Quarterly Accounting Roundup by Magnus Orrell and Joseph Renouf, Deloitte & Touche LLP To our clients, colleagues, and other friends: Welcome to Quarterly Accounting Roundup: Second Quarter — 2019. In the second quarter of 2019, the FASB issued: • Final Accounting Standards Updates (ASUs) that (1) provide targeted transition relief for entities adopting the FASB’s new credit losses standard, ASU 2016-13; 1 (2) clarify certain aspects of the accounting for credit losses, hedging activities, and financial instruments; and (3) extend private-company alternatives on goodwill and certain identifiable intangible assets to not-for-profit (NFP) entities. • Proposed ASUs that would (1) align certain FASB Codification guidance with SEC disclosure requirements, (2) simplify the accounting for income taxes, and (3) amend certain aspects of the FASB’s guidance on credit losses. Further, in May, the SEC released proposed rules that would amend: • The financial statement requirements for acquisitions and dispositions of businesses, including real estate operations, and related pro forma financial information. The proposed rule would, for example, (1) modify certain significance tests, (2) allow registrants to present fewer acquiree financial statement periods, and (3) simplify the criteria for pro forma adjustments. • The definitions of “accelerated filer” and “large accelerated filer” to exclude any issuer with both annual revenues of less than $100 million and public float of less than $700 million. If finalized, this proposed rule would expand the number of issuers that qualify 1 FASB Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments. In This Issue • Accounting — Newly Issued Standards • Accounting — Exposure Drafts • Auditing Developments • Regulatory and Compliance Developments • Appendix A: Significant Adoption Dates • Appendix B: Current Status of FASB Projects • Appendix C: New Deloitte U.S. Accounting Publications Second Quarter — 2019
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Quarterly Accounting Roundupby Magnus Orrell and Joseph Renouf, Deloitte & Touche LLP
To our clients, colleagues, and other friends:
Welcome to Quarterly Accounting Roundup: Second Quarter — 2019. In the second quarter of 2019, the FASB issued:
• Final Accounting Standards Updates (ASUs) that (1) provide targeted transition relief for entities adopting the FASB’s new credit losses standard, ASU 2016-13;1 (2) clarify certain aspects of the accounting for credit losses, hedging activities, and financial instruments; and (3) extend private-company alternatives on goodwill and certain identifiable intangible assets to not-for-profit (NFP) entities.
• Proposed ASUs that would (1) align certain FASB Codification guidance with SEC disclosure requirements, (2) simplify the accounting for income taxes, and (3) amend certain aspects of the FASB’s guidance on credit losses.
Further, in May, the SEC released proposed rules that would amend:
• The financial statement requirements for acquisitions and dispositions of businesses, including real estate operations, and related pro forma financial information. The proposed rule would, for example, (1) modify certain significance tests, (2) allow registrants to present fewer acquiree financial statement periods, and (3) simplify the criteria for pro forma adjustments.
• The definitions of “accelerated filer” and “large accelerated filer” to exclude any issuer with both annual revenues of less than $100 million and public float of less than $700 million. If finalized, this proposed rule would expand the number of issuers that qualify
1 FASB Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments.
In This Issue• Accounting — Newly
Issued Standards
• Accounting — Exposure Drafts
• Auditing Developments
• Regulatory and Compliance Developments
• Appendix A: Significant Adoption Dates
• Appendix B: Current Status of FASB Projects
• Appendix C: New Deloitte U.S. Accounting Publications
Second Quarter — 2019
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as nonaccelerated filers and are thus eligible to take advantage of certain reporting accommodations offered to such issuers. For instance, under the proposal, certain registrants would not be subject to the requirement related to auditor attestation on the effectiveness of ICFR.
On the international front, the IASB® released exposure drafts (EDs) of proposals that would amend (1) the IASB’s insurance contracts standard, IFRS 17,2 to address implementation concerns and challenges; (2) certain guidance in IFRS 33 to bring it up to date with the 2018 version of the IASB’s Conceptual Framework; (3) certain IFRS® Standards as part of the IASB’s annual improvements process; and (4) guidance on financial instruments in response to interest rate benchmark reforms.
We value your feedback and would appreciate any comments you may have on Quarterly Accounting Roundup. Take a moment to tell us what you think by sending us an e-mail at [email protected].
For the latest news and publications, visit Deloitte’s US GAAP Plus Web site or subscribe to Weekly Accounting Roundup, a digest of news, developments, and Deloitte publications related to predominantly U.S. accounting topics. Also see our Twitter feed for up-to-date information on the latest news, research, events, and more. Further, see the Deloitte Accounting Research Tool (DART) for a comprehensive online library of accounting and financial disclosure literature, including Deloitte’s own interpretive guidance and publications.
Featured Deloitte Publications
In the second quarter of 2019, Deloitte released the following new and updated Roadmaps:
• A Roadmap to the Preparation of the Statement of Cash Flows (2019) — Provides Deloitte’s insights into and interpretations of the accounting guidance on the statement of cash flows, primarily that in ASC 230.4 The 2019 update reflects the amendments to ASC 230 made by ASUs 2016-155 and 2016-18,6 which clarify guidance in ASC 230 on the classification of certain cash flows. The 2019 edition also incorporates interpretations and guidance related to the new leasing standard, ASU 2016-02.7
• A Roadmap to Accounting for Noncontrolling Interests (2019) — Provides Deloitte’s insights into and interpretations of the guidance on noncontrolling interests, primarily that in ASC 810-10 and ASC 480-10-S99. The 2019 edition of this Roadmap reflects new and updated guidance and examples as well as minor clarifications.
• A Roadmap to Consolidation — Identifying a Controlling Financial Interest (2019) — Serves as a comprehensive guide to navigating the frequently complex consolidation accounting models. The 2019 edition reflects the amendments in ASU 2018-178 related to the private-company alternative as well as the alignment of certain assessments performed as part of the consolidation analysis.
