US Week in Review - Week ending 10 April 2014
The US Week in Review highlights this week’s developments and emerging issues in the financial reporting world and gives you direct access to relevant technical accounting guidance and thought leadership produced by EY.
What’s new from EY
Technical Line: Private companies in common control leasing arrangements may be eligible for relief from VIE model
Our Technical Line publication discusses new guidance from the FASB that provides an exemption for private companies from evaluating lessors in common control leasing arrangements for consolidation under the variable interest entities (VIE) guidance, if they meet certain criteria. Private companies that elect the alternative still need to apply other consolidation guidance and other US GAAP (e.g., lease accounting) to these arrangements and make certain disclosures.
The PCAOB held a public meeting last week at which auditors, investors, preparers and academics provided additional input on its proposal to enhance the auditor's reporting model. Panelists generally supported the objective of making the auditor's report more meaningful to users by requiring more than today's pass/fail opinion, but their views on how to get there varied. The opinions expressed were generally consistent with the 240 comment letters the PCAOB received on its proposals through early April. Our Technical Line publication summarizes the public meeting and the comment letters.
Our First Quarter 2014 Standard Setter Update - Financial reporting and accounting developments publication highlights significant developments in financial accounting and reporting between 1 January 2014 and 31 March 2014 and summarizes certain proposals presently under consideration by the FASB, EITF, PCC, SEC, PCAOB, ASB and GASB.
The National Association of Insurance Commissioners' (NAIC) Spring National Meeting was held recently in Orlando, Fla. Our NAIC Bulletin highlights issues addressed by various NAIC committees, working groups and task forces since the Fall National Meeting in December 2013, including the progress made on the controversial topic of accounting for the Affordable Care Act risk-sharing provisions and the progress on the Corporate Governance Annual Filing Model Act.
Our March 2014 edition is designed to help you identify changes in tax law and other events when they occur so the accounting can be reflected in the appropriate period. This edition includes enacted and effective tax legislation, global tax treaties, and other items through 31 March 2014 to consider as you prepare your tax provision. We've also listed our tax and other publications that provide more detail on the topics we discuss.
Standard Setter updates
Financial Accounting Standards Board (FASB)
FASB issues new guidance on reporting discontinued operations
The FASB issued guidance that changes the criteria for reporting discontinued operations and requires additional disclosures. Our upcoming To the Point will provide additional information.
4 April 2014 FASB meeting
Disclosure framework: entity's decision process - The FASB discussed the results of a field study on the use of discretion in preparing notes to financial statements. The FASB said it will now identify disclosure requirements that could be modified to allow entities to apply more discretion and will conduct a field study to understand how entities would apply that discretion. In addition, the FASB will conduct a field study on interim financial reporting.
The FASB also discussed its projects on Accounting for financial instruments: classification and measurement and Investment companies: disclosures about investments in another investment company. For details, see the FASB's Tentative Board Decisions.
16 April 2014 FASB meeting
The FASB is scheduled to discuss its projects on Consolidation - principal versus agent analysis and Insurance contracts.
For additional details, see the FASB's calendar.
See the FASB's calendar for upcoming education sessions. No decisions are made at these sessions.
Securities and Exchange Commission (SEC)
SEC staff issues more FAQs about conflict minerals
The Division of Corporation Finance issued another set of frequently asked questions (FAQs) about the SEC's conflict minerals rule. The FAQs address when an independent private sector audit (IPSA) is required for a conflict minerals report (CMR), the scope of the IPSA, the timing of a registrant's due diligence procedures and certain disclosure requirements for the CMR.
The FAQs highlighted the following interpretations:
- A registrant is not required to obtain an IPSA of its CMR if it has any products that are "DRC conflict undeterminable" during the two-year transition period (four years for smaller reporting companies). However, if a registrant does not obtain an IPSA of its CMR, it may not describe any of its products as "DRC conflict free" in its CMR.
- The objectives of the IPSA are to provide assurance about (1) whether the design of the registrant's due diligence framework materially conforms to the criteria set forth in the nationally or internationally recognized due diligence framework used by the registrant and (2) whether the due diligence measures described in the CMR are consistent with the procedures performed by the registrant. The IPSA does not address any matter beyond these two objectives, including the completeness or reasonableness of the due diligence procedures performed by the registrant or its reasonable country of origin inquiry.
- Although the IPSA covers the design of the due diligence framework, registrants are not required to fully describe the design of their due diligence framework in the CMR. However, a registrant must describe the due diligence procedures it performed in sufficient detail for the auditor to be able to form an opinion or conclusion.
- A registrant's due diligence procedures should pertain to conflict minerals in products that were manufactured or contracted to be manufactured during the calendar year being assessed. However, such procedures don't have to be performed throughout the calendar year and may begin before or extend beyond the calendar year being assessed.
The AICPA also recently issued a new set of questions and answers addressing reporting matters for auditors of CMRs.
EU move forward with mandatory audit firm rotation
Last week, the European Parliament adopted final legislation that will impose mandatory audit firm rotation and significant restrictions on the auditor's provision of non-audit services for Public Interest Entities (PIEs) across the European Union (EU). These provisions also apply to EU PIE subsidiaries of companies headquartered outside the EU. (PIEs include companies with securities traded on an EU "regulated market" and certain other organizations viewed as acting in the public interest, such as banks, insurance companies and other financial entities. EU Member States can supplement the PIE definition.)
We expect the EU audit legislation to be finalized in July and generally to take effect two years later, on or around 1 July 2016. Special transition arrangements will apply to the mandatory rotation provisions. Under the plan, companies will be required to change auditors every decade, but extensions could be available for those that seek bids on their audit work or hire a second auditor to perform a joint audit. However, Member States can choose to adopt shorter rotation periods. The plan will also cap fees audit firms can earn from providing non-audit services.
Upcoming Thought Center webcasts and podcasts
Let's talk: sustainability Q2 2014
A new point of view for business leaders
23 April 2014, 12 p.m. Eastern time
CFO: need to know quarterly webcast series
25 June 2013, 12 p.m. Eastern time