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Accounting Roundup — April 2017

Published on: 02 May 2017

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by Magnus Orrell and Joseph Renouf, Deloitte & Touche LLP

Welcome to the April 2017 edition of Accounting Roundup. Highlights of this issue include the following:

  • The AICPA’s release of a framework on cybersecurity risk management.
  • The final judgment by the U.S. District Court for the District of Columbia in the litigation related to the SEC’s conflict minerals rule and the court’s remanding of the case to the Commission.

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 Change

IAASB: On April 6, 2017, IFAC announced that it has extended the term of Prof. Arnold Schilder as IAASB chairman. The extension “is due to the current review of potential enhancements to international standard-setting arrangements being undertaken by key stakeholders.”

Accounting — New Standards and Exposure Drafts

International

IASB Proposes Minor Amendments to IFRS 9

Affects: Entities reporting under IFRSs.

Summary: On April 21, 2017, the IASB published an ED that addresses concerns about how certain prepayable financial assets are classified under IFRS 9 (on financial instruments). Under the ED, certain financial assets containing prepayment features that might result in so-called negative compensation could be measured at amortized cost or at fair value through other comprehensive income (depending on a company’s business model) if two conditions are met:

  • The assessment that the prepayment amount is not solely a payment of principal and interest on the principal amount outstanding only hinges on the fact that “the party that chooses to terminate the contract early . . . may receive reasonable additional compensation for doing so.”
  • “[W]hen the entity initially recognises the financial asset, the fair value of the prepayment feature is insignificant.”

Next Steps: Comments on the ED are due by May 24, 2017.

Other Resources: Deloitte’s April 24, 2017, IFRS in Focus. Also see the press release on the IASB’s Web site.

Accounting — Other Key Developments

Revenue Recognition

AICPA Issues Revenue Working Drafts

Affects: Entities in industries within the scope of the working drafts.

Summary: In April 2017, the AICPA’s revenue recognition task forces released for public comment 11 working drafts on accounting issues associated with the implementation of the new revenue standard for airlines, gaming, hospitality, and time-share entities. The working drafts address the following topics:

  • Passenger ticket breakage, ancillary fees, interline transactions, brand name and customer lists, interline loyalty transactions, and change fees (airlines).
  • Loyalty tier status (gaming).
  • Franchise fees, hotel service arrangements, and accounting for owned and leased property (hospitality).
  • Collectibility (time shares).

Next Steps: Comments on the working drafts are due by June 1, 2017.

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

Auditing Developments

AICPA

AICPA Issues New Technical Practice Aids

Affects: Auditors.

Summary: On April 26, 2017, the AICPA issued five new Q&As related to its Technical Practice Aids on internal controls. Specifically, the following Q&As have been added to TIS Section 8200:

  • .17, “Obtaining an Understanding of Business Processes Relevant to Financial Reporting and Communication.”
  • .18, “Obtaining an Understanding of Internal Control Relevant to the Audit.”
  • .19, “Obtaining an Understanding of the Controls Relevant to the Audit.”
  • .20, “Control Activities That Are Always Relevant to the Audit.”
  • .21, “Control Activities That May Be Relevant to the Audit.”

Other Resources: For more information, see the recently issued technical questions and answers page on the AICPA’s Web site.

AICPA Issues Framework Related to Cybersecurity Risk Management

Affects: Entities and CPAs providing advisory or attestation services.

Summary: On April 26, 2017, the AICPA issued a framework related to cybersecurity risk management. The purpose of the framework is to “enable all organizations — in industries worldwide — to take a proactive and agile approach to cybersecurity risk management and to communicate on those activities with stakeholders.”

Other Resources: For more information, see the press release and system and organization controls for cybersecurity page on the AICPA’s Web site. In addition, see Deloitte’s cybersecurity risk management examination discussion on Deloitte.com.

AICPA Issues Proposed SAS on Employee Benefit Plans

Affects: Auditors of employee benefit plans.

Summary: On April 20, 2017, the ASB of the AICPA issued a proposed SAS that addresses audits of financial statements of employee benefit plans subject to the Employee Retirement Income Security Act of 1974. The proposed SAS is being issued in response to a 2015 Department of Labor report that criticized the quality of employee benefit plan audits.