• A Roadmap to Accounting and Financial Reporting for Carve-Out Transactions (2019) — Summarizes key considerations related to the preparation of “carve-out financial statements,” a general term used to describe financial statements derived from the
2 IFRS 17, Insurance Contracts.3 IFRS 3, Business Combinations.4 For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB
Accounting Standards Codification.”5 FASB Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments — a consensus of the
FASB Emerging Issues Task Force.6 FASB Accounting Standards Update No. 2016-18, Restricted Cash — a consensus of the FASB Emerging Issues Task Force.7 FASB Accounting Standards Update No. 2016-02, Leases.8 FASB Accounting Standards Update No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities.
financial statements of a larger parent entity. In the 2019 edition, a few updates and clarifications are made in response to SEC activity and practice developments.
• A Roadmap to the Issuer’s Accounting for Convertible Debt (2019) — Provides an overview of the requirements in ASC 470-20 related to convertible debt, which are frequently complex and time-consuming to apply. Deloitte’s insights into and interpretations of how to apply these requirements in practice are accompanied by the related authoritative text and other relevant literature.
• A Roadmap to SEC Reporting Considerations for Business Combinations (2019) — Combines the SEC’s guidance on reporting for business acquisitions — including acquisitions of real estate operations and pro forma financial information — with Deloitte’s interpretations (Q&As) and examples in a comprehensive, reader-friendly format. Because the SEC made no significant changes to its guidance on reporting for business acquisitions since the issuance of last year’s Roadmap, most of the updates in the 2019 update expand on or clarify existing text. The new edition also discusses the SEC’s proposed rule that would amend the financial statement requirements for acquisitions and dispositions of businesses, including real estate operations, and related pro forma financial information.
In addition, Deloitte inaugurated an Accounting Spotlight newsletter series in the second quarter of 2019. These newsletters, published as warranted, analyze key issues related to the implementation of accounting guidance on selected topics, such as revenue recognition.
Another notable Deloitte publication issued in the second quarter of 2019 was a Heads Up addressing key themes the SEC focused on in its comment letters to registrants about their application of the accounting and disclosure requirements in the FASB’s new revenue standard, ASC 606, which became effective for calendar-year-end public business entities in the first quarter of 2018.
FASB Issues Guidance to Provide Targeted Transition Relief for Entities Adopting ASU 2016-13Affects: All entities.
Summary: On May 15, 2019, the FASB issued ASU 2019-05,9 which provides transition relief for entities adopting the Board’s credit losses standard, ASU 2016-13. Specifically, ASU 2019-05 amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of the credit losses guidance in ASC 326-20, (3) are eligible for the fair value option under ASC 825-10, and (4) are not held-to-maturity debt securities.
Next Steps: For entities that have adopted ASU 2016-13, the amendments in ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, including interim periods therein. An entity may early adopt the ASU in any interim period after its issuance if the entity has adopted ASU 2016-13. For all other entities, the effective date will be the same as the effective date of ASU 2016-13.
Other Resources: Deloitte’s May 15, 2019, Heads Up. Also see the press release on the FASB’s Web site.
Financial Instruments
FASB Amends Certain Aspects of ASUs Related to Financial InstrumentsAffects: All entities.
Summary: On April 25, 2019, the FASB issued ASU 2019-04,10 which clarifies certain aspects of the accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12,11 and 2016-01,12 respectively).
Next Steps: For effective date and transition information, see Appendix A.
Other Resources: Deloitte’s May 7, 2019, Heads Up. Also see the press release on the FASB’s Web site.
Not-for-Profit Entities
FASB Extends Private-Company Accounting Alternatives to NFP EntitiesAffects: NFP entities.
Summary: On May 30, 2019, the FASB issued ASU 2019-06,13 which extends to NFP entities the private-company accounting alternatives on goodwill and certain identifiable intangible assets that were developed by the FASB and Private Company Council in 2014. The ASU is
Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.11 FASB Accounting Standards Update No. 2017-12, Targeted Improvements to Accounting for Hedging Activities.12 FASB Accounting Standards Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities.13 FASB Accounting Standards Update No. 2019-06, Extending the Private Company Accounting Alternatives on Goodwill and Certain
Identifiable Intangible Assets to Not-for-Profit Entities.
In This Section• Credit Losses
o FASB Issues Guidance to Provide Targeted Transition Relief for Entities Adopting ASU 2016-13
intended to enable “organizations to recognize fewer items as separate intangible assets in acquisitions and to account for goodwill in a more cost-effective manner.” Under the ASU, NFP entities are allowed to forgo testing goodwill for impairment annually at the reporting level and to instead use an accounting alternative in which:
• Goodwill is amortized “over 10 years or less, on a straight-line basis.”
• Impairment is tested “upon a triggering event.”
• An entity has “the option to elect to test for impairment at the entity level.”
ASU 2019-06 became effective upon issuance.
Other Resources: Deloitte’s June 12, 2019, Heads Up. Also see the press release on the FASB’s Web site.
FASB Proposes Improvements to Credit Losses StandardAffects: All entities.
Summary: On June 27, 2019, the FASB issued a proposed ASU14 that would amend certain aspects of the FASB’s guidance on credit losses, including (1) purchased credit-deteriorated financial assets, (2) transition relief for troubled debt restructurings, (3) disclosure relief for accrued interest receivable, and (4) financial assets secured by collateral maintenance provisions. The proposal would also make conforming amendments to ASC 805-20.
Next Steps: Comments on the proposed ASU are due by July 29, 2019.
Other Resources: Deloitte’s June 28, 2019, Heads Up. Also see the press release on the FASB’s Web site.
Disclosures
FASB Issues Proposed ASU to Align Certain FASB Codification Guidance With SEC Disclosure RequirementsAffects: All entities.
Summary: On May 6, 2019, the FASB issued a proposed ASU15 in response to the SEC’s disclosure update and simplification initiative. The proposal would “clarify or improve disclosure and presentation requirements of a variety of Codification Topics” by aligning “the requirements in the Codification with SEC’s regulations.”
