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News

FASB meeting Image

Highlights from the FASB’s June 21 meeting

Jun 23, 2017

At its June 21, 2017, meeting, the FASB discussed its projects on (1) leases, (2) revenue recognition, (3) recognition and measurement of financial instruments, (4) consolidation, and (5) disclosure review — inventory.

Leases

The Board discussed 16 proposed technical corrections and improvements to its new leases standard as well as a lessor-specific transition issue associated with the relationship between the adoption of the new leases standard and the adoption of the new revenue standard.

For more information, see Deloitte’s journal entry as well as the tentative Board decisions on the FASB’s Web site.

Revenue recognition

The Board answered an implementation question related to the allocation of contract consideration to revenue and lease components, noting that it did not intend for an entity to revisit the allocation of contract consideration to lease components (within the scope of ASC 840, Leases) when it adopts ASU 2014-09, Revenue From Contracts With Customers. No decisions were made.

For more information, see the tentative Board decisions on the FASB’s Web site.

Financial instruments — recognition and measurement

The Board discussed technical corrections and improvements to the amendments in ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, and directed its staff to draft a proposed ASU for a vote by written ballot that includes the technical corrections to (1) ASU 2016-02, Leases, and (2) ASU 2016-01.

For more information, see the tentative Board decisions on the FASB’s Web site.

Consolidation

The Board discussed comments received from external reviewers on a draft of its proposed ASU on the reorganization of the guidance in ASC 810, Consolidation. In addition to discussing remaining issues, including costs and benefits, the FASB affirmed the decision it made on transition requirements at its March 8, 2017, meeting. The Board directed its staff to begin drafting a proposed ASU for a vote by written ballot.

For more information, see the tentative Board decisions on the FASB’s Web site.

Disclosure review — inventory

The Board discussed comments received on its January 2017 proposed ASU, Disclosure Framework — Changes to the Disclosure Requirements for Inventory. No decisions were made. The Board directed its staff to perform additional outreach and research on the proposed disclosure requirements related to changes in the inventory balance.

For more information, see the tentative Board decisions on the FASB’s Web site.

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FASB proposes improvements to consolidation guidance

Jun 23, 2017

The FASB has issued a proposed Accounting Standards Update (ASU), “Targeted Improvements to Related Party Guidance for Variable Interest Entities,” which is based on recommendations made by the Private Company Council.

The proposed ASU is “intended to reduce the cost and complexity of financial reporting associated with consolidation of variable interest entities.” Specifically, under the proposal:

  • Private companies “would not have to apply VIE guidance to legal entities under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated for consolidation are not public business entities.”
  • “Indirect interests held through related parties in common control arrangements would be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests.”
  • Consolidation would no longer be mandatory when “power is shared among related parties or when commonly controlled related parties, as a group, have the characteristics of a controlling financial interest but no reporting entity individually has a controlling financial interest.”

Comments on the proposed ASU are due by September 5, 2017. For more information, see the press release, FASB in Focus newsletter, and proposed ASU on the FASB’s Web site.

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IASB proposes amendments to IAS 16

Jun 20, 2017

The IASB has published an exposure draft (ED), “Property, Plant and Equipment — Proceeds Before Intended Use,” which proposes narrow-scope amendments intended to reduce the diversity in the application of IAS 16.

The amendments “would prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity would recognise those sales proceeds in profit or loss.”

Comments on the ED are due by October 19, 2017.

For more information, see the press release and ED on the IASB’s Web site.

SEC (US Securities and Exchange Commission) Image

SEC posts drafts of EDGAR Filer Manual for upcoming EDGAR release

Jun 19, 2017

The SEC has issued drafts of Volumes I, II, and certain technical specifications of its Electronic Data Gathering, Analysis, and Retrieval System (EDGAR) Filer Manual for upcoming EDGAR Release 17.2.

The new release, which is sched­uled for im­ple­men­ta­tion on July 17, 2017, will in­tro­duce several changes, in­clud­ing the fol­low­ing:

  • Requirement for large accelerated and accelerated filers to issue certain forms in HTML.
  • Updated submission forms.
  • Revisions to certain EDGAR­Link Online submission forms.
  • Minor, doc­u­men­ta­tion-only cor­rec­tions.
  • Schema updates.
  • Discontinued support for 2015 U.S. GAAP taxonomy.

The drafts have not been ap­proved by the Com­mis­sion and are subject to change. The final version of the EDGAR Filer Manual will be posted on the SEC’s Web site once it has been ap­proved.

