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October

FASB improves consolidation guidance

Oct 31, 2018

The FASB has issued Accounting Standards Update (ASU) No. 2018-17, “Targeted Improvements to Related Party Guidance for Variable Interest Entities,” to reduce the cost and complexity of financial reporting associated with consolidation of variable interest entities.

Specif­i­cally, under the ASU:

  • Private com­pa­nies may “elect not 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 should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests.”

For more in­for­ma­tion, see the press release, FASB in Focus newslet­ter, and ASU on the FASB’s Web site.

SEC proposes enhancements to disclosure requirements for variable annuities and variable life insurance contracts

Oct 31, 2018

The SEC has issued a proposed rule, “Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts.”

The purpose of the proposal is to improve disclosures about variable annuities and variable life insurance contracts by providing “investors with key information relating to the contract’s terms, benefits, and risks in a concise and more reader-friendly presentation, with access to more detailed information available online and electronically or in paper format on request.”

Com­ments on the pro­posed rule are due by February 15, 2019. For more in­for­ma­tion, see the press release and pro­posed rule on the SEC’s Web site.

IASB amends the definition of materiality

Oct 31, 2018

The IASB has amended IAS 1 and IAS 8 to clarify the definition of “material” and to align the definition used in the Conceptual Framework with that in the standards themselves.

Specifically, the amendments define the term “material” as follows:

In­for­ma­tion is material if omitting, mis­stat­ing or obscuring it could rea­son­ably be expected to influence decisions that the primary users of general purpose financial state­ments make on the basis of those financial state­ments, which provide financial in­for­ma­tion about a specific reporting entity.

Notable aspects of the new de­f­i­n­i­tion include:

  • Obscuring — The previous de­f­i­n­i­tion only focused on omitting or mis­stat­ing in­for­ma­tion; however, the Board concluded that obscuring material in­for­ma­tion with in­for­ma­tion that can be omitted can have a similar effect. Although the term “obscuring” is new to this de­f­i­n­i­tion, it was already included in IAS 1 (paragraph 30A).
  • Could rea­son­ably be expected to influence The previous de­f­i­n­i­tion referred to “could influence,” which the Board believed might result in too much in­for­ma­tion because almost anything could influence a user’s decisions even if the pos­si­bil­ity is remote.
  • Primary users The previous de­f­i­n­i­tion referred only to “users,” which the Board feared might be too broad.

The amend­ments are effective for annual reporting periods beginning on or after January 1, 2020. Earlier ap­pli­ca­tion is permitted.

For more information, see press release on the IASB's Web site. Also see Deloitte's IAS Plus Web site for overview and materiality project pages related to the IASB's disclosure initiative.

AICPA releases working draft on implementation issue related to credit losses

Oct 30, 2018

The AICPA’s Financial Reporting Executive Committee has released for public comment a working draft on accounting issues associated with the implementation of FASB Accounting Standards Update No. 2016-13, “Financial Instruments — Credit Losses” (issued in June 2016), which “provides a new current expected credit loss (CECL) model to measure impairment for financial assets (and instruments) measured at amortized cost.”

The working draft, Reasonable and Supportable Forecast — Developing the Period and Use of Historical Information, is part of an ac­count­ing and au­dit­ing guide related to credit losses that focuses on lending in­sti­tu­tions and in­sur­ance com­pa­nies.

Com­ments on the working draft are due by December 31, 2018. For more in­for­ma­tion, see the CECL issues page on the AICPA’s Web site.

Highlights of the FASB’s October 24 meeting

Oct 26, 2018

At its October 24, 2018, meeting, the FASB discussed its projects on (1) balance sheet classification of debt, (2) subsequent accounting for goodwill for public business entities and not-for-profit entities (NFPs), and (3) Codification improvements to credit losses.

Simplifying the balance sheet classification of debt

The Board discussed stakeholder feedback on unused long-term financing arrangements. The Board directed its staff to conduct additional research related to unused long-term financing arrangements associated with the classification principle.