Next Steps: Comments on the proposed SAS are due by August 21, 2017.

CAQ

CAQ Updates Publication on Assessing External Auditors

Affects: Audit committees.

Summary: On April 18, 2017, the CAQ released an updated version of its publication on assessing external auditors. The purpose of the publication is “to assist audit committees in carrying out their responsibilities of appointing, overseeing, and determining compensation for the external auditor.” The update takes into account “upcoming changes in accounting rules and standards and other potential risk areas.”

Next Steps: For more information, see the press release and video on the CAQ’s Web site.

International

IAASB Proposes Standard on Auditing Accounting Estimates

Affects: Auditors.

Summary: On April 20, 2017, the IAASB issued an ED of a proposed standard that would significantly change “how auditors evaluate accounting estimates and related disclosures.” Under the proposal, auditors would be required “to sharpen their focus on risks of material misstatements arising from accounting estimates, and to address those risks with more granular audit requirements.”

Next Steps: Comments on the proposed standard are due by August 1, 2017.

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

Governmental Accounting and Auditing Developments

FASAB

FASAB Issues Technical Release on Property, Plant, and Equipment

Affects: Entities applying federal financial accounting standards.

Summary: On April 10, 2017, the FASAB issued Technical Release 17, which amends certain previously published technical releases to conform them with FASAB Statement 50, which provides guidance on establishing opening balances for general property, plant, and equipment (PP&E). Specifically, the technical release reiterates that Statement 50 rescinded Statement 35 (on estimating the historical cost of general PP&E) and clarifies that Statement 6 (on accounting for PP&E), which was amended by Statement 50, now contains “all standards-level implementation guidance for general [PP&E] (with the exception of certain provisions applicable to internal use software).”

Technical Release 17 became effective upon issuance.

GASB

GASB Issues Implementation Guide

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

Summary: On April 28, 2017, the GASB issued an implementation guide “to provide guidance that clarifies, explains, or elaborates on GASB Statements.”

Next Steps: The implementation guide is effective for reporting periods beginning after June 15, 2017. Early application is encouraged.

GAO

GAO Proposes Updates to “Yellow Book”

Affects: Auditors of federal, state, and local governments.

Summary: On April 5, 2017, the GAO issued an ED that proposes changes to its “Yellow Book,” which contains generally accepted government auditing standards (GAGAS). The updates include:

  • Revisions to the chapter format.
  • Clarification of the independence requirements to which the auditor is subject “when the engaging party differs from the responsible party.”
  • Inclusion of guidance stating that “any services performed by auditors related to preparing accounting records and financial statements, other than those defined as impairments to independence, create significant threats to auditors’ independence and that auditors should document the threats and safeguards applied to eliminate and reduce the threats to an acceptable level or decline to perform the services.”
  • Revisions to the CPE requirements in an attempt to increase GAGAS proficiency.
  • Expansion of peer review standards.
  • New definition of waste and additional “requirements for reporting or communicating waste that auditors become aware of during audits.”
  • Incorporation of SSAE 18 and SSARS 21 into GAGAS “for auditors conducting attestation engagements and reviews of financial statements, respectively.”
  • Updates to guidance related to internal controls.

Next Steps: Comments on the ED are due by July 6, 2017.

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

International

IPSASB Issues Consultation Paper on Heritage Reporting

Affects: Public-sector entities.

Summary: On April 11, 2017, the IPSASB released a consultation paper that requests feedback on the financial reporting for heritage items, which the paper defines as “items that are intended to be held indefinitely and preserved for the benefit of present and future generations because of their rarity and/or significance in relation, but not limited, to their archeological, architectural, agricultural, artistic, cultural, environmental, historical, natural, scientific or technological features.” According to IPSASB Chairman Ian Carruthers, the paper “is a first step toward developing financial reporting guidance to support accountability and decision making in this area.”

Next Steps: Comments on the consultation paper are due by September 30, 2017.

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

Regulatory and Compliance Developments

SEC

SEC Issues Small-Entity Compliance Guide on Intrastate Offering Exemptions

Affects: SEC registrants.

