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May 2016

ACCA report concludes that the fragmentation of the sustainability reporting landscape undermines its potential

May 13, 2016

On May 13, 3016, the Association of Chartered Certified Accountants (ACCA) and the Climate Disclosure Standards Board (CDSB) released a report suggesting that despite progress made in sustainability reporting and its growing importance, the fragmentation of the landscape might mean that the discipline is "lost in the right direction".

The author of the report, who is the Founding Director of CDSB and responsible for CDSB’s work to develop a framework to report environmental information in mainstream corporate reports, examines the changing corporate sustainability reporting landscape, outlines its components, discusses current challenges and proposes development opportunities. She also considers the trends, levers and drivers influencing the reporting landscape and concludes that new and evolving expectations about corporate performance, new measurement criteria, and the means by which companies are assessed are calling into question the role of the corporation and the definition of corporate performance.

Please click to access the report on the ACCA website.

Adapting to Survive and Thrive in a World of Change

May 17, 2016

On May 17, 2016, the International Federation of Accountants (IFAC) released an article by Kevin Dancey, Past President and CEO, Chartered Professional Accountants of Canada (CPA Canada), where he reflects on the continuous advancements in technology and globalization and states that he believes that a key to success has been adapting to change and making the most of the opportunities it has to offer.

He says that the vast amounts of information collected generate new analytic techniques and opportunities and that today’s leaders have to anticipate change and identify approaches to capitalize on it for the benefit of their constituents.

Review the article on the IFAC's Web site.

CAQ SEC Regulations Committee releases highlights of March 21, 2016, joint meeting with SEC staff

May 20, 2016

On May 20, 2016, the Center for Audit Quality (CAQ) posted highlights of the March 21, 2016 CAQ SEC Regulations Committee joint meeting with the SEC staff.

Topics discussed at the meeting include:

  • Current financial reporting matters:
    • Transition questions related to the FASB’s new leases standard (ASU 2016-02).
    • The lack of availability of FAST Act initial filing accommodations to registrants other than emerging growth companies (EGCs) and to SEC forms other than Forms S-1 and F-1.
    • Confirmation that the guidance on conflict minerals in the SEC staff’s April 29, 2014, public statement is still current.
    • Updates to the SEC’s FRM, particularly the changes to paragraph 11100.2 on the presentation of supplementary quarterly financial data required by Regulation S-K, Item 302, in EGC filings.
    • Status of disclosure effectiveness initiatives related to Regulation S-X and Regulation S-K.
    • Recent remarks made by the SEC staff related to non-GAAP measures.
    • Providing supplemental pro forma information in MD&A when a registrant adopts the new revenue guidance in ASC 606 on a modified retrospective basis.
  • Current practice issue:
    • The application of the general instructions applicable to EGCs for Form S-1 or Form F-1 with respect to pro forma financial information for a fiscal year that a registrant reasonably believes will not be included in a registration statement at the time of a contemplated offering.

Review the highlights on the SEC's Web site.

Crowdfunding rules effective; SEC publishes interpretive and compliance guidance

May 16, 2016

Starting on May 16, 2016, eligible companies are allowed to raise capital by using the SEC’s crowdfunding regulations. To help them understand the new requirements, the SEC has issued (1) eight new compliance and disclosure interpretations (C&DIs) and (2) a small-entity compliance guide.

The eight C&DIs cover the following topics: crowdfunding exemption and requirements, disclosure requirements, advertising, and promoter compensation.

The compliance guide, Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, summarizes and explains the SEC’s October 2015 final rule on crowdfunding.

Current financial reporting practices do not impede long-term investment

May 09, 2016

On May 9, 2016, the Institute of Chartered Accountants in England and Wales (ICAEW) published "Long-Term Investment and Accounting: Overcoming Short-Term Bias".

The report looks at the evidence on whether financial reporting encourages short-termism and asks whether it would be possible for financial reporting to provide better information on long-term performance. In particular, it looks at five areas in which current financial reporting has been accused of encouraging short-termism:

  • use of fair values;
  • no information on long-term performance;
  • excessive frequency of reporting;
  • writing off of spending on long-term assets; and
  • no information on long-run effects on the natural world or on society as a whole.

The paper concludes that current evidence does not suggest that current financial reporting practices impedes long-term investment, except in relation to the frequency of reporting where there can be a trade-off between the benefits of transparency and the costs of ensuring that investors’ expectations of performance are met at the frequent intervals required.

The full research paper are available from the ICAEW website.

FASB clarifies revenue guidance on practical expedients

May 10, 2016

On May 10, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-12 "Narrow-Scope Improvements and Practical Expedients", which amends certain aspects of the Board’s new revenue standard, ASU 2014-09 "Revenue From Contracts With Customers."

The amendments, which were issued in response to feedback received by the FASB–IASB joint revenue recognition transition resource group (TRG), include the following:

  • Collectibility
  • Presentation of sales tax collected from customers
  • Noncash consideration
  • Contract modifications at transition
  • Transition technical correction

The ASU notes that in light of the following, there may be “minor differences in financial reporting outcomes between U.S. GAAP and IFRS” as a result of the ASU’s amendments:

  • IFRS 15, Revenue From Contracts With Customers, does not allow a policy election for the presentation of sales taxes on a net basis.
  • IFRS 15 does not prescribe the measurement date for noncash consideration.
  • The different dates associated with an entity’s application of (1) the practical expedient for contract modifications and (2) the term “completed contracts” for transition purposes.