Next Steps: Comments on the proposed ASU were due by June 28, 2019.
Income Taxes
FASB Proposes Simplifications to Accounting for Income TaxesAffects: All entities.
Summary: On May 14, 2019, the FASB issued a proposed ASU16 that is intended to simplify the accounting for income taxes to reduce its cost and complexity. Specifically, the proposed ASU (which is part of the Board’s simplification initiative) would (1) remove certain exceptions to the general principles in ASC 740 and (2) simplify certain aspects of income-tax-related GAAP for financial statement preparers. The proposal would not create new accounting requirements in ASC 740.
Next Steps: Comments on the proposed ASU are due by June 28, 2019.
Other Resources: Deloitte’s May 29, 2019, Heads Up. Also see the press release on the FASB’s Web site.
14 FASB Proposed Accounting Standards Update, Codification Improvements to Topic 326, Financial Instruments — Credit Losses.15 FASB Proposed Accounting Standards Update, Disclosure Improvements — Codification Amendments in Response to the SEC’s Disclosure
Update and Simplification Initiative.16 FASB Proposed Accounting Standards Update, Simplifying the Accounting for Income Taxes.
In This Section• Credit Losses
o FASB Proposes Improvements to Credit Losses Standard
• Disclosureso FASB Issues Proposed
ASU to Align Certain FASB Codification Guidance With SEC Disclosure Requirements
• Income Taxes o FASB Proposes
Simplifications to Accounting for Income Taxes
• Internationalo IASB Publishes
Proposed Amendments to IFRS 17
o IASB Proposes IFRS 3 Amendments Related to the Conceptual Framework
o IASB Proposes Amendments as Part of Annual Improvements Process
o IASB Releases Proposal Related to Reform of Interest Rate Benchmarks
IASB Publishes Proposed Amendments to IFRS 17Affects: Entities reporting under IFRS Standards.
Summary: On June 27, 2019, the IASB published an ED17 to address concerns and implementation challenges with the IASB’s insurance contracts standard, IFRS 17, which was published in 2017. Revisions made by the proposed amendments would include:
• Deferral of the date of initial application of IFRS 17 by one year to annual periods beginning on or after January 1, 2022, and change in the fixed expiry date for the temporary exemption in IFRS 418 from applying IFRS 919 so that entities would be required to apply IFRS 9 for annual periods beginning on or after January 1, 2022.
• Optional scope exclusion for loan contracts that transfer significant insurance risk and related transition requirements to enable entities issuing such contracts to account for those contracts by applying either IFRS 17 or IFRS 9.
• Scope exclusion for credit card contracts that provide insurance coverage.
• Amendments related to allocation, recognition, recoverability assessment, and disclosure of insurance acquisition cash flows associated with expected contract renewals.
• Amendments related to the contractual service margin allocation.
• Extension of the risk mitigation option to reinsurance contracts held.
• Requirement for entities to recognize a gain on reinsurance contracts held when, at initial recognition, such entities also recognized losses on onerous insurance contracts issued.
• Simplified presentation of insurance contracts in the statement of financial position.
• Transition relief related to business combinations.
• Transition relief related to the date of application of the risk mitigation option and the use of the fair value transition approach.
Next Steps: Comments on the ED are due by September 25, 2019.
Other Resources: For more information, see the press release and snapshot on the IASB’s Web site.
IASB Proposes IFRS 3 Amendments Related to the Conceptual FrameworkAffects: Entities reporting under IFRS Standards.
Summary: On May 30, 2019, the IASB published an ED20 that would:
• Update Conceptual Framework references in IFRS 3 to align the standard with the 2018 version of the framework instead of the 1989 version; these updates would not change the accounting requirements for business combinations.
17 IASB Exposure Draft, Amendments to IFRS 17.18 IFRS 4, Insurance Contracts.19 IFRS 9, Financial Instruments.20 IASB Exposure Draft, Reference to the Conceptual Framework — proposed amendments to IFRS 3.
• Require that — for transactions and other events within the scope of IAS 3721 or IFRIC 2122 — an acquirer should apply IAS 37 or IFRIC 21 (instead of the Conceptual Framework) to identify the liabilities it has assumed in a business combination.
• Explicitly state that an acquirer should not recognize contingent assets acquired in a business combination.
Next Steps: Comments on the ED are due by September 27, 2019.
Other Resources: For more information, see the press release on the IASB’s Web site.
IASB Proposes Amendments as Part of Annual Improvements ProcessAffects: Entities reporting under IFRS Standards.
Summary: On May 21, 2019, the IASB published an ED23 that would amend certain IFRS Standards as part of its annual improvements process (i.e., a project to make necessary, but nonurgent, amendments to IFRS Standards that will not be made as part of another major project). Specifically, the ED would make revisions to the following standards:
• IFRS 1, First-time Adoption of International Financial Reporting Standards.
• IFRS 9, Financial Instruments.
• IFRS 16, Leases (just the accompanying illustrative examples).
• IAS 41, Agriculture.
Next Steps: Comments on the ED are due by August 20, 2019.
Other Resources: Deloitte’s May 22, 2019, IFRS in Focus. Also see the press release on the IASB’s Web site.
IASB Releases Proposal Related to Reform of Interest Rate BenchmarksAffects: Entities reporting under IFRS Standards.
Summary: On May 3, 2019, the IASB published an ED24 that would amend IFRS 925 and IAS 3926 “in light of the reform of interest rate benchmarks” (e.g., interbank offered rates). The purpose of the proposed amendments is to “provide relief from specific hedge accounting requirements that could have resulted in the discontinuation of hedge accounting solely due to the uncertainty arising from interest rate benchmark reform.”
Comments on the ED were due by June 17, 2019.
Other Resources: Deloitte’s May 8, 2019, IFRS in Focus. Also see the press release and snapshot on the IASB’s Web site.
