US Week in Review - Week ending 6 June 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 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

    June 2013 Financial reporting briefs issued

    We have issued the general and industry-specific June 2013 editions of Financial reporting briefs. These publications provide you with a snapshot of the major accounting and regulatory developments that have occurred during the quarter. The Reference library at the end of each document lists the publications issued during the quarter, along with links to the publications on our AccountingLink website.

    The general Financial reporting briefs and the industry-specific editions are available on AccountingLink.

    Comment letter on the FASB proposal on credit losses of financial instruments

    In our comment letter, we urge the FASB to work with the IASB to converge their proposals to require more timely recognition of credit losses than under today's incurred loss model. We note that the FASB could accomplish its goal of timelier recognition of losses by lowering the threshold for recognizing losses. We also recommend that the FASB exclude debt securities and trade, lease and reinsurance receivables from its proposal.

    Comment letter on the FASB proposal to defer the effective date of certain disclosures for nonpublic employee benefit plans

    In our comment letter, we support the FASB's proposal to indefinitely defer the requirement for a nonpublic employee benefit plan to disclose quantitative information about the significant unobservable inputs used in measuring the fair value of investments held in the plan sponsor's nonpublic equity securities. We also suggest the Board clarify whether an employee benefit plan that meets the definition of a nonpublic employee benefit plan in the proposal would be considered a nonpublic entity under ASC 820-10-50-2F and therefore would not be required to make certain other disclosures.

    Standard Setter updates

    Financial Accounting Standards Board (FASB)

    6 June 2013 FASB meeting

    The FASB discussed its project on the definition of a nonpublic entity.

    For additional details, please see the Summary of Board Decisions.

    Upcoming meetings and webcasts

    10 June 2013 FASB meeting

    The Board will decide whether to endorse three consensuses-for-exposure reached at the 7 May 2013 Private Company Council meeting.

    11 June 2013 EITF meeting

    The Task Force is scheduled to discuss:

    • Issue No. 12-G, Accounting for the Difference between the Fair Value of the Assets and the Fair Value of the Liabilities of a Consolidated Collateralized Financing Entity
    • Issue No. 12-H, Accounting for Service Concession Arrangements
    • Issue No. 13-A, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
    • Issue No. 13-C, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward or Tax Credit Carryforward Exists
    • Issue No. 13-D, Determination of Whether a Performance Target That Is Allowed to Be Met after the Requisite Service Has Been Provided by the Employee Is a Vesting Condition or a Condition That Affects the Grant-Date Fair Value of the Awards
    • Issue No. 13-E, Reclassification of Collateralized Mortgage Loans upon a Troubled Debt Restructuring

    12 June 2013 FASB meeting

    The FASB is scheduled to discuss its project on the fair value measurement disclosures of private company equity securities by employee benefit plans.

    For additional details, see the FASB's calendar.

    Education sessions

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

    Securities and Exchange Commission (SEC)

    SEC proposes changes for money market funds

    The SEC proposed amendments to certain rules under the Investment Company Act of 1940 aimed at minimizing money market funds' exposure to rapid redemptions and making the risks of investing in the funds more transparent. Comments on the proposal are due 90 days after publication in the Federal Register.

    The SEC has proposed two alternatives and is also considering them in combination. One alternative would require all institutional prime money market funds to operate with a floating net asset value (NAV) and use a more precise method to price their shares. Retail and government money market funds would be exempt from this requirement. Under the other alternative, non-government money market funds would be allowed to impose redemption fees of up to 2% if their weekly liquid assets fall below a certain threshold and fund boards would be able to suspend redemptions for up to 30 days. The SEC also proposed amendments related to diversification, disclosures and stress-testing requirements.

    The proposal says "the adoption of floating NAV alone would not preclude shareholders from classifying their investments in [institutional prime] money market funds as cash equivalents because fluctuations in the amount of cash received upon redemption would likely be insignificant and would be consistent with the [GAAP] concept of a 'known' amount of cash." The SEC is specifically seeking comment on this point.

    Issues addressed in staff FAQs on conflict minerals

    The Division of Corporation Finance issued 12 frequently asked questions (FAQs) about the SEC's disclosure rules on conflict minerals to help registrants prepare to comply with the new rules. The FAQs relate to the rules' scope, what is considered a "product" and the timing and disclosure requirements of Form SD.

