We are pleased to release MaloneBailey's August 2022 issue of The Crunch, our newsletter highlighting recent accounting, regulatory and tax updates. Please note that the updates provided in this newsletter are not a comprehensive list.
We encourage you to visit the SEC, FASB and IRS websites for more information as well as a complete list of updated rules, regulations and proposals. We invite you to contact us should you have any questions about the information provided in this issue. Please visit our website to review archived versions of this newsletter containing past accounting, regulatory and tax updates.
The MaloneBailey Team
www.malonebailey.com
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What's the Crunch?
Featured Podcast
- Interpersonal Skills in the Workplace
Recent Accounting & Regulatory Updates
Recent FASB & AICPA Updates
- FASB Accounting Standards Updates - Accounting Standards Update No. 2022-03 —Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
- Other Exposure Documents - Invitation to Comment 2022-002 —Accounting for Government Grants by Business Entities —Potential Incorporation of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, into Generally Accepted Accounting Principles
- FAF - 2022 Strategic Plan Draft For Public Comment
- Intangible Assets –FASB Discusses Identifiable Intangible Assets
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GASB Pronouncements –GASB Issues 2022 Omnibus on Practice Issues Omnibus 2022 –OMB Issues 2022 Compliance Supplement ·
- New Edition of AICPA Practice Aid Published
- Digital Assets –FASB Discusses Accounting for Exchange-Traded Digital Assets and Commodities
- Interim Reporting –FASB Discusses Narrow-Scope Improvements to Interim Reporting
- Beneficial Owners –AICPA Ethics Division Proposes Revisions Related to Officers, Directors, and Beneficial Owners
- Error Corrections –GASB Issues Statement No. 100 on Accounting Standards and Error Corrections
- IFRS –IASB Completes Review of IFRS 10, 11 and 12 and Publishes Report
- Cash Flows –FASB Discusses Statement of Cash Flows
- Risks –GASB Issues Exposure Draft on Disclosures about Certain Governmental Risks
Recent SEC & PCAOB Updates
- Release No. 33-11061: The Enhancement and Standardization of Climate - Related Disclosures for Investors
- Release No.33-11070: Updating EDGAR Filing Requirements and Form 144 Filings
- The Critical Importance of the General Standard of Auditor Independence and an Ethical Culture for the Accounting Profession[1], Paul Munter, Acting Chief Accountant, Office of the Chief Accountant
- Resolving the Lack of Audit Transparency in China and Hong Kong: Remarks at the International Council of Securities Associations (ICSA) Annual General Meeting by YJ Fischer, Director, Office of International Affairs
- Remarks at Securities Enforcement Forum West 2022 by Gurbir S. Grewal, Director, Division of Enforcement
- Release No. 33-11042: The Enhancement and Standardization of Climate-Related Disclosures for Investors
- ESG –SEC Proposes to Enhance Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices
- Securities Exchange Act –SEC Staff Updates Compliance and Disclosure Interpretation on Exchange Act Sections
Tax
- Tax Compliance and Disclosure for Asset Acquisitions
Extra Crunch
- PCAOB: Staff Overview for Planned 2022 Inspections
About MaloneBailey, LLP
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Interpersonal Skills in the Workplace
Summary - In this episode of Everybody Counts, Caroline Rosen, Marketing and Communications Manager, speaks with Rozlyn Veteto, who oversees HR at MaloneBailey, about the importance of interpersonal skills in the workplace.
Simply click on the image below to listen to the podcast. For this podcast and many more, please visit the Resources section of our website.
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Recent FASB & AICPA Updates
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FASB Accounting Standards Updates - Accounting Standards Update No. 2022-03 —Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
Summary - The FASB has issued an Accounting Standards Update (ASU) that improves financial reporting for investors and other financial statement users by increasing comparability of financial information across reporting entities that have investments in equity securities measured at fair value that are subject to contractual restrictions preventing the sale of those securities.
Topic 820, Fair Value Measurement, states that when measuring the fair value of an asset or a liability, a reporting entity should consider the characteristics of the asset or liability, including restrictions on the sale of the asset or liability, if a market participant also would take those characteristics into account. Key to that determination is the unit of account for the asset or liability being measured at fair value.
