US Week in Review - Week ending 22 December 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.

    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

    To the Point: Impairment - a major step toward achieving convergence

    The FASB and the IASB have agreed on several tentative decisions regarding their "three-bucket" expected loss approach to the impairment of financial assets. These include the transfer principle from Bucket 1 into Bucket 2 or Bucket 3, the Bucket 1 impairment allowance, the differentiating factor between Bucket 2 and Bucket 3, the grouping of financial assets for impairment evaluation and the application of the new impairment approach to retail loans, commercial loans and debt securities. Our To the Point publication discusses these decisions.

    To the Point: Offsetting of financial instruments - new disclosures

    The FASB and the IASB issued converged disclosure requirements for balance sheet offsetting that are intended to enable users of financial statements to reconcile differences between balance sheets prepared under US GAAP and IFRS. The offsetting models aren't changing. Our To the Point publication summarizes what you need to know about the guidance.

    Technical Line: Revenue recognition proposal - media and entertainment, retail and consumer products and telecommunications

    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) media and entertainment, (2) retail and consumer products and (3) telecommunications industries. These publications provide an analysis of the proposed model and highlight key changes from current practice.

    In coming weeks, we will issue additional industry-specific publications that will address, in further detail, how the proposal would affect those industries.

    Updated FRD on income taxes

    We have updated our Financial reporting developments publication, Income taxes. This updated edition includes further enhancements to our interpretative guidance. Refer to Appendix D for further detail on the updates.

    Updated FRD on segment reporting

    We have updated our Financial reporting developments publication, Segment reporting. This fourth edition has been updated to include further clarifications and enhancements to our interpretive guidance.

    Updated FRD on goodwill and intangible assets

    We have updated our Financial reporting developments publication, Intangibles - Goodwill and other. This edition includes recent standard-setting activities, including the issuance of ASU 2011-08, Testing Goodwill for Impairment, as well as further enhancements to our interpretive guidance.

    Updated FRD on bankruptcies and liquidations

    We have updated our Financial reporting developments publication, Bankruptcies and liquidations. This updated edition includes an overview of the different types of bankruptcies, certain accounting considerations prior to entering bankruptcy and further enhancements to our interpretative guidance.

    Practical matters for the C-suite on revised revenue recognition proposal

    Our new edition of Practical matters for the c-suite, Revenue recognition project: second time's a charm?, complements our recent Technical Line and To the Point publications on the changes to last year's exposure draft on revenue recognition. This publication also explores in more detail how the revised exposure draft would affect an organization's finance, tax, IT systems and business processes. The Practical matters for the c-suite series is produced by our Financial Accounting Advisory Services (FAAS) group and is intended to help companies assess the potential effect of accounting proposals on their organizations.

    Standard Setter updates

    Financial Accounting Standards Board (FASB)

    15-16 December 2011 joint FASB-IASB meeting

    Insurance contracts - The Boards reaffirmed their decisions to require discounting of claims liabilities when the effects of discounting would be material and decided to provide a practical expedient that would permit insurers not to discount certain incurred claims. The Boards also decided for the premium allocation approach that an insurance contract would be onerous if the expected present value of the future cash outflows from that contract (plus, for the IASB, the risk adjustment) exceeds the expected present value of the future cash inflows in the pre-coverage period or the carrying amount of the liability for the remaining coverage.

    For additional detail of the Boards' discussion on this and other projects, see the FASB's Action Alert.

    Upcoming meetings and webcasts

    The FASB and the IASB will host roundtables in February and March 2012 to discuss their proposals on investment companies. The US roundtable will also include a discussion about the FASB's proposal on investment property entities. For details, see the FASB site.

    Education sessions

    See the FASB calendar for upcoming education sessions. No decisions are made at these sessions.

    Securities and Exchange Commission (SEC)

    SEC to review rules under Regulatory Flexibility Act

    The SEC has published a list of rules that it will review in the next 12 months under the Regulatory Flexibility Act (RFA). As a policy, approximately 10 years after issuance the SEC reviews all final rules that were exposed for comment. The review is intended to determine whether the rules should remain unchanged, should be amended or should be rescinded. Significant changes arising from the review would be exposed for specific comment.