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

Accounting for certain identifiable assets in a business combination and subsequent accounting for goodwill for public business entities and NFPs

The Board discussed staff research and analysis related to a potential project on accounting for goodwill and certain intangible assets. The Board decided to add a project to its technical agenda and directed its staff to draft, for a vote by written ballot, a proposed ASU under which the applicability of the amendments in ASU 2014-02 (on accounting for goodwill) and ASU 2014-18 (on accounting for identifiable intangible assets in a business combination) would be extended to NFPs.

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

Codification improvements — financial instruments — credit losses

The Board discussed feedback received on its August 2018 proposed ASU Codification Improvements to Topic 326, Financial Instruments — Credit Losses and reaffirmed two previously made decisions. The Board directed its staff to begin drafting a final ASU for a vote by written ballot.

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

COSO and WBCSD issue guidance on enterprise risk management

Oct 26, 2018

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the World Business Council for Sustainable Development have released “Enterprise Risk Management — Applying Enterprise Risk Management to Environmental, Social and Governance [ESG]-Related Risks.”

The guidance “is intended to bring ESG risks and opportunities into a clearer focus for mainstream business and other organizations around the world [and] is designed to enhance organizations’ resiliency as they confront the increasing prevalence and severity of ESG-related risks, ranging from extreme weather events to product safety recalls.”

For more information, see the press release and guidance on COSO’s Web site.

FASB expands the list of benchmark interest rates for hedge accounting

Oct 25, 2018

The FASB has issued Accounting Standards Update (ASU) No. 2018-16, “Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.”

The ASU amends ASC 815, Derivatives and Hedging, to add the OIS rate based on SOFR as a fifth U.S. benchmark interest rate. The other four eligible benchmark interest rates under ASC 815 are:

  • Interest rates on direct Treasury obligations of the U.S. government.
  • The London Interbank Offered Rate swap rate.
  • The Overnight Index Swap Rate based on the Fed Funds Effective Rate.
  • The Securities Industry and Financial Markets Association municipal swap rate.

The ASU is effective concurrently with ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities.

For more information, see the press release and ASU on the FASB’s Web site.

SEC issues staff legal bulletin on exclusion of shareholder proposals

Oct 24, 2018

The SEC’s Division of Corporation Finance has issued Staff Legal Bulletin (SLB) 14J, “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 discusses:

  • “board analyses provided in no-action requests that seek to rely on Rules 14a-8(i)(5) or 14a-8(i)(7) as a basis to exclude shareholder proposals;
  • the scope and application of micromanagement as a basis to exclude a proposal under Rule14a-8(i)(7); and
  • the scope and application of Rule 14a-8(i)(7) for proposals that touch upon senior executive and/or director compensation matters.”

The views expressed in the SLB should not be considered a rule, regulation, or statement of the SEC. For more information, see SLB 14J on the SEC’s Web site.

IASB issues narrow-scope amendments to enhance the definition of a business in IFRS 3

Oct 22, 2018

The IASB has issued amendments to IFRS 3 that are intended to "help companies determine whether an acquisition made is of a business or a group of assets."

The amendments highlight that "the output of a business is to provide goods and services to customers, whereas the previous definition focused on returns in the form of dividends, lower costs or other economic benefits to investors and others."

The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020. Early adoption is permitted.

For more information, see Deloitte's IFRS in Focus newsletter as well as the press release on the IASB's Web site.

SEC announces Strategic Hub for Innovation and Financial Technology

Oct 19, 2018

The SEC has announced the launch of its Strategic Hub for Innovation and Financial Technology (FinHub).

FinHub will centralize all public engagements related to FinTech issues and initiatives and currently includes information on blockchain/distributed ledger technology (including digital assets), digital marketplace financing, automated investment advice, and artificial intelligence/machine learning.

For more information, see the press release and the FinHub page on the SEC’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.