21 IAS 37, Provisions, Contingent Liabilities and Contingent Assets.22 IFRIC Interpretation 21, Levies.23 IASB Exposure Draft, Annual Improvements to IFRS Standards 2018–2020.24 IASB Exposure Draft, Interest Rate Benchmark Reform — proposed amendments to IFRS 9 and IAS 39.25 IFRS 9, Financial Instruments.26 IAS 39, Financial Instruments: Recognition and Measurement.
AICPA Issues Proposed SAS on Audit EvidenceAffects: Auditors.
Summary: On June 20, 2019, the AICPA issued a proposed SAS27 that would supersede certain guidance on audit evidence in SAS 122.28 The proposed SAS addresses “the evolving nature of business and audit services and issues that have arisen during the standard-setting activities of the [Auditing Standards Board, including] use of emerging technologies by both preparers and auditors, audit data analytics (ADA), the application of professional skepticism, the expanding use of external information sources as audit evidence, and more broadly, the accuracy, completeness, and reliability of audit evidence.”
Next Steps: Comments on the proposed SAS are due by September 18, 2019.
AICPA Proposes Amendments Related to the Definition of MaterialityAffects: Auditors.
Summary: On June 5, 2019, the AICPA’s Auditing Standards Board issued an ED29 of a proposed SAS and a proposed Statement on Standards for Attestation Engagements (SSAE) that would “align the materiality concepts discussed in AICPA Professional Standards with the definition of materiality used by the U.S. judicial system, the auditing standards of the PCAOB, the [SEC], and the [FASB].”
Next Steps: Comments on the proposed SAS and proposed SSAE are due by August 5, 2019.
AICPA Issues New Statements on Auditing StandardsAffects: Auditors.
Summary: On May 8, 2019, the AICPA issued the following SASs:
• SAS 13430 — “[A]ddresses the auditor’s responsibility to form an opinion on the financial statements and the form and content of the auditor’s report issued as a result of an audit of financial statements.” This SAS also discusses “the auditor’s responsibilities, and the form and content of the auditor’s report, when the auditor concludes that a modification to the auditor’s opinion on the financial statements is necessary, and when additional communications are necessary in the auditor’s report.”
• SAS 13531 — The primary purpose of this SAS is “to more closely align [AICPA] guidance with the PCAOB’s standards” by amending AU-C Sections 260,32 550,33 and 240.34
Other Resources: For more information, see the press release on the AICPA’s Web site.
27 AICPA Proposed Statement on Auditing Standards (SAS), Audit Evidence.28 AICPA Statement on Auditing Standards No. 122, Statements on Auditing Standards: Clarification and Recodification.29 AICPA Exposure Draft, Amendments to the Description of the Concept of Materiality.30 AICPA Statement on Auditing Standards No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in
the Audit of Financial Statements.31 AICPA Statement on Auditing Standards No. 135, Omnibus Statement on Auditing Standards — 2019.32 AICPA Professional Standards, AU-C Section 260, “The Auditor’s Communication With Those Charged With Governance.”33 AICPA Professional Standards, AU-C Section 550, “Related Parties.”34 AICPA Professional Standards, AU-C Section 240, “Consideration of Fraud in a Financial Statement Audit.”
In This Section• AICPA
o AICPA Issues Proposed SAS on Audit Evidence
o AICPA Proposes Amendments Related to the Definition of Materiality
o AICPA Issues New Statements on Auditing Standards
• CAQo CAQ Issues
Publication on Emerging Technology
o CAQ Updates Publication on ICFR
o CAQ Releases Publication on Credit Losses
o CAQ Updates Publication on Assessing External Auditors
• PCAOB o PCAOB Issues
Staff Guidance on Communications With Audit Committees Concerning Independence
o PCAOB Issues Staff Guidance on Implementing CAM Requirements
CAQ Issues Publication on Emerging TechnologyAffects: All entities.
Summary: On May 16, 2019, the CAQ released a publication on emerging technology35 that “explores financial reporting implications of the evolving use of technology such as artificial intelligence, the internet of things, and smart contracts.”
CAQ Updates Publication on ICFRAffects: All entities.
Summary: On May 9, 2019, the CAQ released an updated version of its guide36 on internal control over financial reporting (ICFR). The publication provides an overview of ICFR and focuses on “key ICFR concepts” such as the control environment, control activities, reasonable assurance, and the hierarchy of ICFR deficiencies. The 2019 edition includes “additional information highlighting the significant body of research demonstrating the importance of ICFR to enhancing investor confidence and strengthening the financial reporting process.”
CAQ Releases Publication on Credit Losses Affects: Audit committees.
Summary: On May 7, 2019, the CAQ released a publication37 designed to help audit committees with overseeing entities’ implementation of the FASB’s new credit losses standard, ASC 326, which becomes effective on January 1, 2020, for most calendar-year-end entities that are SEC filers. The publication contains key questions for audit committees to consider and is divided into four sections addressing the following topics:
• Understanding the credit losses standard.
• Evaluating the entity’s impact assessment.
• Evaluating the implementation plan.
• Other important implementation considerations.
Other Resources: For more information, see the press release on the CAQ’s Web site.
CAQ Updates Publication on Assessing External AuditorsAffects: Audit committees.
Summary: On April 2, 2019, the CAQ released an updated version of its publication38 for audit committees on assessing external auditors. The purpose of the publication is to “assist audit committees in carrying out their responsibilities of appointing, overseeing, and determining compensation for the external auditor.”
35 CAQ Publication, Emerging Technologies, Risk, and the Auditor’s Focus: A Resource for Auditors, Audit Committees, and Management.36 CAQ Guide, Guide to Internal Control Over Financial Reporting.37 CAQ Publication, Preparing for the New Credit Losses Standard.38 CAQ Publication, External Auditor Assessment Tool : A Reference for US Audit Committees.
PCAOB Issues Staff Guidance on Communications With Audit Committees Concerning IndependenceAffects: Auditors.
