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SEC adopts final rules to increase financial responsibility of broker-dealers and protect investors

Jul 30, 2013

The SEC adopted a final rule to amend certain broker-dealer annual reporting, audit, and notification requirements.

The amendments include a requirement that broker-dealer audits be conducted in accordance with standards of the Public Company Accounting Oversight Board (PCAOB) in light of explicit oversight authority provided by the Dodd-Frank Act. The amendments further require a broker-dealer that clears transactions or carries customer accounts to agree to allow representatives of the SEC or the broker-dealer’s designated examining authority (DEA) to review the documentation associated with certain reports of the broker-dealer’s independent public accountant and to allow the accountant to discuss the findings in connection with a regulatory examination of the broker-dealer. Finally, the amendments require a broker-dealer to file a new form with its DEA that elicits information about the broker-dealer’s practices with respect to the custody of securities and funds of customers and noncustomers.

The SEC also adopted another final rule to amend the net capital, customer protection, books and records, and notification rules for broker-dealers. These amendments are designed to address concerns regarding the financial responsibility requirements for broker-dealers.

Click for (links to the SEC's Web site):

SEC chairman testifies on steps taken to to reduce systemic risk in the U.S. capital markets

Jul 30, 2013

SEC Chairman Mary Jo White testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs about the steps taken by the SEC to reduce systemic risk in the U.S. capital markets. In particular, she addressed the actions taken by the SEC to support the provisions of the Dodd-Frank Act.

Some of these actions included the following:

Over-the-Counter Derivatives

The SEC has (1) proposed substantially all of the core rules required by Title VII of the Dodd-Frank Act, (2) adopted a number of final rules and interpretations, (3) provided a roadmap to implement Title VII and to inform market participants of the sequence in which the new requirements will become effective and how the proposed rules would apply in a cross border context, and (4) taken other actions to provide legal certainty to market participants during the implementation process. 

Financial Market Utilities

The SEC has created enhanced standards for systemically important financial market utilities and adopted clearing agency standards.

Form PF: Systemic Risk Reporting by Advisers to Private Funds

The SEC has been developing a secure filing environment for Form PF to comply with the confidentiality provisions under the Dodd-Frank Act. For example, Ms. White noted that the SEC will implement controls and systems to handle the data across the agency and to deliver the data electronically to the Office of Financial Research within the Department of the Treasury.

The Volcker Rule

In October 2011, the federal banking agencies and SEC jointly proposed rules to implement the Volcker Rule. Ms. White noted that the SEC has received nearly 19,000 comment letters in response to the proposal and will continue to engage in consultation with other federal financial regulators to develop recommendations for implementing the Volcker Rule.

Credit Rating Agencies

The Dodd-Frank Act required the SEC to undertake a number of rulemakings related to credit rating agencies registered as nationally recognized statistical rating organizations. The SEC has proposed a series of rules intended to strengthen the integrity of credit ratings by, among other things, improving the transparency of ratings methods and performance.

Prohibition Against Conflicts of Interest in Certain Securitizations

In September 2011, the SEC proposed a rule to implement Section 621 of the Dodd-Frank Act, which prohibits entities that create and distribute asset-backed securities from engaging in transactions that involve or result in material conflicts of interest with respect to the investors in such asset-backed securities. The proposed rule would prohibit underwriters, placement agents, initial purchasers, and sponsors of an asset-backed security, among others, from engaging in any transaction that would involve or result in any material conflicts of interest with respect to any investor in the relevant asset-backed security.

Orderly Liquidation Authority

Under Title II of the Dodd-Frank Act, the SEC and the Federal Deposit Insurance Corporation are required to develop joint rules governing the orderly liquidation of broker-dealers. Ms. White noted that the SEC staff is working to prepare a recommendation.

The testimony is available on the SEC’s website.

Summary of the July 2013 DPOC meeting

Jul 30, 2013

The IASB has posted a summary of the July 10, 2013, Due Process Oversight Committee (DPOC) meeting that was held in Johannesburg during the Trustees’ meeting.

