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2017

AICPA issues Q&As related to definition of public business entity

Oct 24, 2017

The AICPA has issued a series of technical Q&As addressing the definition of a public business entity (PBE) in the “FASB Accounting Standards Codification.”

The Q&As cover the following topics:

  • Use of the terms “security,” “over-the-counter market,” conduit bond obligor,” “prepare,” “publicly available,” “financial statements,” and “periodic basis” in the definition of a PBE.
  • Types of securities included in the definition of a PBE.
  • FINRA TRACE and MSRB EMMA data.
  • Use of the phrase “contractual restriction on transfer.”
  • Application of the definition of a PBE when entities are in tiered organizational structures.
  • Financial statements or information filed with the SEC and related effective-date considerations.
  • ASU effective dates.
  • How financial institutions subject to certain depository regulations should evaluate the definition of a PBE.
  • Mutual depository institutions.
  • Brokered certificates of deposit.
  • Private resales.
  • Insurance companies.
  • Brokers, dealers, and futures commission merchants.

For more information, see the press release and Q&As on the AICPA’s Web site.

FASB staff proposes taxonomy implementation guide on retirement benefits

Oct 24, 2017

The FASB staff has issued a proposed financial reporting taxonomy implementation guide, “Retirement Benefits — Phase 2.”

The pro­posed im­ple­men­ta­tion guide provides “examples to help users of the Taxonomy understand how the modeling for plan asset disclosures related to retirement benefits is structured within the Taxonomy.”

Com­ments on the pro­posed guide are due by November 16, 2017. For more information, see the press release and proposed implementation guide on the FASB’s Web site.

SEC approves PCAOB standard requiring changes to the auditor’s report

Oct 24, 2017

The SEC has approved a PCAOB standard that significantly modifies the auditor’s reporting model.

The new auditor reporting standard retains the current “pass/fail” approach of the existing auditor’s report; however, it substantially increases the information auditors must include in the auditor’s report.

In the SEC’s statement announcing its approval of the standard, Chairman Jay Clayton stated the following:

I strongly support the objective of the rule to provide investors with meaningful insights into the audit from the auditor. CAMs are designed to provide investors and other financial statement users with the auditor’s perspective on matters discussed with the audit committee that relate to material accounts or disclosures and involved especially challenging, subjective, or complex auditor judgment. Investors will benefit from understanding more about how auditors view these matters

For more information, see the PCAOB’s new auditor reporting standard; the SEC’s statement and release approving the standard; and Deloitte’s June 1, 2017, article and June 20, 2017, Heads Up on the standard.

SEC staff updates C&DIs on non-GAAP financial measures

Oct 18, 2017

The staff in the SEC’s Division of Corporation Finance has released an update to certain compliance and disclosure interpretations (C&DIs) related to non-GAAP financial measures associated with business combinations.

Specifically, the SEC has added Question 101.01, which addresses whether “financial measures included in forecasts provided to a financial advisor and used in connection with a business combination transaction” constitute non-GAAP measures. In addition, the previous Question 101.01 has been amended and renumbered to 101.02 and the previous Question 101.02 has been renumbered to 101.03.

For more in­for­ma­tion, see the non-GAAP financial measures C&DIs on the SEC’s Web site.

FASB discusses conceptual framework elements

Oct 12, 2017

At its October 11, 2017, meeting, the FASB discussed its project on the elements of the conceptual framework.

The board indicated tentative leanings and reactions to terms used in the definitions of revenues and expenses as currently defined in FASB Concepts Statement No. 6, Elements of Financial Statements, and how those terms relate to the definitions of gains and losses.

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

SEC proposes amendments to simplify and modernize certain disclosure requirements in Regulation S-K

Oct 12, 2017

The SEC has issued a proposed rule that contains a number of specific revisions to a broad group of disclosure requirements in Regulation S-K in response to a mandate of the Fixing America’s Surface Transportation (FAST) Act.

