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Accounting Roundup — January 2015

Published on: Feb 03, 2015

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Accounting — New Standards and Exposure Drafts

Private Companies

FASB Issues ASU Simplifying Private-Company Accounting for Intangible Assets in a Business Combination

Affects: Private companies.

Summary: On December 23, 2014, the FASB issued ASU 2014-18, which contains an accounting alternative for private companies that acquire identifiable intangible assets in a business combination. Under this alternative, many customer-related intangible assets and all noncompete agreements would not be recognized separately and would be subsumed into goodwill. Thus, private companies that elect the alternative would generally recognize fewer intangible assets in a business combination.

Next Steps: Once elected, the accounting alternative would apply to all future business combinations entered into in the first annual period beginning after December 15, 2015. Early adoption would be permitted. An entity that elects this alternative must also apply the goodwill accounting alternative in ASU 2014-02. (However, an entity that elects the goodwill alternative is not required to adopt the guidance in ASU 2014-18.)

Other Resources: Deloitte’s December 30, 2014, Heads Up. Also see the press release and FASB in Focus newsletter on the FASB’s Web site.

Simplification Initiative

FASB Issues Two Proposed ASUs to Simplify the Accounting for Income Taxes

Affects: All entities.

Summary: On January 22, 2015, the FASB issued proposed ASUs on the following topics as part of its simplification initiative: (1) intra-entity asset transfers and (2) balance sheet classification of deferred taxes.

The proposal on intra-entity asset transfers would remove the requirement under which the income tax consequences of such transfers are deferred until the assets are ultimately sold to an outside party. The tax consequences of such transfers would be recognized in tax expense when the transfers occur. This treatment is consistent with IAS 12. The Board acknowledged that the elimination of this exception in ASC 740 might not reduce the cost entities incur because they would need to track book-tax differences related to those assets. However, the Board believes that the change would better depict the economic effects (e.g., a cash tax payment) of those transfers and would lead to easier application of the general guidance in ASC 740.

Under the proposal on the balance sheet classification of deferred taxes, all deferred taxes would be classified as noncurrent. Jurisdictional netting would still be required. The proposed ASU asks constituents who disagree with the proposed change to identify alternatives for presenting deferred taxes in a classified balance sheet and the conceptual basis for those alternatives. Entities would be required to apply the proposed amendments prospectively.

For public business entities, the proposed ASUs would be effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption would not be permitted. Entities other than public business entities would have a one-year deferral for annual reporting and would be permitted to early adopt the standard as long as such adoption is no sooner than the effective date for public business entities.

Next Steps: Comments on the proposals are due by May 29, 2015.

Other Resources: Deloitte’s January 30, 2015, Heads Up.

FASB Issues ASU on Extraordinary Items

Affects: All entities.

Summary: On January 9, 2015, the FASB issued ASU 2015-01 to eliminate from U.S. GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under the ASU, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations;
(2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. The ASU is part of the FASB’s simplification initiative (i.e., a project to reduce the cost and complexity of certain aspects of U.S. GAAP).

Next Steps: The ASU is effective for annual periods beginning after December 15, 2015, and interim periods within those annual periods. Entities may apply the guidance prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted if the guidance is applied as of the beginning of the annual period of adoption.

Other Resources: Deloitte’s January 12, 2015, Heads Up.

Accounting — Other Key Developments

Revenue Recognition

FASB and IASB Joint Revenue Transition Resource Group Meets to Discuss Eight Topics

Affects: All entities.

Summary: At its January 26, 2015, meeting, the FASB and IASB joint revenue transition resource group (TRG) discussed the following eight topics:

  • Identifying promised goods or services in a contract with a customer.
  • Collectibility.
  • Variable consideration.
  • Noncash consideration.
  • Stand-ready obligations.
  • Application of the new revenue standard to permitted Islamic finance transactions.
  • Incremental costs of obtaining a contract.
  • Evaluating contract modifications before the adoption date of the new revenue standard.

As intended, no conclusions were reached at the meeting. The boards and their staffs will consider the feedback from the meeting to determine whether to provide additional guidance or clarification and, if so, what it should be. In summarizing the meeting, the FASB and IASB vice-chairmen noted that in addition to considering potential practical expedients, the boards would consider the need for clarification of the guidance on identifying performance obligations (e.g., assessing items given “for free“ as marketing activities or performance obligations), noncash consideration, collectibility, and consideration payable to a customer. Participants were also reminded that stakeholders should continue to submit implementation issues for discussion at future TRG meetings.

