US Week in Review - Week ending 27 October 2011
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.
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Ernst & Young publications
The Financial Accounting Standards Board (FASB) issued an exposure draft that redefines an investment company and how it accounts for investments. The proposed definition may appear similar to current US GAAP, but there are some important differences. Some of the proposed changes to the definition and accounting could result in significant changes in practice for certain entities.
Our To the Point publication summarizes what you need to know about the proposal. It should be read along with the To the Point below about a related FASB proposal.
The FASB issued an exposure draft that would require a real estate entity that meets the definition of an investment property entity to measure its investment properties at fair value, with changes in fair value recognized in net income. This proposal would significantly affect the way many entities that invest in real estate account for their investments.
Our To the Point publication summarizes what you need to know about the proposal.
We have updated our Financial reporting developments publication, Share-based payment. This updated edition includes further enhancements to our interpretative guidance, including the effect of discretionary features, additional complexities with minimum tax withholdings, and valuing share-based payments awarded by non-public entities.
We have updated our Financial reporting developments publication, Derivative instruments and hedging activities.
Standard Setter updates
Financial Accounting Standards Board (FASB)
Financial reporting alert: FASB to issue exposure draft on deferral of presentation of OCI reclassification adjustments
The FASB decided to expose a proposed deferral of the requirement in ASU 2011-5, Comprehensive Income, that companies present reclassification adjustments for each component of other comprehensive income (OCI) in both net income and OCI on the face of the financial statements. During the deferral period, the FASB also plans to re-evaluate the requirement.
The tentative decision came in response to concerns raised by issuers and other stakeholders that the requirement would significantly increase the number of line items that would have to be displayed in arriving at net income. Issuers also cited challenges in identifying and summarizing certain reclassification adjustments that have been capitalized on the balance sheet before recognition in net income (e.g., pension-related items that are capitalized in inventory).
The FASB plans to issue an exposure draft on the decision in the near term and will provide no less than a 15-day period for comment. The Board decided to include in the exposure draft a proposed requirement to disclose in the notes to the financial statements amounts reclassified out of OCI, consistent with the existing disclosure requirement in ASC 220, Comprehensive Income.
The deferral, if finalized, would not change the requirement to present items of net income, items of other comprehensive income and total comprehensive income in either one continuous statement or two separate consecutive statements. This requirement is effective for fiscal years and interim periods beginning after 15 December 2011 for public companies and for fiscal years ending after 15 December 2012 and interim periods thereafter for non-public companies.
26 October 2011 FASB meeting
Disclosures about risks and uncertainties and the liquidation basis of accounting - The FASB decided that improving disclosures that would serve as an early warning of an entity's potential inability to continue as a going concern would not be an objective of this project, since the Board tentatively decided to add incremental disclosures about liquidity risk in the separate project on accounting for financial instruments. The staff will perform additional work on the definition of substantial doubt before the FASB decides whether to incorporate existing audit guidance for making a going-concern assessment into GAAP.
For additional details of the Board's discussion, see the FASB's Action Alert.
Upcoming meetings and webcasts
1 November 2011 joint FASB-IASB videoconference meeting
The Boards will discuss lessor disclosures and additional transition issues related to the leases project.
2 November 2011 FASB meeting
The Board is scheduled to discuss a summary of preliminary outreach and research on the impairment of indefinite-lived intangible assets project.
3 November 2011 EITF meeting
The agenda includes the following issues:
- Issue No. 10-E, "Derecognition of In Substance Real Estate"
- Issue No. 11-A, "Parent's Accounting for the Cumulative Translation Adjustment (CTA) upon the Sale or Transfer of a Group of Assets within a Foreign Subsidiary That Meets the Definition of a Business"
See the FASB calendar for upcoming education sessions. No decisions are made at these sessions.
Securities and Exchange Commission (SEC)
SEC staff to hold roundtable on measurement uncertainty in financial reporting
The SEC staff plans to hold a roundtable on 8 November 2011 to examine measurement uncertainty in financial reporting (i.e., financial statement measurements and disclosures where the outcome depends on future events). Investors, financial statement preparers and auditors will discuss (1) whether measurements that involve uncertainty provide investors with useful information, (2) disclosures about measurement uncertainty that are important for investors to understand, (3) challenges that financial statement preparers face in providing these disclosures and (4) the auditor's responsibility to evaluate management's judgments related to these uncertainties.
This will be the first roundtable in the SEC's Financial Reporting Series, a series of roundtable sessions through which the SEC plans to identify risks and potential improvements in the reliability and usefulness of financial information provided to investors. The SEC staff issued a briefing paper highlighting the issues to be considered at the roundtable and welcomes comment on those issues as well as suggestions for potential roundtable participants.
Gallagher and Aguilar confirmed as SEC Commissioners
The US Senate confirmed Daniel Gallagher's appointment and Luis Aguilar's reappointment as SEC Commissioners. Mr. Gallagher practiced securities law at WilmerHale and previously held various positions at the SEC, including deputy director of the Division of Trading and Markets. Mr. Aguilar has served as an SEC Commissioner since 2008.
The confirmation of Mr. Gallagher returns the SEC to a full five-member Commission. The Commission had operated with four commissioners after Kathleen Casey left in August 2011 upon completing her five-year term. Mr. Gallagher joins Chairman Mary Schapiro and Commissioners Troy Paredes, Elisse Walter and Mr. Aguilar.
Public Company Accounting Oversight Board (PCAOB)
Doty speech: A fresh look at auditing
PCAOB Chairman James R. Doty spoke recently at the 104th Annual Meeting of the National Association of State Boards of Accountancy. The text of his speech, "A fresh look at auditing," discusses the PCAOB's policy agenda to enhance the relevance, credibility and transparency of audits.
International Accounting Standards Board (IASB)
IASB issues an exposure draft on government loans
The IASB has published a proposed amendment to IFRS 1, First-time Adoption of International Financial Reporting Standards. This amendment would require that, under certain circumstances, first-time adopters apply the requirement of paragraph 10A of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, prospectively to government loans with a below-market rate of interest entered into on or after the date of transition to IFRS.
Comments on the exposure draft are due by 5 January 2012.
IFRIC issues an interpretation on production stripping costs
The IASB has issued an interpretation developed by the IFRS Interpretations Committee, on clarifying the requirements for accounting for stripping costs in the production phase of a surface mine. The Interpretation was developed to address issues comprising recognition of production stripping costs as an asset; the initial measurement of the stripping activity asset; and subsequent measurement of the stripping activity asset. The Interpretation is effective for annual periods beginning on or after 1 January 2013 with earlier application permitted.
Upcoming Thought center webcasts and podcasts
Business into the cloud requires information security out of the fog
2 November 2011, 11:00 a.m. Eastern time
Double-exposure: the revised revenue recognition proposal (US GAAP perspective)
15 November 2011, 2:30 p.m. Eastern time
A revised proposal for revenue recognition (IFRS perspective)
29 November 2011, 4:00 a.m. Eastern time
A revised proposal for revenue recognition (IFRS perspective) REPLAY
29 November 2011, 3:00 p.m. Eastern time
Don't just spin it: financial and operational lessons learned in spin-offs
30 November 2011, 12:00 p.m. Eastern time