Summary: On May 31, 2019, the PCAOB issued staff guidance39 that discusses “questions that have arisen in practice regarding application of Rule 3526(b),” which addresses communications with audit committees concerning independence. The staff guidance “(1) provides a summary of Rule 3526(b) and background information; (2) addresses the purpose of the guidance; and (3) provides specific direction to registered public accounting firms on how to comply with their Rule 3526(b) obligations.”
PCAOB Issues Staff Guidance on Implementing CAM Requirements Affects: Auditors.
Summary: On May 22, 2019, the PCAOB issued staff guidance40 on implementing its new requirements related to critical audit matters (CAMs). The staff guidance provides answers to a number of FAQs that address “questions that may arise when the auditor is communicating CAMs” in accordance with Auditing Standard 3101.41
Summary: On May 6, 2019, the PCAOB published a staff inspection brief that previews its 2018 inspection observations. Topics covered in the inspection brief include (1) observations and good practices related to efforts to improve audit quality; (2) common audit deficiencies observed in 2018; and (3) observations on technology, implementation of new accounting and auditing standards and rules, and audit committee communications.
39 PCAOB Staff Guidance, Rule 3526(b) Communications With Audit Committees Concerning Independence.40 PCAOB Staff Guidance, Implementation of Critical Audit Matters: A Deeper Dive on the Communication of CAMs.41 PCAOB Auditing Standard No. 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified
SEC Issues Final Rule Related to Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Broker-DealersAffects: SEC registrants.
Summary: On June 21, 2019, the SEC issued a final rule42 containing new and amended requirements related to its capital, margin, and segregation regulations for security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs). Specifically, the final rule, which is being issued in response to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, addresses (1) capital rules for nonbank SBSDs and MSBSPs, (2) margin requirements for nonbank SBSDs and nonbank MSBSPs, (3) segregation requirements for broker-dealers and SBSDs, and (4) cross-border application.
Next Steps: The final rule will become effective 60 days after the date of its publication in the Federal Register.
Other Resources: For more information, see the press release on the SEC’s Web site.
Summary: On June 18, 2019, the SEC issued a final rule43 to amend its auditor independence rules. Specifically, the amendments refocus “the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client at any time during an audit or professional engagement period.”
Next Steps: The final rule will become effective 90 days after the date of its publication in the Federal Register.
Other Resources: For more information, see the press release on the SEC’s Web site.
SEC Requests Feedback on How to Improve Private Securities Offering ExemptionsAffects: SEC registrants.
Summary: On June 18, 2019, the SEC issued for public comment a concept release44 that requests feedback on “several exemptions from registration under the Securities Act of 1933 that facilitate capital raising.” Specifically, the Commission is looking for potential ways “to simplify, harmonize, and improve the exempt offering framework to promote capital formation and expand investment opportunities while maintaining appropriate investor protections.”
Next Steps: Comments on the concept release are due by September 24, 2019.
Other Resources: For more information, see the press release on the SEC’s Web site.
42 SEC Final Rule Release No. 34-86175, Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital and Segregation Requirements for Broker-Dealers.
43 SEC Final Rule Release No. 33-10648, Auditor Independence With Respect to Certain Loans or Debtor-Creditor Relationships.44 SEC Release No. 33-10649, Concept Release on Harmonization of Securities Offering Exemptions.
Regulatory and Compliance DevelopmentsIn This Section• SEC
o SEC Issues Final Rule Related to Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Broker-Dealers
o SEC Amends Auditor Independence Rules
o SEC Requests Feedback on How to Improve Private Securities Offering Exemptions
o SEC Amends the Single Issuer Exemption for Broker-Dealers
o SEC Issues Guidance Related to Retail Investors’ Relationships With Financial Professionals
o CAQ Releases Highlights of CAQ SEC Regulations Committee’s March 2019 Joint Meeting With the SEC Staff
o SEC Proposes to Ease Qualifications for Nonaccelerated Filer Status
o SEC Proposes Improvements to Disclosures for Business Acquisitions and Dispositions
o SEC Staff Issues Guidance on Investment Contract Analysis of Digital Assets
o SEC Releases Announcement About Exhibits Containing Immaterial, Competitively Harmful Information
SEC Amends the Single Issuer Exemption for Broker-DealersAffects: Broker-dealers.
Summary: On June 10, 2019, the SEC issued a final rule45 that clarifies the scope of an existing exemption under which a broker-dealer is not required to “engage an independent public accountant to certify the broker-dealer’s annual reports filed with the Commission if, among other things, the securities business of the broker-dealer has been limited to acting as broker (agent) for a single issuer in soliciting subscriptions for securities of that issuer.”
Next Steps: The final rule will become effective on August 13, 2019.
SEC Issues Guidance Related to Retail Investors’ Relationships With Financial ProfessionalsAffects: Investment advisers and broker-dealers.
Summary: On June 5, 2019, the SEC released a package of rules and interpretations that are “designed to enhance the quality and transparency of retail investors’ relationships with investment advisers and broker-dealers, bringing the legal requirements and mandated disclosures in line with reasonable investor expectations, while preserving access (in terms of choice and cost) to a variety of investment services and products.” The package includes:
• Final rule46 on standard of conduct for broker-dealers — Establishes a “new standard of conduct specifically for broker-dealers that substantially enhances the broker-dealer standard of conduct beyond existing suitability obligations.”
• Final rule47 on relationship summaries — Requires investment advisers and broker-dealers “to deliver a relationship summary to retail investors at the beginning of their relationship.”
• Interpretation48 on standard of conduct for investment advisers — Reaffirms and clarifies “the Commission’s views of the fiduciary duty that investment advisers owe to their clients under the Advisers Act.”
• Interpretation49 on the “solely incidental” exclusion — Discusses the provision of the Investment Advisers Act of 1940 that “excludes from the definition of ‘investment adviser’ any broker or dealer that provides advisory services when such services are ‘solely incidental’ to the conduct of the broker or dealer’s business and when such incidental advisory services are provided for no special compensation.”
