We are pleased to release MaloneBailey's December 2021 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 SECFASB 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
What's the Crunch?

Featured Podcast

  • Fact or Fiction: Debunking CPA Exam Myths

Recent Accounting & Regulatory Updates

Recent FASB & AICPA Updates

  • FASB Accounting Standards Updates - Accounting Standards Update No. 2021-08 —Business Combinations (Topic 805) —Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
  • FASB Accounting Standards Updates - Accounting Standards Update No. 2021-07 —Compensation —Stock Compensation (Topic 718) —Determining the Current Price of an Underlying Share
  • Exposure Draft - Proposed Accounting Standards Update 2021-001 —Interim Reporting (Topic 270): Disclosure Framework —Changes to Interim Disclosure Requirements
  • IFRS –2021 Edition of Wiley Interpretation and Application of IFRS Standards Published
  • Financial Statements –GASB Changes Name of Report to “Annual Comprehensive Financial Report
  • CARES Act –AICPA Publishes New TQA on Reporting on the CARES Act Provider Relief Fund
  • Construction Contractors –AICPA Publishes 2021 Edition of Audit and Accounting Guide
  • Credit Losses –AICPA Publishes 2021 Edition of Audit and Accounting Guide 
  • Employee Benefit Plans –AICPA Publishes 2021 Edition of Audit and Accounting Guide
  • Investment Companies –AICPA Publishes 2021 Edition of Audit and Accounting Guide
  • Property and Liability Insurance Entities –AICPA Publishes 2021 Edition of Audit and Accounting Guide
  • Life and Health Insurance Entities –AICPA Publishes 2021 Edition of Audit and Accounting Guide 
  • Auditing Standards Board –October 12-14, 2021 Meeting Summary Published 
  • Segment Reporting –FASB Discusses Segment Reporting Disclosures
  • Revenue Recognition –FASB Improves Consistency in Accounting for Acquired Revenue Contracts
  • Quality Management Standards –AICPA’s ARSC Proposes Amendments to Quality Management Standards for Consistency with ASB’s Proposed Standards

Recent SEC Updates

  • Release No. 33-10997: Filing Fee Disclosure and Payment Methods Modernization
  • SEC Staff Views: The Importance of High - Quality Independent Audits and Effective Audit Committee Oversight to High Quality Financial Reporting to Investors by Paul Munter, Acting Chief Accountant
  • SEC Staff Views: Staff Report on Equity and Options Market Structure Conditions in Early 2021 
  • SEC Staff Views: Prepared Remarks at SEC Speaks, Gary Gensler, Chairman - October, 2021
  • SEC Electronic Filing Requirements –SEC Proposes Updates to Electronic Filing Requirements
  • Holding Foreign Companies Accountable Act –SEC Approves PCAOB Rule to Establish A Framework for Determinations Under the Holding Foreign Companies Accountable Act 
  • Shareholder Proposals –SEC Staff Issues Guidance on Shareholder Proposals 
  • Stablecoins –SEC Chair Gensler Comments on President’s Working Group Report on Stablecoins
  • Investment Advisory Fees –SEC Amends Performance-Based Investment Advisory Fee Rules 

Tax Updates

  • IRS Provides Tax Inflation Adjustments for 2022

Extra Crunch

  • PCAOB: 2020 Conversations with Audit Committee Chairs

About MaloneBailey, LLP

Featured Podcast
Recent FASB & AICPA Updates
FASB Accounting Standards Updates - Accounting Standards Update No. 2021-08 —Business Combinations (Topic 805) —Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

Summary - The FASB issued Accounting Standards Update (ASU) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, that addresses diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination.

Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with Topic 606, Revenue from Contracts with Customers, at fair value on the acquisition date.

The FASB indicates that some stakeholders indicated that it is unclear how an acquirer should evaluate whether to recognize a contract liability from a revenue contract with a customer acquired in a business combination after Topic 606 is adopted. Furthermore, it was identified that under current practice, the timing of payment (payment terms) of a revenue contract may subsequently affect the post-acquisition revenue recognized by the acquirer. To address this, the ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

Finally, the amendments in the ASU improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
FASB Accounting Standards Updates - Accounting Standards Update No. 2021-07 —Compensation —Stock Compensation (Topic 718) —Determining the Current Price of an Underlying Share

Summary - The FASB has issued FASB Accounting Standards Update (ASU) No. 2021-07, Compensation—Stock Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards, to improve an area of financial reporting for nonpublic business entities (private companies) that issue equity-classified share-based awards. The ASU is a consensus of the Private Company Council (PCC) that was endorsed by the FASB. The PCC is the primary advisory body to the FASB on private company matters.

