August 2017

AICPA issues three revenue working drafts

Aug 02, 2017

On August 2, 2017, the AICPA’s revenue recognition task forces have released for public comment three working drafts on accounting issues associated with the implementation of the new revenue standard for depository and lending institutions, engineering and construction contractors, and power and utility entities.

The working drafts address the following topics:

Comments on the working drafts are due by October 2, 2017.

For more information, see the revenue recognition page on the AICPA’s Web site.

FASB makes targeted improvements to hedge accounting requirements

Aug 28, 2017

On August 28, 2017, the US Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-12, "Targeted Improvements to Accounting for Hedging Activities."

The ASU amends ASC 815 to "better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results." The Board believes that such amendments will (1) improve the transparency of information about an entity’s risk management activities and (2) simplify the application of hedge accounting.

In developing the targeted improvements, the FASB also considered opportunities to achieve convergence with IFRS 9, Financial Instruments. The FASB in Focus states:

How Does the FASB’s ASU Compare with International Financial Reporting Standards (IFRS)?

Although the language used to describe the hedge accounting guidance in the ASU and in IFRS 9, Financial Instruments, differs, there are several areas of alignment between the two standards, and it is expected that many common hedge accounting strategies will have similar outcomes related to hedging components of financial instruments and non-financial items and in the measurement of hedged items in fair value hedges of interest rate risk. However, differences still remain between the two standards in the criteria for qualifying for hedge accounting. Additionally, IFRS 9 retained the separate measurement and reporting of hedge ineffectiveness and does not have broad guidance on presentation.  

For public business entities, the ASU’s amendments are effective for fiscal years beginning after December 15, 2018, and interim periods therein. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. All entities are permitted to early adopt the ASU in interim periods after its issuance.

Review the ASU, press release, FASB in Focus, video, and cost-benefit analysis on the FASB’s website.

Also, review a Q&A with Deloitte’s Jon Howard, senior consultation partner, on the impacts of the new hedge accounting standard on the FEI Daily's website.

ICAEW report on non-comparable disclosure under IFRS

Jul 31, 2017

On July 31, 2017, the Institute of Chartered Accountants in England and Wales (ICAEW) released a report "Disclosure quality and international comparability under IFRS: evidence from pension discount rates, impairment and capitalisation of development costs" that argues that non-comparable disclosure under IFRS is a problem.

The report is addressed to practitioners such as financial analysts, finance directors, audit partners and IFRS technical departments in audit firms to alert them to the findings of an investigation into international differences in IFRS practice. Data was collected from over 500 firms in 15 countries.

Of the three areas investigated (pension discount rates, impairment charges and capitalization of development costs), the topic with the largest amount of non-comparable disclosure was pension discount rates: only 67% of financial statements examined were found to be comparable for analysis. The authors note that pension discount rates were often not distinguished by country and were disclosed as a relatively wide range. Additionally, although an IFRS requirement, many companies do not provide comparable disclosure on the duration of the pension obligation. The authors sum up their findings:

This is an issue of non-comparable disclosure under IFRS. The severity of the problem varies by country, but as a data problem it should be of interest to analysts. Some of the thinness in disclosures may be due to immateriality but we suspect some non-compliance with IFRS disclosure requirements, which should concern auditors, the IASB and regulators.

Review the press release and the full report on the ICAEW's website.

New IASB webcast: How does IFRS 17 measure insurance contracts with short coverage periods?

Aug 03, 2017

On August 3, 2017, the International Accounting Standards Board (IASB) staff made available on its website a webcast on the optional simplified accounting IFRS 17 "Insurance Contracts" for insurance contracts with short coverage periods, called the premium allocation approach.

The webcast is recorded in two parts and covers optional simplified measurement, presentation and disclosure requirements.

This webinar is part of a series of webinars that the IASB is providing to support the implementation of IFRS 17.

Review the press release on the IASB's website.

Revenue Recognition: SEC Updates Guidance & Issues New SAB

Aug 18, 2017

On August 18, 2017, the Securities and Exchange Commission (SEC) issued two interpretative releases and the SEC staff released a Staff Accounting Bulletin to update interpretive guidance regarding revenue recognition, all related to FASB’s “ASC Topic 606 – Revenue from Contracts with Customers.”