Some stakeholders noted that Topic 820 contains conflicting guidance on what the unit of account is when measuring the fair value of an equity security. This has resulted in diversity in practice on whether the effects of a contractual restriction that prohibits the sale of an equity security should be considered in measuring that equity security’s fair value.
To address this, the amendments in the ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU introduces new disclosure requirements to provide investors with information about the restriction including the nature and remaining duration of the restriction.
ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. For all other entities, it is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Other Exposure Documents - Invitation to Comment 2022-002 —Accounting for Government Grants by Business Entities —Potential Incorporation of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, into Generally Accepted Accounting Principles
Summary - The FASB has published an Invitation to Comment (ITC), Accounting for Government Grants by Business Entities: Potential Incorporation of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, into Generally Accepted Accounting Principles. The ITC gives stakeholders the opportunity to provide feedback on whether IAS 20 represents a workable solution for improving GAAP in the U.S. financial reporting environment for business entities as it relates to the accounting for government grants.
Stakeholders are encouraged to review and provide comment on the ITC by September 12, 2022.
In response to previous feedback, the FASB Chair Richard R. Jones added a project, “Accounting for Government Grants, Invitation to Comment,” to the research agenda last December. Published as part of that research project, the government grants ITC solicits additional feedback from stakeholders on relevant requirements in IAS 20 that should apply to US GAAP and includes specific questions for investors about the importance and utility of government grants information to their analysis of a company’s financial performance.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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FAF - 2022 Strategic Plan Draft For Public Comment
Summary - The Board of Trustees of the Financial Accounting Foundation (FAF) has released its 2022 Strategic Plan Draft for Public Comment and is inviting public and stakeholder input on the plan’s contents. The comment deadline is July 22, 2022.
The draft plan includes the FAF’s mission and vision statements and describes six overarching goals for the organization. Among these are commitments to:
- Champion the value of independent standard setting;
- Sustain the relevance of the information generated by Generally Accepted Accounting Principles (GAAP);
- Demonstrate leadership in global financial reporting; and
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Invest in technology to support more effective standard setting.
The draft plan also describes the organization’s commitment to diversity, equity and inclusion, and to ongoing dialogue with relevant parties about future developments in financial reporting around sustainability.
Following the public comment period, the FAF Board of Trustees will meet to consider the public input. The Trustees intend to publish the final document later this year.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Intangible Assets –FASB Discusses Identifiable Intangible Assets
Summary - As discussed in its “Summary of Board Decisions” publication, the FASB met on May 4, 2022, and discussed the presentation of goodwill amortization and provided its leanings to present goodwill amortization in the same location as goodwill impairment in the income statement and not in other comprehensive income. The FASB directed its staff to continue to evaluate other income statement presentation alternatives. No decisions were made.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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GASB Pronouncements – GASB Issues 2022 Omnibus on Practice Issues
Summary - The Governmental Accounting Standards Board (GASB) has issued GASB Statement No. 99, Omnibus 2022, which provides guidance addressing various accounting and financial reporting issues identified during the implementation and application of certain GASB pronouncements or during the due process on other pronouncements.
GASB No. 99 covers practice issues that include:
- Accounting and financial reporting for exchange or exchange-like financial guarantees;-Certain derivative instruments that are neither hedging derivative instruments nor investment derivative instruments;
- Clarification of certain provisions of: (a) Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, (b) Statement No. 87, Leases, (c) Statement No. 94, Public-Private and Public-Public Partnership and Availability Payment Arrangements (PPPs), and (d) Statement No. 96, Subscription-Based Information Technology Arrangements (SBITAs);
- Replacing the original deadline for using the London Interbank Offered Rate (LIBOR) as a benchmark interest rate for hedges of interest rate risk of taxable debt, with a deadline of when LIBOR ceases to be determined by the ICE Benchmark Administration using the methodology in place as of December 31, 2021;
- Accounting for the distribution of benefits as part of the Supplemental Nutrition Assistance Program (SNAP);
- Disclosures related to nonmonetary transactions;
- Pledges of future revenues when resources are not received by the pledging government; and
- Updating certain terminology for consistency with existing authoritative standards.