Topics discussed during the DPOC meeting include:


Update on technical activities

Updates were given on the progress of the major projects on the IASB’s work plan. Regarding classification and measurement, the DPOC noted additional discussions will be held between the FASB and IASB in their July 2013 meeting and with the Accounting Standards Advisory Forum (ASAF) in September 2013. The next step will be to perform a "lifecycle" review sometime in October 2013.

For the impairment project, the DPOC discussed the preliminary views on the exposure draft on expected credit losses. Overall, the DPOC supported the proposals and believed the IASB should complete the project in a timely basis. The IASB representatives also believed that convergence with the FASB was not likely to be achieved. Additional discussions will be held between the FASB and IASB in their July 2013 meeting and with the ASAF in September 2013.

Other major projects discussed were hedge accounting (EU adoption of IFRS 9/effective date), macro hedging (upcoming discussion paper/timetable), leases (ED comment period), insurance contracts, and conceptual framework (discussion paper/ASAF involvement).

In addition, the DPOC received updates on implementation and maintenance projects on the IASB’s work plan, in particular, separate financial statements; disclosure requirements about the assessment of going concern; IFRIC 21, Levies; the start of the post-implementation review of IFRS 3; educational material; and XBRL.


Production and timing of Consultative and Final Documents

The DPOC was updated by the IASB on the steps to manage the workload and burden on constituents because of the large amount of publications scheduled to be issued in the second half of 2013.


Due process "lifecycle" review of revenue recognition 

The DPOC received a report on the due process steps taken to date on revenue recognition. The DPOC was satisfied with the due process steps performed for the IASB to begin the final balloting of a new standard.


Review on consultative groups

The DPOC reviewed and was satisfied that the following consultative groups were operating effectively and should be retained:

  • ASAF.
  • Emerging Economies Group (EEG).
  • Capital Markets Advisory Committee (CMAC) and Global Preparer Forum (GPF).
  • Education and Advisory Group (EAG).
  • SME Implementation Group (SMEIG).
  • XAC and XQRT.
  • Effects Analysis Consultative Group (EACG).
  • Rate-regulated Activities Consultative Group (RRACG).
  • Financial Instruments Working Group (FIWG), Insurance Working Group (IWG), and Leases Working Group (LWG).
  • Expert Advisory Panel (EAP).
  • Valuation Expert Group (VEG).

In addition, the DPOC was informed of another group in the formative stage representing Islamic countries (Advisory Group on Sharia-compliant instruments and transactions).


Due process protocol

The DPOC addressed three issues: (1) the availability of comment letters, (2) the availability of meeting papers to observers, and (3) interactions with securities and prudential regulators.


DPOC web pages

The DPOC welcomed the redesign performed on the DPOC Web site.


Review of correspondence

No new correspondence cases were submitted since the Committee’s previous meeting in April 2013.


The DPOC is responsible for approving due process and overseeing the IASB’s compliance with due process and reviewing the Trustees’ fulfillment of their oversight function in accordance with the Constitution of the IFRS Foundation.

A summary of the meeting is available on the IASB's Web site.

Updated IASB work plan

Jul 29, 2013

Following its recent meeting, the IASB updated its work plan. The expected timing in the general hedge accounting standard has been extended to include the fourth quarter of 2013. Additional adjustments have also been made to narrow scope projects, post-implementation reviews, and the conceptual framework project.

Details of the changes are:

Updates to major projects

Updates to narrow-scope projects

Updates to post-implementation reviews

  • IFRS 3 — request for information is expected in the fourth quarter of 2013.

A standard on revenue recognition is expected to be issued in the third quarter of 2013.

Click for the IASB work plan dated July 29, 2013 (link to the IASB's Web site). We have updated our project pages to reflect the updated work plan and other known developments.

July 2013 IASB meeting notes — Part 4 (concluded)

Jul 29, 2013

The IASB's meeting was held in London on July 23–25, 2013; some of it was a joint meeting with the FASB. Deloitte observer notes are posted from Thursday’s sessions on macro hedge accounting and the 2010–2012 Cycle of Annual Improvements to IFRSs.