Next Steps: The next TRG meeting is scheduled for March 30, 2015.

Other Resources: Deloitte’s January 2015 TRG Snapshot.

International

Accounting Considerations Related to Venezuela’s Foreign Exchange Controls

Affects: All entities.

Summary: Since 2010, Venezuela has been considered a highly inflationary economy and the Venezuelan government has instituted several mechanisms for foreign exchange control, including multiple exchange rates and capital control. In a “pre-clearance” issue, the SEC staff has now signaled that it does not object to a registrant’s conclusion to deconsolidate its Venezuelan operations as a result of an other-than-temporary lack of currency exchangeability and the existence of several government limitations on the registrant’s ability to control the operations.

Other Resources: Deloitte’s January 13, 2015, IASPlus news article and December 23, 2014, Financial Reporting
Alert
.

Auditing Developments

AICPA

AICPA Releases Interpretation of Guidance on Going Concern

Affects: Auditors.

Summary: In January 2015, the AICPA issued AU-C Section 9570, which is an interpretation of the going-concern guidance in AICPA standards in light of certain questions that have arisen regarding application of AU-C Section 570 as well as the FASB’s ASU 2014-15 and the GASB’s Statement 56. AU-C Section 9570 contains Q&As on the following topics:

  • Definitions of the terms “substantial doubt about an entity’s ability to continue as a going concern” and “reasonable period of time.”
  • Interim financial information.
  • Consideration of financial statement effects.

CAQ

CAQ Releases Highlights of Joint Meeting Between IPTF and SEC Staff

Affects: Public entities and their auditors.

Summary: On January 23, 2015, the CAQ released highlights of the November 2014 meeting between the IPTF and the SEC staff. Topics discussed at the meeting included:

  • Venezuela currency issues.
  • Monitoring inflation in certain countries.
  • The definition of a foreign business.
  • Update on the status of the SEC’s disclosure effectiveness initiative.
  • SEC staff’s observations regarding use of the IFRS XBRL taxonomy by foreign private issuers.

PCAOB

PCAOB Performs Inspections Related to Audits of Brokers and Dealers

Affects: Registered public accounting firms.

Summary: On January 28, 2015, the PCAOB issued a report summarizing the observations it made during inspections of five registered public accounting firms that had conducted broker-dealer audits in accordance with PCAOB standards. The Board noted deficiencies in firms’ compliance with PCAOB standards for the five audits it inspected as well as for four of the five related attestation engagements. These deficiencies included the following:

  • Failure to perform control testing.
  • Inadequate audit documentation.
  • Insufficient engagement quality review.
  • Performing the audit under GAAS rather than under PCAOB standards.

Other Resources: For more information, see the press release on the PCAOB’s Web site.

PCAOB Updates Standard-Setting Agenda

Affects: All entities.

Summary: On December 31, 2014, the PCAOB updated its standard-setting agenda, which provides a brief description of each of the Board’s current projects. These projects include:

  • Auditing accounting estimates, including fair value measurements and related disclosures.
  • Improvement of audit transparency.
  • Auditor’s reporting model.
  • Supervision of other auditors and multilocation audit engagements.
  • Use of specialists.
  • Framework for reorganization of PCAOB auditing standards.
  • Going concern.
  • Confirmation.
  • Quality control standards, including assignment and documentation of firm supervisory responsibilities.
  • Subsequent events.

International

IAASB Proposes Revisions to Guidance on Special-Purpose Financial Statements

Affects: All entities.

Summary: On January 22, 2015, the IAASB issued an ED that would revise the guidance in ISAs 800 and 805 on audits prepared in accordance with special-purpose frameworks. The ED contains guidance on how the IAASB’s recent revisions to its auditor reporting standards would be applied in audits of special-purpose financial statements.

Next Steps: Comments on the ED are due by April 22, 2015.

Other Resources: For more information, see the press release on IFAC’s Web site.

IAASB Enhances Auditor Reporting Standards

Affects: All entities.