One of the interpretive release addresses accounting for “bill and hold arrangements,” while the other release covers sales of vaccines to the federal government for certain stockpiling programs.

New SAB 116 is intended to bring existing guidance into conformity with ASC Topic 606.

Review the press release on the SEC's website.

Summary of the June 2017 ITCG meeting

Aug 01, 2017

On August 1, 2017, the International Accounting Standards Board (IASB) published notes to the IFRS Taxonomy Consultative Group (ITCG) meeting held on June 12, 2017.

The ITCG discussed the following:

  • Update on recent activities related to better communication in financial reporting.
  • Updates by the ESMA and the SEC on the use of the IFRS Taxonomy.
  • Content and structure of a draft of Using the IFRS Taxonomy — a preparer’s guide.
  • Proposed IFRS Taxonomy content changes.
  • IFRS Taxonomy tables.
  • Update by XBRL International on entity-specific disclosures.
  • Views on proposals for introducing IFRS Taxonomy implementation notes.
  • Development of an IFRS Taxonomy commenting platform.

Review the summary on the IASB's website.

Summary of the June 2017 joint CMAC-GPF meeting

Aug 23, 2017

On August 23, 2017, the International Accounting Standards Board (IASB) posted the meeting notes from its meeting with the Capital Markets Advisory Council (CMAC) and Global Preparers Forum (GPF) in London on June 15 and 16, 2017.

The topics discussed at the meeting included:

  1. IASB update;
  2. Discussion Paper Principles of Disclosure;
  3. Primary financial statements and comparability and flexibility in performance reporting;
  4. Post-implementation review of IFRS 13 Fair Value Measurement;
  5. Impairment testing of goodwill;
  6. Preparers’ views on the proposals in the Exposure Draft Improvements to IFRS 8 'Operating Segments'.

Review the meeting page and the meeting summary on the IASB's website.

The Rulemaking Process: Two Accounting and Auditing Mini-case Studies: Materiality and Auditor's reporting

Aug 22, 2017

On August 22, 2017, the Securities and Exchange Commission (SEC) released a speech by Stephen Deane, CFA, Investor Engagement Advisor, Office of the Investor Advocate

In his speech, Mr. Deane talks about two mini-case studies: FASB’s proposals to remove its definition of materiality, and the PCAOB’s final rule that, if approved by the SEC, would significantly enhance the audit reporting model.


In its proposed Update on the Conceptual Framework, FASB proposed to remove its own definition of materiality and instead to rely on the courts to provide the definition. FASB did so, it explained, because, “The Board became aware that the current definition of materiality was inconsistent with the legal concept of materiality in the United States.” FASB proposed to replace that definition with new language that essentially said two things: First, materiality is a legal concept; and, second, it is not up to FASB to define it.

Auditor's reporting model

The PCAOB has adopted a new standard that, if approved by the SEC, will expand the report significantly. The standard aims to give readers of the audit report greater insight into the most challenging, subjective and complex aspects of the audit.

The heart of the new standard is a requirement for the audit report to identify all critical audit matters, or CAMs, and disclose information on the auditor’s response to each CAM. The new standard defines a CAM as a matter that was communicated or required to be communicated to the audit committee and that meets two further tests:

  1. The matter must relate to accounts or disclosures that are material to the financial statements, and
  2. The matter must involve especially challenging, subjective, or complex auditor judgment.

Review the full speech on the SEC's website.

When IPO Companies Stumble Out of the Blocks

Aug 20, 2017

On August 20, 2017, the D&O Diary released an article that discusses how most informed observers know that IPO companies are more susceptible to securities class action litigation than are more seasoned companies.

IPO companies usually have short operating histories and so their post-offering performance can be unpredictable and may include unexpected developments. When IPO companies stumble out of the blocks, they can attract a securities suit just a short time after their debut.

One significant practical consequence of all of these considerations is that D&O insurance is particularly important for companies contemplating an IPO. The company’s D&O insurance program could prove to be particularly valuable to IPO companies that stumble out of the blocks or that otherwise acquire a securities suit shortly after their debut.

Review the article on the D&O Diary's website.

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