Effective Dates: The requirements of Statement No. 99 that relate to the extension of the use of LIBOR, accounting for SNAP distributions, disclosures for nonmonetary transactions, pledges of future revenues by pledging governments, clarifications of certain provisions in Statement No. 34, and terminology updates are effective upon issuance. The requirements related to leases, PPPs, and SBITAs are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. The requirements related to financial guarantees and the other requirements related to derivative instruments are effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter. Earlier application is encouraged and is permitted by individual topic to the extent that all requirements associated with an individual topic are implemented simultaneously.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Omnibus 2022 –OMB Issues 2022 Compliance Supplement
Summary - The White House Office of Management and Budget (OMB) has issued the 2022 Compliance Supplement.
This 2022 Supplement is effective for audits of fiscal years beginning after June 30, 2021, and supersedes the 2021 Compliance Supplement (dated August 2021) and its Addenda (dated December 2021 and January 2022).
The 2022 Compliance Supplement, like previous annual Compliance Supplements, identifies existing, important compliance requirements that the federal government expects to be considered as part of an audit required by the 1996 Amendments to the Single Audit Act. It adds, deletes, and modifies prior Supplement sections.
In addition, the 2022 Compliance Supplement follows the OMB mandate adopted in the 2019 Compliance Supplement that requires each federal agency to limit the number of compliance requirements subject to the audit to six, with the exception of the Research and Development cluster.
The Research and Development cluster is permitted to identify seven compliance requirements as subject to the audit. For this purpose, the requirements relating to A. Activities Allowed and Unallowed and B. Allowable Costs and Cost Principles are treated as one requirement. The Part 2 matrix and the related program sections in parts 4 and 5 reflect this OMB mandate. Additionally, this six-requirement mandate does not apply to programs not included in this Supplement.
Appendix V provides a list of changes from the 2021 Compliance Supplement. However, changes in the Matrix of Compliance Requirements are reflected in Part 2 of the 2022 Compliance Supplement.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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New Edition of AICPA Guides Published
Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Health Care Entities. This new edition contains minor editorial changes.
The AICPA has published a new edition of its practice aid, Accounting for and Auditing of Digital Assets. The objective of this practice aid is to develop nonauthoritative guidance on how to account for and audit digital assets under U.S. generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS), respectively. This guidance is intended for financial statement preparers and auditors with a fundamental knowledge of blockchain technology.
The AICPA has published a new edition of its Audit and Accounting Guide, Not-for-Profit Entities. This resource for not-for-profit accounting and auditing professionals is an essential reference which will assist you with the distinctive aspects of accounting and financial statement preparation and auditing for not-for-profit entities.
This new edition of the guide includes updates on the following topics:
- Auditor reporting changes;
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Statement on Auditing Standards (SAS) No. 142, Audit Evidence (AU-C sec. 500);
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SAS No. 143, Auditing Accounting Estimates and Related Disclosures (AU-C sec. 540);
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SAS No. 145, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (AU-C sec. 315);
- Leases; and
- Revenue recognition.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Digital Assets –FASB Discusses Accounting for Exchange-Traded Digital Assets and Commodities
Summary - As reported in its “Summary of Decisions” publication, the FASB met on May 11, 2022, and discussed whether to add a project to its technical agenda to address the accounting for exchange-traded digital assets and commodities. The FASB added a project to its technical agenda to improve the accounting for and disclosure of certain digital assets.
The FASB decided not to add to its technical agenda a project that would address the accounting for exchange-traded commodities; however, the chair decided that this topic would remain a research agenda project.
The FASB is expected to consider potential scope alternatives for digital assets at a future meeting.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Interim Reporting –FASB Discusses Narrow-Scope Improvements to Interim Reporting
Summary - As reported in its “Summary of Decisions” publication, the FASB met on May 25, 2022, and discussed feedback received on the proposed Accounting Standards Update, Interim Reporting (Topic 270): Disclosure Framework—Changes to Interim Disclosure Requirements, and feedback received on the June 2021 Invitation to Comment, Agenda Consultation.
The FASB decided that the project objective is to improve the Codification guidance in Topic 270 by clarifying when the guidance in Topic 270 is applicable and improving the navigability of the required interim disclosures.
In furthering this objective, the FASB directed its staff that the future amendments to the disclosure principle should be intended to complement the interim disclosure requirements in Topic 270.