Many private companies issue equity-classified share-based awards as compensation to employees and non-employees. When determining the value of these awards, companies typically use a valuation technique such as an option-pricing model. This model requires various inputs, including the fair value of the equity shares underlying a share-option award (referred to as the current price input).

The ASU provides private companies the option to elect a practical expedient to determine the current price input of equity-classified share-based awards issued as compensation using the reasonable application of a reasonable valuation method. The characteristics of this method are the same as the characteristics used in the regulations of the U.S. Department of the Treasury related to Section 409A of the U.S. Internal Revenue Code (the Treasury Regulations) to describe the reasonable application of a reasonable valuation method for income tax purposes.

The practical expedient in this ASU can be elected for equity-classified share-based awards within the scope of FASB Accounting Standards Codification® Topic 718, Stock Compensation. Its amendments apply to all nonpublic entities (as defined in the Master Glossary of the Codification) that issue equity-classified share-based awards and elect the practical expedient.

ASU No. 2021-07 is effective on a prospective basis for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application, including application in an interim period, is permitted for financial statements that have not been issued or made available for issuance as of October 25, 2021.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Exposure Draft - Proposed Accounting Standards Update 2021-001 —Interim Reporting (Topic 270): Disclosure Framework —Changes to Interim Disclosure Requirements

Summary - The FASB issued a proposed Accounting Standards Update (ASU) that would modify the disclosure requirements for interim financial reporting. Stakeholders are encouraged to review and provide comment on the proposal by January 31, 2022.

The proposed ASU is part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in the notes to financial statements. It would update FASB Accounting Standards Codification® Topic 270, Interim Reporting, which clarifies the application of accounting principles and reporting practices for entities preparing interim financial statements and notes in accordance with Generally Accepted Accounting Principles (GAAP). The amendments to Topic 270 would apply to all entities that provide interim financial statements and notes in accordance with GAAP.

Broadly, the proposed ASU would:
1) Incorporate a requirement that was previously included in SEC Regulation S-X that requires disclosure at interim periods when a significant event or transaction has occurred since the prior year-end that has a material effect on an entity.

The U.S. Securities and Exchange Commission (SEC) removed language from Regulation S-X, Rule 10-01, Interim Financial Statements, with the 2018 issuance of SEC Release No. 33-10532, Disclosure Update and Simplification. The amendments in this proposed ASU would add a new principle, based on the removed portion of Regulation S-X, which would be applicable to all entities that provide interim financial statements and notes in accordance with GAAP.

The proposed ASU also states that the resulting disclosures may be transaction or event specific.
2) Clarify the presentation and disclosure alternatives for interim financial statements and notes in accordance with GAAP.

The proposed ASU would clarify that the following three forms of financial statements and notes are in accordance with GAAP:
  • Financial statements prepared with the same level of detail as the previous annual statements subject to all the presentation and disclosure requirements in GAAP;
  • Financial statements prepared with the same level of detail as the previous annual statements subject to all the presentation requirements in GAAP and limited notes subject to the disclosure requirements in Topic 270; and
  • Condensed financial statements and limited notes subject to the disclosure requirements in Topic 270.

3) Address feedback from stakeholders who requested that interim reporting requirements be clarified and consolidated into one Topic of the Codification.

Certain amendments in the proposed ASU would respond to stakeholders’ desire for interim reporting requirements to be clarified and consolidated into one Topic of the Codification.

Finally, the proposed ASU includes amendments to clarify when comparative disclosures are required.
 
For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
IFRS –2021 Edition of Wiley Interpretation and Application of IFRS Standards Published

Summary - Wiley IFRS® Standards 2021 is a revised and comprehensive resource that includes the information needed to interpret and apply the most recent International Financial Reporting Standards (IFRS®) as outlined by the IASB. This accessible resource contains a wide range of practical examples as well as invaluable guidance on the expanding framework for unified financial reporting. The authors provide IFRIC interpretations and directions designed to ensure a clear understanding of the most recent standards. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Financial Statements –GASB Changes Name of Report to “Annual Comprehensive Financial Report.”

Summary - The GASB has issued Statement No. 98, The Annual Comprehensive Financial Report. GASB 98 changes the name of the most extensive report prepared following its standards to the annual comprehensive financial report or ACFR. Until now, the name applied to those reports was the comprehensive annual financial report.

The name change was prompted by GASB stakeholders raising concerns that the acronym of the prior name of the report sounds like a profoundly offensive term when spoken. The changes in the name and acronym were widely supported by individuals and stakeholder groups that responded to the April 2021 Exposure Draft proposing the changes.