    The FAQs make the following points:

    • The requirements apply to registrants and their consolidated subsidiaries. We believe this means registrants would not have to make the disclosures for equity method investees. The staff also clarified that voluntary filers are subject to the requirements.
    • A registrant that completes an initial public offering may defer reporting under the rules until the first calendar year that begins no sooner than eight months after the effective date of its IPO (e.g., a company with an IPO that went effective May 2013 would not be subject to the disclosure requirements until calendar year 2015; its first report would be due 31 May 2016).
    • Packaging and containers are not considered part of a product, even if the packaging or container is necessary to preserve the usability of the product. However, the packaging or container would be considered a product if it is sold separately. This interpretation may significantly reduce or eliminate disclosure requirements for registrants in the food and beverage and pharmaceutical industries.
    • Tools, machines or other equipment used to manufacture a registrant's products are not considered products, even if the equipment is sold at a later date.
    • Equipment that the registrant uses to provide services is not be considered a "product" of the registrant if the equipment is retained by the registrant (as the service provider), required to be returned to the registrant or intended to be abandoned by the customer after the service period. For example, cruise ships owned by a cruise line operator are not products of the registrant.
    • Form SD requires a registrant that manufactures or contracts to manufacture products that are not found to be "DRC conflict free" as defined in the rules or are "DRC conflict undeterminable" to provide a description of those products in a Conflict Minerals Report. The staff said registrants have flexibility to describe the products in its Conflict Minerals Report based on their own facts and circumstances and with terms commonly understood in their industries. Descriptions don't have to include model numbers. The Conflict Minerals Report does not have to identify products that are found to be "DRC conflict free."
    • Failure to timely file a Form SD will not cause a registrant to lose its eligibility to use Form S-3.

    Issues addressed in staff FAQs on disclosures by resource extraction issuers

    The Division of Corporation Finance issued nine FAQs on the disclosure requirements of the new SEC rule on payments by resource extraction issuers to government agencies for the commercial development of oil, natural gas or minerals.

    The FAQs make the following points:

    • The requirements apply to registrants and their consolidated subsidiaries. We believe this means registrants would not have to make the disclosures for equity method investees.
    • A company that provides only services associated with exploration, extraction and export of a resource is generally not considered a resource extraction issuer.
    • A registrant that transports resources across international borders is generally not considered a resource extraction issuer unless the company has an ownership interest in the resource.
    • Registrants should define "minerals" as any material that is commonly understood to be a mineral including those identified in Industry Guide 7, Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations, which encompasses materials such as coal, shale, tar, sands and limestone.
    • If a resource extraction issuer uses a majority-owned government transportation service to supply people or materials to a job site, the payments are not covered by the rules since these activities are ancillary or preparatory to the commercial development of oil, natural gas or minerals.
    • Penalties and fines related to resource extraction paid to government agencies are not reportable as fees.
    • A company does not need to segregate and disclose income taxes paid solely on resource extraction activities. However, if the disclosure includes income taxes paid for activities other than the commercial development of oil, natural gas or minerals, the registrant should disclose that fact.
    • Failure to timely file a Form SD will not cause a registrant to lose its eligibility to use Form S-3.

    International Accounting Standards Board (IASB)

    May edition of IFRS for SMEs Update

    The May 2013 edition of IFRS for SMEs Update contains the latest news for small and medium-sized entities.

    IASB Feedback Statement: Financial Information Disclosure

    The IASB has published a Feedback Statement on the discussions at its January 2013 forum on financial information disclosure. The IASB has signaled its desire to serve as a catalyst for collective action by preparers, regulators, the accounting profession and the IASB to address ongoing concerns about the quality and quantity of financial reporting disclosure. Representatives of stakeholder groups debated the factors that have contributed to increases in the volume of financial information disclosures and a perceived reduction in the quality and usefulness of those disclosures. The Feedback Statement summarizes the discussions and the recommended actions resulting from them.


    Ernst & Young to participate in Principles and Points of Focus: The New COSO Framework

    Ernst & Young will participate in a four-city series of events sponsored by Financial Executives International (FEI) on Principles and Points of Focus: The New COSO Framework. The first session will be held on 12 June in Stamford, CT. The all-day events will provide an overview of the 2013 Internal Control - Integrated Framework that COSO released in May, along with discussions of how the new principles and points of focus are applicable to the original five core components of internal controls.

    At each event, an Ernst & Young partner/principal will lead a session on information and communication and will participate in a panel with other speakers.

    For more information, please visit the FEI website.

    Upcoming Thought center webcasts and podcasts

    CFO's reveal hidden trends from earnings season
    A quarterly webcast series, "CFO: need to know"
    12 June 2013, 12:00 p.m. Eastern time

    Environmental sustainability in financial services
    5 July 2013, 6:00 a.m. Eastern time


    Connect with us