US Week in Review - Week ending 16 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
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.
This industry-specific publication supplements our Technical Line, Double-exposure: The revised revenue recognition proposal, and highlights some of the more significant implications that the latest revenue recognition proposal may have on the automotive sector.
Ernst & Young comments on FASB proposals on consolidation and accounting for investment companies and investment property entities
In our comment letter on the consolidation proposal, we express support for the Board's efforts to more closely align the guidance in US GAAP with IFRS and our belief that the proposed principal-agent guidance would alleviate many concerns investors in the asset management industry had with FASB Statement No. 167. Given that the proposal would substantially reduce the differences between the two consolidation models in US GAAP, we also encourage the Board to consider moving toward a single model.
In our letter on the investment company proposal, we express support for the objective of amending the investment company definition to clarify whether an entity is within the scope of Topic 946. However, we believe more outreach with preparers and users is critical to determine whether the proposed changes are appropriate and respond to user needs. In a related letter, we oppose creating specialized accounting for investment property entities and suggest that existing diversity in practice among real estate entities would be better addressed by refining the definition of and accounting by an investment company. We believe that a single set of criteria for investment entities that measure their investments at fair value with all changes in fair value recognized in net income would be preferable.
Standard Setter updates
Financial Accounting Standards Board (FASB)
15 February 2012 FASB meeting
Disclosures about risks and uncertainties and the liquidation basis of accounting - The Board decided that an entity should prepare financial statements on the going concern basis unless liquidation is imminent. The Board reaffirmed its tentative decision that liquidation is imminent when significant management decisions are limited to those necessary to carry out a liquidation plan and such a plan either (1) has been approved by the governing body or (2) is being imposed by other forces and the entity's chances of becoming a going concern in the future are remote. The Board previously decided that any disclosures about risks and uncertainties would be considered as part of another project. The Board intends to issue an exposure draft in March with a 90-day comment period.
For additional detail of the Board's 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)
New compliance and disclosure interpretation: proxy description of advisory vote on executive compensation
The staff of the SEC's Division of Corporation Finance issued an interpretation to clarify how a company should describe the advisory vote on executive compensation in its proxy materials. Descriptions should be consistent with Rule 14a-21's requirement for shareholders to be allowed to vote on an advisory basis on compensation paid to a company's named executive officers. Descriptions should be clear about what shareholders are being asked to vote on (i.e., to approve, on an advisory basis, the compensation paid to the company's named executive officers). For example, the description "To hold an advisory vote on executive compensation" is unacceptable because it is not clear whether the vote relates to executive compensation or having an advisory vote on executive compensation.
The interpretation notes the following acceptable titles:
- To approve the company's executive compensation
- Advisory approval of the company's executive compensation
- Advisory resolution to approve executive compensation
- Advisory vote to approve named executive officer compensation
The new C&DI is available on the SEC website.
Exemption from Exchange Act registration extended to restricted stock units
The staff of the SEC's Division of Corporation Finance recently granted no-action relief from registration under Section 12(g) of the Exchange Act for certain restricted stock units (RSUs) granted and to be granted before an IPO. In those circumstances, a private company would not have to register using Form 10 just because it has more than 500 RSU holders. The no-action position with respect to RSUs is similar to the Exchange Act Rule 12h-1(f) exemption from Section 12(g) registration for compensatory employee stock options. In evaluating whether they may rely on the no-action relief, companies, with their securities counsel, should carefully evaluate whether the terms of their written RSU plan are consistent with those described in the request for no action.
The request for no action and the related response are available on the SEC website.
Exchange Act forms revised for mine safety disclosures
The SEC amended Forms 10-K and 10-Q to add new Item 4, "Mine Safety Disclosures." Previously, Item 4 of those forms had been "removed and reserved." Registrants must reflect the new title in upcoming Exchange Act reports. If a registrant does not have matters to report, the response to Item 4 should be "not applicable."
Item 4 of Forms 10-K and 10-Q requires registrants to include a brief statement if they have mine safety violations or other regulatory matters that are reported in an exhibit to the report. In the final mine-safety rules the SEC adopted to implement Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act), the SEC also adopted new Item 104 of Regulation S-K and amended Item 601 of Regulation S-K to add a new exhibit to Forms 10-K and 10-Q (Exhibit 95, Mine Safety Disclosure Exhibit).Exhibit 95 must be filed to provide the information required by Item 104 of Regulation S-K. The SEC also amended Forms 20-F and 40-F to require the same disclosures by foreign private issuers.
In addition, the SEC added Item 1.04, Mine Safety - Reporting of Shutdowns and Patterns of Violations, to Form 8-K to implement the requirements of Section 1503(b) of the Act, which mandates timely disclosure of the receipt of certain orders and notices from the Mine Safety and Health Administration. The final rules became effective 27 January 2012.
International Accounting Standards Board (IASB)
IASB Due Process Handbook
The IASB Due Process Handbook has been updated to consolidate amendments made by the IFRS Foundation Trustees in 2011.
Financial Accounting Foundation (FAF)
FAF to conduct post-implementation reviews of FASB and GASB accounting standards
The Financial Accounting Foundation (FAF) said it will conduct post-implementation reviews of the following standards:
- FASB Statement No. 141(R), Business Combinations
- FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information
- GASB Statements No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements and No. 40, Deposit and Investment Risk Disclosures
The FAF is coordinating with the International Accounting Standards Board on its reviews of IFRS 8, Operating Segments, and IFRS 3, Business Combinations.
Upcoming Thought center webcasts and podcasts
Tax legislative update: what to expect in 2012 and beyond
21 February 2012, 1:00 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