Summary: On January 15, 2015, the IAASB issued new and revised auditor reporting standards that significantly improve auditors’ reports for investors and other financial statement users. The revisions include the following:

  • For “audits of financial statements of listed entities,” auditors would need to (1) communicate key audit matters and (2) disclose the engagement partner’s name. These provisions would be optional for other entities.
  • Auditors would be required to present the opinion section first, “followed by the Basis for Opinion section, unless law or regulation prescribe[s] otherwise.”
  • Improvements to going-concern reporting, including requirements to (1) provide a description of management’s and auditors’ responsibilities related to such reporting as well as separate disclosure of any material uncertainties and (2) “challenge adequacy of disclosures . . . when events or conditions are identified that may cast significant doubt on an entity’s ability to continue as a going concern” (emphasis omitted).
  • Requirements for auditors to furnish a (1) statement affirming their independence and “fulfillment of relevant ethical responsibilities” (emphasis omitted) and (2) an enhanced description of their responsibilities.

Next Steps: The revisions are effective for financial statement audits for periods ending on or after December 15, 2016.

Other Resources: For more information, see the press release, auditor reporting fact sheet, and at-a-glance document on IFAC’s Web site.

Governmental Accounting and Auditing Developments

FASAB

FASAB Issues Guidance on Identifying Entities to Include in General-Purpose Federal Financial Reports

Affects: Entities applying federal financial accounting standards.

Summary: On December 23, 2014, the FASAB issued Statement 47, which “establishes principles to identify organizations for which elected officials are accountable . . . and guides preparers of [general-purpose federal financial reports] in determining what organizations to report upon, whether such organizations are considered ‘consolidation entities’ or ‘disclosure entities,’ and what information should be presented about those organizations.”

Next Steps: Statement 47 is effective for periods beginning after September 30, 2017. Early adoption is prohibited.

Other Resources: For more information, see the press release on the FASAB’s Web site.

International

IPSASB Issues Standards on Accounting for Interests in Other Entities

Affects: Public-sector entities.

Summary: On January 30, 2015, the IPSASB issued the following five IPSASs on accounting for interests in other entities:

The new IPSASs are based on the IASB’s May 2011 “package of five” standards (i.e., IFRS 10, IFRS 11, IFRS 12, IAS 27, and IAS 28), including the 2012 amendments to the guidance on transition and investment entities. The requirements of the IPSASs are aligned with those in the equivalent IASB pronouncements except when departure is considered justified (e.g., modification of terminology, consideration of the interaction with the Government Finance Statistics and the System of National Accounts, reflection of differences between existing IPSASs and IFRSs).

Next Steps: The standards are effective for annual financial statements for periods beginning on or after January 1, 2017. Earlier application is encouraged; however, if an entity decides to apply the requirements early, it must disclose that fact and apply the whole series of standards (IPSAS 34 through IPSAS 38) at the same time.

Other Resources: For more information, see the press release on IFAC’s Web site.

IPSASB Issues Standard on First-Time Adoption of Accrual-Basis IPSASs

Affects: Public-sector entities.

Summary: On January 29, 2015, the IPSASB released IPSAS 33, which addresses the transition from a cash basis, an accrual basis under another reporting framework, or a modified version of either the cash or accrual basis of accounting. IPSAS 33 allows first-time adopters three years to recognize specified assets and liabilities so that preparers have sufficient time to develop reliable models for recognizing and measuring assets and liabilities during the transition period. These assets and liabilities include inventories; investment property; property, plant, and equipment; defined benefit plans and other long-term employee benefits; biological assets and agricultural produce; intangible assets; service concession assets and the related liabilities; and financial instruments.

Next Steps: First-time adopters must apply IPSAS 33 when their first IPSAS financial statements are for a period beginning on or after January 1, 2017. Earlier application is permitted.

Other Resources: For more information, see the press release on IFAC’s Web site.

IPSASB Aligns IPSASs With Recent IASB Pronouncements

Affects: Public-sector entities.

Summary: On January 23, 2015, the IPSASB issued a final pronouncement that revises several IPSASs in light of certain amendments that were recently made to IASB standards. The following four IPSASs are affected:

  • IPSAS 1 — Clarification of comparative information requirements.
  • IPSAS 17 — Revisions to guidance on classification of servicing equipment, clarification of the revaluation method, additional guidance on acceptable methods of depreciating assets.
  • IPSAS 28 — Additional guidance on tax effects of distributions to holders of equity instruments.
  • IPSAS 31 — Clarification of the revaluation method, clarification of acceptable methods of amortizing assets.

Next Steps: The amendments are effective for annual financial statements for periods beginning on or after January 1, 2015.

Regulatory and Compliance Developments

COSO

COSO Publishes Research Report on Cyber Risk

Affects: All entities.

