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Accounting Roundup — July 2016

Published on: Aug 02, 2016

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Edited by Magnus Orrell, Jonathan Margate, and Joseph Renouf, Deloitte & Touche LLP

Welcome to the July 2016 edition of Accounting Roundup. Highlights of this issue include the following:

  • The FASB’s issuance of proposed ASUs that would (1) provide guidance on an employee benefit plan’s presentation and disclosure of interests in a master trust and (2) amend the income tax disclosure requirements in ASC 740.
  • The AICPA’s release of its second set of working drafts designed to help entities in various industries implement the requirements in the FASB’s revenue standard, ASU 2014-09.
  • The SEC’s issuance of a proposed rule that would amend certain of its disclosure requirements that may be redundant, duplicative, or outdated, or may overlap with other SEC, U.S. GAAP, or IFRS disclosure requirements.

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.

Leadership Changes

IFRS Foundation Monitoring Board: On July 13, 2016, the IFRS Foundation Monitoring Board announced that it has appointed Ryozo Himino as chairman to replace Masamichi Kono, who recently stepped down from the position. Mr. Himino’s term will last until February 2017 (i.e., the remainder of Mr. Kono’s term before he stepped down).

IFRS Interpretations Committee: On July 1, 2016, the IFRS Foundation announced that Andrew Buchanan has been appointed to the IFRS Interpretations Committee for a three-year term.

SEC: On July 21, 2016, the SEC named Wesley Bricker as the interim chief accountant in the SEC’s Office of the Chief Accountant. Mr. Bricker will hold the position while Chief Accountant James Schnurr recovers from a bicycle accident. In addition, on July 22, 2016, the SEC announced that Deputy Chief Accountant Brian T. Croteau will be leaving the Commission.

Accounting — New Standards and Exposure Drafts

Employee Benefit Plans

FASB Proposes Guidance on Employee Benefit Plans

Affects: Employee benefit plans.

Summary: On July 28, 2016, the FASB issued a proposed ASU in response to an EITF consensus-for-exposure on an employee benefit plan’s presentation and disclosure of interests in a master trust. The proposed ASU would:

  • “[R]equire a plan’s interest in a master trust and any change in interest in the master trust to be presented in single line items in the statement of net assets available for benefits and in the statement of changes in net assets available for benefits.”
  • “[R]equire all plans to disclose (1) their master trust’s other asset and liability balances and (2) the dollar amount of the plan’s interest in each of those balances.”
  • “[N]ot require the plan to provide other applicable GAAP disclosures (for example, those required by [ASC 815] and [ASC 820]) for the underlying investments held by a master trust.”
  • “[R]emove . . . redundancy and not require the 401(h) account investment disclosures to be provided in [a] health and welfare benefit plan’s financial statements.”
  • “[R]equire [a] health and welfare benefit plan to disclose the name of the defined benefit pension plan in which those investment disclosures are provided.”

Next Steps: Comments on the proposed ASU are due by September 26, 2016.

Other Resources: Deloitte’s June 2016 EITF Snapshot.

Income Taxes

FASB Proposes Amendments to Income Tax Disclosure Requirements

Affects: All entities.

Summary: On July 26, 2016, the FASB issued a proposed ASU that would amend the income tax disclosure requirements in ASC 740. Although many of the proposed amendments would apply to all entities, certain would apply only to public business entities. All entities would be required to provide the following disclosures:

  • “Description of an enacted change in tax law that is probable to have an effect on the reporting entity in a future period.”
  • “Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign.”
  • “Income tax expense (or benefit) from continuing operations disaggregated between domestic and foreign.”
  • “Income taxes paid disaggregated between domestic and foreign, and the amount of income taxes paid to any country that is significant to total income taxes paid.”
  • “An explanation of circumstances that caused a change in assertion about the indefinite reinvestment of undistributed foreign earnings and the corresponding amount of those earnings.”
  • “The aggregate of cash, cash equivalents, and marketable securities held by foreign subsidiaries.”

The following disclosure requirements would apply only to public business entities:

  • “Within the reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period, settlements using existing deferred tax assets separate from those that have been or will be settled in cash.”
  • “The line items in the statement of financial position in which the unrecognized tax benefits are presented and the related amounts of such unrecognized tax benefits. If the unrecognized tax benefits are not presented in the statement of financial position, those amounts should be disclosed separately.”
  • “The amount and explanation of the valuation allowance recognized and/or released during the reporting period.”
  • “The total amount of unrecognized tax benefits that offsets the deferred tax assets for carryforwards.”

Next Steps: Comments on the proposed ASU are due by September 30, 2016.

Other Resources: Deloitte’s July 29, 2016, Heads Up. Also see the press release and FASB in Focus newsletter on the FASB’s Web site.