The FASB affirmed the amendments to the objective of Topic 270 to provide guidance on accounting and disclosure issues specific to interim reporting and to set forth disclosure requirements for interim financial statements and notes in accordance with generally accepted accounting principles.
Additionally, the FASB decided to include all of the amendments in the proposed Update in the scope of redeliberations.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Beneficial Owners –AICPA Ethics Division Proposes Revisions Related to Officers, Directors, and Beneficial Owners
Summary - The PEEC recently revised certain Ethics Code interpretations “to update the threshold that defines where threats exist with ownership interests.” The Exposure Draft, Proposed Revisions Related to Officers, Directors, and Beneficial Owners”, proposes revisions to additional Interpretations to align with the updated threshold. These include revision to the Interpretations:
- “Offering or Accepting Gifts or Entertainment” (ET sec. 1.120.010);
- “Offering or Accepting Gifts or Entertainment” (ET sec. 1.285.010); and
- “Conceptual Framework for Members in Public Practice” (ET sec. 1.000.010).
- Comments on this Exposure Draft are due July 5, 2022. The PEEC recommends that these proposed amendments be effective on December 31, 2022, with early implementation permitted. This effective date “aligns the effective date of these revisions with the effective date of revisions from the loans, acquisitions, and other transactions project.”
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Error Corrections –GASB Issues Statement No. 100 on Accounting Standards and Error Corrections
Summary - The Governmental Accounting Standards Board (GASB) issued GASB Statement No. 100, Accounting Changes and Error Corrections, which is intended to improve the accounting and financial reporting requirements for accounting changes and error corrections. The GASB believes that Statement No. 100 provides more straightforward guidance designed to lead to information that is easier to understand and more reliable, relevant, consistent, and comparable across governments for making decisions and assessing accountability. The GASB’s previous standards on accounting changes and error corrections, in GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, were based on guidance established in the 1970s. The GASB’s pre-agenda research identified diversity in applying the existing standards in practice, including issues with selecting the appropriate category of accounting change or error correction. Statement 100 defines the following categories:
- Changes in accounting principles;
- Changes in accounting estimates;
- Changes to or within the financial reporting entity; and
- Corrections of errors in previously issued financial statements.
Statement 100 prescribes accounting and financial reporting for (1) each category of accounting change and (2) error corrections. It requires that:
- Changes in accounting principle and error corrections be reported retroactively by restating prior periods;
- Changes in accounting estimate be reported prospectively by recognizing the change in the current period; and
- Changes to and within the financial reporting entity be reported by adjusting beginning balances of the current period.
- The Statement also addresses how accounting changes and error corrections should be displayed in financial statements, disclosed in notes, and presented in required supplementary information and supplementary information.Statement 100 carries forward some of the requirements of Statement 62 but with clearer explanations. Regarding classification, a notable change relates to changes to or within the financial reporting entity, which previously did not encompass changes within the reporting entity, such as a change from discrete presentation of a component unit to blended presentation or vice versa. Regarding note disclosures, Statement 100 requires that governments disclose the effects of each accounting change and error correction on beginning balances in a tabular format.“Governments and other stakeholders should find many of the requirements of Statement 100 familiar,” said GASB Chair Joel Black. “But they should find the understandability of the guidance greatly improved, and financial statement users should benefit from the new tabular disclosure.”Effective DateThe requirements of Statement 100 are effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023, and all reporting periods thereafter. The GASB encourages earlier application.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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IFRS – IASB Completes Review of IFRS 10, 11 and 12 and Publishes Report
Summary - The IASB has published a Project Report and Feedback Statement concluding its Post-implementation Review (PIR) of the following accounting standards:
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IFRS 10, Consolidated Financial Statements;
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IFRS 11, Joint Arrangements; and
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IFRS 12, Disclosure of Interests in Other Entities.
Based on feedback from stakeholders and research undertaken as part of the PIR, the IASB concluded that the requirements set out in these IFRSs are working as intended and that application of the requirements did not give rise to unexpected costs. Further, based on the evidence gathered, the IASB assessed that none of the matters arising from the PIR were of high or medium priority.
