We are pleased to release MaloneBailey's August 2024 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


What's the Crunch?



Featured Podcast


  • Working in Tax vs. Audit - Key Differences and Challenges 


Recent Accounting & Regulatory Updates



Recent FASB & AICPA Updates



Recent SEC & PCAOB Updates


  • PCAOB Issues Spotlight on Generative AI in Audits and Financial Reporting
  • IASB Issues Annual Improvements to IFRS Accounting Standards
  • New Edition of AICPA Audit and Accounting Guide Published
  • SEC and FinCEN Propose Anti-Money Laundering and Customer Identification Programs for Investment Advisers
  • Release No. 34-100155: Regulation S-P - Privacy of Consumer Financial Information and Safeguarding Customer Information 
  • The State of Disclosure Review 
  • Selective Disclosure of Information Regarding Cybersecurity Incidents 
  • "The Five Principles of Effective Cooperation in SEC Investigations,” Remarks at Securities Enforcement Forum West 2024 


Extra Crunch


  • Accounting Today Podcast


About MaloneBailey, LLP


Featured Podcast

Working in Tax vs. Audit - Key Differences and Challenges 


Summary - In the following edition of Everbody Counts, Matt Setzekorn, MaloneBailey's Admin Assistant, engages in an discussion with Portia Zhang, one of MaloneBailey's Senior Associates, as they dive into the fascinating world of tax and audit work. We’ll be exploring the key differences, the unique challenges, and the skill sets required for each.



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.

Recent FASB & AICPA Updates

FASB Discusses Disaggregation of Income Statement Expenses


Summary - As reported in its “Summary of Decisions” publication, the FASB met on June 26, 2024, and completed redeliberations on the proposed Accounting Standards Update (ASU), Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.


For more information, click here.


© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB Discusses Induced Conversions of Convertible Debt Instruments


Summary - As reported in its “Summary of Decisions” publication, the FASB met on July 17, 2024, and discussed feedback received on the proposed ASU, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments.


For more information, click here.


© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

New Edition of Additions and Revisions to Accounting for Leases Publishes


Summary - We have published a new edition of our interpretation, Accounting for Leases, which is updated through ASU No. 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements, which includes the following updates:


  • Updated the Recent Development section to discuss (i) a current practice issue involving “anything as a service” arrangements and (ii) a recent FASB agenda decision involving capitalization of costs for entities within the scope of Accounting Standards Codification (ASC) Topic 970, Real Estate.
  • Clarified the amortization period for right-of-use assets in a finance lease in 2.11, depending on the reasons as to why the lease was classified in that manner. Also added an example to 2.11 demonstrating the amortization approach for land leases that are classified as finance leases.


In paragraph 4.42, clarified a U.S. GAAP and IFRS difference related to the accounting for a sale and leaseback transaction when the arrangement contains a repurchase option.


For more information, click here.


© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Recent SEC & PCAOB Updates

PCAOB Issues Spotlight on Generative AI in Audits and Financial Reporting

 

Summary - The PCAOB released a new staff Spotlight report, “Staff Update on Outreach Activities Related to the Integration of Generative Artificial Intelligence in Audits and Financial Reporting.” The Spotlight includes observations from the PCAOB staff’s outreach to audit firms and public companies to understand their perspectives on the integration of Generative Artificial Intelligence (GenAI) into audits and financial reporting.


The Spotlight includes the following observations:


  • The current integration of GenAI in audits conducted by the firms the PCAOB staff spoke to appears to be focused primarily on administrative and research activities. However, most audit firms interviewed noted the potential for using GenAI in certain aspects of planning and performing the audit;
  • Firms continue investing in GenAI-enabled tools, while also acknowledging the limitations of GenAI, and the need for strong supervision of its use to guard against risks, such as data privacy and security; and
  • Public company preparers are exploring how GenAI can be used throughout their operations. While some preparers are exploring opportunities to incorporate GenAI in accounting and financial reporting processes, integrating GenAI in these processes appears to be secondary to integrating GenAI in operational and customer-facing areas.


While PCAOB staff outreach covered the U.S. global network firms, along with several U.S. non-affiliated firms that audit more than 100 issuers (firms that audit the majority of the market capitalization for issuers), PCAOB staff have asked all firms to share their experiences with GenAI. The PCAOB continues to monitor developments in the use of GenAI carefully.


For more information, click here.


© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

IASB Issues Annual Improvements to IFRS Accounting Standards

 

Summary - The IASB has issued narrow amendments to IFRS Accounting Standards and accompanying guidance as part of its regular maintenance of the standards. These amendments, published in a single document, Annual Improvements to IFRS Accounting Standards—Volume 11, include clarifications, simplifications, corrections, and changes aimed at improving the consistency of several IFRS Accounting Standards.