Click for direct access to the notes: 

Thursday, July 25, 2013

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

IPSASB publishes guidance on public sector financial statement discussion and analysis

Jul 29, 2013

The International Public Sector Accounting Standards Board (IPSASB) has published a new "Recommended Practice Guideline" (RPG), which provides guidance on preparing and presenting financial statement discussion and analysis of the financial statements of public sector entities.

The release of the Recommended Practice Guideline 2 Financial Statement Discussion and Analysis (RPG 2) represents the second RPG issued by the IPSASB and follows the recent earlier release of RPG 1 on long-term fiscal sustainability. Both RPGs are considered "good practice," are not mandatory, and do not need to be applied for a public sector entity to comply with International Public Sector Accounting Standards (IPSAS).

RPG 2 is designed to encourage more public sector entities to provide financial discussion and analysis. It requires the reporting boundary and reporting period for the discussion and analysis to be the same as the financial statements themselves, to be presented at least annually, and to be issued with the financial statements. The discussion and analysis should (1) reflect the nature of the entity and the regulatory environment in which it operates and (2) be clearly identified and distinguished from the financial statements (prepared and presented in accordance with IPSAS) and other information presented in a public sector entity's annual report.

The RPG outlines that a financial discussion and analysis should include:

  • An overview of the entity’s operations and the environment in which it operates.
  • Information about the entity’s objectives and strategies.
  • An analysis of the entity’s financial statements including significant changes and trends in an entity’s financial position, financial performance, and cash flows.
  • A description of the entity’s principal risks and uncertainties that affect its financial position, financial performance and cash flows, an explanation of changes in those risks and uncertainties since the last reporting date and its strategies for bearing or mitigating those risks and uncertainties.

In some respects, RPG 2 is similar to the IASB's IFRS Practice Statement Management Commentary, but is not based upon it. The Basis for Conclusions on the RPG explains the reasons for this as follows:

In undertaking this project, the IPSASB considered, under its Process for Reviewing and Modifying IASB Documents, whether to develop guidance that was converged with Management Commentary, an IFRS Practice Statement. The IPSASB did not consider this approach to be appropriate because the users identified in the Practice Statement are investors whereas Chapter 2 of the [IPSASB] Conceptual Framework identifies different users, which results in different information needs related to the financial statements. On this basis the IPSASB decided it was important to develop guidance on financial statement discussion and analysis specific to the public sector. Financial statement discussion and analysis assists users of public sector entities’ financial statements by complementing and supplementing the financial statement explanations with insights and perspectives.

In addition, the original IPSASB proposals in ED 47, Financial Statement Discussion and Analysis, which was issued in April 2012, would have seen the issue of an IPSAS rather than an RPG. However, in considering constituent feedback on ED 47, the IPSASB decided that on balance the ED should be developed into an RPG, and that it would consider the authority of RPG 2 in the future.

As a nonmandatory guide, RPG 2 does not have a stated effective date, but financial statement discussion and analysis should not be described as complying with the RPG unless it complies with all its requirements. Click here for the IPSASB press release (link to the IFAC's Web site).

July 2013 IASB meeting notes — Part 3 (continued)

Jul 26, 2013

The IASB's meeting was held in London on July 23–25, 2013; some of it was a joint meeting with the FASB. Deloitte observer notes are posted from Thursday’s sessions on contingent pricing of property, plant, and equipment and intangible assets (IAS 16/IAS 38) and elimination of intercompany profits between an issuer and its joint venture (IAS 28).

IASB and FASB to create a joint revenue recognition transition resource group

Jul 26, 2013

The IASB and the FASB have formally announced the plan to create a joint transition resource group for the upcoming revenue recognition standard. The transition group will be in charge of keeping the IASB and FASB informed on interpretive issues occurring during implementation of the standard and assisting in the determination of what action may be needed to resolve diversity in practice.

The transition group will consist of 10 to 15 specialists, which will be announced shortly after the issuance of the revenue standard. The specialists will include financial statement preparers, auditors, regulators, users, and other stakeholders as well as IASB and FASB members.

More information on the revenue recognition transition resource group is available on the IASB's Web site.