The objective of the proposed rule is to "modernize and simplify certain disclosure requirements in Regulation S-K, and related rules and forms, in a manner that reduces the costs and burdens on registrants while continuing to provide all material information to investors." The proposal underscores the importance of making registrants' disclosures more readable and navigable as well as eliminating "repetition and disclosure of immaterial information."

SEC Chairman Jay Clayton addressed the proposed rule in a public statement at the Commission's October 11, 2017, open meeting. Mr. Clayton particularly emphasized two areas in which the proposed rule has recommended improvements: (1) Management's Discussion and Analysis (MD&A) and (2) the confidential treatment process. Regarding the proposed changes related to MD&A, he pointed out that registrants would be permitted to "forgo discussion of the oldest period if the information has been previously reported and . . . is no longer material." In discussing the suggested enhancements to the confidential treatment process, he noted that the proposed amendments would "create efficiencies" by permitting "registrants to omit from material contract exhibits confidential information that is not material and would cause competitive harm if publicly disclosed, without having to request confidential treatment from the Commission." 

For more information, see the proposed rule and Mr. Clayton's public statement on the SEC's Web site. In addition, stay tuned for Deloitte's upcoming Heads Up newsletter on the proposed rule.

FASB releases investor podcast on revenue recognition for health care services entities

Oct 12, 2017

The FASB has released an investor podcast on the impact of revenue recognition on entities in the health care services industry.

Topics discussed during the investor podcast include the following:

  • Overview of the new revenue guidance.
  • Presentation of bad debt on the income statement.
  • Implicit price concessions.
  • Disclosures.
  • Transition to the new guidance.

The podcast is available on the FASB’s YouTube channel.

IASB finalizes amendments to IFRS 9 regarding prepayment features with negative compensation and modifications of financial liabilities

Oct 12, 2017

The IASB has published "Prepayment Features With Negative Compensation — amendments to IFRS 9" to address the concerns about how IFRS 9 "Financial Instruments" classifies particular prepayable financial assets. In addition, the IASB clarifies an aspect of the accounting for financial liabilities following a modification.

 

Background

In 2016, the IFRS Interpretations Committee received a submission asking how particular prepayable financial assets would be classified applying IFRS 9 Financial Instruments. The Committee noted that under IFRS 9 certain prepayment options would preclude instruments that otherwise only feature contractual cash flows that are solely payments of principal and interest (SPPI) from being measured at amortized cost or fair value through other comprehensive income. Problematic in this case are prepayment features where the lender could be forced to accept a prepayment amount that is substantially less than unpaid amounts of principal and interest because this would constitute a payment to the borrower by the lender and not a compensation from the borrower to the lender. The Interpretations Committee was convinced that using amortized cost measurement could provide useful information in this case and asked the Board to consider adding a narrow-scope exception to IFRS 9.

The Board followed the Interpretations Committee's reasoning and issued ED/2017/3, Prepayment Features With Negative Compensation — proposed amendments to IFRS 9, in April 2017. The ED proposes a narrow exception to IFRS 9 for particular financial assets that would otherwise have contractual cash flows that are solely payments of principal and interest but do not qualify for amortized cost or fair value through other comprehensive income measurement as a result of a prepayment feature. The Board proposes that such a financial asset would be eligible to be measured at amortized cost or at fair value through other comprehensive income (depending on a company's business model) if two conditions are met:

  • the assessment that the prepayment amount is not solely a payment of principal and interest on the principal amount outstanding only hinges on the fact that the party that chooses to terminate the contract early may receive reasonable additional compensation for doing so; and
  • when the entity initially recognizes the financial asset, the fair value of the prepayment feature is insignificant.

 

Changes

The amendments in Prepayment Features With Negative Compensation — amendments to IFRS 9 are:

Changes regarding symmetric prepayment options

Under the current IFRS 9 requirements, the SPPI condition is not met if the lender has to make a settlement payment in the event of termination by the borrower (also referred to as early repayment gain).

Prepayment Features With Negative Compensation amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortized cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments.

