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Accounting Roundup — October 2015

Published on: Nov 03, 2015

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Welcome to the October 2015 edition of Accounting Roundup. Highlights of this issue include the following:

  • The SEC’s final rule permitting eligible companies to use “crowdfunding” to offer and sell securities over the Internet.
  • The completion of the IASB’s redeliberations related to its leases project.
  • The GASB’s proposal to amend its guidance for governmental entities participating in certain multiple-employer defined benefit pension plans.
  • The CAQ’s publication of two alerts underscoring risks auditors should consider for the 2015 audit cycle.

Be sure to monitor upcoming issues of Accounting Roundup for new developments. We value your feedback and would appreciate any comments you may have on this publication. Take a moment to tell us what you think by sending us an e-mail at accountingstandards@deloitte.com.

Accounting — New Standards and Exposure Drafts

International

IASB Publishes Proposed Practice Statement on Materiality

Affects: Entities reporting under IFRSs.

Summary: On October 28, 2015, the IASB issued an ED of a proposed IFRS practice statement that would explain and illustrate the concept of materiality and help financial statement preparers apply this concept. Topics covered in the practice statement include characteristics of materiality, presentation and disclosure in the financial statements, omissions and misstatements, and recognition and measurement.

Next Steps: Comments on the proposed practice statement are due by February 26, 2016.

Other Resources: For more information, see Deloitte’s US GAAP Plus news article as well as the press release on the IASB’s Web site.

IFRS Interpretations Committee Publishes Draft Interpretations Related to Income Taxes and Foreign Currency Transactions

Affects: Entities reporting under IFRSs.

Summary: On October 21, 2015, the IFRS Interpretations Committee published the following two draft interpretations:

  • Uncertainty Over Income Tax Treatments — Clarifies that the recognition and measurement of a “current or deferred tax asset or liability” under IAS 12 should “be based on taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates that are determined in accordance with [the draft interpretation] if there is uncertainty over income tax treatments.”
  • Foreign Currency Transactions and Advance Consideration — Addresses “how to determine the date of the transaction for the purpose of determining the spot exchange rate used to translate the asset, expense or income (or part of it) on initial recognition that relates to, and is recognised on the derecognition of, a non-monetary prepayment asset or a non-monetary deferred income liability.”

The proposals are being issued to address diversity in practice related to the application of IAS 12 and IAS 21, respectively.

Next Steps: Comments on both draft interpretations are due by January 19, 2016.

Other Resources: For more information, see Deloitte’s October 28 and November 2 IFRS in Focus newsletters as well as the press release on the IASB’s Web site.

Accounting — Other Key Developments

AICPA

AICPA Issues Working Drafts on Revenue Implementation Issues

Affects: All entities.

Summary: On November 2, 2015, the AICPA’s Financial Reporting Executive Committee released for public comment nine working drafts on accounting issues associated with the implementation of the new revenue standard. The working drafts apply to entities in the (1) aerospace and defense and (2) investment asset management industries.

Next Steps: Comments on the working drafts are due by December 31, 2015.

SEC

Continuing Focus on Accounting and Disclosure Considerations Related to Foreign Currency Environment in Venezuela

Affects: SEC registrants.

Summary: The SEC staff continues to focus on accounting and disclosure considerations related to the foreign currency exchange environment in Venezuela. In particular, because the economic environment in Venezuela has continued to deteriorate, thus limiting the amount of foreign currency exchangeability, entities with operations in Venezuela must continue to assess (1) their conclusions regarding consolidation or deconsolidation of such operations and (2) which exchange rate is appropriate for remeasurement.

Other Resources: Deloitte’s October 2, 2015, journal entry.

International

IASB Completes Lease Redeliberations

Affects: Entities reporting under IFRSs.

Summary: At its October 20, 2015, meeting, the IASB discussed the effective date of its upcoming leases standard and whether to permit early adoption. The IASB tentatively decided that (1) the new leases standard, once issued, would be effective for annual periods beginning after January 1, 2019, and (2) early adoption would be permitted provided that an entity does not adopt the leases standard before adopting the revenue guidance in IFRS 15.

The Board also discussed the feedback received on its confidential external review (i.e., “fatal flaw”) draft of the final leases standard. Specifically, the IASB staff discussed feedback related to (1) lease modifications, (2) reassessment of the discount rate for floating interest rate leases, (3) accounting for costs associated with returning an asset at the end of the lease, and (4) accounting for short-term leases and low-value assets in a business combination. Further, the IASB discussed disclosure requirements for leases within the scope of IFRS 5.