XBRL International responds to the IIRC Consultation Draft on integrated reporting

Jul 26, 2013

The XBRL International Best Practices Board (BPB) has submitted a letter of comment to the International Integrated Reporting Council (IIRC) Consultation Draft on its proposed "International Integrated Reporting Framework" showing how XBRL can help make the multi-faceted information flow more accessible but also stressing that XBRL aspects should be considered early in the process to make full use of the available functionalities.

XBRL can be used to "tag" numeric and narrative information as well as express relationships between data points within a single report or across multiple reports (e.g., financial statements, CSR report, sustainability report, integrated report). It helps to collect, analyze, and report information for internal management reporting as well as external regulatory/compliance reporting by making the information accessible, reusable, and easily consumable. Structured XBRL data also facilitates automated validation of submissions, which increases reliability and completeness.

To make full use of the XBRL advantages, the BPB suggests requiring efficient, cross-references of information that would help to avoide cluttering a report with repeated or redundant information. In this context, the BPB believes that the IIRC should not only consider costs to prepare integrated reports but also costs to access, process, and use the data within them by the target audience — which will be made much more difficult in a cluttered, unconnected report.

For the development of a useful taxonomy, the BPB suggests the following steps to be undertaken as soon as possible:

  • A set of terms that are applied to the data needs to be agreed upon to make the data comparable and consistent. 
  • The IIRC should consider participating in a proof of concept (POC) project with experts from the global XBRL community. This would include creating a small, sample integrated reporting XBRL taxonomy.
  • An exploratory XBRL working group should be set up to develop (after a successful POC) a full-fledged XBRL Taxonomy for integrated reports.
  • The IIRC should cooperate proactively with XBRL International and the Best Practices Board to enhance IIRC’s XBRL knowledge and understanding of how the technology can be used to support integrated reporting.

Click for access to the full comment letter on the XBRL International Web site. Our summary of the IIRC proposals is available here.

IAASB exposure draft proposes significant changes to audit reports

Jul 26, 2013

The IAASB has released an exposure draft that proposes changes to audit reports, including the provision of more information on how audits are performed. Among other changes, a key development would be the introduction of a "key audit matters" section in the audit report on audits of listed entity financial statements.

The proposals in the IAASB exposure draft, Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs), follow from earlier consultation documents published in May 2011 and June 2012, which were developed after earlier research on user perceptions on auditor reports. It also responds to constituent feedback in light of the global financial crisis and European Commission (EC) proposals on audit reform.

The key proposals in the exposure draft include:

  • Key audit matters. The audit report for audits of listed entity financial statements would include a new section outlining the key audit matters arising during the audit, being "those matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current period." Such matters would be selected from the matters communicated by the auditor to those charged with governance over the entity being audited.
  • Independence. The audit report would include an explicit statement that the auditor is independent of the entity and has fulfilled any other relevant ethical requirements and disclose the sources of those requirements.
  • Engagement partner. For audits of financial statements of listed entities, the audit report would be required to explicitly state the name of the engagement partner.
  • Prominence of opinion. The auditors opinion would be placed at the beginning of the audit report.
  • Ordering. While not mandating specific requirements, the proposals outline a preferred ordering and placement of the elements of the audit report.
  • Going concern. The auditor would be required to report on going concern in the audit report, including a conclusion about the appropriateness of management's use of the going concern basis and a statement whether a material uncertainty about going concern has been identified.
  • Auditor responsibilities. Improvements are proposed about how the responsibilities of the auditor are described and the key features of the audit. Some elements of the description of responsibilities would be permitted to be moved to an appendix, or referenced from a Web site of an appropriate authority.

The proposed "key audit matters" section of the audit report replaces earlier proposals for an "auditor commentary," which would have required the audit report to highlight matters "likely to be most important to users' understanding of the audited financial statements or the audit." Constituent feedback on the "auditor commentary" proposal expressed concern about the emphasis on users (in that it would require the auditor to take responsibility for determining what is important a user's understanding of the financial statements) and the possible inclusion of "original information" in the audit report (which may blur the roles of management, those charged with governance, and the auditor). The revised proposals for the key audit matters section respond to these concerns by linking the section with the dialog of those charged with governance.

The exposure draft is open for comment until November 22, 2013. Click for IAASB press release (link to IFAC Web site).

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