Accounting — Other Key Developments

Revenue Recognition

AICPA Publishes Second Set of Working Drafts Related to Revenue Implementation Issues

Affects: All entities.

Summary: On July 5, 2016, the FinREC of the AICPA released for public comment its second set of working drafts on accounting issues associated with implementation of the FASB’s May 2014 revenue standard, ASU 2014-09 (the first set was released in November 2015). The purpose of the working drafts is to help entities in various industries implement the requirements of the new standard, which will eliminate the bulk of the industry-specific revenue guidance when it becomes effective.

The working drafts apply to entities in nine industries: (1) aerospace and defense, (2) airlines, (3) brokers and dealers in securities, (4) engineering and construction contracting, (5) gaming, (6) health care, (7) asset management, (8) not-for-profit entities, and (9) software.

Next Steps: Comments on the working drafts are due by September 1, 2016.

Other Resources: For more information, see the revenue recognition resource page on the AICPA’s Web site.

Auditing Developments

AICPA

AICPA Issues Proposal on Auditor’s Involvement With Exempt Offering Documents

Affects: Auditors.

Summary: On July 13, 2016, the ASB of the AICPA issued an ED of a proposed SAS that addresses the responsibilities of an auditor that is deemed “involved” with a document related to an exempt offering (i.e., a securities offering exempt from registration under the Securities Act of 1933). For auditor involvement to exist in such situations, the following two conditions would need to be met:

  • “The auditor’s report on financial statements or the auditor’s review report on interim financial information is included or incorporated by reference in an exempt offering document.”
  • “The auditor performs one or more specified activities with respect to the exempt offering document. Specified activities which trigger involvement are included in the proposed SAS.”

Next Steps: Comments on the ED are due by October 13, 2016.

AICPA Proposes Revisions to Guidance on Supplementary Information

Affects: Entities that provide accounting and review services.

Summary: On July 6, 2016, the ARSC of the AICPA issued an ED of a proposed SSARS that would amend the guidance in AR-C Section 90 on supplementary information accompanying reviewed financial statements. Specifically, the proposed SSARS would “clarify the definition of supplementary information and . . . revise the accountant’s reporting responsibilities when supplementary information accompanies reviewed financial statements and the accountant’s review report thereon.”

Next Steps: Comments on the ED are due by September 2, 2016.

AICPA Proposes Amendments to Going-Concern Guidance

Affects: Auditors.

Summary: On July 5, 2016, the ASB of the AICPA issued a proposed SAS that would supersede SAS 126, which provides guidance on the auditor’s consideration of an entity’s ability to continue as a going concern, and would amend various sections of SAS 122. The proposal is part of an effort to converge the AICPA’s guidance with the IAASB’s ISAs. The amendments would affect:

  • “Audits of special purpose frameworks and audits of single financial statements and specific elements, accounts, or items of a financial statement.”
  • “Interim financial information.”

Next Steps: Comments on the ED are due by September 5, 2016.

PCAOB

PCAOB Issues Staff Inspection Briefs Related to Audits of Public Companies and Broker-Dealers

Affects: Auditors.

Summary: On July 14, 2016, the PCAOB issued two inspection briefs that detail “the scope, focus, and objectives of its ongoing 2016 inspections” of auditors of (1) public companies and (2) broker-dealers. Key focuses of the 2016 inspections include:

  • Auditors of public companies:
    • Audit areas for which the PCAOB has identified “frequent and recurring deficiencies,” including (1) auditing ICFR; (2) assessing and responding to risks of material misstatement; and (3) auditing accounting estimates, including fair value measurement.
    • Economic developments that could affect audits, including (1) “the effect on multinational public companies of the recent significant appreciation in the U.S. dollar index,” (2) “merger and acquisition activity,” (3) the “search for higher yielding investment returns in a low interest rate environment,” and (4) “fluctuations in oil and natural gas prices.”
    • “Audits of certain areas that may involve significant judgment,” such as segment identification and disclosures, an entity’s ability to continue as a going concern, and income tax accounting and disclosures.
    • Auditors’ implementation of PCAOB Auditing Standard 2410 on related parties, which became effective for financial statement audits for fiscal years beginning on or after December 15, 2014.
    • “Audit procedures involving information technology,” such as “auditors’ use of software tools, and procedures to assess and address risks of material misstatement posed by cybersecurity.”
    • A firm’s system of quality control.
  • Auditors of broker-dealers:
    • Independence of auditors.
    • “Financial statement areas with recurring deficiencies, including revenue, the assessment and response to risks of material misstatement due to fraud, financial statement presentation and disclosures, and fair value measurements.”
    • Audit procedures related to related-party transactions.
    • “Audit procedures on the supporting schedules to the financial statements.”
    • Attestation engagement procedures, including “the examination of compliance reports and the review of exemption reports.”
    • Engagement quality review.