GASB 98 establishes the annual comprehensive financial report and ACFR in generally accepted accounting principles (GAAP) for state and local governments and eliminates the prior name and acronym. Otherwise, no changes were made to the report’s structure or content.

Financial reports prepared following GAAP are required to contain basic financial statements (including notes to financial statements) and required supplementary information (such as management’s discussion and analysis). Governments may voluntarily present those required components in an ACFR, which also contains more background and explanatory information from management, additional financial statements disaggregating certain columns in the basic financial statements, and a “statistical section” of 10-year trends in financial, economic, demographic, and operating information.

The requirements of Statement 98 are effective for fiscal years ending after December 15, 2021. The GASB encourages earlier application. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
CARES Act –AICPA Publishes New TQA on Reporting on the CARES Act Provider Relief Fund

Summary - The AICPA has issued the Technical Question and Answer (TQA) section, 9160.36, “Reporting on the Provider Relief Fund in the Schedule of Expenditures of Federal Awards in Relation to the Financial Statements in a Single Audit.”

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) authorized the Provider Relief Fund (PRF), which provides relief funds to eligible providers of health care services and support for health care-related expenses or lost revenues attributable to the coronavirus. The PRF has $178 billion in funding and is administered by the U.S. Department of Health and Human Services (HHS). HHS has provided funding to hospitals and other health care providers, which include governmental, not-for-profit, and for-profit entities.

PRF funding is subject to single audit requirements which require the auditor to determine and report on whether the Schedule of Expenditures of Federal Awards (SEFA), presented as supplementary information (SI), is fairly stated in all material respects, in relation to the financial statements as a whole.
Amounts to be reported on the SEFA under other programs subject to single audit generally represent expenditures during an entity’s fiscal year. Initially, though, HHS linked the amounts to be reported on a recipient’s SEFA to expenditures and lost revenue required to be calculated and reported to HHS in the HHS Reporting Portal. Because the HHS Reporting Portal was delayed and did not open until July 2021, the HHS uses a reporting timeframe for PRF funds based on the date of the receipt of funds rather than the reporting period in which the funds were expended.

HHS included guidance and reporting portal requirements in the Office of Management and Budget (OMB) 2020 Compliance Supplement Addendum, but indicated in the OMB 2021 Compliance Supplement that entities with years ending prior to June 30, 2021, would not include PRF on the related SEFA. It also provided a table to illustrate reporting requirements for fiscal years ending on or after June 30, 2021. Auditors have had questions about how they can meet the single audit requirement to report on the SEFA in relation to the audited financial statements (an in-relation-to opinion), in accordance with AU-C section 725, Supplementary Information in Relation to the Financial Statements as a Whole, in situations when expenditures and lost revenues included on the SEFA do not relate to the same period as the financial statements (that is, they are out-of-period amounts).

TQA Inquiry
The TQA asks whether an auditor may report on a SEFA with PRF funding in relation to the audited financial statements when some of the amounts relate to an entity’s prior fiscal year and confirms that it can even if the SEFA and financial statements do not match exactly. According to the TQA, such reporting would be acceptable, and there are other situations in practice where the SEFA and financials do not precisely align. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Construction Contractors –AICPA Publishes 2021 Edition of Audit and Accounting Guide

Summary - The AICPA has published the 2021 edition of the AICPA Audit and Accounting Guide, Construction Contractors. Key benefits and updates in this new edition include the following:
  • Full implementation of the accounting and auditing considerations of ASU No. 2014-09, Revenue from Contracts with Customers;
  • Includes industry specific accounting guidance;
  • Auditing guidance and procedures are tailored specifically for the construction industry; and
  • Full implementation of the Auditors’ Reporting Standards (Statement on Auditing Standards [SAS] Nos. 134–140, as appropriate.
 
For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Credit Losses –AICPA Publishes 2021 Edition of Audit and Accounting Guide

Summary - The AICPA has published the 2021 edition of the AICPA Audit and Accounting Guide, Credit Losses. This AICPA Guide has been developed by the AICPA CECL Task Force to assist management in applying FASB ASC 326 in the preparation of their financial statements in accordance with GAAP and to assist practitioners in performing and reporting on their audit engagements. The guide summarizes key provisions of FASB ASC 326, including disclosures, and addresses key considerations in accounting for and auditing the allowance for credit losses related to loans under FASB Topic 326.
This guide highlights key areas within the auditing process, including obtaining an understanding of the entity, assessing the risks of material misstatement, identifying the controls relevant to the audit, designing an audit response, performing audit procedures, and evaluating the audit results. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Employee Benefit Plans –AICPA Publishes 2021 Edition of Audit and Accounting Guide

Summary - The AICPA has published the 2021 edition of the AICPA Audit and Accounting Guide, Employee Benefit Plans. This AICPA Guide is designed to bridge the gaps between the “what, why and how” to satisfy your auditor responsibilities in accordance with new auditing standards, including SAS No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, as amended, and give you confidence when issuing your audit reports, or when others are evaluating your work.

