Accounting Research Manager^TM

The accounting updates below are provided courtesy of Accounting Research Manager, a subscription service that provides a timely and comprehensive online database of analytical accounting, auditing and SEC information as well as authoritative literature. KnowledgeLeader members are eligible to receive a 15% discount if they would like to subscribe to Accounting Research Manager. Experience the full database by requesting your free trial.

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ACCOUNTING AND SEC HEADLINES:
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Hedge Accounting – FASB Proposes to Improve and Expand Hedge Accounting

The FASB issued a proposed Accounting Standards Update (ASU) intended to better align hedge accounting with an organization’s risk management strategies. Stakeholders are encouraged to review and provide comment on the proposed ASU by July 5, 2021.

In 2017, the FASB issued a new hedging standard to better align the economic results of risk management activities with hedge accounting. The new standard increased transparency around how the results of hedging activities are presented, both on the face of the financial statements and in the footnotes, for investors and analysts when hedge accounting is applied.

One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgaged-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows.

Since issuing the hedging standard, stakeholders have told the FASB that the ability to elect hedge accounting for a single layer is useful, but hedge accounting could better reflect risk management activities if expanded to allow multiple layers of a single closed portfolio to be hedged under the method.

The proposed ASU would expand the current single-layer model to allow multiple-layer hedges of a single closed portfolio of prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments under the method. To reflect that expansion, the last-of-layer method would be renamed as the portfolio layer method.

Additionally, the proposed ASU would:

• Clarify eligible hedging instruments in a single-layer strategy;
• Provide additional guidance on the accounting for and disclosure of fair value hedge basis adjustments that would be applicable to both the current single-layer model and the proposed multiple-layer model; and
• Indicate how fair value hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio.

Call Options – FASB Issues Standard Clarifying the Accounting for Call Option

The FASB issued an ASU that clarifies an issuer’s accounting for call options, including certain modifications or exchanges of freestanding equity-classified written call options (e.g., warrants) that remain equity classified after modification or exchange.

ASU 2021-04 is based on a consensus of the FASB’s Emerging Issues Task Force (EITF). The ASU provides guidance on how an issuer would measure and recognize the effect of these transactions. Specifically, it provides a principles-based framework to determine whether an issuer should recognize the modification or exchange as an adjustment to equity or an expense.

Checklist – New Edition of Summary Checklist of Recent Authoritative U.S. Accounting Standards Published

We have published a new edition of the Summary Checklist of Recent Authoritative U.S. Accounting Standards. This new edition reflects ASU 2021-04, which is discussed above.

Data and Technology – PCAOB Publishes Spotlight on the PCAOB’s Data and Technology Project

The PCAOB has published a new Spotlight publication, Data and Technology Research Project Update - May 2021. The PCAOB indicates that advancements in technology “continue to affect the nature, timing, and preparation of financial information, including preparers’ controls around financial information, and the planning and performance of audits. The Board's strategic plan highlights the need to anticipate and respond to these advancements and their corresponding opportunities and risks.”

The PCAOB's Office of the Chief Auditor established a research project on data and technology to assess whether there is a need for guidance, changes to PCAOB standards, or other regulatory actions. The PCAOB has issued this Spotlight to provide transparency into our research project and share insights from our research and outreach activities during 2020.

Sustainability Reporting – IFRS Foundation Publishes Proposed Amendments to Constitution to Accommodate Sustainability Reporting

The IFRS Foundation has published for public comment Proposed Targeted Amendments to the IFRS Foundation Constitution to Accommodate an International Sustainability Standards Board to Set IFRS Sustainability Standards. This document seeks feedback from stakeholders on proposed changes to the foundation’s constitution to accommodate sustainability reporting.

Comments on this proposal are due July 29, 2021.

Sustainability Reporting – IFRS Foundation Trustees Publish Feedback Statement on the Consultation Paper on Sustainability Reporting

The IFRS Foundation Trustees have published IFRS Foundation Trustees’ Feedback Statement on the Consultation Paper on Sustainability Reporting. This document discusses feedback received from stakeholders on the previously published Consultation Paper on Sustainability Reporting. This document complements the IFRS foundation’s proposal discussed above.

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AUDITING AND INTERNAL CONTROLS HEADLINES:
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Commercial Entities – New Edition of Knowledge-Based Audits of Commercial Entities (Post-SAS-134) 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, among other things:

• AICPA Statement on Auditing Standards (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;
• SAS No. 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports;
• SAS No. 138, Amendments to the Description of the Concept of Materiality;
• SAS No. 139, Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes from SAS No. 134;
• SAS No. 140, Amendments to AU-C Sections 725, 730, 930, 935, and 940 to Incorporate Auditor Reporting Changes from SAS Nos. 134 and 137;
• SAS No. 141, Amendment to the Effective Dates of SAS Nos. 134-140; and
• AICPA Ethics Interpretation, Information System Services (ET sec.1.295.145).

The following standards have not been fully incorporated but are discussed in practice alerts:

• SAS No. 142, Audit Evidence (effective for periods ending on or after December 15, 2022); and
• SAS No. 143, Auditing Accounting Estimates and Related Disclosures (effective for periods ending on or after December 15, 2023).

The included financial statement disclosures checklist is current through FASB Accounting Standards Codification™ as of March 31, 2021, through ASU 2021-03.

Not-for-Profit Entities – New Edition of Knowledge-Based Audits of Not-for-Profit Entities (Post-SAS-134) Published

We have published a new edition of Knowledge-Based AuditsTM of Not-for-Profit 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 not-for-profit entities in accordance with U.S. GAAS and GAGAS.

This new edition reflects current accounting authoritative literature including, among other things:

• AICPA Statement on Auditing Standards (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;
• SAS No. 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports;
• SAS No. 138, Amendments to the Description of the Concept of Materiality;
• SAS No. 139, Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes from SAS No. 134;
• SAS No. 140, Amendments to AU-C Sections 725, 730, 930, 935, and 940 to Incorporate Auditor Reporting Changes from SAS Nos. 134 and 137;
• SAS No. 141, Amendment to the Effective Dates of SAS Nos. 134-140; and
• AICPA Ethics Interpretation, Information System Services (ET sec.1.295.145).

The 2021 tools include links to detailed analysis related to the steps and processes discussed in the workpapers. Many new tips and examples have been incorporated. Also included are revised financial statement disclosures checklists that provide a centralized resource of the required and recommended U.S. GAAP disclosures and key presentation items currently in effect.

Data and Technology – PCAOB Publishes Spotlight on the PCAOB’s Data and Technology Project

As discussed above, the PCAOB has published a new Spotlight publication, Data and Technology Research Project Update - May 2021. The PCAOB indicates that advancements in technology “continue to affect the nature, timing, and preparation of financial information, including preparers’ controls around financial information, and the planning and performance of audits. The Board's strategic plan highlights the need to anticipate and respond to these advancements and their corresponding opportunities and risks.”

The PCAOB's Office of the Chief Auditor established a research project on data and technology to assess whether there is a need for guidance, changes to PCAOB standards, or other regulatory actions. The PCAOB has issued this Spotlight to provide transparency into our research project and share insights from our research and outreach activities during 2020.

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