Other Resources: For more information, see the press releases on the inspections of public-company and broker-dealer auditors on the PCAOB’s Web site.

International

IESBA Issues Standard on Responding to Noncompliance With Laws and Regulations

Affects: Professional accountants.

Summary: On July 14, 2016, the IESBA issued a final pronouncement that “sets out a framework to guide auditors and other professional accountants in what actions to take in the public interest when they become aware of a potential illegal act, known as non-compliance with laws and regulations . . . committed by a client or employer.” The standard “provides a clear pathway for auditors and other professional accountants to disclose potential non-compliance situations to appropriate public authorities in certain situations without being constrained by the ethical duty of confidentiality.”

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

Governmental Accounting and Auditing Developments

International

IPSASB Releases Guidance on Employee Benefits

Affects: Public-sector entities.

Summary: On July 28, 2016, the IPSASB issued IPSAS 39, which supersedes the guidance on employee benefits in IPSAS 25. Specifically, the new IPSAS:

  • Removes “an option that allowed an entity to defer the recognition of changes in the net defined benefit liability (the ‘corridor approach’).”
  • Introduces “the net interest approach for defined benefit plans.”
  • Amends “certain disclosure requirements for defined benefit plans and multi-employer plans”
  • Simplifies “the requirements for contributions from employees or third parties to a defined benefit plan when those contributions are applied to a simple contributory plan that is linked to service.”
  • Removes “the requirements for Composite Social Security Programs.”

Next Steps: IPSAS 39 will become effective on January 1, 2018; early adoption is encouraged.

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

IPSASB Amends Guidance on Impairment of Revalued Assets

Affects: Public-sector entities.

Summary: On July 28, 2016, the IPSASB issued amendments that revised the guidance on impairment of revalued assets in IPSASs 21 and 26. The amendments “provide users with relevant information on impairment losses to property, plant, and equipment and intangible assets on the revaluation model [and clarify] that impairments to individual assets, or a group of assets within a class of property, plant, and equipment, in [IPSAS 17] do not necessitate a revaluation of the entire class to which that impaired asset or group of assets belongs.”

Next Steps: Comments on the consultation paper are due by December 31, 2016.

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

IPSASB Issues Consultation Paper on Accounting for Public-Sector Financial Instruments

Affects: Public-sector entities.

Summary: On July 27, 2016, the IPSASB published a consultation paper on accounting for public-sector financial instruments. Topics on which the consultation paper is requesting comment include currency in circulation, monetary gold, and the IMF Quota Subscription and special drawing rights.

Next Steps: Comments on the consultation paper are due by December 31, 2016.

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

Regulatory and Compliance Developments

Corporate Governance

Group of CEOs Publishes Corporate Governance Principles

Affects: All entities.

Summary: On July 27, 2016, a group of CEOs issued a set of “commonsense” corporate governance principles for public companies, boards of directors, and shareholders. The principles focus on the following topics:

  • Composition, internal governance, and responsibilities of board of directors.
  • Shareholder rights.
  • Public reporting.
  • Board leadership.
  • Management — succession planning and compensation.
  • Role of asset managers in corporate governance.

Other Resources: For more information, see the press release.

SEC

Controls and Non-GAAP Measures

Affects: SEC registrants.

Summary: In a speech on June 27, 2016, SEC Chair Mary Jo White reiterated the SEC’s concerns about practices that can result in misleading non-GAAP disclosures. She exhorted companies “to carefully consider [SEC guidance on this topic] and revisit their approach to non-GAAP disclosures.” She also urged “that appropriate controls be considered and that audit committees carefully oversee their company’s use of non-GAAP measures and disclosures.”

Other Resources: Deloitte’s July 19, 2016, Heads Up discusses the types of controls that could be established and provides high-level examples of control issues and related considerations associated with non-GAAP measures.

SEC Proposes to Eliminate Outdated and Duplicative Disclosure Requirements

Affects: SEC registrants.

Summary: On July 13, 2016, the SEC issued a proposed rule that would amend certain of its disclosure requirements that may be redundant, duplicative, or outdated, or may overlap with other SEC, U.S. GAAP, or IFRS disclosure requirements. The proposal also seeks comment on whether certain of the SEC’s disclosure requirements that overlap with U.S. GAAP requirements should be retained, modified, eliminated, or referred to the FASB for potential incorporation into U.S. GAAP.

The proposed amendments are a step in the SEC’s ongoing disclosure effectiveness initiative, which is a broad-based review of the Commission’s disclosure, presentation, and delivery requirements for public companies. As part of the initiative, the SEC also issued a concept release in April of this year that sought feedback on modernizing certain business and financial disclosure requirements of Regulation S-K as well as a request for comment last September on the effectiveness of certain financial disclosure requirements in Regulation S-X.

