December 9, 2011
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FASB Discusses Accounting for Insurance Contract Participation Features and Other Matters
As reported in its "Summary of Board Decisions" publication, the FASB met on November 30, 2011, and discussed the following topics:
- Accounting for participation features in insurance contracts;
- Agenda decision on application of asset- or entity-based guidance to nonfinancial assets held in an entity; and
- FASB approval of EITF consensus and consensus-for-exposure.
The FASB tentatively decided the following, as it relates to the measurement of insurance contract fulfillment cash flows and to the measurement of the obligation from any nondiscretionary performance-linked participating features that both contractually depend wholly or partly on the performance of other assets or liabilities recognized on the insurer’s statement of financial position, or the performance of the insurer itself, and are a component of an insurance contract’s obligations:
- The obligation due to the performance-linked participating features should be measured based on an insurer’s current liability (i.e., the contractual obligation incurred to date) adjusted to eliminate accounting mismatches that reflect timing differences between the current liability and the measurement of the underlying items in the U.S. GAAP/IFRS statement of financial position that are expected to reverse within the boundary of the insurance contract.
- Any changes in the liability for the performance-linked participating features should be presented in the same way within the statement of comprehensive income (i.e., consistently in net income and (or) other comprehensive income) as the changes in the underlying item.
- No further adjustments to the measurement of the liability for the performance-linked participating features are deemed necessary for the purposes of reflecting expected cash flows.
The FASB chairman also added a research project to the FASB agenda to explore when a reporting entity should apply asset- or entity-based guidance to nonfinancial assets held in an entity.
In addition, the FASB approved decisions reached at the November 3, 2011, EITF meeting on the following issues:
- EITF Issue No. 10-E, “Derecognition of in Substance Real Estate”; and
- EITF Issue No. 11-A, “Parent’s Accounting for the Cumulative Translation Adjustment upon the Sale or
- Transfer of a Group of Assets That Is a Nonprofit Activity or a Business within a Consolidated Foreign Entity.”
Issue 10-E was approved as a final consensus whereas Issue 11-A represents a consensus-for-exposure.
A summary of board decisions is available here.
GASB Proposes Financial Projections for Assessing Economic Condition
The Governmental Accounting Standards Board (GASB) has proposed that state and local governments present certain five-year projections that would accompany their financial statements as required supplementary information. The objective of these proposed projections is to better enable taxpayers, bond holders, and other interested parties to assess a government’s financial health.
The GASB’s proposals are outlined in its Preliminary Views document, Economic Condition Reporting: Financial Projections. Based on its research and input from financial statement users, preparers, and auditors, the GASB believes that projections of the following information are necessary to assist users in assessing a government’s economic condition:
- Cash inflows and cash outflows, with explanations of the known causes of fluctuations;
- Financial obligations, including bonds, pensions, other postemployment benefits, and long-term contracts, with explanations of the known causes of fluctuations; and
- Annual debt service payments, including principal and interest.
The GASB is seeking public comment on its Preliminary Views document by Friday, March 16, 2012. The GASB will host public hearings to obtain feedback on the Preliminary Views document on:
- Thursday, March 29, 2012, in Los Angeles, CA; and
- Tuesday, April 17, 2012, in New York City, NY.
The GASB Preliminary Views document is available here.
The GASB Plain-Language Article, “GASB Presents Preliminary Views on Financial Projections,” is available here.
The GASB News Release is available here.
PCAOB Issues Staff Audit Practice Alert
The PCAOB has published a Staff Audit Practice Alert to assist auditors in identifying matters related to the current economic environment that might affect the risk of material misstatements in financial statements and, therefore, require additional audit attention. Staff Audit Practice Alert No. 9, “Assessing and Responding to Risk in the Current Economic Environment,” updates Staff Audit Practice Alert No. 3, “Audit Considerations in the Current Economic Environment,” which was issued in December 2008, in light of current global economic conditions and recent enhancements to PCAOB standards.
Many of the matters discussed in Practice Alert No. 3 -- including fair value measurements, accounting estimates, going concern, and financial statement disclosures -- continue to be critical in audits of 2011 financial statements. However, certain of the PCAOB standards referenced in Practice Alert No. 3 regarding assessment of and response to risk were superseded in 2010 with the PCAOB's adoption of eight new risk assessment standards (i.e., Auditing Standards Nos. 8 through 15).
Staff Audit Practice Alert No. 9 is organized into the following four sections: (1) considering the impact of economic conditions on the audit; (2) auditing fair value measurements and estimates; (3) the auditor's consideration of a company's ability to continue as a going concern; and (4) auditing financial statement disclosures.
The PCAOB publishes Staff Audit Practice Alerts to highlight new, emerging, or otherwise noteworthy circumstances that may affect how auditors conduct audits under the existing requirements of PCAOB standards and relevant laws.
PCAOB Staff Audit Practice Alert No. 9 is available here.
The PCAOB press release is available here.
AICPA SEC/PCAOB Conference
The annual "AICPA National Conference on Current SEC and PCAOB Developments" is being held Monday-Wednesday, December 5-7, 2011, in Washington, D.C., and includes speakers from the:
- IASB; and
Available are remarks from the following:
SEC Staff to Release Filing Review Correspondence Earlier
The staff in the SEC’s Division of Corporation Finance (Corp Fin) announced that, beginning January 1, 2012, it would release filing review correspondence no earlier than 20 business days following the completion of a filing review. Previously, Corp Fin had a stated goal of releasing the correspondence no earlier than 45 days after completion of the review of the filing. According to Corp Fin, this change is being made to enhance the transparency of the filing review process.
A notice on this matter is available from the SEC here.
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