US Week in Review - Week ending 19 April 2012
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 Ernst & Young.
Ernst & Young publications
The FASB and the IASB have made significant progress to more closely align their respective models. Our To the Point publication highlights the latest tentative decisions.
The FASB and the IASB continue to work out the details of their approach to estimating the impairment of financial assets. Our To the Point publication summarizes what you need to know about the latest tentative decisions.
Our First Quarter 2012 Standard Setter Update - Financial reporting and accounting developments publication highlights significant developments in financial accounting and reporting between 1 January 2012 and 31 March 2012 and summarizes certain proposals presently under consideration by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Auditing Standards Board, the Emerging Issues Task Force, the Public Company Accounting Oversight Board and the Governmental Accounting Standards Board.
Standard Setter updates
Financial Accounting Standards Board (FASB)
FASB issues three proposals
The FASB issued three Proposed ASUs on EITF consensuses-for-exposure it ratified at its 9 April 2012 meeting.
- Entertainment - Films (Topic 926): Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
- Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
- Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale of Donated Securities in the Statement of Cash Flows
Comments are due by 16 July 2012. For more details, see our March 2012 EITF Update publication.
17-19 April 2012 joint FASB-IASB meeting
Investment companies - The staffs summarized the feedback the Boards received on their investment companies/investment entities proposals. The Boards will re-deliberate issues identified, including: (1) whether a principles-based definition of an investment company/entity should be used rather than the proposed criteria that narrowly define an exception to the consolidation principle, and (2) whether consolidation of a controlled investment company/entity is appropriate.
Financial instruments: classification and measurement - See our To the Point above.
Financial instruments: impairment - See our To the Point above.
Insurance contracts - The Boards discussed several reinsurance topics, whether to separately account for policy loans, and the treatment of contract riders and amendments. They also discussed how other comprehensive income could be used to present certain changes in the insurance liability.
For additional detail of the Boards' discussion, see the FASB's Action Alert.
Upcoming meetings and webcasts
25 April 2012 FASB meeting
The Board is scheduled to discuss the following projects:
- Disclosure framework - issues related to interim disclosures and cost and consequences of disclosure
- Consolidation - feedback received on its proposal
- Nonpublic entity fair value measurement disclosures - project scope and possible alternatives related to Level 3 fair value disclosure requirements for nonpublic entities
- Definition of a nonpublic entity - a preliminary assessment of the types of entities required to file or furnish financial statements with the SEC and whether financial institutions should be included in the definition of a private company in applying the Decision Making Framework for Private Companies
See the FASB calendar for upcoming education sessions. No decisions are made at these sessions.
Securities and Exchange Commission (SEC)
SEC staff posts letter about disclosures related to structured note offerings
The SEC's Division of Corporation Finance is performing focused reviews of prospectus supplements for offerings under shelf registration statements related to structured debt offerings and related risk disclosures.
In connection with this initiative, the Office of Capital Markets Trends posted a letter it sent to certain financial institutions about how they can improve disclosures about structured note offerings in their prospectus supplements and Exchange Act reports. The letter lays out the staff's expectations about the title used to describe the structured note product and disclosures about product pricing and value, intended use of proceeds and reasons for the offering program, plan of distribution, potential liquidity or lack of liquidity for the structured notes, issuer credit risk, tax consequences and the referenced asset or index. The letter also discusses disclosure format and the filing of exhibits to the prospectus supplement.
SEC staff answers more questions about emerging growth companies under JOBS Act
The staff of the SEC's Division of Corporation Finance issued a third set of Frequently Asked Questions (FAQs) to provide implementation guidance about the Jumpstart Our Business Startups Act (JOBS Act). These FAQs focus on Title I of the JOBS Act, including emerging growth company eligibility and disclosure, application of emerging growth company status to foreign private issuers, emerging growth company compliance with Rules 3-05 and 3-09 of Regulation S-X and how emerging growth companies should handle any conflict between the disclosure provisions in Title I of the JOBS Act and existing SEC rules and regulations.
The FAQs highlight the importance of the irrevocable decision by an eligible emerging growth company under Section 107 the JOBS Act to opt out of following the transition provisions of new or revised accounting standards otherwise applicable to private companies (i.e., to commit to follow the transition provisions applicable to public companies with respect to all changes in accounting standards). That choice must be communicated in an emerging growth company's initial confidential submission of its IPO registration statement. Emerging growth companies currently in registration or already subject to Exchange Act reporting should make and disclose their choice in the next amendment to their IPO registration statement or in their next period filing (e.g., first quarter Form 10-Q).
Division of Corporation Finance updates Financial Reporting Manual
The SEC staff released its latest update of its Financial Reporting Manual (FRM). The latest updates are dated "12/31/2011." The updates clarify that any condensed consolidating financial information for guaranteed debt securities required under Rule 3-10 of Regulation S-X and parent-only financial statements required under Rule 5-04 of Regulation S-X must disclose total comprehensive income for all periods presented.
The SEC staff also revised its guidance on applying the income test to measure significance under Rule 1-02(w) of Regulation S-X for acquisitions of "related businesses." The revised guidance requires companies to aggregate the absolute values of the income and losses of the related businesses, rather than use their combined income or loss, to measure significance.
In addition, the updated FRM includes clarifications related to, among other things, the reporting requirements for reverse mergers and the eligibility to use scaled smaller reporting company disclosures for target companies in a Form 8-K.
The FRM, updated quarterly by the Division of Corporation Finance (Corp Fin) staff, is designed to provide general guidance only to Corp Fin staff. However, because the information is useful to registrants and their auditors, the SEC staff posts it on the SEC web site.
Public Company Accounting Oversight Board (PCAOB)
PCAOB enters into cooperative agreement with German audit regulator
The PCAOB has entered into a cooperative arrangement with the German Auditor Oversight Commission (AOC) relating to the oversight of audit firms subject to the regulatory jurisdictions of both regulators. The arrangement is effective immediately and provides a framework for conducting joint inspections and the exchange of confidential information.
Upcoming Thought center webcasts and podcasts
Global PE watch: Striving for growth - a return to entrepreneurship 2012
10 May 2012, 11:00 a.m. Eastern time