The proposed amendments to the disclosure requirements would affect U.S. issuers, FPIs, investment advisers, investment companies, broker-dealers, and nationally recognized statistical rating organizations. The effect on each type of issuer varies depending on the amendment proposed. The SEC intends to improve the disclosure requirements and simplify registrants’ compliance efforts “without significantly altering the total mix of information” that is ultimately provided to investors.

Editor's Note

Editor’s Note

The implications of the proposal are likely to vary depending on the category of change (e.g., duplicate, overlapping, superseded). The effect of some changes may not be significant if their purpose is only to eliminate a duplicated or superseded requirement. Changes to address overlapping requirements could have a more significant effect since they can result in what the SEC describes as (1) disclosure location considerations and (2) bright-line threshold considerations.

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

Other Resources: Deloitte’s July 18, 2016, Heads Up. Also see the press release on the SEC’s Web site.

CAQ Releases Highlights of May 2016 Meeting Between IPTF and SEC Staff

Affects: SEC registrants.

Summary: On July 18, 2016, the CAQ released highlights of the May 17, 2016, joint meeting between the SEC staff and the IPTF. Topics discussed at the meeting included:

  • Monitoring inflation in certain countries.
  • New NYSE rule related to interim financial information.
  • “Updating annual financial statements for retrospective accounting that is first reflected in a full set of interim financial statements, that are not needed to meet nine-month financial statement timeliness requirements under Item 8.A.5 of Form 20-F.”
  • “More current interim financial statements provided on a local GAAP basis (i.e., other than US GAAP or IFRS-IASB), that is not needed to meet nine-month financial statement timeliness requirements under Item 8.A.5 of Form 20-F.”
  • “More current interim financial information provided on a local GAAP basis (other than IFRS-IASB or US GAAP), for an FPI that files its annual financial statements under IFRS-IASB.”
  • “Period to be covered for changes in internal control over financial reporting in the first 10-K filed by an issuer that was previously an FPI filing annual reports on Form 20-F.”
  • SEC staff matters, including disclosure effectiveness, non-GAAP measures, and XBRL IFRS briefing.

SEC Staff Updates C&DIs

Affects: SEC registrants.

Summary: In July 2016, the staff in the SEC’s Division of Corporation Finance issued the following C&DIs:

  • Question 103.11 related to filing Schedules 13D and 13G (Rule 13d-1) — Addresses whether a shareholder is exempt from filing on Schedule 13G on the basis of the provisions in the Hart-Scott-Rodino Act.
  • Question 111.02 and Question 125.13 related to Securities Act sections and forms — Contain questions related to an issuer’s representation about the absence of a distribution of the securities received in an exchange.
  • Question 140.02 related to Regulation S-K — Discusses how, in situations in which “a selling security holder is not a natural person,” a registrant should “satisfy the obligation in Item 507 of Regulation S-K to disclose the nature of any position, office, or other material relationship that the selling security holder has had within the past three years with the registrant or any of its predecessors or affiliates.”

SEC Issues Final Rule on Administrative Proceedings

Affects: SEC registrants.

Summary: On July 14, 2016, the SEC issued a final rule that amends its rules of practice related to administrative proceedings. According to SEC Chair Mary Jo White, this final rule will offer parties “additional opportunities to conduct depositions and add flexibility to the timelines of [the SEC’s] administrative proceedings, while continuing to promote the fair and timely resolution of the proceedings.”

Next Steps: The final rule will become effective on September 27, 2016.

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

SEC Issues Final Rule on Regulation SBSR

Affects: SEC registrants.

Summary: On July 13, 2016, the SEC issued a final rule that amends Regulation SBSR on the reporting and dissemination of security-based swap information. The purpose of the final rule, which implements requirements in Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is to “increase transparency in the security-based swap market.”

Next Steps: The final rule will become effective 60 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 Proposes Amendments to Broker-Dealers’ Disclosures About Order Handling Information

Affects: Broker-dealers.

Summary: On July 14, 2016, the SEC issued a proposed rule that would enhance the requirements related to broker-dealers’ disclosures about order handling information. Specifically, the proposal would require broker-dealers to “disclose the handling of institutional orders to customers” and to include additional information in their existing retail order disclosures.

Next Steps: Comments on the proposed rule are due by September 26, 2016.

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

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Selected Deloitte Publications

Publication Title Affects
July 29, 2016, Heads Up FASB Proposes Updates to Income Tax Disclosure Requirements All entities.
July 19, 2016, Heads Up Controls and Non-GAAP Measures All entities.
July 18, 2016, Heads Up SEC Proposes to Eliminate Outdated and Duplicative Disclosure Requirements SEC registrants.

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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