Summary: On April 19, 2017, the SEC issued a small-entity compliance guide that provides guidance on the SEC’s October 2016 final rules that “modernize how issuers can raise money to fund their businesses through intrastate offerings while maintaining investor protections.” Topics covered in the guide include requirements of Rules 147 and 147A, restrictions on resales, filing requirements and relationship with state securities laws, and integration.

Federal Court Remands Conflict Minerals Case to SEC

Affects: SEC registrants.

Summary: On April 3, 2017, the U.S. District Court for the District of Columbia released its final judgment in the litigation related to the SEC’s conflict minerals rule and remanded the case to the Commission. After the April 3, 2017, ruling by the district court, the SEC announced that it is suspending enforcement of some requirements in the conflict minerals rule. Specifically, the public statement released by the Division of Corporation Finance notes:

The court’s remand has now presented significant issues for the Commission to address. At the direction of the Acting Chairman, we have considered those issues. In light of the uncertainty regarding how the Commission will resolve those issues and related issues raised by commenters, the Division of Corporation Finance has determined that it will not recommend enforcement action to the Commission if companies, including those that are subject to paragraph (c) of Item 1.01 of Form SD, only file disclosure under the provisions of paragraphs (a) and (b) of Item 1.01 of Form SD. This statement is subject to any further action that may be taken by the Commission, expresses the Division’s position on enforcement action only, and does not express any legal conclusion on the rule. [Emphasis added]

Editor's Note

Editor’s Note

In April 2014, the U.S. Court of Appeals for the District of Columbia Circuit (the “Appellate Court”) held that parts of the SEC’s final rule on conflict minerals and of Section 1502 of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act violate the First Amendment of the U.S. Constitution to the extent that they require “regulated entities to report to the Commission and to state on their website that any of their products have ‘not been found to be “DRC conflict free.” ’ ” In August 2015, the Appellate Court upheld the ruling.

Other Resources: For more information, see Michael Piwowar’s public statement on ruling on the SEC’s Web site. Also see the GAO’s letter to congressional committees about its review of disclosures provided in connection with the conflict minerals rule.

SEC Staff Releases FAQs on IFRS Taxonomy and Updates FAQs on Inline XBRL

Affects: SEC registrants.

Summary: On April 27, 2017, the SEC staff issued FAQs on the IFRS taxonomy, which became available on March 1, 2017, for use by foreign private issuers that submit their financial statements in accordance with IFRSs. In addition, the SEC staff updated its FAQs on inline XBRL, which enables entities to embed XBRL data directly into HTML.

SEC Staff Updates C&DIs

Affects: SEC registrants.

Summary: In April 2017, the staff in the SEC’s Division of Corporation Finance issued the following C&DIs:

  • Question 141.06 of the Securities Act Rules C&DIs — Discusses whether “an issuer making ongoing offers and sales pursuant to Rule 147 [is] able to transition to offers and sales in reliance on Rule 147A.”
  • Questions 201.02 and 202.01 of the Regulation Crowdfunding C&DIs — Question 201.02 addresses the dollar amount an issuer should use “to determine the threshold at which disclosure of related party transactions is required under Rule 201(r),” and Question 202.01 covers how an issuer determines “the number of holders of record for purposes of determining eligibility to terminate its duty to file ongoing reports pursuant to Rule 202(b)(2) of Regulation Crowdfunding.”

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Featured Publication

On April 25, 2017, Deloitte issued a Heads Up that addresses FAQs that have arisen regarding the FASB’s new leases standard, ASU 2016-02. Topics covered include the definition of a lease, lease payments, and presentation and disclosure.

Other Deloitte Publications

Publication Title Affects

April 4, 2017, Heads Up

Adopting the New Revenue Standard — Where Do Companies Stand?

All entities.

April 4, 2017, Heads Up

FASB Amends the Amortization Period for Certain Callable Debt Securities Purchased at a Premium

All entities.

April 4, 2017, Financial Reporting Alert

SEC Reemphasizes Its Continued Focus on the New Revenue Standard, Including Advancing ICFR

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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