The PIR report identifies five topics as low priority that could be explored if they are judged to be of high priority in the next agenda consultation. The five topics are:
- Subsidiaries that are investment entities;
- Transactions that change the relationship between an investor and an investee;
- Transactions that involve “corporate wrappers”;
- Collaborative arrangements outside the scope of IFRS 11; and
- Additional disclosures about interests in other entities.
- Stakeholders requiring further guidance are encouraged to submit questions to the IFRS Interpretations Committee, provided that these questions meet the submission criteria.
The IASB conducted this PIR process from 2019 to 2022. It sought feedback from companies, investors, auditors, standard-setters, regulators and academics. More than 35 meetings were held to consult with stakeholders and other consultative bodies in the second phase of the PIR.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Cash Flows – FASB Discusses Statement of Cash Flows
Summary - As reported in its “Summary of Decisions” publication, the FASB met on June 29, 2022, and discussed the pre-agenda research performed to date, including stakeholder feedback received on the statement of cash flows and related disclosures in response to the June 2021 Invitation to Comment, Agenda Consultation, and other user feedback.
The FASB chair added a project to the FASB research agenda to explore targeted improvements to the statement of cash flows to provide additional decision-useful information for investors and other allocators of capital.
The FASB provided suggestions on, and observations about, the focus and prioritization of continued research efforts on:
- Disaggregation of certain cash flow line items (specifically working capital and amortization/depreciation);
- Developing certain supplementary direct cash flow method disclosures; and
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Certain Codification improvements to Topic 230, Statement of Cash Flows.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Risks – GASB Issues Exposure Draft on Disclosures about Certain Governmental Risks
Summary - The Governmental Accounting Standards Board (GASB) has issued the Exposure Draft, Certain Risk Disclosures, which proposes requirements that governments disclose information about certain risks they face that could affect the level of services they are able to provide or their ability to meet obligations as they come due. The comment deadline is September 30, 2022.
Although governments are required to disclose information about their exposure to some risks, essential information about certain other risks that are prevalent among state and local governments is not routinely disclosed because it is not explicitly required. The proposed Statement would provide financial statement users with an early warning that governments are susceptible to the financial effects of those risks.
The Exposure Draft would require governments to disclose essential information about risks related to a government’s current vulnerabilities due to:
- Certain concentrations; and
- Certain constraints common in the governmental environment.
The proposed Statement defines a concentration as a lack of sufficient diversity related to an aspect of a significant revenue source or expense, for example, a small number of companies that represent a majority of employment in a government’s jurisdiction, or a government that relies on one revenue source for most of its revenue. It defines a constraint as a limitation imposed on a government by an external party or by formal action of the government’s highest level of decision-making authority, such as a voter-approved property tax cap or a state-imposed debt limit. Concentrations and constraints may limit a government’s ability to acquire resources or control spending.
Disclosure Criteria
This proposal would require a government to disclose information about a concentration or constraint if all of the following criteria are met:
- It is known to the government prior to issuing the financial statements;
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An associated event either has occurred or is more likely than not to occur or begin to occur within 12 months of the financial statement date or shortly thereafter; and
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It is at least reasonably possible that within three years of the financial statement date the event will cause a substantial effect on the government’s ability to (a) continue to provide services at the level provided in the current reporting period, or (b) meet its obligations as they come due.
Note Disclosures
If a government determines that those criteria have been met, it would disclose information in notes to financial statements in sufficient detail to allow users of financial statements to understand the general nature of the circumstances disclosed and their potential effect on the government’s ability to provide services or meet its obligations.
The GASB has requested that comments be submitted either in writing or through an electronic input form.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Recent SEC & Regulatory Updates
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Release No. 33-11061: The Enhancement and Standardization of Climate - Related Disclosures for Investors
Summary - The SEC announced that it has extended the public comment period on the proposed rulemaking to enhance and standardize climate-related disclosures for investors from May 20, 2022 until June 17, 2022. In March 2022, the SEC proposed for public comment rule changes that would require companies to include certain climate-related disclosures in their registration statements and periodic reports, including “information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.” The required information about climate-related risks also would include disclosure of a company’s greenhouse gas emissions, which have become a commonly used metric to assess a company’s exposure to such risks.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Release No.33-11070: Updating EDGAR Filing Requirements and Form 144 Filings
Summary - The SEC has adopted amendments to require certain forms that currently are permitted to be filed or submitted in paper format to be filed or submitted electronically. The amendments also amend certain forms to require structured data reporting and remove outdated references. The SEC indicates that the “amendments are intended to promote efficiency, transparency, and operational resiliency by modernizing how information is filed or submitted to the Commission and disclosed to the public. Furthermore, to benefit investors and the public, electronic filings will be more readily accessible to the public and available on the SEC website in easily searchable formats.”