Next Steps: The IASB staff is in the final stages of drafting the final leases standard, which is expected to be issued before the end of 2015.

Other Resources: For more information, see the “Leases Project Update” on the IASB’s Web site.

Auditing Developments

AICPA

AICPA Issues SAS on Audits of Internal Control Over Financial Reporting That Are Integrated With Audits of Financial Statements

Affects: Auditors.

Summary: On October 28, 2015, the AICPA issued SAS 130, which provides guidance on audits of ICFR that are integrated with audits of financial statements. The purpose of the new SAS is to transfer the guidance on this topic — specifically that from AT Section 501 and Attestation Interpretation 1 — from attestation standards to generally accepted auditing standards. In addition, SAS 130 makes certain revisions to the guidance, including the following:

  • A requirement for auditors to “examine and report directly on the effectiveness of [ICFR]“ and removal of the option to “examine and report on management’s assertion about the effectiveness of internal control over financial reporting.”
  • Changing the term “significant account or disclosure” to “significant class of transactions, account balance, or disclosure.”
  • Clarification that the risk factors an auditor should use “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 of SAS 122.

Next Steps: SAS 130 is effective for integrated audits for periods ending on or after December 15, 2016.

CAQ

CAQ Publishes Two Alerts Related to 2015 Audit Cycle

Affects: Auditors.

Summary: On October 12, 2015, the CAQ released the following two alerts that address potential risks auditors should consider for the 2015 audit cycle:

  • Select Auditing Considerations for the 2015 Audit Cycle — Contains information about “some of the more judgmental or complex audit areas,” including professional skepticism; ICFR; risk assessment and audit planning; supervision of other auditors and multilocation audit engagements; testing issuer-prepared data and reports; cybersecurity; revenue recognition; auditing accounting estimates, including fair value measurements; and related parties and significant unusual transactions.
  • Select Considerations for the 2015 Audit Cycle for Brokers and Dealers — Focuses on audit deficiencies identified by the PCAOB during its inspections of broker-dealer audits in 2014. The alert notes that these deficiencies included “failures to satisfy independence requirements; revenue recognition; related parties; reliance on records and reports produced by service organizations or brokers and dealers themselves; fair value accounting estimates; financial statement presentation and disclosures; and the customer protection rule.”

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

IIA

IIA Releases Reports on Relationship Between Risk and Internal Auditing

Affects: Internal auditors.

Summary: On October 19, 2015, the IIA released the following three reports that explore the interplay between risk and the role of internal auditing at an organization:

  • Who Owns Risk? A Look at Internal Audit’s Changing Role — Offers “insights into the status of risk management and the role of internal audit around the world and lays out 13 key actions that can help chief audit executives . . . and internal auditors ensure that their internal audit function is properly positioned to address risk challenges in an ever-changing world.”
  • Responding to Fraud Risk: Exploring Where Internal Auditing Stands — Contains “a global analysis of the importance of fraud risk to internal audit and its stakeholders, the degree of responsibility internal audit has for fraud prevention and detection, and perceptions of internal audit capabilities in responding to fraud risk.”
  • Combined Assurance: One Language, One Voice, One View — Features “highlights on the current position of internal audit regarding implementation of combined assurance, why organizations have embarked on the journey, what lessons can be learned, and actionable guidance on good practice steps for implementation.”

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

PCAOB

PCAOB Releases Report Highlighting Deficiencies in the Application of Its Risk Assessment Standards

Affects: Registered public accounting firms.

Summary: On October 15, 2015, the PCAOB released a report detailing deficiencies the Board noted during its 2012–2014 inspections of registered audit firms with respect to their implementation of and compliance with the Board’s risk assessment standards. The report found that from 2012 to 2013, the percentage of audits in which deficiencies were noted increased from 26 percent to 27 percent. Further, the preliminary results for 2014 continue to show a high rate of audit deficiencies. Other observations made in the report include the following:

  • “Firms did not perform substantive procedures, including tests of details, that were specifically responsive to fraud risks and other significant risks that were identified. . . .
  • Firms did not perform sufficient testing of the design and operating effectiveness of controls to support their planned level of control reliance, including testing controls over the system-generated data and reports that were used to support important controls or substantive procedures performed in response to the assessed risks of material misstatement. . . .
  • Firms did not evaluate the accuracy and completeness of financial statement disclosures. . . .
  • Firms did not take into account relevant audit evidence that appeared to contradict certain assertions in the financial statements.”

