by Magnus Orrell and Joseph Renouf, Deloitte & Touche LLP

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

• The FASB’s issuance of (1) an ASU amending the consolidation guidance on entities that are under common control, (2) an ASU on simplifying the accounting for intra-entity asset transfers, and (3) a proposed ASU containing a technical correction to its guidance on financial statement presentation for not-for-profit entities.
• The AICPA’s release of a new SSARS that expands the applicability of standards related to preparation and compilation of financial information.
• The SEC’s recent decision to no longer require registrants to provide “Tandy” representations in their disclosures related to SEC comment-letter correspondence.

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

FASAB: On October 17, 2016, the FASAB announced that Patrick McNamee has been appointed to the FASAB to replace Sam McCall. Mr. McNamee’s term will begin on January 1, 2017.

IASB: On October 18, 2016, the IFRS Foundation trustees announced that Sue Lloyd has been appointed as vice-chair of the IASB to succeed Ian Mackintosh, who served as vice-chair from 2011 to 2016. Ms. Lloyd’s appointment began on November 1, 2016; ends on December 31, 2018; and is renewable for a second term.

Accounting — New Standards and Exposure Drafts

Consolidation

FASB Amends Consolidation Guidance on Related Parties Under Common Control

Affects: All entities.

Summary: On October 26, 2016, the FASB issued ASU 2016-17, which amends the guidance in U.S. GAAP on related parties that are under common control. Specifically, the new ASU requires that a single decision maker consider indirect interests held by related parties under common control on a proportionate basis in a manner consistent with its evaluation of indirect interests held through other related parties. That is, the single decision maker does not consider indirect interests held through related parties as equivalent to direct interests in determining whether it meets the economics criterion to be a primary beneficiary. The ASU does not change the need for a single decision that has determined that it individually does not meet the criterion to be a primary beneficiary to then evaluate whether the related-party group meets these conditions and, if so, to determine whether the single decision maker is the party most closely associated with the variable interest entity in the related-party group.

Editor’s Note As a result of ASU 2016-17, it is expected that the related-party tiebreaker test (i.e., the determination of which party in a related-party group is “most closely associated” with a VIE and is therefore the primary beneficiary of the VIE) will be performed more frequently because it is less likely that the decision maker would meet the economics criterion on its own when it is considering its exposure through a related party that is under common control on a proportionate basis.

Next Steps: For public business entities, the guidance in ASU 2016-17 is effective for annual periods beginning on or after December 15, 2016, including interim and annual periods. For other entities, it is effective for annual periods beginning after December 15, 2016, and interim periods in annual periods beginning after December 15, 2017. Entities that have not yet adopted ASU 2015-02 are required to adopt the guidance in ASU 2016-17 at the same time they adopt the amendments in ASU 2015-02. All entities are allowed to early adopt the new guidance and may do so in an interim period.

Other Resources: Deloitte’s November 1, 2016, Heads Up.

Income Taxes

FASB Simplifies Accounting for Intra-Entity Asset Transfers

Affects: All entities.

Summary: On October 24, 2016, the FASB issued ASU 2016-16, which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The ASU, which is part of the Board’s simplification initiative, is intended to reduce the complexity of U.S. GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property.

Editor’s Note The FASB decided to exclude transfers of inventory from the new guidance because of some constituents’ concerns about the costs and complexity of applying it to taxes related to intra-entity inventory transactions. The Board noted that such application would run counter to its simplification initiative. Accordingly, entities will continue to be prohibited from recognizing the current and deferred tax effects of intra-entity transfers of inventory.

Next Steps: For public business entities, the ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. For all other entities, the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted for all entities as of the beginning of a fiscal year for which neither the annual or interim (if applicable) financial statements have been issued or made available for issuance.

Other Resources: Deloitte’s October 25, 2016, Heads Up.

Not-for-Profit Entities

FASB Proposes Technical Correction for Not-for-Profit Entities

Affects: Not-for-profit entities.

Summary: On October 27, 2016, the FASB issued a proposed ASU that would make a technical correction to ASU 2016-14, which provides guidance on financial statement presentation for not-for-profit entities. The proposed ASU would remove from ASC 958 the words “that contain no purpose restrictions,” which had been added by ASU 2016-14. The proposal would therefore clarify “the minimum requirements for the reconciliation that a not-for-profit entity . . . is required to disclose if it has endowment funds.”