Amendments
The amended rules apply to various issuers, affiliates, and national securities exchanges that file or submit reports to the SEC and will require the electronic filing or submission of:
- Documents that currently are permitted to be submitted electronically under Rule 101(b) of Regulation S-T, including notices of exempt solicitations and exempt preliminary roll-up communications, the “glossy” annual report to security holders, Form 144 for sales of securities of issuers subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, filings on Form 6-K, and filings made by multilateral development banks.
- Certifications made pursuant to Section 12(d) of the Exchange Act and Exchange Act Rule 12d1-3 that a security has been approved by an exchange for listing and registration.
- Certain foreign language documents.
The amended rules also will require the use of Inline XBRL for the filing of the financial statements and accompanying notes to the financial statements required by Form 11-K and make technical updates to Form F-10, Form F-X, and Form CB to remove outdated references.
Effective Transition Periods
The amendments are effective 30 days after publication in the Federal Register. The SEC is providing the following transition periods to provide filers with adequate time to prepare to submit these documents electronically in accordance with the EDGAR Filer Manual, including applying for the necessary filer codes on EDGAR:
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Six months after the effective date of the amendments for filers to submit their “glossy” annual reports to security holders electronically in accordance with the EDGAR Filer Manual and, other than for Form 144, for paper filers who would be first-time electronic filers;
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Six months after the date of publication in the Federal Register of the SEC release that adopts the version of the EDGAR Filer Manual addressing updates to Form 144 for filing Form 144 electronically on EDGAR; and
- Three years after the effective date of the amendments for filers to submit the financial statements and accompanying schedules to the financial statements required by Form 11-K in the Inline XBRL structured data language.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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The Critical Importance of the General Standard of Auditor Independence and an Ethical Culture for the Accounting Profession, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant
Summary - The SEC’s Acting Chief Accountant, Paul Munter, recently discussed the importance of the general standard of auditor independence and fostering an ethical culture. Munter indicates that high-quality audits are “critical to the process of providing decision-useful financial information for the benefit of investors, and auditors serve an important gatekeeping and investor protection function by helping to ensure that issues are promptly identified and addressed. The Commission has long-recognized that audits by professional, objective, and skilled accountants that are independent of their audit clients contribute to both investor protection and investor confidence in the financial statements.”
Specific topics discussed by Munter included:
- The auditor independence framework of rule 2-01(b) of Regulation S-X;
- The office of the chief accountant’s approach to auditor independence consultations;
- Certain recurring issues in recent oca staff auditor independence consultations; and
- The paramount importance that accounting firms foster an ethical culture with respect to auditor independence and fulfill their professional responsibilities.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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“The Name’s Bond:" Remarks at City Week, Gary Gensler, Chairman - April, 2022
Summary - SEC Chair Gary Gensler recently discussed his views on the oversight of U.S. fixed income markets. Gensler indicated that given the “sheer size and importance of the fixed income markets, I think we should focus on how we can make improvements to them.” Topics discussed by Gensler included:
- Transparency in the markets;
- Trading platforms;
- Enhancing resiliency of the fixed income markets.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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ESG –SEC Proposes to Enhance Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices
Summary - The SEC proposed amendments to rules and reporting forms to promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of environmental, social, and governance (ESG) factors. The proposed changes would apply to certain registered investment advisers, advisers exempt from registration, registered investment companies, and business development companies.
According to the SEC, the proposed amendments seek to categorize certain types of ESG strategies broadly and require funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue. Funds focused on the consideration of environmental factors generally would be required to disclose the greenhouse gas emissions associated with their portfolio investments. Funds claiming to achieve a specific ESG impact would be required to describe the specific impact(s) they seek to achieve and summarize their progress on achieving those impacts. Funds that use proxy voting or other engagement with issuers as a significant means of implementing their ESG strategy would be required to disclose information regarding their voting of proxies on particular ESG-related voting matters and information concerning their ESG engagement meetings.
