US Week in Review - Week ending 21 August 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
With over two years since the enactment of the Jumpstart Our Business Startups Act (the Act), we look at US IPO market trends and analyze how emerging growth companies are using the relief available to them. We also provide an update on the SEC’s rulemaking under the Act and discuss what still remains to be done.
The Q3 2014 financial reporting update webcast is scheduled for 18 September from 2 p.m. to 3:30 p.m. Eastern time. EY panelists will discuss recent FASB activity, SEC developments and other current financial reporting matters during this 90-minute webcast. To register, go to Q3 2014 financial reporting update.
Standard Setter updates
Financial Accounting Standards Board (FASB)
FASB issues proposal on cloud computing fees paid by customers
The FASB proposed providing guidance to customers on the accounting for fees paid in a cloud computing arrangement by incorporating guidance already included in the software revenue recognition standard applied by cloud service providers to determine whether an arrangement is the sale or license of software. If the arrangement includes a software license, the customer would account for the license the same way it accounts for other software licenses. If an arrangement does not include a software license, the customer would account for it as a service contract. The proposal is part of the Board’s simplification initiative to move quickly on narrow topics to improve US GAAP. The proposal would be effective 1 January 2016 for calendar year-end companies, and early adoption would be permitted. The proposed transition would be either prospective or retrospective at an entity’s election. Comments are due by 18 November 2014.
PIR report on share-based payments
The Financial Accounting Foundation concluded in its post-implementation review (PIR) report that Statement No. 123(R), Share-Based Payment, achieved its objectives and its application provides users of financial statements with useful information. The PIR report noted that a few areas in the standard may be complex or costly for entities to apply. The FASB said in its response to the report that it sees no need to undertake a comprehensive review of the standard, but will continue its outreach to stakeholders to identify cost-effective solutions to application issues in accounting for share-based payment transactions. See the FASB's letter for more information.
20 August 2014 FASB meeting
The Board discussed its projects on Financial instruments: classification and measurement and Disclosure framework: disclosure review - defined benefit plans. For details, see the FASB's Tentative Board Decisions.
Upcoming meetings and webcasts
27 August 2014 FASB meeting
The Board is scheduled to discuss its projects on Insurance: targeted improvements to the accounting for long-duration contracts, Leases, and Financial statements of not-for-profit entities. For details, see the FASB's calendar.
9 September 2014 FASB webcast
The Board will host a webcast to discuss the proposed 2015 GAAP Financial Reporting Taxonomy starting at 1 p.m. Eastern time. For details, see the FASB's news release.
See the FASB's calendar for upcoming education sessions. No decisions are made at these sessions.
Securities and Exchange Commission (SEC)
CAQ SEC Regulations Committee publishes June highlights
The Center for Audit Quality SEC Regulations Committee issued highlights from its 25 June 2014 meeting with the SEC staff, including:
- Observations from the SEC staff about its disclosure effectiveness initiative and suggestions for ways that registrants can proactively improve their disclosures
- Clarification that a thoughtful attempt to improve the effectiveness of disclosures (e.g., by eliminating redundancies through the use of cross-references or focusing the Management Discussion and Analysis section on material matters rather than each financial statement line item regardless of materiality) will not trigger a review or result in any additional comments from the staff
- The SEC staff’s decision to not object to a real estate investment trust’s presentation of gains or losses on the sale of properties that do not qualify as discontinued operations under either S-X Rule 3-15 (i.e., below operating income) or US GAAP (i.e., within operating income), if clearly disclosed
- The SEC staff’s view that when registrants update the age of financial statements in a Form 10 in compliance with S-X Rule 3-12, they are required to file an amendment to the Form 10 before it becomes effective, rather than file an Exchange Act periodic report (e.g., Form 10-Q)
Public Company Accounting Oversight Board (PCAOB)
New report on interim inspections of audits of brokers and dealers
In its third report on its interim inspections of audits of brokers and dealers, the PCAOB said it identified deficiencies in audits performed by 56 of the 60 registered public accounting firms it inspected and in 71 of the 90 audits it inspected. The PCAOB identified both audit deficiencies and independence findings. The deficiencies were in both financial statement audit areas and audit procedures related to the customer protection and net capital rules.
The PCAOB said accounting firms that audit broker-dealers should read the report and consider whether the audit deficiencies and independence findings might be present in audits they are currently performing and take action to prevent or correct any problems. All of the inspected audits were for broker-dealers that had fiscal years ended on or before 30 June 2013 and were performed in accordance with AICPA standards. The interim inspection program is expected to continue at least through the end of 2015, but audits of broker-dealers the PCAOB will inspect for fiscal years ending on or after 1 June 2014 will be performed in accordance with PCAOB standards, as required by SEC rules.
The PCAOB plans to issue a proposal for a permanent inspection program in 2016.
PCAOB paper seeks comment on updates to rules on auditing estimates and fair value measurements
The PCAOB issued a staff consultation paper seeking input on whether it should update its rules on auditing accounting estimates and fair value measurements. The paper seeks comment on whether the PCAOB should develop a new standard that would consolidate and supersede existing audit guidance (including guidance on auditing derivative instruments and investments in securities) and include new material to address inspection findings, practice issues and changes in accounting guidance. The paper also seeks comment on whether alternative approaches, such as issuing staff guidance, might be more appropriate. The Board said it will host a Standing Advisory Group meeting on 2 October 2014 to discuss matters addressed in the paper.
International Accounting Standards Board (IASB)
Amendments published to IAS 27, Separate Financial Statements
The IASB recently published amendments to IAS 27, Separate Financial Statements, which restore the option for entities, in the separate financial statements, to account for investments in subsidiaries, associates and joint ventures using the equity method as described in IAS 28, Investments in Associates and Joint Ventures. Respondents to the IASB’s 2011 Agenda Consultation requested that the option be reinstated to eliminate a GAAP difference for countries where regulations require listed entities to present separate financial statements using the equity method to account for investments in subsidiaries, associates and joint ventures.
A consequential amendment was also made to IFRS 1, First-time Adoption of International Financial Reporting Standards. The amendment to IFRS 1 allows a first-time adopter accounting for investments in the separate financial statements using the equity method, to apply the IFRS 1 exemption for past business combinations to the acquisition of the investment.
The amendments are effective for annual periods beginning on or after 1 January 2016 and must be applied retrospectively in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. The amendments can be applied earlier, but this must be disclosed.
International Federation of Accountants/International Auditing and Assurance Standards Board (IFAC/IAASB)
International Accounting Education Standards Board Work Plan
The IAESB has issued its Strategy and Work Plan for 2014-2016, which focuses on supporting the adoption and implementation of International Education Standards (IESs).
Upcoming Thought Center webcasts and podcasts
New revenue recognition standard for telecommunication companies
9 September 2014, 10 a.m. Eastern time
Revenue recognition considerations for automotive
16 September 2014, 10 a.m. Eastern time
CFO: need to know quarterly webcast series
18 September 2014, 12 p.m. Eastern time
EY Q3 2014 financial reporting update
18 September 2014, 2 p.m. Eastern time
SEC comments and trends: current reporting issues
24 September 2014, 1 p.m. Eastern time