Next Steps: Comments on the proposed ASU are due by November 11, 2016.

Auditing Developments

AICPA

AICPA Issues SSARS to Expand Applicability of Standards Related to Preparation and Compilation of Financial Information

Affects: Practitioners performing accounting and review services.

Summary: On October 26, 2016, the ARSC of the AICPA issued SSARS 23, which expands the subject matter to which certain SSARSs apply. Guidance affected by the new SSARS includes AR-C Sections 60 (on engagements performed in accordance with SSARSs), 70 (on financial statement preparation), 80 (on compilation engagements), and 90 (on review of financial statements).

Next Steps: The revisions to AR-C Sections 60 and 90 are effective upon issuance. The revisions to AR-C Sections 70 and 80 are also effective upon issuance, with the exception of certain amendments that are effective, respectively, for financial information prepared, and compilation reports dated, on or after May 1, 2017.

AICPA Issues Q&As for Investment Companies

Affects: Investment companies.

Summary: In October 2016, the AICPA issued a series of Q&As that address issues pertinent to investment companies. Topics covered in the Q&As include the following:

• Determining whether loan origination is a substantive activity in the assessment of whether an entity is an investment company.
• Whether an investment company should consider how long it will take to liquidate its assets and satisfy its liabilities when determining whether liquidation is imminent.
• Determining whether liquidation is imminent when the only investor in an investment company redeems its interest and the investment company expects to sell all of its investments and settle all of its assets and liabilities.
• An investment company’s presentation of stub period information.
• How investment companies that present a stub period should apply the reporting requirements in ASC 946-205-45-1.
• Whether investment companies that liquidate over a short period must apply the liquidation basis of accounting and separate the financial information for the liquidation period from that for the going-concern period.
• Whether an investment company that has adopted the liquidation basis of accounting should present certain financial highlights.
• Accrual of income related to estimated earnings on the investments held by an investment company when the liquidation basis of accounting is used.

CAQ

CAQ Issues Audit Alerts Related to 2016 Audit Cycle

Affects: Auditors.

Summary: On October 4, 2016, the CAQ issued the following two alerts:

• “Select Auditing Considerations for the 2016 Audit Cycle” — Topics discussed include improving transparency by disclosing the engagement partner and certain other audit participants, improper alteration of audit documentation, effective communication with audit committees, assessing and responding to risks of material misstatement, internal control over financial reporting, segment identification and disclosure, and going concern.
• “Select Auditing Considerations for the 2016 Audit Cycle for Brokers and Dealers” — Topics discussed include revenue recognition, assessing and responding to risks of material misstatement due to fraud, financial statement presentation and disclosures, auditor independence, related-party transactions, and supplemental information accompanying financial statements.

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

International

IAASB Revises Standard Related to Consideration of Laws and Regulations in Financial Statement Audits

Affects: Auditors.

Summary: On October 5, 2016, the IAASB issued revisions to ISA 250 (and conforming amendments to other international standards), which provides guidance on consideration of laws and regulations in financial statement audits. The amendments are being released in response to new requirements in the IESBA’s Code of Ethics for Professional Accountants that pertain to noncompliance with laws and regulations. The purpose of the amendments is to allow the IAASB’s standards “to continue to be applied effectively alongside the IESBA Code, and clarify and emphasize key aspects of the IESBA Code in the IAASB’s Standards.”

Next Steps: The amendments are effective for financial statement audits for periods beginning on or after December 15, 2017.

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

Governmental Accounting and Auditing Developments

GASB

GASB Issues Proposed Implementation Guide on Other Postemployment Benefit Plans

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

Summary: On October 18, 2016, the GASB issued a proposed implementation guide consisting of Q&As that would “clarify, explain, or elaborate on the requirements” in GASB Statement 74, which provides guidance on the financial reporting for postemployment benefit plans other than pension plans.

Next Steps: Comments on the proposed implementation guide are due by December 19, 2016.

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

Regulatory and Compliance Developments

SEC

SEC Issues Final Rule on Intrastate and Regional Securities Offerings

Affects: SEC registrants.