The ASU’s effective date and transition provisions are aligned with the requirements in the new revenue standard, which is not yet effective. For more information, see the ASU on the FASB’s website.

FASB proposes technical corrections and improvements to its new revenue standard

May 18, 2016

On May 18, 2016, the US Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU), “Technical Corrections and Improvements to Update 2014-09, ‘Revenue From Contracts With Customers,’” which would make minor changes to the Board’s new revenue guidance.

Instead of addressing these changes as part of its technical corrections and improvements project, the FASB issued the proposed ASU separately “to increase stakeholders’ awareness of the proposals and to expedite improvements to Update 2014-09.” The tech­ni­cal cor­rec­tions affect the following narrow aspects of the new revenue standard:

  • Preproduction costs related to long-term supply arrangements.
  • Contract costs — impairment testing.
  • Contract costs — interaction of impairment testing with guidance in other topics.
  • Provisions for losses on construction-type and production-type contracts.
  • Scope of the new revenue standard.
  • Disclosure of remaining performance obligations.
  • A contract modification example.
  • Fixed-odds wagering contracts in the casino industry.
  • Cost capitalization for advisers to private and public funds.

Com­ments on the pro­posed ASU are due by July 2, 2016.

Review the pro­posed ASU on the FASB’s website.

IASB Chairman discusses non-GAAP measures

May 11, 2016

On May 11, 2016, at the European Accounting Association annual conference in Maastricht, the International Accounting Standards Board (IASB) chair, Hans Hoogervorst, gave a speech titled ‘Performance reporting and the pitfalls of non-GAAP metrics’.

During his presentation, Mr Hoogervorst explored “whether IFRS Standards provide sufficient criteria by which performance can be judged by users of financial statements.” He noted the increasing use of non-GAAP measures and research showing that these measures are becoming increasingly misleading. Mr Hoogervorst said:

The fact is that IFRS Standards prescribes very little in the way of formatting the income statement. Companies have considerable freedom in the way they present the components of income that make up profit or loss. As a result, there is little comparability above the bottom line, making it difficult for users to judge performance.

He went on to say that securities regulators are primarily responsible for cutting back the use of non-GAAP measures but that the IASB “should also look at its own role in this matter.” He admitted that the IASB provides “too little guidance” in formatting the income statement. He also suggested “potential remedies” for IASB consideration:

  • Defining more subtotals in the income statement;
  • Providing a principle-based definition of operating income which does not allow for obfuscating restructuring or impairment charges;
  • Creating a “rigorous definition” of earnings before interest and tax (EBIT);
  • Looking for better solutions for some elements of income and expense that are currently parked in other comprehensive income;
  • All of the above and more.

Mr Hoogervorst concluded:

[U]ltimately the number that counts most is the unadjusted bottom line, where all elements of income come together, both recurring items and exceptional items, whatever those may be. No-one can predict the extent to which seemingly extraordinary elements of income are recurring and not. That is why it is important that the bottom line is as inclusive as possible and that it shows everything, warts and all.

The full text of Mr Hoogervorst’s speech is available on the IASB’s Web site.

IASB confirms amendments to current insurance contracts standard

May 17, 2016

On May 17, 2016, the International Accounting Standards Board (IASB) confirmed it will amend the current insurance contracts standard, IFRS 4. This is to address issues that may arise from implementing the new financial instruments standard, IFRS 9, before implementing the new insurance contracts standard which will replace IFRS 4.

At its May meeting, the IASB concluded deliberations on this topic and asked staff to draft the final amendments to IFRS 4, Insurance Contracts, which the IASB expects to issue in September 2016.

The new insurance contracts standard is currently being drafted and the IASB expects to issue it around the end of 2016 with an effective date no earlier than 2020. Both IFRS 9, Financial Instruments, effective January 1, 2018, and the new insurance contracts standard are relevant to companies that issue insurance contracts.

Responding to some companies’ concerns about the timing of the implementation of the two standards and the related consequences, the IASB has, following public consultation, confirmed that it will issue amendments to IFRS 4 that:

  • give companies that issue insurance contracts the option to remove from profit or loss the volatility that may be caused by certain changes in the measurement of financial assets when applying IFRS 9 before the new insurance contracts standard; and
  • give companies whose predominant activities are insurance-related an optional temporary exemption from applying IFRS 9 until 2021.

The amendments to IFRS 4 will supplement existing options in that standard that could be used to address the volatility that may be caused by applying IFRS 9 before the new insurance contracts standard.

Review the press release on the IASB's Web site.

IASB posts webcast featuring Sue Lloyd on IFRS 16 exemptions

May 03, 2016

On May 3, 2016, the International Accounting Standards Board (IASB) released a webcast on recognition exemptions for lessees, featuring IASB board member Sue Lloyd, as part of its webcast series on IFRS 16 implementation.

The webcast discusses the IFRS 16 requirements relating to the recognition exemptions and provides Ms. Lloyd's insight on the scope exemptions, practical examples, and implementation information.

The new webcast and all previous webcasts of the series available on the IFRS 16 implementation page on the IASB’s website.

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