    The list includes, among others, Rule 3-10 of Regulation S-X, Financial Statements and Periodic Reports for Related Issuers and Guarantors, Rule 2-01 of Regulation S-X regarding auditor independence requirements, and Regulation FD regarding disclosures of material nonpublic information.

    The SEC is inviting public comment on any of the rules scheduled for review. Comments are due within 30 days after the release is published in the Federal Register.

    Final rules issued on mine safety disclosures

    The SEC adopted a final rule to implement Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Section 1503), which requires public companies to disclose information about mine safety and health in their periodic and current reports filed with the SEC. Issuers have been providing the disclosures required by Section 1503 since it became effective on 20 August 2010, and the final rules adopted by the SEC specify how companies should make those disclosures prospectively. As a result of concerns expressed by constituents, the SEC decided not to adopt aspects of its December 2010 rule proposal that would have expanded the required disclosure beyond that mandated by Section 1503.

    The new rules are effective 30 days after publication in the Federal Register.

    Revised net worth standard for definition of "accredited investor"

    The SEC adopted a final rule revising the $1 million net worth criterion for an "accredited investor" to exclude from the calculation the value of a primary residence and related secured debt. These amendments revise Securities Act rules to conform to the net worth standard that is already effective under Section 413 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Beginning 21 July 2014, four years after the enactment of the Dodd-Frank Act, the SEC must reconsider the definition of "accredited investor" every four years.

    The new rules are effective 60 days after publication in the Federal Register.

    Public Company Accounting Oversight Board (PCAOB)

    PCAOB reproposes standard for communications with audit committees

    The PCAOB voted to issue for public comment a new proposed auditing standard that, like its March 2010 proposal, is intended to enhance the relevance and quality of communications between the auditor and the audit committee.

    The proposal was revised to, among other things, align the communication requirements with performance requirements in other PCAOB standards, including the implementation of the risk assessment standards (Auditing Standard Nos. 8-15) as well as to apply to the audits of brokers and dealers. It also includes changes made in response to comments received on the original proposal and other refinements. The new proposal would not impose any new performance requirements other than communications.

    Comments are due by 29 February 2012.

    International Accounting Standards Board (IASB)

    IASB exposure draft on transition guidance related to IFRS 10 on consolidated financial statements

    The IASB has issued for public comment proposed amendments to IFRS 10, Consolidated Financial Statements to provide clarification on the transition guidance in IFRS 10 by confirming when an entity needs to apply IFRS 10 retrospectively. Comments on the exposure draft are due by 21 March 2012.

    IASB issues amendments to standards related to offsetting

    As a result of the IASB's offsetting project, the Board has issued the following amendments to two standards:

    • Disclosures-Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7)
    • Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32)

    The IASB has also issued, Mandatory Effective Date and Transition Disclosures (amendments to IFRS 9 and IFRS 7). The amendments to IFRS 9, Financial Instruments, defer the mandatory effective date from 1 January 2013 to 1 January 2015. The deferral will make it possible for all phases of the financial instruments project to have the same mandatory effective date.

    Committee of Sponsoring Organizations (COSO)

    COSO proposes updating the 'Internal Control - Integrated Framework'

    The Committee of Sponsoring Organizations of the Treadway Commission (COSO) recently released for public comment a proposed update to the "Internal Control - Integrated Framework" that would codify the internal control concepts in the original 1992 framework into 17 principles and supporting attributes.

    COSO Chairman Dave Landsittel observed, "Effective internal control allows organizations to adapt to a changing business landscape, and obtain confidence that controls mitigate risks to acceptable levels. This is key for the long-term success of any organization."

    Comments are due by 31 March 2012. The COSO plans to issue the final framework in the fall of 2012.

    Upcoming Thought center webcasts and podcasts

    International transfer pricing update 
    11 January 2012, 2:00 a.m. Eastern time


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