Summary: On October 26, 2016, the SEC issued a final rule that amends Rule 147 of the Securities Act of 1933 to provide “a safe harbor for compliance with the Section 3(a)(11) exemption from registration for intrastate securities offerings.” In addition, the final rule establishes a new rule, Rule 147A, that is similar to Rule 147 “but will have no restriction on offers and will allow issuers to be incorporated or organized outside of the state in which the intrastate offering is conducted provided certain conditions are met.” Further, Rule 504 is being amended “to increase the aggregate amount of securities that may be offered and sold from $1 million to $5 million”; as a result, Rule 505 has been repealed.

Next Steps: The amendments to Rule 147, and the new Rule 147A, will become effective 150 days after the date of the final rule’s publication in the Federal Register. The amendments to Rule 504 will become effective 60 days after this date, and the repeal of Rule 505 will become effective 180 days after this date.

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

SEC Proposes Universal Proxy Card Requirement

Affects: SEC registrants.

Summary: On October 26, 2016, the SEC issued a proposed rule that would amend Rule 14a-4 of the Exchange Act “to require the use of universal proxy cards that would include the names of all nominees in contested board of directors’ elections.” Further, voting options and standards would be required in all director elections.

Next Steps: Comments on the proposed rule are due 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 Issues Guidance to Enhance Investment-Company Reporting

Affects: Investment companies.

Summary: On October 13, 2016, the SEC issued the following three final rules for investment companies:

• Investment Company Reporting Modernization — Enhances transparency by improving “data reporting for mutual funds, ETFs and other registered investment companies.”
• Investment Company Liquidity Risk Management Programs — “[D]esigned to promote effective liquidity risk management for mutual funds and ETFs, reducing the risk that funds will not be able to meet shareholder redemptions and mitigating potential dilution of the interests of fund shareholders.”
• Investment Company Swing Pricing — “[P]ermit[s] mutual funds to use swing pricing —
  the process of adjusting a fund’s net asset value to pass on to purchasing or redeeming shareholders costs associated with their trading activity.”

The new rules are part of the SEC’s initiative to enhance the monitoring and regulation of the asset management industry.

Next Steps: The final rules on reporting modernization and liquidity risk management programs will become effective 60 days after the date of their publication in the Federal Register (with the exception of certain amendments detailed in the respective rules). The final rule on swing pricing will become effective two years 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 Staff Releases New C&DIs Related to Securities Act Rules and Pay Ratio Disclosure

Affects: SEC registrants.

Summary: In October 2016, the staff in the SEC’s Division of Corporation Finance updated its C&DIs related to the following:

• Securities Act rules — New Q&As on Rule 701, “Exemption for Offers and Sales of Securities Pursuant to Certain Compensatory Benefit Plans and Contracts Relating to Compensation,” and Rule 144(d), “Holding Period for Restricted Securities.”
• Regulation S-K — New guidance on Item 402(u) on pay ratio disclosure.

SEC Eliminates “Tandy” Representation Requirement

Affects: SEC registrants.

Summary: On October 5, 2016, the staff in the SEC’s Division of Corporation Finance announced that the Commission is no longer requiring registrants to provide “Tandy” representations in their disclosures related to comment-letter correspondence. Named after the Tandy Corporation — the first company that received an SEC comment letter requesting such a representation back in the 1970s — the Tandy requirements mandated a registrant “to acknowledge in writing that the disclosure in the document was its responsibility and to affirmatively state that it would not raise the SEC review process and acceleration of effectiveness as a defense in any legal proceeding.” The announcement stresses that companies remain “responsible for the accuracy and adequacy of the disclosure in their filings” and that the staff will be including a statement to this effect in its comment letters to registrants going forward.

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

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Featured Publication

Deloitte recently issued A Roadmap to Common-Control Transactions, which combines the principles from the common-control subsections of ASC 805-50 with Deloitte’s interpretations and examples in a comprehensive, reader-friendly format. This Roadmap — along with others covering additional business combinations issues addressed in subsections of ASC 805-50 — will be incorporated into a comprehensive business combinations Roadmap in the future.

Other Deloitte Publications

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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