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SEC issues final rule on crowdfunding

Oct 30, 2015

The SEC has issued a final rule, "Crowdfunding," which would permit eligible companies to use “crowdfunding” to offer and sell securities. Crowdfunding is a method of raising capital through the Internet, typically by soliciting small individual contributions from a large number of people.

The final rule (mandated by Title III of the JOBS Act) permits an individual to use crowdfunding to invest in eligible companies, subject to certain thresholds, on the basis of the annual income or net worth of the individual; however, the amount of money a company can raise through crowdfunding offerings would be limited to $1 million in a 12-month period. The final rule will become effective May 16, 2016, except that instruction 3 adding part 227 and instruction 15 amending Form ID are effective January 29, 2016.

In addition, the SEC has issued a proposed rule that would amend Securities Act Rule 147 for intrastate offerings and Rule 504 of Regulation D for the small offering exemption. Comments on the proposed rule are due January 11, 2016.

For more information, see the press release, final rule, and proposed rule on the SEC’s Web site.

CAQ appoints Catherine Engelbert as its new chairman

Oct 30, 2015

The CAQ’s Governing Board has announced the appointment of Catherine Engelbert (CEO of Deloitte LLP) as its new chairman for a two-year term. Ms. Engelbert will succeed Robert Mortiz.

Speaking about the appointment, CAQ Executive Director Cindy Fornelli stated, “Cathy is a widely respected and trailblazing figure in the public company auditing profession. . . . The CAQ will benefit from her expertise, her passion for the profession, and her continued leadership on the CAQ's various initiatives. I look forward to working with Cathy as the CAQ continues to address the important issues facing investors, public company auditors, and capital markets.”

For more in­for­ma­tion, see the press release on the CAQ’s Web site.

Highlights from the FASB’s October 28 meeting

Oct 30, 2015

At its October 28, 2015, meeting, the FASB discussed (1) financial statements of not-for-profit entities, (2) insurance, and (3) business combinations.

Financial statements of not-for-profit entities

The FASB discussed feedback received on its proposed Accounting Standards Update Presentation of Financial Statements of Not-for-Profit Entities and tentatively decided to split its redeliberations into two workstreams. The first workstream would contain issues that do not depend on other projects and that the Board would consider finalizing in the near term. The second workstream would consist of proposed changes that the Board would most likely need more time to resolve because they either were not previously considered or are similar to issues that the Board is addressing as part of other projects.

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

Insurance — targeted improvements to the accounting for long-duration contracts

The FASB tentatively decided to change the accounting model for certain types of participating contracts by requiring insurers to:

  • Expand the assumptions they use to measure the liability for future policy benefits to include investment yields, expected mortality, termination (lapse), expense, and dividend payments. 
  • Discount such liabilities by using a high-quality fixed-income instrument yield.
  • Calculate the effect of assumption updates by using a retrospective approach under which an insurer would (1) immediately recognize in earnings the effects of changes in cash flow assumptions and (2) initially record in other comprehensive income the effects of changes in the discount rate.

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

Business combinations

The FASB discussed its two projects related to business combinations:

  • Accounting for identifiable intangible assets in a business combination for public business entities and not-for-profit entities — The FASB directed its staff to conduct additional research on whether the “usefulness of information provided by the recognition of acquired intangible assets” for U.S. investors differs from that for international investors and, if so, why such differences exist. The Board deferred its decision on “whether not-for-profit entities should have the option to use the accounting alternative currently available to private companies (under which an entity can elect not to separately identify and recognize customer-related intangible assets that are not capable of being sold or licensed independently from the other assets of a business and noncompetition agreements) or be required to use the guidance for public business entities until decisions are made regarding whether to change the accounting for identifiable intangible assets for public business entities.”  For more in­for­ma­tion, see the meeting minutes on the FASB’s Web site.
  • Accounting for goodwill for public business entities and not-for-profit entities— The FASB tentatively decided to:
    • Split the project into two phases in which the Board would (1) simplify the impairment test and (2) address additional issues on subsequent goodwill accounting with the IASB.
    • Prohibit not-for-profit entities from using the accounting alternative available to private companies.
    • Require an entity to write off the full carrying amount of goodwill allocated to a reporting unit  “if the reporting unit has zero or negative carrying value and it is more likely than not that goodwill is impaired.”
    • Retain the current U.S. GAAP presentation requirements.
    • Require prospective application of the simplified impairment test.
    For more in­for­ma­tion, see the meeting minutes on the FASB’s Web site.

AICPA issues SAS 130

Oct 28, 2015

The AICPA’s Auditing Standards Board has published Statement on Auditing Standards (SAS) No. 130, “An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements.”

SAS 130 is closely aligned with the guidance in Statement on Standards for Attestation Engagements (SSAE) No. 15, An Examination of an Entity’s Internal Control Over Financial Reporting That Is Integrated With an Audit of Its Financial Statements, and the related Attestation Interpretation No. 1, Reporting Under Section 112 of the Federal Deposit Insurance Corporation Improvement Act. However, the guidance includes the following changes:

  • A requirement for auditors to “examine and report directly on the effectiveness of internal control over financial reporting” and removal of the option to “examine and report on management’s assertion about the effectiveness of internal control over financial reporting.”
  • Revision of the term significant account or disclosure to significant class of transactions, account balance, or disclosure.
  • Clarification that an auditor should use the same risk factors “to evaluate in the identification of significant classes of transactions, account balances, and disclosures and their relevant assertions are the same in the audit of internal control over financial reporting as in the audit of the financial statements.”
  • A requirement for auditors that are planning “to use the work of others in the audit of internal control over financial reporting to adapt and apply, as necessary, the requirements of AU-C section 610, including the need for others to apply a systematic and disciplined approach.”