The amended standards are:


  • IFRS 1, First-time Adoption of International Financial Reporting Standards;
  • IFRS 7, Financial Instruments: Disclosures and its accompanying Guidance on implementing IFRS 7;
  • IFRS 9, Financial Instruments;
  • IFRS 10, Consolidated Financial Statements; and
  • IAS 7, Statement of Cash Flows.


The amendments are effective for annual periods beginning on or after January 1, 2026, with earlier application permitted.


As set out in the IFRS Foundation Due Process Handbook, annual improvements are limited to changes that either clarify the wording in an IFRS Accounting Standard or correct relatively minor unintended consequences or oversights in the IFRS Accounting Standards. They also correct minor conflicts between the requirements of the IFRS Accounting Standards.


For more information, click here.


© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

New Edition of AICPA Audit and Accounting Guide Published

 

Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Cybersecurity Risk Management. This new edition has been developed by the AICPA’s Assurance Services Executive Committee (ASEC) Cybersecurity Working Group, in conjunction with the Auditing Standards Board (ASB), to assist practitioners engaged to examine and report on an entity’s cybersecurity risk management program. This edition has been updated through April 1, 2024.


For more information, click here.


© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC and FinCEN Propose Anti-Money Laundering and Customer Identification Programs for Investment Advisers

 

Summary - The SEC and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) jointly proposed a new rule that would require SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to establish, document, and maintain written customer identification programs (CIPs). The proposal is designed to “prevent illicit finance activity involving the customers of investment advisers by strengthening the anti-money laundering and countering the financing of terrorism (AML/CFT) framework for the investment adviser sector.”


Under this proposal, RIAs and ERAs would be required to implement reasonable procedures to identify and verify the identity of their customers, among other requirements, in order to form a reasonable belief that RIAs and ERAs know the true identity of their customers. The proposed rule would make it more difficult for criminal, corrupt, or illicit actors to establish customer relationships, including by using false identities, with investment advisers for the purposes of laundering money, financing terrorism, or engaging in other illicit finance activity.


The rule, if adopted, would require RIAs and ERAs to, among other things, implement a CIP that includes procedures for verifying the identity of each customer to the extent reasonable and practicable and maintaining records of the information used to verify a customer’s identity, among other requirements. The proposal is generally consistent with the CIP requirements for other financial institutions, such as brokers or dealers in securities and mutual funds.


Written comments on this notice of joint proposed rulemaking must be submitted on or before July 22, 2024.


For more information, click here.


© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-100155: Regulation S-P - Privacy of Consumer Financial Information and Safeguarding Customer Information 


Summary - The IASB has issued IFRS 19, Subsidiaries without Public Accountability: Disclosures. The new IFRS permits eligible subsidiaries to use IFRS Accounting Standards with reduced disclosures. The IASB expects that companies that apply IFRS 19 will have reduced costs of preparing subsidiaries’ financial statements while maintaining the usefulness of the information for users of their financial statements.


When a parent company prepares consolidated financial statements that comply with IFRS Accounting Standards, its subsidiaries are required to report to the parent using IFRS Accounting Standards. However, for their own financial statements, subsidiaries are permitted to use IFRS Accounting Standards, the IFRS for SMEs Accounting Standard, or national accounting standards.


Subsidiaries using the IFRS for SMEs Accounting Standard or national accounting standards for their own financial statements often keep two sets of accounting records because the requirements in these Standards differ from those in IFRS Accounting Standards.


The IASB believes that IFRS 19 will resolve these challenges by:


  • Enabling subsidiaries to keep only one set of accounting records, meeting the needs of both their parent company and the users of their financial statements; and
  • Reducing disclosure requirements by permitting reduced disclosures better suited to the needs of the users of their financial statements.


Subsidiaries are eligible to apply IFRS 19 if they do not have public accountability and their parent company applies IFRS Accounting Standards in their consolidated financial statements. A subsidiary does not have public accountability if it does not have equities or debt listed on a stock exchange and does not hold assets in a fiduciary capacity for a broad group of outsiders.


IFRS 19 is effective for reporting periods beginning on or after January 1, 2027. Early application is permitted.


For more information, click here.


© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

The State of Disclosure Review 


Summary - Gerding, Director of the SEC’s Division of Corporation Finance (Corp Fin), recently discussed the state of disclosure for fiscal year 2023 and provided some of Corp Fin’s disclosure priorities for fiscal year 2024. Corp Fin’s annual report review program is the primary mechanism that it uses to monitor and enhance compliance with disclosure rules and accounting requirements in periodic reports filed by public companies.


Gerding indicates that while the nature of comments varies significantly depending on the specific facts for each company, the top areas of comment in fiscal year 2023 included, among others, China-related matters, non-GAAP disclosures, Management’s Discussion and Analysis, revenue recognition, and financial statement presentation. Emerging areas of focus in 2023 included:


  • Market disruptions in the banking industry;
  • Cybersecurity risks;
  • The impact of inflation; and
  • Disclosure related to newly adopted rules, such as pay versus performance.