Next Steps: The rules will become effective 60 days after the date of their publication in the Federal Register, while the interpretations will become effective on the date of their publication in the Federal Register.
Other Resources: For more information, see the press release on the SEC’s Web site.
45 SEC Final Rule Release No. 34-86073, Amendment to Single Issuer Exemption for Broker-Dealers.46 SEC Final Rule Release No. 34-86031, Regulation Best Interest: The Broker-Dealer Standard of Conduct.47 SEC Final Rule Release No. 34-86032, Form CRS Relationship Summary: Amendments to Form ADV.48 SEC Interpretive Release No. IA-5248, Commission Interpretation Regarding Standard of Conduct for Investment Advisers.49 SEC Interpretive Release No. IA-5249, Commission Interpretation Regarding the Solely Incidental Prong of the Broker-Dealer Exclusion
CAQ Releases Highlights of CAQ SEC Regulations Committee’s March 2019 Joint Meeting With the SEC StaffAffects: SEC registrants.
Summary: In May 2019, the CAQ published highlights of the March 20, 2019, CAQ SEC Regulations Committee joint meeting with the SEC staff. Topics discussed at the meeting included:
• Emerging growth company (EGC) transition requirements for new accounting standards.
• Presentation of the contractual obligations table upon adoption of the new leasing standard, ASC 842.
• Presentation of earnings before interest, tax, depreciation, and amortization (EBITDA) after the adoption of ASC 842.
• The requirements in Regulation S-X, Rule 3-05,50 for EGCs submitting a draft registration statement for an IPO.
• Impact of ASC 842 on significance tests under Rule 3-05.
• Financial statement schedules for an investee under Regulation S-X, Rule 3-09.51
• The requirement to file a Form 8-K under Item 2.01 when a waiver for Rule 3-05 financial statements has been obtained.
SEC Proposes to Ease Qualifications for Nonaccelerated Filer StatusAffects: SEC registrants.
Summary: On May 9, 2019, the SEC issued a proposed rule52 that would amend the definitions of “accelerated filer” and “large accelerated filer” to exclude any issuer with both annual revenues of less than $100 million and public float of less than $700 million. The proposed amendments, which are intended to promote capital formation while maintaining investor protection, would expand the number of issuers that qualify as nonaccelerated filers and are thus eligible to take advantage of certain reporting accommodations offered to such issuers. The most significant of these accommodations is the elimination of the requirement that an issuer obtain an audit report on ICFR from its independent auditor, as currently required under Section 404(b) of the Sarbanes-Oxley Act of 2002.
Next Steps: Comments on the proposed rule are due by July 29, 2019.
Other Resources: Deloitte’s May 14, 2019, Heads Up. Also see the press release on the SEC’s Web site.
SEC Proposes Improvements to Disclosures for Business Acquisitions and DispositionsAffects: SEC registrants.
Summary: On May 3, 2019, the SEC issued a proposed rule53 that would amend the financial statement requirements for acquisitions and dispositions of businesses, including real estate operations, and related pro forma financial information. In addition, the proposed rule would
50 SEC Regulation S-X, Rule 3-05, “Financial Statements of Businesses Acquired or to Be Acquired.”51 SEC Regulation S-X, Rule 3-09, “Separate Financial Statements of Subsidiaries Not Consolidated and 50 Percent or Less Owned
Persons.52 SEC Proposed Rule Release No. 34-85814, Amendments to the Accelerated Filer and Large Accelerated Filer Definitions.53 SEC Proposed Rule Release No. 33-10635, Amendments to Financial Disclosures About Acquired and Disposed Businesses.
amend the financial disclosure requirements for smaller reporting companies (SRCs) and investment companies. The proposal is intended to improve the information investors receive regarding acquired or disposed businesses, reduce the complexity and costs of preparing the required disclosures, and facilitate timely access to capital.
The proposed rule would:
• Change the investment test to require use of the aggregate worldwide market value of the registrant’s common equity.
• Change the income test to require use of the lower of (1) income from continuing operations after taxes or (2) revenue.
• Reduce required acquiree annual financial statement periods to a maximum of the two most recent fiscal years.
• Result in fewer circumstances in which acquiree financial statements would be required for an IPO and for individually insignificant acquirees.
• Permit the use of abbreviated financial statements for an acquiree in certain circumstances without a request for SEC staff permission.
• Allow the use of, or reconciliation to, IFRS Standards in certain circumstances.
• Amend the pro forma financial disclosure requirements related to (1) transaction accounting adjustments and (2) management’s adjustments (e.g., reasonably estimable synergies and other impacts of an acquisition).
• Align certain requirements for a real estate acquiree with those in Rule 3-05.
• Raise the significance threshold for reporting dispositions of a business from 10 percent to 20 percent to conform the threshold with that of a significant acquisition.
• Make other changes specific to SRCs and investment companies.
The changes summarized above could be significant for some registrants. However, many elements of Rule 3-05 would be retained under the proposed rule. For example, although some significance tests would be modified, the proposed rule would not change certain bright-line significance thresholds since, as explained in the proposal, such tests can allow registrants to evaluate significance more quickly than judgment-based models can.
Next Steps: Comments on the proposed rule are due by July 29, 2019.
Other Resources: Deloitte’s May 9, 2019, Heads Up. Also see the press release on the SEC’s Web site.
SEC Staff Issues Guidance on Investment Contract Analysis of Digital AssetsAffects: SEC registrants.
Summary: On April 3, 2019, the SEC staff issued guidance54 that contains a “framework for analyzing whether a digital asset has the characteristics of one particular type of security – an ‘investment contract.’ ” In a public statement about the guidance, the staff noted that “[t]he framework is not intended to be an exhaustive overview of the law, but rather, an analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset.”