The proposal would also require certain ESG reporting on Forms N-CEN and ADV Part 1A, which are forms on which funds and advisers, respectively, report census-type data that inform the SEC’s regulatory, enforcement, examination, disclosure review, and policymaking roles.
The comment period will remain open for 60 days after publication in the Federal Register.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Securities Exchange Act –SEC Staff Updates Compliance and Disclosure Interpretation on Exchange Act Sections
Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has updated its Compliance and Disclosure Interpretation (C&D), Exchange Act Sections. This C&DI provides guidance from the SEC staff on the registration and reporting provisions of the Exchange Act — Sections 12, 13 and 15.
The SEC staff has revised Question 101.01 which provides guidance on whether the Corp Fin staff or the Division of Trading and Markets would consider a future or forward contract that permits cash or physical settlement to be “intended to be physically settled” and therefore excluded from the definitions of “swap” and “security-based swap” if, at the time the parties enter into the contract, the underlying securities cannot be legally transferred, or the transfer of the underlying securities is restricted by contract.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Resolving the Lack of Audit Transparency in China and Hong Kong: Remarks at the International Council of Securities Associations (ICSA) Annual General Meeting by YJ Fischer, Director, Office of International Affairs
Summary - YJ Fischer, SEC Director of the Office of International Affairs, recently discussed recent regulatory developments related to the lack of US inspections of audits and investigations in China and Hong Kong, and the implications for continued trading of China-based issuers on US exchanges. Fischer indicated that for “more than a decade, local authorities in those jurisdictions have hampered the Public Company Accounting Oversight Board’s (“PCAOB”) ability to obtain audit work papers and interview audit engagement personnel as statutorily mandated. This situation is untenable because, among other things, it exposes US investors to significant risks.”
Fischer’s comments focused on and emphasized the following points:
- PCAOB-registered public accounting firms must provide the PCAOB with access to their audit work papers, and, any claim that audit work papers cannot be produced because they contain national security materials is questionable at best;
- Although there have been ongoing and productive discussions between US and Chinese authorities regarding audit inspections and investigations, significant issues remain and time is quickly running out;
- Even if US and Chinese authorities reach an agreement in the near future to commence PCAOB audit inspections and investigations in China and Hong Kong—and I want to emphasize this point—such an agreement will only be the start towards satisfying the PCAOB’s statutory mandate; and
- Should the issuers or the relevant Chinese authorities wish, they can effectuate the voluntary delisting of China-based issuers that they deem “too sensitive to comply” with PCAOB requirements, but allow other companies and audit firms to comply fully with the PCAOB inspection and investigative processes, thereby allowing the remainder of China-based issuers to avoid potential trading prohibitions in the US.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Remarks at Securities Enforcement Forum West 2022 by Gurbir S. Grewal, Director, Division of Enforcement
Summary - Gurbir S. Grewal, Director of SEC Enforcement, recently discussed the SEC Division of Enforcement’s role in increasing public confidence in our markets and in government. Grewal indicated that one important factor in building this confidence is the SEC’s investigation process, which he believes should move quickly and efficiently.
Grewal provided his thoughts on aspects of the SEC’s investigation process, including views on:
• Document productions;
• Defense counsel tactics to delay SEC investigations; and
• Witness interrogations.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Release No. 33-11042: The Enhancement and Standardization of Climate-Related Disclosures for Investors
Summary - The SEC has proposed for public comment rule changes that would require companies to include certain climate-related disclosures in their registration statements and periodic reports, including “information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.” The required information about climate-related risks also would include disclosure of a company’s greenhouse gas emissions, which have become a commonly used metric to assess a company’s exposure to such risks.
The proposed rule changes would require disclosure of information about:
- The company’s governance of climate-related risks and relevant risk management processes;
- How any climate-related risks identified by the company have had or are likely to have a material impact on its business and consolidated financial statements;
- How any identified climate-related risks have affected or are likely to affect the company’s strategy, business model, and outlook; and
- The impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a company’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements.