This new edition includes the following updates:
  • New multiemployer plan chapter and illustrative financial statements;
  • Address the issuance of FASB ASC 606;
  • Highlight select recent developments in standards impacting employee benefit plan auditing and accounting; and
  • Added additional auditor reports.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Investment Companies –AICPA Publishes 2021 Edition of Audit and Accounting Guide

Summary - The AICPA has published the 2021 edition of the AICPA Audit and Accounting Guide, Investment Companies. This AICPA Guide provides guidance to help the user understand the complexities of the specialized accounting and regulatory requirements for investment companies. This new edition includes the following updates:
  • General auditing content and independent auditor’s report illustrations affected by recently issued SASs such as SAS No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, and related guidance; and
  • Regulatory content affected by recently issued SEC Releases such as SEC Release No. IC-34128, “Good Faith Determination of Fair Value.” 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Property and Liability Insurance Entities –AICPA Publishes 2021 Edition of Audit and Accounting Guide

Summary - The AICPA has published the 2021 edition of the AICPA Audit and Accounting Guide, Property and Liability Insurance Entities. This AICPA Guide provides a good grounding on the industry, its products and regulatory issues, and the related transaction cycles that a property and liability insurance entity is involved with.

Key benefits and updates in this new edition include the following:
  • Get authoritative and nonauthoritative accounting and auditing guidance applicable to property and liability insurance entities;
  • Get illustrative audit reports that reflect recent changes from SAS No. 134 and related guidance;
  • Understand current GAAP and statutory accounting for property and liability insurance entities; and
  • Properly develop an audit plan for auditing loss reserves. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Life and Health Insurance Entities –AICPA Publishes 2021 Edition of Audit and Accounting Guide

Summary - The AICPA has published the 2021 edition of the AICPA Audit and Accounting Guide, Life and Health Insurance Entities. This AICPA Guide is being updated due to the revision of appendix G, “FASB ASU No. 2018-12: Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, Accounting Implementation Papers.” 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Auditing Standards Board –October 12-14, 2021 Meeting Summary Published

Summary - The AICPA’s Auditing Standards Board (ASB) has published a high-level summary of its October 12-14, 2021 meeting. The ASB discussed comment letters and other feedback on its exposure draft, Proposed Quality Management Standards, which includes three interrelated proposed standards:
  • Proposed Statement on Quality Management Standards (SQMS), A Firm’s System of Quality Management;
  • Proposed SQMS, Engagement Quality Reviews; and
  • Proposed Statement on Auditing Standards (SAS), Quality Management for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Segment Reporting –FASB Discusses Segment Reporting Disclosures

Summary - As discussed in its “Summary of Board Decisions” publication, the FASB met on October 13, 2021, and continued its deliberations of a principle-based disclosure requirement to report the significant segment expense categories and amounts that are both: (1) regularly provided to the chief operating decision maker (CODM); and (2) included in the reported measure of segment profit or loss. The FASB made a number decisions related to the principle, including:

Easily Computable Concept
The FASB decided to include the easily computable concept as part of the principle. That concept would require public entities to disclose significant segment expense categories and amounts that are easily computable from the management reports that are regularly provided to the CODM.

Mapping of Entity-Wide Amounts to the Income Statement Lines
Under the principle, each significant segment expense category disclosed should be based on the information that is regularly provided to the CODM and reconciled to its corresponding consolidated expense amount on an annual basis. The consolidated expense amount may not have a one-for-one relationship to an income statement line. The FASB considered whether to require public entities to map each consolidated expense amount to the income statement lines and decided not to include that as part of the proposed guidance.

Single Reportable Segment Entities
The FASB considered the implications of applying the principle and the existing segment disclosure requirements to single reportable segment entities. The FASB decided to specify that single reportable segment entities should apply all disclosure requirements in Topic 280, Segment Reporting, consistent with requirements for multiple reportable segment entities. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Revenue Recognition –FASB Improves Consistency in Accounting for Acquired Revenue Contracts

Summary - The FASB issued Accounting Standards Update (ASU) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, that addresses diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination.

Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with Topic 606, Revenue from Contracts with Customers, at fair value on the acquisition date.

The FASB indicates that some stakeholders indicated that it is unclear how an acquirer should evaluate whether to recognize a contract liability from a revenue contract with a customer acquired in a business combination after Topic 606 is adopted. Furthermore, it was identified that under current practice, the timing of payment (payment terms) of a revenue contract may subsequently affect the post-acquisition revenue recognized by the acquirer. To address this, the ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

Finally, the amendments in the ASU improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Quality Management Standards –AICPA’s ARSC Proposes Amendments to Quality Management Standards for Consistency with ASB’s Proposed Standards

Summary - The AICPA’s Accounting and Review Services Committee (ARSC) has released the Exposure Draft, proposed Statement on Standards for Accounting and Review Services (SSARS), Quality Management for an Engagement Performed in Accordance With Statements on Standards for Accounting and Review Services. The comment deadline is January 31, 2022.

The Exposure Draft proposes amendments to SSARS No. 21, Statement on Standards for Accounting and Review Services: Clarification and Recodification, that, if adopted as proposed, would align with the quality management standards being proposed by the AICPA’s Auditing Standards Board (ASB). These proposals would make sure that certain concepts in SSARS related to quality management are consistent with the ASB’s proposals. These proposed amendments are to SSARS No. 21, AR-C sections 60, General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services, and 90, Review of Financial Statements.

Proposed Amendments to ASB Quality Management Standards
Earlier this year, the ASB issued an exposure draft that included three proposed standards for quality management at the firm and engagement levels that were prompted by concerns about audit quality. These proposed standards included:
  • Proposed Statement on Quality Management Standards (SQMS), Quality Management:A Firm’s System of Quality Management (proposed SQMS No. 1);
  • Proposed SQMS, Engagement Quality Reviews (proposed SQMS No. 2); and
  • Proposed Statement on Auditing Standards (SAS), Quality Management for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards (QM SAS).

The ASB intends its proposals to converge with the quality management standards of the International Auditing and Assurance Standards Board (IAASB), International Standard on Auditing (ISA) 220, Quality Management for an Audit of Financial Statements, as adopted in December 2020. The ASB’s proposals revised the language of the IAASB standards and examples to conform to usage in the United States.
These proposals, if adopted as written, would apply a risk-based approach to quality management systems within firms. They would “focus a firm’s attention on risks that may have an impact on engagement quality,” and require a firm “to customize the design, implementation, and operation of its system of quality management based on the nature and circumstances of the firm and the engagements it performs.”

The ASB received numerous comment letters and held 15 roundtables on the Exposure Draft. Many comments “focused on the proposals related to the proposed prohibition on self-inspection and the proposed two-year cooling-off period for engagement quality reviewers.” The ASB is currently in the process of evaluating these concerns, and the ARSC has indicated that if its proposals are inconsistent with revisions the ASB makes to the proposed SQMS, the ARSC will revise the proposed SSARS as necessary.

Planned Effective Date
The ARSC is proposing that, if issued as final, the proposed amendments to AR-C sections 60 and 90 will be effective for engagements performed in accordance with SSARS for periods ending on or after December 15, 2023, with early implementation permitted. A proposed technical correction to AR-C section 90, paragraph .16, would be effective upon issuance. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Recent SEC Updates
Release No. 33-10997: Filing Fee Disclosure and Payment Methods Modernization

Summary - The SEC adopted amendments to modernize filing fee disclosure and payment methods. Operating companies and investment companies (funds) pay filing fees when engaging in certain transactions, including registered securities offerings, tender offers, and mergers and acquisitions.

According to the SEC, the amendments revise “most fee-bearing forms, schedules, and related rules to require companies and funds to include all required information for filing fee calculation in a structured format. The amendments also add new options for Automated Clearing House (ACH) and debit and credit card payment of filing fees and eliminate infrequently used options for filing fee payment via paper checks and money orders. The amendments are intended to improve filing fee preparation and payment processing by facilitating both enhanced validation through filing fee structuring and lower-cost, easily routable payments through the ACH payment option.”

