US Week in Review - Week ending 25 July 2013
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
The FASB and the IASB this week clarified how aspects of variable consideration and collectibility will be addressed in the standard. The Boards also addressed how entities should determine whether a contract meets the criteria to be within the scope of the guidance and the accounting for contracts that are not in the scope of the guidance. Our To the Point publication summarizes these decisions.
The FASB and the IASB have issued exposure drafts that would require lessees to recognize assets and liabilities arising from their involvement in most leases. This Technical Line publication builds on our earlier Technical Line, A closer look at the lease accounting proposal, and provides more detail and additional examples of how companies might be affected. Entities would still classify leases, but they would use different criteria and for a different purpose. Lease classification would be based primarily on the nature of the asset being leased and it would determine how entities recognize lease-related revenue and expense. Comments are due by 13 September 2013.
Standard Setter updates
Financial Accounting Standards Board (FASB)
FASB vice chairman appointed
James L. Kroeker, former chief accountant for the SEC, was appointed a member and vice chairman of the FASB for a term beginning 1 September 2013. He fills a vacancy on the Board created by the retirement of former Chairman Leslie Seidman.
FASB issues three EITF proposals
The FASB issued three Proposed Accounting Standards Updates based on consensuses of the FASB’s Emerging Issues Task Force (EITF) on the following topics:
- Reclassification of collateralized mortgage loans upon a troubled debt restructuring
- Service concession arrangements
- Measuring the financial liabilities of a consolidated collateralized financing entity
Comments are due by 17 September 2013.
23-24 July 2013 joint FASB/IASB meetings
The Boards discussed their projects on:
- Accounting for financial instruments: classification and measurement
- Accounting for financial instruments: impairment
- Revenue recognition - See our To the Point publication above
25 July 2013 FASB meeting
The FASB discussed its project, Disclosure framework: Board's decision process.
For details of this week's FASB meetings, see the FASB's Summary of Board Decisions.
Upcoming meetings and webcasts
31 July 2013 FASB meeting
The FASB is scheduled to discuss its project, Transfers and servicing: repurchase agreements and similar transactions.
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)
CAQ SEC Regulations Committee publishes June highlights
The Center for Audit Quality (CAQ) SEC Regulations Committee issued highlights from its 18 June 2013 meeting with the SEC staff.
The highlights include:
- The SEC staff's views on disclosing the selected transition method (i.e., retrospective or modified retrospective method) after the final standard on revenue recognition is issued later this year
- The SEC staff's plan to consider whether to provide further guidance on the new revenue recognition standard related to disclosures about the effect on the registrant's financial position and results of operations, as required by Staff Accounting Bulletin (SAB) Topic 11-M (SAB 74), and the disclosure of historical information in the five-year selected financial data table and management's discussion and analysis when the modified retrospective transition method is selected
- The SEC staff's views on determining the significance of dispositions by Smaller Reporting Companies and related pro forma requirements
- An update on other SEC activities, including recommendations by the SEC Advisory Committee on Small and Emerging Companies, recently issued Compliance and Disclosure Interpretations on various SEC rules and regulations and the staff's Frequently Asked Questions about complying with the resource extraction payments rule, which has since been vacated by a federal district court judge, and the conflict minerals rule
District court judge upholds SEC's conflict minerals rule
A US District Court judge in Washington D.C. upheld the SEC's new conflict minerals rule, granting the SEC's motion for summary judgment in a challenge brought by business groups. Although the plaintiffs could appeal the decision, companies should continue preparing to comply with the new disclosure, due diligence and audit requirements.
The rule requires registrants to disclose the use of conflict minerals in their products, and whether any of those minerals originated in certain conflict-ridden regions of Africa and financed or benefited armed groups. Affected issuers must file their first Form SD disclosing this information by 2 June 2014 (because 31 May falls on a weekend) covering calendar-year 2013.
The plaintiffs had argued that the disclosure requirements in the SEC's rule and Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandating the rule violate the First Amendment of the US Constitution. They said the rule and the statute compel "burdensome and stigmatizing speech" by requiring companies to publicly state that their products are "not DRC conflict free." The judge concluded that this argument lacked merit.
The plaintiffs also argued that various aspects of the rule were "arbitrary and capricious" under the Administrative Procedure Act. The judge rejected these challenges, noting among other things that the SEC:
- Was not statutorily obligated to reevaluate Congress' judgment about the benefits of the disclosure requirement or independently confirm whether its final rule would achieve humanitarian benefits in the Democratic Republic of the Congo and its adjoining countries
- Used "reasoned decision-making" to not include a de minimis exception in the rule, including the consideration by the SEC that conflict minerals are typically used in products in very limited quantities and such an exception could potentially conflict with the statute's intent
- Did not act "arbitrarily or capriciously" in its (1) estimate of costs to comply with the rule, (2) inclusion in the rule's scope of issuers that "contract to manufacture" or (3) construction of the reasonable country of origin inquiry
American Institute of CPAs (AICPA)
AICPA issues proposal on Attestation Standards (SSAE): Clarification and Recodification
This proposal represents the redrafting of various AT sections to apply the Auditing Standards Board’s clarity drafting conventions. To assist respondents in identifying changes and in responding to the proposal, the Audit and Attest Standards staff has prepared a matrix document, which identifies the disposition of the requirements in extant AT sections 20, 50, 101, and 201 within the proposed SSAE. Comments are due 24 October 2013.
International Accounting Standards Board (IASB)
Post-implementation review of IFRS 8
In July 2013, the IASB announced the completion of its post-implementation review of IFRS 8 on operating segments. The review considers whether the new or amended standard is functioning as anticipated, has achieved its objectives and improved financial reporting. The review of IFRS 8 concluded that the Standard was generally functioning as anticipated. Those limited areas where further investigation is warranted will also be subject to liaison with the FASB and will be considered within the context of convergence with US GAAP.
IASB issues a discussion paper on the Conceptual Framework
The IASB recently published for public comment a discussion paper exploring possible changes to the IASB's Conceptual Framework for Financial Reporting. The Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements and identifies principles for the IASB to use when it develops and revises IFRS. This discussion paper is designed to obtain initial views and comments on important issues that the IASB will consider as it develops an exposure draft of a revised Conceptual Framework. The discussion paper is available for comment until 14 January 2014.
Upcoming Thought Center webcasts and podcasts
CFOs reveal hidden trends from earnings season
A quarterly webcast series, "CFO: need to know"
30 September 2013, 12:00 p.m. Eastern time