US Week in Review - Week ending 13 February 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
EY comments on PCAOB proposal to identify engagement partners and certain other participants in audits
In our comment letter, we support identifying certain non-signing firms that have a significant role in an audit but do not support identifying the engagement partner in either the audit report or a public filing with the PCAOB because we don't believe this would provide meaningful information to investors.
The proposal indicates that the identification of the engagement partner and certain non-signing firms in the auditor's report would require engagement partners and others to provide written consents for their names to be used in connection with financial statements that are included or incorporated by reference in a registration statement. We believe this would create operational challenges that would increase the costs, complexity and amount of time required for a company to access the capital markets. We suggest that, if the PCAOB adopts either proposed requirement, the information be provided outside the auditor's report, which would avoid the consent requirements.
Standard Setter updates
Financial Accounting Standards Board (FASB)
12 February 2014 FASB meeting
Accounting for goodwill for public business entities and not-for-profits: the FASB began discussing whether to simplify the subsequent measurement of goodwill for public business entities and not-for-profit entities in a project that grew out of a goodwill accounting alternative the FASB issued for private companies. The FASB indicated that it would consider the applicability of elements of any new model to private companies.
While the FASB didn’t make any decisions, it directed its staff to research two approaches: a simplified one-step impairment test and a direct write-off. For the first, the staff will focus on the level at which the impairment test should be performed (e.g., reporting unit, operating segment, entity level) and whether a different test should be used when the carrying amount is zero or negative. For the second, the staff will focus on where the write-off should be recorded (e.g., income statement, other comprehensive income, equity) and what disclosures should be required. Before discussing this project again, the FASB will consider its research on accounting for identifiable intangible assets in a business combination and the IASB’s post-implementation review of IFRS 3(R), Business Combinations.
For additional details, see the FASB's Tentative Board Decisions.
Upcoming meetings and webcasts
19 February 2014 FASB meeting
The FASB is scheduled to discuss its projects on insurance contracts, accounting for financial instruments - impairment and consolidation - principle versus agent analysis.
The FASB is also scheduled to decide whether to endorse the decision reached at the 28 January 2014 Private Company Council (PCC) meeting on PCC Issue No. 13-02, Applying variable interest entity guidance to common control leasing arrangements.
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)
Staff revises guidance on 'cheap stock' disclosures
The SEC staff in the Division of Corporation Finance updated its Financial Reporting Manual (FRM) to say that companies may be able to scale back their disclosures in management's discussion and analysis (MD&A) relating to events and business developments that affected their estimates used to value stock-based compensation awards granted before the company's initial public offering (often referred to as "cheap stock" disclosures). The revised guidance also states that, while the SEC staff will continue to issue comments to help it understand unusual valuations, the staff will not expect expanded disclosure in MD&A related to the underlying events and business developments that affected such valuations.
The updated FRM states that companies should continue to disclose all of the following:
- The methods used to determine the fair value of the company's shares and the nature of material assumptions used in determining the fair value
- The extent to which such estimates are considered highly complex and subjective
- That such estimates will not be necessary for new awards once the shares begin trading
The new language in the FRM reflects the SEC staff's focus on helping companies reduce disclosure overload.
Maloney named Chief Accountant of SEC's Enforcement Division
Michael Maloney will take over as chief accountant of the SEC's Division of Enforcement later this month. Before joining the SEC staff, Mr. Maloney served as a managing director at Navigant Consulting, Inc., where he oversaw the firm's forensic accounting practice. Mr. Maloney succeeds Howard Scheck, who left the SEC in 2013.
International Accounting Standards Board (IASB)
January 2014 IFRIC Update
The January 2014 IFRIC Update summarizes the IFRS Interpretations Committee meeting held in London on 29-30 January 2014.
American Institute of CPAs (AICPA)
Auditing Standards Board issued clarified auditing standard on using the work of internal auditors
The Auditing Standards Board issued Statement on Auditing Standards No. 128 (SAS No. 128), Using the Work of Internal Auditors, to clarify the external auditor's responsibilities when (1) using the work of the internal audit function to obtain audit evidence and (2) using internal auditors to provide direct assistance under the external auditor's direction, supervision and review.
SAS No. 128 supersedes SAS No. 65, The Auditor's Consideration of the Internal Audit Function in an Audit of Financial Statements (AICPA, Professional Standards, AU-C sec. 610).
The new standard will be effective for audits of financial statements for periods ending on or after 15 December 2014.
Government Accounting Standards Board (GASB)
GASB introduces quarterly electronic newsletter
The GASB Outlook presents current accounting and financial reporting issues in a "plain-English" format and will include videos on key GASB topics as well as a calendar of upcoming GASB meetings and events.
Center for Audit Quality (CAQ)
Highly inflationary economies
At the November 2013 meeting of the Center for Audit Quality SEC Regulations Committee's International Practices Task Force (Task Force), the SEC staff indicated that Venezuela, South Sudan and Belarus should continue to be considered highly inflationary economies under US GAAP, according to Highlights released recently and to be published on the CAQ website.
The SEC staff also said it expected companies to consider Iran highly inflationary no later than the first reporting period beginning on or after 1 January 2014 and to monitor Sudan's reported data to determine when to consider that economy highly inflationary. The SEC staff noted that the International Monetary Fund (IMF) had projected that Sudan's cumulative three-year inflation rate would exceed 100% by the end of 2013.
The Task Force also observed that the IMF has requested that Argentina improve the quality of its consumer price index data. However, given the apparent lack of any other objectively verifiable data, and the relatively low level of reported three-year cumulative inflation (34% projected for 2013), the SEC staff noted it has not seen any economic data that would support that Argentina should be considered highly inflationary in 2013.
In addition, the staff noted that an official exchange rate exists in Argentina that is significantly more favorable than an unofficial market rate referred to as the Blue Chip rate. The SEC staff reminded registrants that have significant operations in Argentina that, when the exchange rate used for re-measurement purposes or translation of financial statements may not reflect economic reality, additional disclosure in MD&A may be necessary. These might include summarized financial information of the operations, disclosure of exchange rate used, disclosure of the net monetary assets and liabilities by currency, and discussion of the potential impact of a change in exchange rates.
The Task Force said it doesn't collect inflation data for all countries and that other countries may have cumulative inflation rates of 100% or more. Accordingly, companies should monitor the inflation rates in economies in which they operate.
Upcoming Thought Center webcasts and podcasts
CFO: need to know
A quarterly webcast series
5 March 2014, 12:00 p.m. Eastern time
Considerations for a US IPO listing
6 March 2014, 11:00 a.m. Eastern time