Under the amendments, the sign of the prepayment amount is not relevant, i.e., depending on the interest rate prevailing at the time of termination, a payment may also be made in favor of the contracting party effecting the early repayment. The calculation of this compensation payment must be the same for both the case of an early repayment penalty and the case of a early repayment gain.

During redeliberations, the IASB decided not to confirm the second eligibility condition (insignificant fair value of the prepayment feature at initial recognition) proposed in ED/2017/3.

Clarification regarding the modification of financial liabilities

The final amendments also contain (in the Basis for Conclusions) a clarification regarding the accounting for a modification or exchange of a financial liability measured at amortized cost that does not result in the derecognition of the financial liability. The IASB clarifies that an entity recognizes any adjustment to the amortized cost of the financial liability arising from a modification or exchange in profit or loss at the date of the modification or exchange. A retrospective change of the accounting treatment may therefore become necessary if in the past the effective interest rate was adjusted and not the amortized cost amount.

 

Effective date and transition requirements

The amendments are to be applied retrospectively for fiscal years beginning on or after January 1, 2019, i.e., one year after the first application of IFRS 9 in its current version. Early application is permitted so entities can apply the amendments together with IFRS 9. Additional transitional requirements and corresponding disclosure requirements must be observed when applying the amendments for the first time.

 

Additional information

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IASB finalizes amendments to IAS 28 regarding long-term interests in associates and joint ventures

Oct 12, 2017

The IASB has published "Long-Term Interests in Associates and Joint Ventures — amendments to IAS 28" to clarify that an entity applies IFRS 9 "Financial Instruments" to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.

 

Background

IFRS 9 Financial Instruments excludes from its scope interests in associates and joint ventures accounted for in accordance with IAS 28 Investments in Associates and Joint Ventures. However, the IFRS Interpretations Committee received a submission asking whether that scope exclusion applies only to interests in associates and joint ventures to which the equity method is applied, which seemed a point not clear to some stakeholders.

The proposed amendments to clarify the matter were originally included in the exposure draft ED/2017/1, Annual Improvements to IFRS Standards 2015–2017 Cycle, published on January 12, 2017. However, in May 2017, the Board decided to finalize the amendments as a narrow scope amendment in its own right.

 

Changes

The amendments in Long-Term Interests in Associates and Joint Ventures — amendments to IAS 28 are:

  • Paragraph 14A has been added to clarify that an entity applies IFRS 9, including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.
  • Paragraph 41 has been deleted because the Board felt that it merely reiterated requirements in IFRS 9 and had created confusion about the accounting for long-term interests.

The ammendments are accompanied by an illustrative example.

 

Dissenting opinion

The final amendments contain a dissenting opinion because one Board member disagrees with amending IAS 28 without also specifying the types of interests that an entity accounts for using the equity method and the types of interests that an entity accounts for applying IFRS 9.

 

Effective date and transition requirements

The amendments are effective for periods beginning on or after January 1, 2019. Earlier application is permitted. This will enable entities to apply the amendments together with IFRS 9 if they wish, but leaves other entities the additional implementation time they had asked for.

The amendments are to be applied retrospectively, but they provide transition requirements similar to those in IFRS 9 for entities that apply the amendments after they first apply IFRS 9. They also include relief from restating prior periods for entities electing, in accordance with IFRS 4 Insurance Contracts, to apply the temporary exemption from IFRS 9. Full retrospective application is permitted if that is possible without the use of hindsight.

 

Additional information

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SASB releases exposure drafts

Oct 11, 2017

The SASB has released for public comment a series of exposure drafts (EDs) for entities in various industries.

The SASB is soliciting feedback on the EDs as part of its efforts to enhance the provisional standards for 11 sectors it released from August 2013 to March 2016. In the words of Jean Rogers, SASB founder and the Board’s current chairman, “Engagement in the public comment period will ensure the codified standards are focused on financially material sustainability factors, yield decision-useful information for investors, and are cost-effective for preparers.”

Comments on the EDs were originally due by December 31, 2017, but the deadline was extended to January 31, 2018. The EDs are available for download on the SASB’s Web site.

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