ParenteBeard Weekly Audit & Accounting e-alert for January 31, 2022
January 31, 2022

PCC Meeting Results

The FASB’s Private Company Council (PCC) met January 28, 2014. Following is a brief summary of issues addressed by the PCC at the meeting:

  • PCC Issue No. 13-01A, “Accounting for Identifiable Intangible Assets in a Business Combination.” The PCC directed the FASB staff to conduct further research and analysis on an alternative, or a variation thereof, to recognize and measure separately from goodwill only those intangible assets in a business combination that are capable of being sold or licensed independently from other assets of the business.
  • PCC Issue No. 13-02, “Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements.” The PCC addressed stakeholder concerns that the decisions reached at its November meeting would have been too restrictive, finalized an accounting alternative that would provide an exception to application of variable interest entity guidance for certain common control leasing arrangements of private companies, and sent it to the FASB for endorsement.
  • PCC Issue No. 13-03B, “Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps - Combined Instruments Approach.” The PCC decided to discontinue discussion of the combined instruments approach and removed the project from its agenda.

The PCC’s Media Meeting Recap is available here.

Segments - FASB Discusses Pre-Agenda Research Projects

As reported in its “Summary of Board Decisions” publication, the FASB met on January 22, 2014, and discussed pre-agenda research projects on: (a) operating segments; and (b) pensions and other post retirement benefits (OPEB). The FASB continued its discussion of the pre-agenda research project on Topic 280, Segment Reporting. Specifically, the FASB discussed an agenda proposal that is based on the findings from the Financial Accounting Foundation’s Post Implementation Review Report on FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, and that of the IASB’s Report and Feedback Statement, Post-implementation Review: IFRS 8, Operating Segments. The meeting was educational and no final decisions were made. The FASB is expected to formally decide at its agenda prioritization meeting on January 29, 2014, whether to add a project to its technical agenda on this Topic.

Regarding its pre-agenda research project on OPEB, the FASB discussed issues on measuring an employer’s defined benefit obligation, including defined benefit obligations for cash balance plans. The discussion focused on whether there are technically feasible, cost-effective alternatives for addressing issues related to measurement. The meeting was educational and no final decisions were made. The FASB is expected to formally decide at its agenda prioritization meeting on January 29, 2014, whether to add a project to its technical agenda on this topic.

FAF to Fund IFRS Foundation

The Financial Accounting Foundation (FAF) has announced that it will make a non-recurring contribution of up to $3 million to the IFRS Foundation to support the completion of international convergence projects. FAF made the decision to provide funding in consultation with senior officials of the SEC.

The contribution, to be made in up to three payments of $1 million during 2014, is intended to support the IFRS Foundation’s standard-setting body, the IASB, during the period that it is completing work on four joint accounting standards projects underway with the FASB. The joint projects involve accounting for revenue recognition, leasing, financial instruments (both classification & measurement and impairment), and insurance.

The contribution will come from the FAF’s reserve fund.

The FAF Trustees made one previous contribution of $500,000 to the IFRS Foundation in 2011. In addition to the cash contribution, the FASB over the past dozen years has dedicated much of its technical staff’s time to the convergence projects.

The FAF’s press release on this matter is available here.

EU Legal Affairs Committee Approves Audit Reform Compromise

The Legal Affairs Committee of the European Union (JURI) has approved the compromise agreement reached last month by the European Council and European Parliament.

Under the agreement, auditors in the EU would be required to publish audit reports according to international auditing standards. Auditors of public-interest entities, such as banks, insurance companies and listed companies, would be required to provide shareholders and investors with a detailed understanding of what the auditor did and an overall assurance of the accuracy of the company’s accounts.

Other significant requirements include:

  • “Big 4-only” contractual clauses would be prohibited;
  • Public interest entities would be required to issue a call for tenders when selecting a new audit firm;
  • Companies would be required to change audit firms after 10 years, which may be increased to 10 additional years if new tenders are carried out, and by up to 14 additional years in the case of joint audits, (i.e., when a firm is being audited by more than one audit firm);
  • EU audit firms would generally be prohibited from providing non-audit services to audit clients, including tax advisory services which directly affect the company’s financial statements; and
  • Fees from permitted non-audit services provided to audit clients would be capped at 70 percent of audit fees.

The agreement is expected to be voted on by the whole European Parliament in April 2014.

The JURI press release on the audit reform compromise is available here.

Disclosures - Chair White Indicates SEC May Rethink Disclosures Made to Investors

SEC Chair, Mary Jo White, spoke at the 41st Annual Securities Regulation Institute Conference held in Coronado, California. Ms. White highlighted expected changes within the SEC in 2014 and provided a preview of specific rulemakings and other initiatives that she expects to be on the SEC’s 2014 agenda. In her remarks, Ms. White reiterated her previous comments on ideas about disclosure reform. Specifically, Ms. White indicated “I believe we should rethink not only the type of information we ask companies to disclose, but also how that information is presented, where and how that information is disclosed, and how we can take advantage of technology to facilitate investors’ access to information and make it more meaningful to them.” Ms. White is asking the SEC staff to seek input from issuers, investors, and other market participants in 2014 as part of this effort. The ultimate objective would be for the SEC to improve its disclosure regime for the benefit of both companies and investors.

Additional items discussed by Ms. White related to the SEC’s 2014 agenda include the following:

  • Rulemaking Working Groups. An agency-wide working group has been formed to monitor practices and other developments in the market for offerings under Rule 506 of Regulation D. Rule 506 of Regulation D is a “safe harbor” for the private offering exemption of Section 4(2) of the Securities Act of 1933. Companies using the Rule 506 exemption can raise an unlimited amount of money. Ms. White also indicated that similar working groups are expected to be formed for both crowdfunding and the new Regulation A rulemaking.
  • Regulation SCI. The SEC is expected to consider adoption of Regulation SCI (Systems Compliance and Integrity). Regulation SCI would put in place new, stricter requirements for the use of technology by exchanges, large alternative trading systems, clearing agencies, and securities information processors.
  • Use of Quantitative Analytics. SEC examiners will be using Quantitative Analytics to identify signs of not only possible insider trading, but also front running, window dressing, improper allocations of investment opportunities, and other kinds of misconduct.
  • Staff Analysis. In the coming weeks, the SEC is expected to post additional staff analysis of off-exchange trading, a review of research on high-frequency trading, and a data series on depth-of-book liquidity.
  • Enforcement Efforts on Financial Fraud. The coming year promises to be an active year in the Division of Enforcement, as the SEC continues to vigorously pursue wrongdoers and bring enforcement actions across the entire industry spectrum. Ms. White emphasized that the Division of Enforcement will look closely at financial fraud, including the associated auditors in every financial reporting case. Ms. White indicated that critical accounting issues are the responsibility of all those involved in the preparation and review of financial disclosures.

Our strategic partnership with CCH, a Wolters Kluwer business, has enabled us to craft our Audit & Accounting eAlert. The articles have been selected from CCH’s Accounting Research Manager Daily and/or Weekly Summary and we hope you find them valuable and relevant. Please feel free to contact ParenteBeard Chief Risk Officer Phil Santarelli at Philip.Santarelli@ParenteBeard.com or 215.557.2290 if you have any questions related to these stories or ParenteBeard’s services.

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