For more in­for­ma­tion, see the following on the SEC’s Web site:

FASB meeting Image

FASB discusses distinguishing liabilities from equity

Jun 15, 2017

At its June 14, 2017, meeting, the FASB discussed staff outreach related to a potential new project on distinguishing liabilities from equity (including convertible debt).

The Board directed its staff to perform more research to present at a future meeting. No decisions were made.

For more information, see the meeting minutes on the FASB’s Web site.

PCAOB (US Public Company Accounting Oversight Board) Image

PCAOB calls for nominations for Standing Advisory Group

Jun 15, 2017

The PCAOB is soliciting nominations for its Standing Advisory Group (SAG) for the 2018–2020 three-year term.

The PCAOB established the SAG in 2003 to advise on the development of auditing and related professional practice standards. The SAG includes auditors, investors, public-company executives, and others.

The SAG currently has 35 members, with 14 members’ terms expiring in 2017. Nominations, including self-nominations, are sought annually and may be submitted by any person or organization.

The deadline for submissions is August 12, 2017, and the PCAOB expects to announce the appointments in December 2017.

For more information, see the press release on the PCAOB's Web site.

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Highlights from the FASB’s June 7 meeting

Jun 09, 2017

At its June 7, 2017, meeting, the FASB discussed its projects on (1) hedging and (2) revenue recognition of grants and contracts by not-for-profit entities.

Financial instruments — hedging

The Board discussed issues related to its September 2016 proposed ASU, including sweep issues, substantive drafting topics, transition, effective date, and early adoption. The Board directed its staff to begin drafting a final ASU for a vote by written ballot. The final ASU is expected to be published in August 2017.

For public entities, the ASU would be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the ASU would be effective for fiscal years beginning after December 15, 2019, and in interim periods within fiscal years, beginning after December 15, 2020. Entities may early adopt the ASU in any interim period or fiscal year after its issuance.

For more information, see Deloitte's related journal entry as well as the press release and meeting minutes on the FASB’s Web site.

Revenue recognition of grants and contracts by not-for-profit entities

The Board (1) discussed feedback from external reviewers on a draft of its proposed ASU on clarifying the scope and guidance in ASC 958 (on not-for-profit entities) with respect to contributions received and contributions made and (2) addressed other outstanding issues, including cost-benefit considerations. The Board directed its staff to begin drafting a proposed ASU for a vote by written ballot.

For more information, see the meeting minutes on the FASB’s Web site.

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IASB publishes IFRIC 23 on uncertain income tax treatments

Jun 07, 2017

The IASB has published IFRIC 23, “Uncertainty Over Income Tax Treatments,” which clarifies how to apply the recognition and measurement requirements in IAS 12, “Income Taxes,” when there is uncertainty regarding income tax treatments.

Topics addressed in IFRIC 23 include:

  • “[W]hether an entity considers uncertain tax treatments separately.”
  • “[T]he assumptions an entity makes about the examination of tax treatments by taxation authorities.”
  • “[H]ow an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.”
  • “[H]ow an entity considers changes in facts and circumstances.”

IFRIC 23 is effective for annual reporting periods beginning on or after January 1, 2019. Earlier application is permitted.

For more information, see the related IAS Plus newsletter as well as the press release on the IASB’s Web site. IFRIC 23 is available on the IASB’s eIFRS Web site (subscription required).

AICPA document Image

AICPA issues 12 revenue working drafts

Jun 06, 2017

The AICPA’s revenue recognition task forces have released for public comment 12 working drafts on accounting issues associated with the implementation of the new revenue standard for asset management, engineering and construction, gaming, health care, hospitality, and software entities.

The working drafts address the following topics:

  • Management fee revenue, management fee waivers, incentive or performance fee revenue, and incentive-based capital allocations (asset management).
  • Impact of termination for convenience on contract duration (engineering and construction contractors).
  • Income statement presentation of wide-area progressive operators’ fees, participation and similar arrangements, and accounting for loyalty points redeemed with third parties (gaming).
  • Presentation and disclosure (health care).
  • Consideration to customer (key money) (hospitality).
  • Transfers of control for distinct software licenses and considerations in estimating stand-alone selling prices (software).

Comments on the working drafts are due by August 1, 2017. For more information, see the revenue recognition page on the AICPA’s Web site.

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PCAOB adopts changes to the auditor’s report and proposes new requirements related to auditing accounting estimates and the use of specialists

Jun 01, 2017

The PCAOB has (1) approved a new auditing standard on the auditor’s reporting model as well as related conforming amendments to its standards (subject to final approval by the SEC) and (2) proposed changes to its performance standards related to auditing accounting estimates and use of the work of specialists.