Summary: On January 14, 2015, COSO released a research report that offers insight into how the Internal Control — Integrated Framework and Enterprise Risk Management — Integrated Framework can help entities “effectively and efficiently evaluate and manage cyber risks.” Specifically, the report “provides direction on identifying and implementing internal control components and principles, from demonstrating commitment to integrity and ethical values, to risk analysis, and evaluating and communicating deficiencies.”

Other Resources: For more information, see the press release on COSO’s Web site.

Federal Reserve

Federal Reserve and FDIC Release Resolution Plans for Certain Banking Organizations

Affects: All entities.

Summary: On January 15, 2015, the Federal Reserve and FDIC posted to their Web sites “the public portions of resolution plans for firms with generally less than $100 billion in qualifying nonbank assets.” The plans were prepared in response to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which “requires that certain banking organizations with total consolidated assets of $50 billion or more and nonbank financial companies designated for enhanced prudential supervision by the Financial Stability Oversight Council periodically submit resolution plans to the Federal Reserve Board and the FDIC.”

Other Resources: For more information, see the press release on the Federal Reserve’s Web site.

SASB

SASB Proposes Sustainability Accounting Standards for the Consumption Sector

Affects: Industries within the scope of the standards.

Summary: On January 14, 2015, the SASB released seven proposed sustainability accounting standards for the consumption sector. The proposed standards apply to the following industries:

  • Agricultural products.
  • Meat, poultry, and dairy.
  • Processed foods.
  • Nonalcoholic beverages.
  • Alcoholic beverages.
  • Tobacco products.
  • Household and personal products.

Next Steps: Comments on the proposed standards are due by April 14, 2015.

SEC

SEC Publishes Examination Priorities for 2015

Affects: SEC registrants.

Summary: On January 13, 2015, the SEC’s Office of Compliance Inspections and Examinations published its examination priorities for 2015. The priorities focus on “protecting retail investors, especially those saving for or in retirement; assessing market-wide risks; and using data analytics to identify signs of potential illegal activity.” The document is not necessarily comprehensive and “may be adjusted in light of market conditions, industry developments, and ongoing risk assessment activities.”

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

SEC Updates Financial Reporting Manual

Affects: SEC registrants.

Summary: On January 12, 2015, the SEC’s Division of Corporation Finance published an update to its Financial Reporting Manual. The changes were made in light of the FASB’s November 2014 issuance of ASU 2014-17 on pushdown accounting and the related rescission of SAB Topic 5.J.

SEC Announces Program Related to Analyzing Corporate Financial Data

Affects: SEC registrants.

Summary: On December 30, 2014, the SEC announced that it has launched a pilot program to help investors analyze and compare financial statement data submitted to the SEC by public companies. The data will be organized into structured sets of information from the companies’ XBRL exhibits in SEC filings and will be downloadable from the Commission’s Web site.

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

SEC Publishes Annual Reports on Examination of Credit Rating Agencies

Affects: Nationally recognized statistical rating organizations (NRSROs).

Summary: On December 23, 2014, the SEC posted to its Web site the following two reports on NRSROs:

  • Annual staff report — The Dodd-Frank Act requires the SEC to publish findings related to its examinations of NRSROs every year. The staff noted that while these organizations enhanced certain aspects of their performance during 2014, such as documentation and committee oversight, there is room for improvement in other areas (e.g., conflicts of interest, adherence to credit rating procedures).
  • Report to Congress — This annual report, “which is required by the Credit Rating Agency Reform Act of 2006, details the state of competition, transparency, and conflicts of interest at NRSROs.” It discusses, among other things, the requirements in the Commission’s August 2014 final rule on NRSROs, which is intended to “improve the quality of credit ratings and increase credit rating agency accountability through enhanced transparency, governance, and protections against conflicts of interest.”

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

International

IOSCO Seeks to Mitigate Risks Related to Non-Centrally-Cleared Derivatives

Affects: All entities.

Summary: On January 28, 2015, IOSCO issued a final report that prescribes “nine standards aimed at mitigating the risks in the non-centrally cleared OTC derivatives markets.” The objective of the report is to “encourage the adoption of sound risk mitigation techniques to promote legal certainty over the terms of the non-centrally cleared OTC derivatives transactions, to foster effective management of counterparty credit risk and to facilitate timely resolution of disputes.”