54 SEC Staff Guidance, Framework for “Investment Contract” Analysis of Digital Assets.
Summary: On April 1, 2019, the SEC posted to its Web site an announcement55 on the new rules and procedures in the Commission’s recently issued final rule56 on modernization and simplification of Regulation S-K, specifically those related to exhibits containing immaterial and competitively harmful information. Topics discussed in the announcement include (1) new rule requirements related to the identification of where information has been omitted from a filed exhibit, (2) the process of reviewing registrants’ filings for compliance, and (3) transition issues.
55 SEC Announcement, New Rules and Procedures for Exhibits Containing Immaterial, Competitively Harmful Information.56 SEC Final Rule Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K.
Appendix B: Current Status of FASB ProjectsThis appendix summarizes the current status and next steps for the FASB’s active standard-setting projects (excluding research initiatives).
Project Status and Next Steps Deloitte Resources
Recognition and Measurement Projects
Codification improvements
GeneralThe FASB has a standing project on its agenda to make regular updates and improvements to the Codification (e.g., technical corrections and clarifications).
Financial instrumentsOn April 25, 2019, the FASB issued ASU 2019-04, which makes limited improvements to its guidance on credit losses, hedging, and recognition and measurement of financial instruments.
On May 8, 2019, the FASB decided to make limited amendments to its hedge accounting guidance in response to stakeholder feedback on ASU 2017-12.
On June 5, 2019, the FASB decided to issue a proposed ASU that would make limited improvements to its guidance on credit losses. The Board issued this proposal on June 27, 2019; comments are due by July 29, 2019.
In addition, the FASB is developing a proposed ASU on credit loss vintage disclosure.
Share-Based Consideration Payable to a CustomerOn March 4, 2019, the FASB issued a proposed ASU that would clarify that share-based payments made as consideration payable to a customer should be measured and classified in accordance with ASC 718. Comments were due by April 18, 2019.
Journal Entry — FASB Discusses Proposed Improvements to Measurement of Credit Losses (June 5, 2019)
Journal Entry — FASB Tentatively Approves Targeted Improvements to Accounting for Hedging Activities (May 16, 2019)
Heads Up — FASB Issues Proposed ASU to Address the Accounting for Share-Based Payments Issued as Sales Incentives to Customers (March 5, 2019)
Consolidation reorganization and targeted improvements
On September 20, 2017, the FASB issued a proposed ASU that would reorganize the consolidation guidance in ASC 810 by dividing it into separate subtopics for voting interest entities and variable interest entities (VIEs). The new subtopics would be included in a new topic, ASC 812, which would supersede ASC 810. Comments on the proposal were due by December 4, 2017. On June 27, 2018, the FASB decided to continue the project.
Heads Up — FASB Proposes to Reorganize Its Consolidation Guidance (October 5, 2017)
Distinguishing liabilities from equity (including convertible debt)
The FASB added this project to its technical agenda on September 20, 2017. On June 6, 2018, the Board decided to research an accounting model in which convertible instruments with embedded conversion features would be treated as a single unit of account unless the embedded conversion feature must be bifurcated as a derivative. On February 13, 2019, the Board decided to relax the equity classification conditions in ASC 815-40. On April 3, 2019, the Board made decisions about consequential amendments, technical corrections, and transition. On June 19, 2019, the FASB directed its staff to prepare a proposed ASU for a vote by written ballot. The proposal is expected to be issued in the third quarter of 2019.
Extending private- company accounting alternatives on certain identifiable intangible assets and goodwill to NFP entities
On May 30, 2019, the FASB issued ASU 2019-06, which extends the private-company alternatives on goodwill and certain identifiable intangible assets in ASU 2014-02 and ASU 2014-18 to NFP entities.
Heads Up — FASB Extends Certain Private-Company Accounting Alternatives to Not-for-Profit Entities (June 12, 2019)
On May 15, 2019, the FASB issued ASU 2019-05, which allows entities, upon adoption of ASC 326, to irrevocably elect the fair value option for certain financial assets within the scope of ASC 326-20 on an instrument-by-instrument basis.
Heads Up — FASB Issues Targeted Transition Relief for Entities Adopting ASU 2016-13 (May 15, 2019)
Financial instruments — clarifying the interaction between ASC 321 and ASC 323 (EITF Issue 19-A)
The FASB added this project to the EITF’s agenda on May 8, 2019, to address (1) the accounting for equity securities under the measurement alternative upon the application and discontinuation of the equity method, (2) recognizing investee losses when an investor has other equity investments in the investee, and (3) scope considerations related to certain forward contracts and purchased call options on equity securities. On June 26, 2019, the FASB ratified the consensus-for-exposure reached by the EITF at its June 13, 2019, meeting. A proposed ASU is expected to be issued in the third quarter of 2019.
EITF Snapshot (June 2019)
Hedging: last-of-layer method
On March 28, 2018, the FASB decided to add a narrow-scope project to address the accounting for last-of-layer basis adjustments and hedging multiple layers under the last of layer method in accordance with ASU 2017-12.
Identifiable intangible assets and subsequent accounting for goodwill
On October 24, 2018, the FASB added this project to its technical agenda and directed the staff to draft an Invitation to Comment, which is expected to be released in the second quarter of 2019.
Improving the accounting for asset acquisitions and business combinations
On August 2, 2017, the FASB tentatively decided that this project should (1) address differences between the accounting for acquisitions of assets and that for acquisitions of businesses and (2) focus on the accounting for transaction costs, in-process research and development, and contingent consideration. On May 8, 2018, the FASB discussed how certain aspects of the accounting for asset acquisitions could be aligned with those for business combinations. On May 8, 2019, the FASB decided to expand the scope of this project to include the accounting for in-process research and development and contingent consideration obligations recognized upon the initial consolidation of a variable interest entity that is not a business.
Recognition under ASC 805 for an assumed liability in a revenue contract (EITF Issue 18-A)
On February 14, 2019, the FASB issued a proposed ASU that would address the recognition of an assumed liability in a revenue contract acquired in a business combination. Simultaneously, the FASB released an invitation to comment on related issues. Comments on either document were due by April 30, 2019.