New standard on the auditor’s reporting model (subject to SEC approval)

The new auditor reporting standard will significantly modify the auditor’s reporting model. While the new standard will retain the current “pass/fail” approach, it will also significantly increase the information included in auditors’ reports.

In a statement announcing the standard, PCAOB Chairman James Doty stated the following:

[The new standard] will make the auditor’s report more relevant, useful and informative to investors and other financial statement users. . . . In today’s complex economy, and particularly in light of lessons learned after the financial crisis, investors in our public capital markets want a better understanding of the judgments that go into an auditor’s opinion — not a recitation of the standard procedures that apply to any audit, but the specific judgments that were most critical to the auditor in arriving at the opinion.

The key changes to the auditor’s report under the standard are:

  • A new required section describing critical audit matters (CAMs) arising from the audit of the current period’s financial statements. In this new section, the auditor will identify the CAMs, describe the principal considerations that led to the particular CAMs, describe how the auditor addressed the CAMs in the audit, and refer to the related financial statement accounts and disclosures. In addition:
    • CAMs are defined as “any matter that was communicated or required to be communicated to the audit committee and that:
      • Relates to accounts or disclosures that are material to the financial statements, and
      • Involved especially challenging, subjective, or complex auditor judgment.”
    • The standard includes a nonexclusive list of factors for the auditor to take into account when determining whether a matter involved especially challenging, subjective, or complex auditor judgment.
    • The determination of a CAM should be made in the context of a particular audit with the aim of providing audit-specific information rather than a discussion of generic risks.
  • The standardization of the order and form of the auditor’s report, with the opinion section appearing first and section titles included to guide the reader.
  • The addition of a new statement indicating that the auditor is required to be independent with respect to the company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB.
  • Enhanced descriptions of the auditor’s roles and responsibilities in the audit.
  • Inclusion of the year the auditor began serving consecutively as the company’s auditor.

Communication of CAMs is not required for audits of emerging growth companies, broker/dealers, investment companies other than business development companies, or benefit plans, but the standard permits voluntary inclusion of CAMs in the auditor’s report for such entities. Note that all other provisions of the standard apply to the audits of these types of companies.

The effective date will be phased in as follows:

  • Communication of CAMs will be effective:
    • For fiscal years ending on or after June 30, 2019, for auditor reports issued in connection with the audits of large accelerated filers (as defined by the SEC).
    • For fiscal years ending on or after December 15, 2020, for auditor reports issued for all other audits to which the requirements apply.
  • Remaining changes to the auditor’s report, including auditor tenure, will apply to auditor reports issued for fiscal years ending on or after December 15, 2017.

The PCAOB will submit the new auditor reporting standard and related amendments to the SEC for its approval. The SEC’s approval process typically includes an additional public comment period. Auditors may elect to comply with the standard before its effective date at any point after the SEC approves it.

Note that the new auditor reporting standard is not significantly different from the requirements and guidance previously proposed by the PCAOB in May 2016.

Proposed new requirements related to auditing accounting estimates and the use of specialists

The PCAOB’s proposals on auditing accounting estimates, including fair value measurements, and the use of the work of specialists are intended to strengthen and enhance the existing standards and to address the difference between the auditor’s use of a company’s specialists and those employed or engaged by the auditors. The proposed changes are intended to:

  • Establish a single standard for, and build on the existing approaches to, auditing estimates (testing the company’s process, developing an independent expectation, and evaluating evidence from the subsequent transactions and events) by expanding the guidance for auditors.
  • Better align the auditing of accounting estimates with the PCAOB’s risk assessment standards.
  • Update the standards to address the use of pricing services by both management and auditors.
  • Establish a uniform risk-based approach to testing and evaluating the work of a company’s specialists and amend the standards on audit evidence.
  • Establish a common supervisory approach for auditor specialists, whether employed or engaged by the auditors, specifically ensuring appropriate oversight and supervision in both situations.

Comments on the proposals are due to the PCAOB by August 30, 2017.

Next steps

Watch for Deloitte’s forthcoming Heads Up and Audit & Assurance Update newsletters for additional analysis of the PCAOB’s auditor reporting standard and proposals related to auditing accounting estimates and use of specialists.

For information about the PCAOB’s proposed changes to the auditor’s model, see Deloitte’s May 27, 2016, Audit & Assurance Update. For a summary of the June 18, 2015, meeting of the PCAOB’s Standing Advisory Committee, at which auditing accounting estimates and the use of specialists were discussed, see Deloitte’s July 1, 2015, Heads Up.

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