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

Governmental Accounting and Auditing Developments

AICPA

AICPA Issues Interpretation That Permits Auditors to Report on Federal Sustainability Financial Statements

Affects: Auditors of U.S. government financial statements.

Summary: On October 27, 2015, the ASB of the AICPA issued an interpretation that permits auditors to create a report on the U.S. government’s “basic financial statements” (i.e., the statement of social insurance, statement of changes in social insurance amounts, and statement of long-term fiscal projections, which are collectively referred to as the “sustainability financial statements”). The interpretation is related to FASAB Statement 36, which “requires that the statement of long-term fiscal projections be presented in the consolidated financial report of the U.S. government as a basic financial statement starting in fiscal year 2015.”

GASB

GASB Proposes Amendments to Pension Guidance for Certain Governmental Entities

Affects: Entities reporting under financial accounting and reporting standards for state and local governments.

Summary: On October 8, 2015, the GASB issued an ED of a proposed Statement that would amend GASB Statement 68 in response to concerns from stakeholders that governments participating in certain multiple-employer defined benefit pension plans are finding it difficult to obtain the information they need to comply with the Statement’s requirements. Specifically, the proposed Statement “would establish requirements for recognition and measurement of pension expense/expenditures and liabilities, note disclosures, and required supplementary information” for pension plans within the proposal’s scope.

Next Steps: Comments on the ED are due by November 16, 2015.

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

GASB Issues Report Summarizing Costs and Benefits of Standards on Other Postemployment Benefits

Affects: Entities reporting under financial accounting and reporting standards for state and local governments.

Summary: On October 6, 2015, the GASB issued a report that summarizes how it assessed the expected costs and benefits of its standards on other postemployment benefits, Statements 74 and 75. Specifically, the report outlines the steps the GASB took to reach its conclusion that the benefits of the new standards justify their costs.

International

IPSASB Issues Exposure Drafts on Impairment and Improvements to IPSASs

Affects: Public-sector entities reporting under IPSASs.

Summary: On October 14, 2015, the IPSASB released the following two EDs:

  • Impairment of Revalued Assets — Under this proposal, property, plant, and equipment, as well as intangible assets measured under the revaluation model, would be included within the scope of the IPSASB’s two impairment standards, IPSAS 21 and IPSAS 26.
  • Improvements to IPSASs 2015 — This ED proposes minor amendments to IPSASs to
    (1) increase consistency with the IPSASB’s conceptual framework, (2) make general improvements to IPSASs, (3) make IPSASs more consistent with the government finance statistics guidelines, and (4) maintain convergence with IFRSs.

Next Steps: Comments on both EDs are due by January 15, 2016.

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

Regulatory and Compliance Developments

Banking Agencies

Banking Agencies Issue Final Rule on Swap Margin Requirements

Affects: Swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants.

Summary: On October 30, 2015, the FDIC, OCC, Federal Reserve, FCA, and FHFA issued a final rule that establishes “minimum margin and capital requirements for registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants for which one of the Agencies is the prudential regulator.” The final rule is being released in response to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act and “was developed in consultation with the CFTC and the SEC.“

Next Steps: The final rule will become effective on April 1, 2016.

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

SASB

SASB Proposes Standards on Infrastructure Sustainability Reporting

Affects: Industries within the scope of the standards.

Summary: On October 9, 2015, the SASB released eight proposed sustainability accounting standards for the infrastructure sector. The proposed standards apply to the following industries:

  • Electric utilities.
  • Gas utilities.
  • Water utilities.
  • Waste management.
  • Engineering and construction services.
  • Homebuilding.
  • Real estate owning, developing, and investment trusts.
  • Real estate services.

Next Steps: Comments on the proposed standards are due by January 5, 2016.

SEC

SEC Issues Final Rule on Crowdfunding

Affects: SEC registrants.

Summary: On October 30, 2015, the SEC issued a final rule that permits 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.

Next Steps: The final rule will become effective 180 days after the date of its publication in the
Federal Register.

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

SEC Issues Proposed Rule on Intrastate and Regional Securities Offerings

Affects: SEC registrants.

