US Week in Review - Week ending 2 February 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.
Certain materials referenced below are available exclusively in AccountingLink. The site is available free of charge, but requires a one-time registration.
Ernst & Young publications
Technical Line: Revenue recognition proposal - aerospace and defense, life sciences and oil and gas
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) recently re-exposed their joint revenue recognition proposal, which would converge revenue recognition guidance under US GAAP and IFRS into a single model and replace essentially all revenue recognition guidance, including industry-specific guidance.
These industry-specific publications supplement our Technical Line, Double-exposure: The revised revenue recognition proposal, and highlight some of the more significant implications that the latest revenue recognition proposal may have on the (1) aerospace and defense, (2) life sciences and the (3) oil and gas industries. These publications provide an analysis of the proposed model and highlight key changes from current practice.
Audit committees continue to face change, economic volatility and regulatory uncertainty as they head into the year-end reporting season. Our publication, 2011 year-end issues audit committees should consider, discusses the key challenges facing audit committees and lays out 20 questions audit committees should consider as they prepare for their upcoming discussions. Our publication also provides additional insights and references to other Ernst & Young publications.
We have updated the following publications and prepared printed copies that you can now order online from AccountingLink:
- Business combinations FRD
- Derivative instruments and hedging activities FRD
- Share-based payments FRD
- 2011 SEC annual reports - Form 10-K
- 2012 proxy statements - An overview of the requirements
- 2012 SEC quarterly reports - Form 10-Q
- 2011 SEC Comments and Trends
If you need to order multiple copies, please contact your Ernst & Young representative.
Standard Setter updates
Financial Accounting Standards Board (FASB)
27 January 2012 FASB/IASB joint videoconference meeting
Accounting for financial instruments: classification and measurement - The Boards agreed to jointly redeliberate certain aspects of their separate classification and measurement models to reduce significant differences. Key topics to be discussed by the Boards in coming months include (1) the contractual cash flow characteristics of an instrument, (2) the need and basis for bifurcation of financial assets, and (3) the basis for and scope of a category for debt instruments measured at fair value through other comprehensive income. The Boards will also discuss any interrelated issues, such as disclosures.
Accounting for financial instruments: impairment - The Boards tentatively agreed that purchased financial assets with explicit evidence of credit deterioration would initially be placed in Bucket 2 or Bucket 3, rather than Bucket 1, where all other financial assets would initially be placed. The Boards directed the staff to further define what would constitute such an asset. The Boards also tentatively agreed that these purchased assets would initially be recorded at fair value (i.e., no allowance) on the balance sheet and an effective interest rate would be calculated to accrete from fair value to the expected cash flows. While these assets would be recorded net, the Boards decided that disclosure of the expected contractual cash shortfalls implicit in the purchase price would be useful so investors can compare originated and purchased portfolios. An impairment allowance would be recognized if lifetime expected losses change from those assumed at acquisition. Increases in expected cash flows would be recorded as an adjustment to bad debt expense even if they exceed the previously recognized impairment losses.
For additional detail of the Boards' discussion, see the FASB's Action Alert.
See the FASB calendar for upcoming education sessions. No decisions are made at these sessions.
Securities and Exchange Commission (SEC)
SEC Advisory Committee on Small and Emerging Companies recommends modifying triggers for public registration
The SEC's Advisory Committee on Small and Emerging Companies (the Committee) recommended that the SEC amend Regulation 12(g) of the Exchange Act to increase the number of record holders that trigger a company's obligation to register and report as a public company from 500 to 1,000 (2,000 for commercial banks) and increase the record holder threshold from 300 to 600 (1,200 for commercial banks) below which a company may terminate registration and suspend its reporting obligation. In both cases, the Committee recommended that the record holder count exclude employees who hold company stock if there are restrictions on their ability to sell the stock in a secondary market.
The Committee also recommended that the SEC modify Regulation A to raise its annual registration exemption for public offerings from $5 million to $50 million. The Committee discussed the use of crowdfunding and acknowledged concerns over investor protection, but did not make any recommendations.
The Committee and SEC staff heard from members of the IPO Task Force who summarized their report, "Rebuilding the IPO On-Ramp," which was presented to the US Department of the Treasury in October 2011. Members of the IPO Task Force spoke about a proposed new category of issuer called an "emerging growth company," the modified regulations for these emerging companies currently being considered in Congress, as well as the costs and concerns associated with becoming a public company.
The Committee was formed to advise the SEC on the priorities and interests of small privately held businesses and publicly traded companies (i.e., those with less than $250 million in capitalization). The next meeting is set for 2 May 2012. More information about the Committee and its recommendations is available on the SEC's website.
Public Company Accounting Oversight Board (PCAOB)
PCAOB to host a public meeting on auditor independence and audit firm rotation
The PCAOB will host a public meeting on 21-22 March 2012 to get more input on ways to enhance auditor independence, objectivity and professional skepticism, including through mandatory rotation, or term limits, for audit firms. Panelists will be invited to present their views on the Board's August 2011 concept release, and Board members will ask follow-up questions.
An overwhelming 94% of the more than 600 respondents to the concept release opposed mandatory audit firm rotation. Only 6% of the respondents - mostly individuals who didn't disclose an affiliation - favored it. Comment letters were due by 14 December 2011.
PCAOB names Director of International Affairs
The PCAOB has announced that S. Bruce Wilson will join the organization as Director of the Office of International Affairs. Mr. Wilson will lead the PCAOB's efforts to negotiate and implement cooperative arrangements with non-US auditor oversight bodies. Prior to joining the PCAOB, Mr. Wilson was a member of the law firm of King & Spalding and spent eight years as the top legal officer of the World Trade Organization (WTO).
International Accounting Standards Board (IASB)
IFRIC Update for January 2012
This edition of the IFRIC Update summarizes the IFRS Interpretations Committee meeting held in London on 17-18 January 2012, when it discussed:
- Current agenda:
- IAS 37 Provisions, Contingent Liabilities and Contingent Assets - Levies charged for participation in a specific market (date of recognition of a liability)
- IAS 32 Financial Instruments: Presentation - Put options written over non-controlling interests
- IAS 2 Inventories - Long-term prepayments for inventory supply contracts
- IFRS Interpretations Committee agenda decisions
- Issues considered for Annual Improvements
- IFRS Interpretations Committee work in progress
IFRS for SMEs Update
The January 2012 edition of the IFRS for SMEs Update provides the latest news surrounding IFRS for Small and Medium-sized Entities (SMEs).
COSO says companies need to communicate their appetite for risk
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) has issued a paper, "Enterprise Risk Management - Understanding and Communicating Risk Appetite," that aims to help companies define their appetite for risk, communicate it clearly and monitor and update it continually. The amount of risk organizations are willing to accept in pursuit of their objectives is an integral part of an effective ERM system, the paper says. It provides examples of statements of risk appetite.
Upcoming Thought center webcasts and podcasts
2011-12 Tax risk and controversy survey
A new era for global risk and uncertainty
9 February 2012, 10:00 a.m. Eastern time
2011-12 Tax risk and controversy survey
A new era for global risk and uncertainty
9 February 2012, 10:00 p.m. Eastern time
Bottom-line benefits of sustainable business practices
Global survey results and discussion of action steps - a webcast by Ernst & Young LLP and GreenBiz
19 March 2012, 1:00 p.m. Eastern time