAOB Release No. 2018-005) as well.
The Supplementary Materials assist the user in following the origins and requirements of the proposals in the Exposure Draft. They include the following documents:
Auditing Standards – AICPA Releases Marked Drafts of Proposed AU-C Sections
- ISA 540 (Revised) Marked to Reflect the Exposure Draft, which highlights the differences between the proposed SAS and ISA 540, Auditing Accounting Estimates and Related Disclosures;
- Mapping of Requirements in Extant AU-C Section 540 to the Exposure Draft, which demonstrates how the requirements in extant AU-C Section 501, Audit Evidence—Specific Considerations for Selected Items, have been either amended or included in the Exposure Draft;
- Mapping of Requirements in Extant AU-C Section 501 to the Exposure Draft, which demonstrates how the requirements in extant AU-C Section 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures, have been reflected in the Exposure Draft; and
- Diagram of Linkages Between Proposed AU-C Section 540 and Other AU-C Sections, including (a) AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, (b) AU-C Section 330, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained, (c) AU-C Section 500, Audit Evidence, and others.
The AICPA’s Auditing Standards Board (ASB) has released its Supplement to the Exposure Draft of Proposed Statement on Auditing Standards: Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes from SAS No. 134
The Supplement includes Marked Drafts of Proposed AU-C Section 800, Special Considerations — Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks
; AU-C Section 805, Special Considerations — Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement
; and AU-C section 810, Engagements to Report on Summary Financial Statements
The AICPA issued Statement on Auditing Standards (SAS) No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements
, in May 2019. SAS 134 makes important changes to the requirements for the form and content of the auditor’s report issued as a result of an audit of financial statements. These changes were designed to be more consistent with the auditor reporting rules of the International Auditing and Assurance Standards Board (IAASB) and the Public Company Accounting Oversight Board (PCAOB). In addition, SAS 134 addresses the auditor’s responsibilities to form an opinion on the financial statements.
In August, the AICPA issued the Exposure Draft, Proposed Statement on Auditing Standards: Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes From SAS No. 134
. The comment due date is October 28, 2019.
This Exposure Draft proposed changes to the AU-C 800 sections. If the provisions in the Exposure Draft are adopted as proposed, they will amend the following sections of SAS No. 122, Statements on Auditing Standards: Clarification and
- AU-C Section 800, Special Considerations — Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks;
- AU-C Section 805, Special Considerations — Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement; and
- AU-C Section 810, Engagements to Report on Summary Financial Statements.
The Supplement released today provides matrixes which identify the ASB’s proposed changes to the SASs included in the proposed SAS Amendments to AU-C Sections 800, 805, and 810 to incorporate auditor reporting changes from SAS 134.
Employee Benefit Plans – New Edition of GAAS Update Service Discusses SAS 136
We have published a new edition of the GAAS Update Service
. This new edition discusses the key provisions under AICPA Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA
SAS 136 is effective for audits of ERISA plan financial statements for periods ending on or after December 15, 2020. Early implementation is not permitted.
Single Audits – New Edition of Knowledge-Based Audits Published
We have published a new edition of Knowledge-Based Single AuditsTM
. This publication is a supplement to the financial statement audit methodologies provided in Knowledge-Based Audits of Governmental Entities
and Knowledge-Based Audits of Not-for-Profit Entities
This new edition has been updated where applicable to take into account new or pending compliance auditing standards and guidance, and their applicability to single audits, as well as the 2019 OMB Compliance Supplement
. The tools include practice points regarding SAS No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements
, SAS No. 135, Omnibus Statement on Auditing Standards – 2019
, and Government Auditing Standards, 2018 Revision
, which do not provide for early implementation.
See our Literature Update for complete details.
Investment Companies – New Edition of Valuation Guide Published
We have published a new edition of the Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies
. This new edition provides nonauthoritative guidance and illustrations for preparers of financial statements, independent auditors, and valuation specialists regarding the accounting for and valuation of portfolio company investments held by investment companies within the scope of FASB Accounting Standards Codification Topic 946, Financial Services—Investment Companies
, (including private equity funds, venture capital funds, hedge funds, and business development companies).
Construction Contractors – New Edition of Audit and Accounting Guide Published
We have published a new edition of the AICPA’s Audit and Accounting Guide, Construction Contractors
. This new edition includes information on new requirements and relevant changes to the FASB Accounting Standards Codification, including a detailed look at ASU No. 2014-09, Revenue from Contracts with Customers
. Packed with new accounting information and new auditing considerations, the guide is an indispensable reference document for those accounting for and auditing construction contractors.
Leases – New Edition of Governmental GAAP Update Service Discusses GASB Leases Implementation Guide
We have published a new edition of the Governmental GAAP Update Service
. This new edition discusses the GASB’s Leases Implementation Guide
and what practitioners may want to focus on as they convert existing accounting and financial reporting to the provisions of GASB 87. The effective date and transition provisions for the guide are the same as GASB 87 (reporting periods beginning after December 15, 2019) with changes required to implement retroactive to the first period presented.
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