The amendments are generally effective on January 31, 2022. The amendments that will add the options for filing fee payment via ACH and debit and credit cards and eliminate the option for filing fee payment via paper checks and money orders will be effective on May 31, 2022. The SEC is providing an extended transition period to give filers additional time to comply with the Inline XBRL structuring requirements for filing fee information.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
SEC Staff Views: The Importance of High - Quality Independent Audits and Effective Audit Committee Oversight to High Quality Financial Reporting to Investors by Paul Munter, Acting Chief Accountant

Summary - SEC Acting Chief Accountant Paul Munter released a Public Statement, The Importance of High Quality Independent Audits and Effective Audit Committee Oversight to High Quality Financial Reporting to Investors. In this statement, Munter indicates that with the upcoming 20th anniversary of enactment of the Sarbanes-Oxley Act of 2002 (SOX) “it is critical for all gatekeepers in the financial reporting ecosystem (auditors, management, and their audit committees) to maintain constant vigilance in the faithful implementation of the requirements of SOX by fulfilling their shared responsibilities to continue to produce high quality financial disclosures that are decision-useful to investors and maintain the public trust in our capital markets. An integral part of the faithful implementation of SOX is for audit firms to remain independent of their audit clients and for audit committees to take ownership of their oversight responsibilities with respect to the independent auditor.”

Topics discussed in Munter’s statement include:
  • The importance of auditor independence;
  • Responsibility of audit committees and management;
  • Responsibility of audit firms;
  • General standard of independence; and
  • Importance of audit committee oversight of the independent auditor.

Regarding the responsibility of audit committees to oversee auditor independence, Munter indicates that the SEC continues to “encourage audit committees to consider the sufficiency of the auditor’s and the issuer’s monitoring processes, including those that address corporate changes or other events that potentially affect auditor independence. This is particularly relevant in the current environment as companies seek to access public markets through new and innovative transactions, and audit firms continue to expand business relationships and non-audit services.” Since audit committees have financial reporting and audit oversight authority and responsibility, Munter indicates that “they also are instrumental in setting the tone at the top for the quality of the issuer’s financial reporting to investors. In selecting, retaining, and evaluating the independent auditor, the audit committee always should be focused, in the first instance, on audit quality.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
SEC Staff Views: Staff Report on Equity and Options Market Structure Conditions in Early 2021

Summary - The SEC published a Staff Report on Equity and Options Market Structure Conditions in Early 2021 (Report), which focuses on the January 2021 trading activity of certain "meme stocks." Because the meme stock episode raised several questions about market structure, the Report also provides an overview of the equity and options market structure for individual investors.

The Report concludes with the staff identifying areas of market structure and our regulatory framework for potential study and additional consideration. These include:
  • Forces that may cause a brokerage to restrict trading;
  • Digital engagement practices and payment for order flow;
  • Trading in dark pools and wholesalers; and
  • The market dynamics of short selling.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
SEC Staff Views: Prepared Remarks at SEC Speaks, Gary Gensler, Chairman - October, 2021

Summary - SEC Chair Gary Gensler, several SEC Commissioners and SEC staff discussed SEC and financial reporting topics at the 2021 SEC Speaks Conference held via webcast. Highlights from their remarks is as follows:

SEC Chair Gary Gensler
Chair Gensler discussed the growing use of digital analytics in finance. Gensler indicated that predictive “data analytics, including machine learning, are increasingly being adopted in finance — from trading, to asset management, to risk management. Though we’re still in the early stages of these developments, I think the transformation we’re living through now could be every bit as big as the internet was in the 1990s.” Gensler discussed public policy considerations associated with developments of our digital platforms, including conflicts of interest, bias, and systematic risk.

SEC Commissioner Caroline A. Crenshaw
Commissioner Crenshaw discussed the growth in digital asset securities, indicating that “to move these markets forward there must be a meaningful exchange of ideas between innovators and regulators. And while we share common goals, we may prioritize issues differently and our initial proposed solutions might reflect those distinctions. And that’s ok – even good. Different viewpoints coupled with constructive dialogue will yield better results in the long run.” Crenshaw praised the current regulatory regime for raising traditional capital but cautioned that as digital asset securities evolve, “we must think about how best to reconcile a regime that has worked consistently for more than 80 years, with products and systems that are evolving rapidly and may not always be an intuitive fit within the existing system.”

SEC Commissioner Allison Herren Lee
Commissioner Lee discussed the explosive growth of private markets and the impact this has on transparency in U.S. equity markets. Due to this growth in raising capital in private markets, Lee cautioned that investors and the public “are increasingly left in the dark when it comes to ever expanding segments of the economy. This has implications for the future vitality of the private markets (which depend in many ways on the transparency and discipline of public markets) and it has implications for optimizing capital allocation across both markets.”