Priorities identified by Gerding for 2024 include certain financial reporting topics, especially areas that involve judgment or where the FASB or the IASB have recently issued accounting standards, are generally areas of particular focus, including:


  • Segment reporting, including compliance with new U.S. GAAP disclosures effective in annual periods beginning after December 15, 2023;
  • Compliance with non-GAAP regulations and rules;
  • Critical accounting estimates disclosure in Management’s Discussion and Analysis; and
  • Disclosures related to supplier finance programs in the notes to the financial statements and any related information in Management’s Discussion and Analysis.


In addition to the above 2024 financial reporting topics, Corp Fin anticipates that many of the disclosure priorities from 2023 will continue through the upcoming year, including:


  • Corp Fin continues its focus on China-Based Companies and eliciting disclosure from companies on material risks they face from the PRC government intervening in, or exercising control over, their operations in the PRC.
  • While it appears that inflation is beginning to come down, this is not the time for issuers to revert to boilerplate disclosures. Any material ongoing impacts should be disclosed and Corp Fin asks companies to not just note high level trends, but discuss the more particularized risks and impacts on their specific company.
  • Given the market disruptions in the banking industry that began about a year ago, Corp Fin will be continuing to take a close look at updated disclosures related to interest rate risk and liquidity risk.


For more information, click here.


© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Selective Disclosure of Information Regarding Cybersecurity Incidents  


Summary - Erik Gerding, Director of the SEC’s Division of Corporation Finance (Corp Fin), has issued a statement, Selective Disclosure of Information Regarding Cybersecurity Incidents. The statement aims to clarify that the SEC’s Final Rule, Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, does not preclude a company from sharing additional information about a material cybersecurity incident with others, including their commercial counterparties. Gerding indicates that some companies are under the impression that if they experience a material cybersecurity incident, the SEC’s new rules prohibit them from discussing that incident beyond what was included in the Item 1.05 Form 8-K disclosing the incident. Gerding notes that this is not the case.


Item 1.05 of Form 8-K requires a company that experiences a cybersecurity incident that it determines to be material to describe the material aspects of the nature, scope, and timing of the incident, as well as the incident’s material impact or reasonably likely material impact on the company, including its financial condition and results of operations. Nothing in Item 1.05 prohibits a company from privately discussing a material cybersecurity incident with other parties or from providing information about the incident to such parties beyond what was included in an Item 1.05 Form 8-K.



Gerding acknowledges that “companies could conceivably have concerns that privately disclosing additional information regarding a material cybersecurity incident beyond what was included in an Item 1.05 Form 8-K could implicate the Commission’s rules regarding selective disclosures that are set forth in Regulation FD. It is important to reiterate the scope of Regulation FD. As is well-known, Regulation FD requires public disclosure of any material nonpublic information that has been selectively disclosed to securities market professionals or shareholders, as specified in the regulation. Depending on the information disclosed, and the persons to whom that information is disclosed, discussions regarding a cybersecurity incident may implicate Regulation FD.” However, Gerding provides that nothing in Item 1.05 alters Regulation FD or makes it apply any differently to communications regarding cybersecurity incidents. There are several ways that a public company can privately share information regarding a material cybersecurity incident beyond what was disclosed in its Item 1.05 Form 8-K without implicating Regulation FD.


For more information, click here.


© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

"The Five Principles of Effective Cooperation in SEC Investigations,” Remarks at Securities Enforcement Forum West 2024  


Summary - Gurbir S. Grewal, Director of the SEC’s Division of Enforcement (Division), recently discussed principles of effective cooperation in SEC investigations. Grewal indicates that there are very real benefits for parties that cooperate with SEC investigations and that these benefits can affect both the charges and the remedies the Division may recommend and that the SEC may ultimately impose.


Grewal provided the following five principles of effective cooperation in SEC investigations:


  • The best cooperation starts early and well before the SEC gets involved with self-policing.
  • Once a possible violation is discovered, self-report without delay.
  • Don’t stop with the self-report, remediate immediately.
  • The type of cooperation that earns credit requires going above and beyond what’s legally required.
  • Collaborate with Division staff early, often, and substantively.


Grewal cautioned that “the investigative process should be a collaborative one, not one based on gamesmanship and dilatory tactics on either side.”


For more information, click here.


© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Extra Crunch

Accounting Today Podcast


Summary - Tune in to the Accounting Today Podcast for in-depth discussions on the latest industry issues. Accounting Today hosts thought leaders from across the accounting profession, providing expert analysis and insights on current trends, challenges, and innovations in accounting. Whether you're a seasoned professional or just starting out, our podcast is your go-to source for staying informed and ahead in the field. Don't miss out on the conversations shaping the future of accounting.


To access the podcast, please click here.


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