In addition, SAS 130 amends various sections in SAS 122, Statements on Auditing Standards: Clarification and Recodification.

SAS 130 is effective for integrated audits for periods ending on or after December 15, 2016. Once the new SAS becomes effective, SSAE 15 and the Attestation Interpretation No. 1 will be withdrawn.

For more information, see the executive summary of SAS 130 on the AICPA’s Web site.

IASB publishes proposed practice statement on materiality

Oct 28, 2015

The IASB has published an exposure draft of a proposed IFRS practice statement (PS), “Application of Materiality to Financial Statements.” The purpose of the PS is to explain and illustrate the concept of materiality and help financial statement preparers apply this concept. Comments on the PS are due by February 26, 2016.

Topics covered in the PS include the the following:

  • Char­ac­ter­is­tics of ma­te­ri­al­ity — The PS states that ma­te­ri­al­ity “is pervasive to the prepa­ra­tion of” general-purpose financial state­ments and needs to be con­sid­ered with respect to the primary financial state­ments as a whole. In addition, the PS notes that in assessing whether in­for­ma­tion is material, an entity should use judgment and should evaluate information both individually and collectively. Further, both qual­i­ta­tive and quan­ti­ta­tive factors should be considered as part of this assessment.
  • Pre­sen­ta­tion and dis­clo­sure in the financial state­ments — The PS stresses that an entity should ensure that the financial statements are comprehensive by (1) assessing what in­for­ma­tion should be presented in the primary financial state­ments, (2) determining what in­for­ma­tion should be disclosed in the notes, and (3) reviewing the financial state­ments as a whole. Management should consider that “users need information to help them assess the prospects for future net cash inflows to an entity” and to evaluate the stewardship of the entity’s resources.
  • Omissions and mis­state­ments — The PS notes that an entity needs to assess the ma­te­ri­al­ity of iden­ti­fied errors or omissions in­di­vid­u­ally and on the basis of the financial state­ments as a whole. Material mis­state­ments or omissions that offset each other still are con­sid­ered material mis­state­ments of the financial state­ments as such. The PS also states that in­ten­tion­ally made mis­state­ments should always be con­sid­ered material.
  • Recog­ni­tion and mea­sure­ment — The PS indicates that although it focuses on materiality in the context of financial statement presentation and disclosures, “similar considerations also apply to the recognition and measurement of the information that is provided in the financial statements.”

Because the proposed PS is not a manda­to­rily ap­plic­a­ble IFRS, it contains neither a proposed effective date nor tran­si­tion guidance. The IASB also notes that the PS may undergo further changes even after being finalized, depending on de­vel­op­ments in the conceptual framework project and the project on prin­ci­ples of dis­clo­sure.

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

SEC issues staff legal bulletin on exclusion of shareholder proposals

Oct 27, 2015

The SEC’s Division of Corporation Finance has issued Staff Legal Bulletin (SLB) 14H, “Shareholder Proposals,” which provides its views on the exclusion of shareholder proposals under Rule 14a-8 of the Securities Exchange Act of 1934.

Specifically, the SLB clarifies the scope and application of Rule 14-8(i)(9) and reaffirms the guidance in Rule 14a-8(i)(7). The views expressed in the SLB should not be considered a rule, regulation, or statement of the SEC.

For more information, see SLB 14H on the SEC’s Web site.

SEC posts draft of EDGAR Form N-MFP1 XML technical specification

Oct 27, 2015

The SEC posted to its Web site a draft of EDGAR Form N-MFP1 XML, which includes changes made to the form adopted by the SEC on July 23, 2014.

This draft has not been approved by the Commission and is subject to change. The final version will be posted on the SEC’s Web site once it has been approved.

For more information, see the draft on the SEC's Web site.

President Obama nominates two new SEC commissioners

Oct 23, 2015

President Barack Obama has announced that he intends to nominate two new SEC commissioners.

Hester Maria Peirce would replace Republican commissioner Daniel M. Gallagher, who resigned earlier this month. Lisa M. Fairfax would replace Democratic commissioner Luis A. Aguilar, whose term expired in June 2015.

SEC announces results of enforcement activities for fiscal year 2015

Oct 23, 2015

The SEC has announced the results of its enforcement activities for fiscal year 2015.

Specifically, the Commission indicated that it “filed 807 actions covering a wide range of misconduct, and obtained orders totaling approximately $4.2 billion in disgorgement and penalties.” Of these 807 enforcement actions, “a record 507 were independent actions for violations of the federal securities laws and 300 were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.”

For more information, see the press release on the SEC’s Web site.

Highlights from the FASB’s October 21 meeting

Oct 23, 2015

At its October 21, 2015, meeting, the FASB discussed its disclosure framework project, focusing on disclosures related to (1) income taxes and (2) fair value measurement.

Disclosure review — income taxes

The Board tentatively decided to require disclosures about the following:

  • The fact that (1) “a change in tax law has been enacted” and (2) “it is probable that the change will affect the reporting entity in a future period.”
  • When an entity does not present deferred taxes “as a separate line item in the balance sheet, the line item(s) in which the amount is presented.”
  • Domestic and foreign income taxes paid.
  • “An explanation of the nature and amounts of the valuation allowance recorded and released during the reporting period.”

In addition, the FASB tentatively decided that the rate reconciliation disclosure, which is currently only applies to public entities, should be required for all entities. The Board also decided to make (1) certain additional modifications to the rate reconciliation disclosure requirement and (2) revisions to the carryforward disclosure requirements.

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

Disclosure review — fair value measurement

The Board directed its staff to draft a proposed ASU on fair value measurement disclosures and plans to discuss any outstanding issues after reviewing the draft.

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

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.