SEC Commissioner Elad L. Roisman
Commissioner Roisman provided his thoughts on preserving and expanding opportunities for businesses in our economy to raise capital and for investors to share in their success. Topics discussed by Roisman included: (1) a look-back at capital formation; (2) COVID-19: a case study in capital market resilience; and (3) looking forward. Roisman cautioned that the best way to be ready for uncertainty in the future “is to allow the market to allocate capital as it digests information. We should not hang onto outdated models at the risk of stifling innovation when we need it most.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
SEC Electronic Filing Requirements –SEC Proposes Updates to Electronic Filing Requirements

Summary - The SEC published proposed amendments to update electronic filing requirements. According to the SEC, the agency currently permits and sometimes requires certain forms to be filed or submitted in paper format. The proposed rule and form amendments would require certain forms to be filed or submitted electronically. The proposed amendments also would make technical amendments to certain forms to require structured data reporting and remove outdated references. The amendments are intended to promote efficiency, transparency, and operational resiliency by modernizing the manner in which information is submitted to the SEC and disclosed.

Furthermore, publicly filed electronic submissions would be more readily accessible to the public and would be available on our website in easily searchable formats, which benefits both investors and the broader public. The SEC indicates, that the “electronic filing capabilities have been an effective measure in addressing logistical and operational issues raised by the spread of coronavirus disease (COVID-19). Electronic submissions would allow the Commission, and those filing submissions, to effectively navigate any future disruptive events that make the paper submission process unnecessarily burdensome, impractical, or unavailable.”

The public comment period will remain open for 30 days after publication in the Federal Register

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Holding Foreign Companies Accountable Act –SEC Approves PCAOB Rule to Establish A Framework for Determinations Under the Holding Foreign Companies Accountable Act

Summary - The SEC has approved the PCAOB’s Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. Rule 6100 will establish a framework for the PCAOB’s determinations under the Holding Foreign Companies Accountable Act (HFCAA) that the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction.

The SEC indicates that the Sarbanes-Oxley Act of 2002, as amended, mandates that the PCAOB inspect registered public accounting firms in both the United States and in foreign jurisdictions and investigate potential statutory, rule, and professional standards violations committed by registered public accounting firms and their associated persons.

The HFCAA requires that the PCAOB determine whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction. PCAOB Rule 6100 establishes the:
  • Process for the PCAOB’s determinations under the HFCAA;
  • Factors the PCAOB will evaluate and the documents and information the PCAOB will consider when assessing whether a determination is warranted;
  • Form, public availability, effective date, and duration of such determinations; and
  • Process by which the PCAOB will reaffirm, modify, or vacate any such determinations.

SEC Chair Gary Gensler issued a statement in connection with the passage of this rule.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Shareholder Proposals –SEC Staff Issues Guidance on Shareholder Proposals

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has issued Staff Legal Bulletin No. 14L, Shareholder Proposals. This guidance provides information for companies and shareholders regarding Rule 14a-8 under the Securities Exchange Act of 1934. Specifically, this bulletin rescinds Staff Legal Bulletin Nos. 14I, 14J and 14K (the “rescinded SLBs”) after a review of Corp Fin staff experience applying the guidance in them. In addition, to the extent the views expressed in any other prior Corp Fin staff legal bulletin could be viewed as contrary to those expressed herein, this staff legal bulletin controls.

This bulletin outlines Corp Fin’s views on Rule 14a-8(i)(7), the ordinary business exception, and Rule 14a-8(i)(5), the economic relevance exception. We are also republishing, with primarily technical, conforming changes, the guidance contained in SLB Nos. 14I and 14K relating to the use of graphics and images, and proof of ownership letters. In addition, we are providing new guidance on the use of e-mail for submission of proposals, delivery of notice of defects, and responses to those notices.

In Rule 14a-8, the SEC has provided a means by which shareholders can present proposals for the shareholders’ consideration in the company’s proxy statement. This process has become a cornerstone of shareholder engagement on important matters. Rule 14a-8 sets forth several bases for exclusion of such proposals. Companies often request assurance that the staff will not recommend enforcement action if they omit a proposal based on one of these exclusions (“no-action relief”). Corp Fin is issuing this bulletin to streamline and simplify our process for reviewing no-action requests, and to clarify the standards the staff will apply when evaluating these requests. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Stablecoins –SEC Chair Gensler Comments on President’s Working Group Report on Stablecoins

Summary - SEC Chair Gary Gensler issued a statement in response to the President’s Working Group Report on Stablecoins. This week, the President’s Working Group on Financial Markets (PWG), along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, published a report on stable value coins, or so-called stablecoins. Stablecoins are crypto tokens pegged or linked to the value of fiat currencies. Gensler noted that based on the report’s findings, “the use of stablecoins presents a number of public policy challenges with respect to protecting investors.”