The proposed rules also would require a company to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a company would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the company has set a GHG emissions target or goal that includes Scope 3 emissions. The SEC indicates that these proposals for GHG emissions disclosures would provide investors with decision-useful information to assess a company’s “exposure to, and management of, climate-related risks, and in particular transition risks. The proposed rules would provide a safe harbor for liability from Scope 3 emissions disclosure and an exemption from the Scope 3 emissions disclosure requirement for smaller reporting companies.” The proposed disclosures are similar to those that many companies already provide based on broadly accepted disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol.
Under the proposed rule changes, accelerated filers and large accelerated filers would be required to include an attestation report from an independent attestation service provider covering Scopes 1 and 2 emissions disclosures, with a phase-in over time, to promote the reliability of GHG emissions disclosures for investors.
The proposed rules would include a phase-in period for all companies, with the compliance date dependent on the company’s filer status, and an additional phase-in period for Scope 3 emissions disclosure.
The comment period will remain open for 30 days after publication in the Federal Register, or 60 days after the date of issuance and publication on sec.gov, whichever period is longer.
For more information, click here.
© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Tax Compliance and Disclosure for Asset Acquisitions
Summary - Asset acquisition is a common form of business acquisition. While your tax CPA will take care of the tax calculation when they prepare your tax returns after year end, there’s an important step that could be easily missed – purchase price allocation among various types of assets for tax purpose.
Let’s start with the buyer and the seller’s best interests. From the buyer’s perspective, it’s better to allocate the purchase price to the assets of which the cost can be deducted on the tax return within a short period, such as inventory and fixed assets that are eligible for 100% bonus depreciation. From the seller’s perspective, however, the goal would be to lower the tax rates by maximizing capital gain and minimizing ordinary income. For example, the seller would prefer to allocate the purchase to goodwill rather than inventory.
To achieve consistency and parity, the tax laws require the buyer and the seller to have mirror value allocation and classification on the assets being transferred. Buyer and sellers can meet this compliance requirement by filing Form 8594 Asset Acquisition Statement along with their income tax returns for the tax year in which the asset acquisition took place. Coordination among buyer, seller and their CPAs at the closing process reduces the risk of omission or inconsistency.
Form 8594 is required to be filed by the buyer and seller of an asset acquisition that is any direct or indirect transfer of a group of assets if:
- the assets constitute a trade or business in the hands of either the seller or the buyer, and
- the buyer's basis in the assets is determined wholly by reference to the purchaser's consideration.
Asset Acquisitions Price Allocation Method
If the parties do not have an enforceable and appropriate written agreement, both the buyer and the seller must use the residual method to allocate the consideration paid or received among the transferred assets.
The residual method assigns the purchase price to class assets in the following order:
- Class I: Cash and cash equivalents
- Class II: Actively traded personal property, certificates of deposit, and foreign currency
- Class III: Accounts receivable, mortgages, and credit card receivables that arise in the course of business
- Class IV: The taxpayer’s stock in trade, property that would be included in the inventory at the close of the tax year, and property held primarily for sale to customers in the ordinary course of trade or business
- Class V: All assets not in Classes I, II, III, or IV
- Class VI: All IRC §197 intangibles, except for goodwill and going concern value (thus, Class VI includes work force in place, information bases, patents, copyrights, licenses and covenants not to compete; see Section 197 Intangible Defined)
- Class VII: Goodwill and going concern value
The amount allocated to an asset, other than a class VII asset as defined above, cannot exceed its fair market value on the purchase date. The residual purchase price, if any, would be allocated to Class VII.
If you have any additional question, please feel free to contact Nicole Zhao, Tax Partner, at nzhao@malonebailey.com.
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PCAOB: Staff Overview for Planned 2022 Inspections
Summary - In June 2022, the Public Company Accounting Oversight Board (PCAOB) released a report that highlights 2022 inspection focus areas, which include:
- "Increased initial public offerings (IPOs) and merger and acquisition (M&A) activities, including transactions with special purpose acquisition companies (SPACs);"
- "Widespread disruption in supply chains;"
- "Continued negative effects of the COVID-19 pandemic, especially in high-risk industries;"
- "Increased volatility in financial and commodity markets due to fluctuations in interest rates and inflationary trends;" and
- "Audit firm-wide risks, such as the heightened degree of staff turnover and risks arising from auditing in a remote environment, including the risk that auditors will not identify misstatements that could be material."
To access the report, please click here.
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