Other Resources: For more information, see the press release on IOSCO’s Web site.

Basel Committee Revises Pillar 3 Disclosure Requirements

Affects: Banking entities.

Summary: On January 28, 2015, the Basel Committee issued a final standard that would revise the Pillar 3 disclosure requirements for banks. The purpose of the revisions is to facilitate market participants’ comparisons of banks’ disclosures about risk-weighted assets.

Next Steps: The new disclosure requirements will become effective at the end of 2016.

Other Resources: For more information, see the press release on the BIS’s Web site.

Basel Committee Issues Second Progress Report on Banks’ Adoption of Risk Data Aggregation Principles

Affects: Banking entities.

Summary: On January 23, 2015, the Basel Committee issued its second report on the progress banks have made in implementing the committee’s January 2013 Principles for Effective Risk Data Aggregation and Risk Reporting, which “aim to strengthen risk data aggregation and risk reporting practices at banks to improve risk management practices.”

Next Steps: Global systemically important banks must comply with the principles by January 1, 2016.

Other Resources: For more information, see the press release on the BIS’s Web site.

Basel Committee Requests Comments on Revisions to Capital Framework

Affects: Banking entities.

Summary: On December 19, 2014, the Basel Committee issued a third consultative document on its proposed revisions to its capital framework for market risk. The objective of the proposed revisions, which are part of the committee’s larger initiative to enhance banking regulations in the wake of the financial crisis, “is to improve trading book capital requirements and to promote consistent implementation of the rules so that they produce comparable levels of capital across jurisdictions.”

Next Steps: Comments on the consultative document are due by February 20, 2015.

Other Resources: For more information, see the press release on the BIS’s Web site.

FSB Releases Statement on Global Adherence to Regulatory and Supervisory Standards

Affects: All entities.

Summary: On December 19, 2014, the FSB released a statement that provides a status update on its initiative to encourage adherence to “regulatory and supervisory standards on international cooperation and information exchange.” Although the FSB hopes that “all countries and jurisdictions” will ultimately cooperate with its initiative, the statement focuses on jurisdictions that “rank highly in financial importance” and that have “not yet demonstrated sufficiently strong adherence.”

Other Resources: For more information, see the press release on the FSB’s Web site.

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Deloitte Publications

Publication Title Affects
February 2, 2015, Heads Up FASB Preparing to Issue “New” Classification and Measurement Guidance All entities.

January 30, 2015, Heads Up

FASB Issues Exposure Draft on Simplified Accounting for Income Taxes

All entities.

January 12, 2015, Heads Up

FASB Issues ASU on Extraordinary Items

All entities.

January 2015 TRG Snapshot

All entities.

January 2015 Oil & Gas — Accounting, Financial Reporting, and Tax Update

Oil and gas entities.

January 2015 Power & Utilities — Accounting, Financial Reporting, and Tax Update

Power and utilities entities.

A Roadmap to Accounting for Income Taxes (Second Edition)

All entities.

Leadership Changes

FAF: On January 15, 2015, the FAF announced that Myra R. Drucker and John Veihmeyer have been appointed to the FAF’s board of trustees to replace Luis M. Viceira and Edward E. Nusbaum. The terms of the new trustees are effective immediately and will end on December 31, 2019.

IFRS Advisory Council: On December 22, 2014, the IFRS Foundation announced that it has appointed Roger Marshall to represent EFRAG on the IFRS Advisory Council. Mr. Marshall will serve on the council on an interim basis until a permanent EFRAG president is appointed.

IFRS Foundation: On January 20, 2015, the IFRS Foundation announced that it has appointed Kurt Schacht as one of its trustees. Mr. Schacht’s term begins immediately; will expire on December 1, 2017; and is renewable for an additional three years.

IFRS Interpretations Committee: On December 22, 2014, the IFRS Foundation announced that Robert Uhl, a partner and national director in Deloitte’s U.S. accounting standards and communications group, has been appointed to the IFRS Interpretations Committee on an interim basis following the departure of Laurence Rivat. Mr. Uhl’s interim term will end on June 30, 2015.

Appendix A: Current Status of FASB Projects

Please see Appendix A in the attached PDF.

Appendix B: Significant Adoption Dates and Deadlines

Please see Appendix B in the attached PDF.

Appendix C: Glossary of Standards and Other Literature

Please see Appendix C in the attached PDF.

Appendix D: Abbreviations

Please see Appendix D in the attached PDF.

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