Summary: On October 30, 2015, the SEC issued a proposed rule that would amend Rule 147 of the Securities Act of 1933, “which currently provides a safe harbor for compliance with the Section 3(a)(11) exemption from registration for intrastate securities offerings.” The proposed rule “would modernize the rule and establish a new exemption to facilitate capital formation, including through offerings relying upon recently adopted intrastate crowdfunding provisions under state securities laws.”

Next Steps: Comments on the proposed rule are due 60 days after the date of its publication in the Federal Register.

SEC Issues Staff Legal Bulletin on Exclusion of Shareholder Proposals

Affects: SEC registrants.

Summary: On October 22, 2015, the SEC’s Division of Corporation Finance issued a staff legal bulletin that provides its views on the exclusion of shareholder proposals under Rule 14a-8 of the Securities Exchange Act of 1934. Among other things, the staff suggests that a company may omit a shareholder proposal when it conflicts with one of the company’s own proposals to be submitted to shareholders at the same meeting “if a reasonable shareholder could not logically vote in favor of both proposals.”

SEC Announces Results of Enforcement Activities for Fiscal Year 2015

Affects: SEC registrants.

Summary: On October 22, 2015, the SEC announced the results of its enforcement activities for fiscal year 2015. Specifically, the Commission indicated that it “filed 807 enforcement 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.” Further, “financial reporting remained a key enforcement priority.”

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

SEC Staff Releases Report on Private Fund Statistics

Affects: SEC registrants.

Summary: On October 16, 2015, the SEC released a report that summarizes “recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings.” The report contains data that Form PF filers have reported from the first calendar quarter of 2013 through the fourth calendar quarter of 2014.

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

International

Basel Committee Issues FAQs on Basel III Countercyclical Capital Buffer

Affects: Banking entities.

Summary: On October 19, 2015, the Basel Committee issued a set of FAQs on implementing the “countercyclical capital buffer” requirement, which is part of the Basel III risk-based capital standards that the committee released in 2010. The main purpose of the buffer is to “achieve the broader macroprudential goal of protecting the banking sector from periods of excess aggregate credit growth that have often been associated with the build-up of system-wide risk.”

Next Steps: The phase-in period for the countercyclical capital buffer requirement will begin on
January 1, 2016.

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

Basel Committee Releases Report on Risk-Weighted Assets for Counterparty Credit Risk

Affects: Banking entities.

Summary: On October 1, 2015, the Basel Committee released a report on the regulatory consistency of risk-weighted assets as part of its Regulatory Consistency Assessment Programme. The report “presents the findings from a hypothetical test portfolio exercise to examine variability in banks’ modelling of derivatives, and specifically in exposure modelling.”

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

CPMI Requests Comments on Correspondent Banking

Affects: Banking entities.

Summary: On October 6, 2015, the CPMI released a consultative report that seeks feedback on recommended technical measures for increasing the efficiency and reducing the costs associated with correspondent banking, a type of banking in which “banks can access financial services in different jurisdictions and provide cross-border payment services to their customers, supporting international trade and financial inclusion.”

Next Steps: Comments on the consultative report are due by December 7, 2015.

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

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Deloitte Publications

Publication

Title

Affects

October 30, 2015, Financial Reporting Alert

Financial Reporting Considerations Related to Pension and Other Postretirement Benefits

All entities.

October 6, 2015, Heads Up

FASB Proposes to Change the Effective Date and Transition Guidance in Certain Private-Company ASUs

Private companies.

October 6, 2015, Heads Up

SEC Seeks Input on Regulation S-X and Required Financial Information About Certain Entities Other Than the Registrant

SEC registrants.

SEC Comment Letter Publication (Updated October 2015)

SEC Comment Letters — Including Industry Insights: What “Edgar” Told Us

SEC registrants.

Leadership Changes

CAQ: On October 29, 2015, the CAQ’s governing board announced that it has appointed Catherine Engelbert (CEO of Deloitte LLP) as its new chairman for a two-year term. Ms. Engelbert will succeed Robert Mortiz.

IFRS Advisory Council: On October 30, 2015, the IFRS Foundation trustees announced the appointments of eight new members, and the reappointments of eight existing members, to the IFRS Advisory Council.

SEC: President Obama has announced that he intends to nominate two new SEC commissioners. Hester Maria Peirce would replace Republican commissioner Daniel M. Gallagher, who resigned in October. Lisa M. Fairfax would replace Democratic commissioner Luis A. Aguilar, whose term expired in June 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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