Gensler indicates that the PWG report “highlights a number of recommendations to address these public-policy challenges. While Congress and the public evaluate this report, we at the SEC and our sibling agency, the Commodity Futures Trading Commission, will deploy the full protections of the federal securities laws and the Commodity Exchange Act to these products and arrangements, where applicable.” 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Investment Advisory Fees –SEC Amends Performance-Based Investment Advisory Fee Rules

Summary - The SEC has adopted amendments to the rule under the Investment Advisers Act of 1940 (“Advisers Act”) that permits investment advisers to charge performance-based compensation to “qualified clients.” The rule defines “qualified client” with reference to specific dollar amount thresholds, which are required to be adjusted every five years to account for the effects of inflation. These amendments replace specific dollar amount thresholds in the rule’s “qualified client” definition with references to the SEC’s “most recent order,” as defined by the amended rule, containing the specific dollar amount thresholds adjusted for inflation.

The amendments are effective upon publication in the Federal Register

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Tax Updates
IRS Provides Tax Inflation Adjustments for 2022
Written by Chuqiao Peng, Tax Senior, MaloneBailey, LLP  

With the 2022 tax year around the corner, the IRS has recently announced the 2022 annual inflation adjustments for more than 60 tax provisions, including tax rate schedules and other tax changes. Below we highlight some of these annual adjustments that could affect your tax filings in 2022.

Standard Deduction
  • For married couples filing jointly (“MFJ”) taxpayers, the standard deduction increases to $25,900, up $800 from the prior year.
  • For single taxpayers and married individuals filing separately, the standard deduction increases to $12,950, up $400 from prior year
  • For heads of households, the standard deduction increases to $19,400, up $600 from prior year

Marginal Rates
  • 37%, the top rate, for incomes over $539,900 ($647,850 for MFJ)*;
  • 35%, for incomes over $215,950 ($431,900 for MFJ);
  • 32% for incomes over $170,050 ($340,100 for MFJ);
  • 24% for incomes over $89,075 ($178,150 for MFJ);
  • 22% for incomes over $41,775 ($83,550 for MFJ);
  • 12% for incomes over $10,275 ($20,550 for MFJ);
  • 10%, the lowest rate, for income of $10,275 or less ($20,550 for MFJ)
* The most recent Build Back Better Act proposal does not increase the highest individual marginal tax rate. The new tax laws have not been finalized as of 11/23/2021.
 
401(K)
Contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500, up from $19,500. The separate limit for IRA contribution will stay at $6,000.

Foreign Earned Income Exclusion
The foreign earned income exclusion, which allows you to exclude a certain amount of your foreign earned income from US tax, is $112,000, up from $108,700 for 2021.

Earned Income Tax Credit
For qualifying taxpayers who have three or more qualifying children, the earned income tax credit is $6,935, up from $6,728 for the 2021 tax year. The IRS has provided a table summarizing maximum EITX amounts for other categories, income thresholds and phrase outs at the Revenue Procedure 2021-45.

Despite the annual inflation adjustments on many tax rates and thresholds, there are several tax rules from the provisions in the Tax Cuts and Jobs Act (“TCJA”) that remains the same for 2022.

Personal Exemption
The TCJA continues to eliminate the personal exemption, which is the specific amount of money for yourself and for each of your dependents regardless of your filing status, for 2022, same as 2021.

Itemized Deduction
Also due to the elimination by the TCJA, there is no limitation on itemized deductions for 2022, as in 2021, 2020, 2019 and 2018.

More information on the 2022 annual inflation adjustments on tax rates and changes can be found on the IRS website.

Please feel free to contact Nicole Zhao, Tax Partner, for more information or questions.
Extra Crunch
PCAOB
PCAOB: 2020 Conversations with Audit Committee Chairs

Summary - The Public Company Accounting Oversight Board (PCAOB) launched this effort in 2019 and is now offering its latest edition, 2020 Conversations with Audit Committee Chairs.

The PCAOB has offered audit committee chairs of most of the U.S. public companies whose audits they inspected during 2020 the opportunity to speak with inspection teams. In total, the PCAOB spoke to nearly 300 audit committee chairs.

The core topics discussed between the audit committee chairs and PCAOB inspections teams include:
  • The effects of the COVID-19 pandemic on the audit;
  • The auditor and communications with the audit committee;
  • New auditing and accounting standards; and
  • Emerging technologies. 

To review the entire report, please click here.

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