EITF Snapshot (June 2019)
Reference rate reform: Facilitation of the effects of the LIBOR-to-SOFR transition on financial reporting
On August 29, 2018, the FASB added a project to its agenda to consider changes to GAAP necessitated by the market-wide transition from LIBOR to SOFR, with the objective of facilitating the transition. On June 19, 2019, the FASB tentatively decided to provide relief from certain GAAP requirements.
Journal Entry — FASB Discusses Reference Rate Reform Distinguishing Liabilities From Equity, and the Conceptual Framework (June 26, 2019)
Revenue recognition: contract modifications of licenses of intellectual property (EITF Issue 19-B)
On May 8, 2019, the FASB decided to add this project to the EITF’s agenda to address the accounting for contract modifications of licenses of intellectual property (including additional rights granted and revocation of licensing rights).
Journal Entry — FASB Adds Projects to EITF Technical Agenda at Agenda Prioritization Board Meeting (May 10, 2019)
EITF Snapshot (June 2019)
Simplifications to accounting for income taxes
The Board added this project to its agenda on April 10, 2019. On May 14, 2019, the FASB issued a proposed ASU that would make limited amendments to ASC 740 to simplify the accounting for income taxes. Comments on the proposal were due by June 28, 2019.
Heads Up — FASB Proposes Simplifications to Accounting for Income Taxes (May 29, 2019)
On July 26, 2016, the FASB issued a proposed ASU that would modify existing and add new income tax disclosure requirements. Comments on the proposed ASU were due by September 30, 2016. On March 25, 2019, the FASB issued a revised proposed ASU on this topic; comments were due by May 31, 2019.
Heads Up — FASB Proposes Changes to Income Tax Disclosure Requirements (March 29, 2019)
On January 10, 2017, the FASB issued a proposed ASU that would modify or eliminate certain disclosure requirements related to inventory and establish new requirements. Comments on the proposed ASU were due by March 13, 2017. On June 21, 2017, the Board discussed a summary of comments received.
Heads Up — FASB Proposes Updates to Inventory Disclosures (January 12, 2017)
At its May 28, 2014, meeting, the FASB decided to amend ASC 270 “to reflect that disclosures about matters required to be set forth in annual financial statements should be provided on an updated basis in the interim report if there is a substantial likelihood that the updated information would be viewed by a reasonable investor as significantly altering the ’total mix’ of information available to the investor.” On July 11, 2018, the Board directed the staff to develop principles for interim disclosure.
Disclosure improvements in response to SEC’s release on disclosure update and simplification
On May 6, 2019, the FASB issued a proposed ASU that would make Codification amendments in response to the SEC’s disclosure update and simplification initiative. Comments on the proposal were due by June 28, 2019.
Disclosures by business entities about government assistance
On November 12, 2015, the FASB issued a proposed ASU that would require specific disclosures about government assistance received by businesses. Comments on the proposed ASU were due by February 10, 2016. The FASB most recently discussed this project on February 27, 2019.
Journal Entry — FASB Begins Redeliberating Project on Business Entities’ Disclosures About Government Assistance (June 14, 2016)
Heads Up — FASB Proposes ASU to Increase Transparency of Accounting for Government Assistance Arrangements (November 20, 2015)
Financial performance reporting: disaggregation of performance information
The FASB added this project to its technical agenda on September 20, 2017, “to focus on the disaggregation of performance information either through presentation in the statement of income or disclosure in the notes.” The FASB most recently discussed this project on April 24, 2019.
Segment reporting The FASB added this project to its technical agenda on September 20, 2017. The purpose of the project is to improve “the aggregation criteria and segment disclosures.” The FASB most recently discussed this project on May 29, 2019.
Simplifying the balance sheet classification of debt
On January 10, 2017, the FASB issued a proposed ASU that would reduce the complexity of determining whether debt should be classified as current or noncurrent in a classified balance sheet. Comments on the proposal were due by May 5, 2017. The FASB most recently discussed this project on March 20, 2019, when it decided to issue another proposed ASU. The FASB expects to issue a proposed ASU on this topic in the third quarter of 2019.
Journal Entry — FASB Addresses Sweep Issues Related to Simplifying the Balance Sheet Classification of Debt (August 24, 2018)
Journal Entry — FASB Concludes Redeliberations on Simplifying the Balance Sheet Classification of Debt (Current Versus Noncurrent) (September 15, 2017)
Heads Up — FASB Proposes Changes to Simplify the Balance Sheet Classification of Debt (January 12, 2017)
Framework Projects
Conceptual framework PresentationOn August 11, 2016, the FASB issued a proposed concepts statement that would add a new chapter on presentation of financial statement information to the conceptual framework. Comments were due by November 9, 2016. On May 3, 2017, the FASB discussed feedback received.
MeasurementOn June 18, 2014, the Board decided to begin developing concepts related to measurement. The Board most recently discussed this project on June 19, 2019.
ElementsOn May 3, 2017, the FASB decided to add a conceptual framework project on elements. The FASB most recently discussed this project on June 19, 2019.
FASB Proposes Changes to Income Tax Disclosure Requirements (March 29, 2019)
The New Revenue Standard — A Look at SEC Feedback in Year 1 (March 28, 2019)
Accounting Spotlight NewslettersRevenue Recognition — Determining Whether a Performance Obligation Is Satisfied at a Point in Time or Over Time (June 24, 2019)
Revenue Recognition — Evaluating Whether an Entity Is Acting as a Principal or as an Agent (May 28, 2019)
Revenue Recognition — Accounting for Costs of Obtaining a Contract (April 5, 2019)
EITF Snapshot NewsletterJune 2019
Industry Spotlight SeriesMedia & Entertainment Spotlight — Navigating ASU 2019-02 — Improvements to Accounting for Costs of Films and License Agreements for Program Materials (May 21, 2019)
Power & Utilities Spotlight — Deploying New Tools to Elevate Risk Management as Power and Utilities Companies Become More Digital (April 15, 2019)
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