We are pleased to release MaloneBailey's February 2023 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

www.malonebailey.com


What's the Crunch?



Featured Podcast


  • Navigating the Uplisting Process to the New York Stock Exchange


Recent Accounting & Regulatory Updates



Recent FASB & AICPA Updates


  • FASB Accounting Standards Updates - Accounting Standards Update No. 2022-06 — Reference Rate Reform (Topic 848) — Deferral of the Sunset Date of Topic 848
  • FASB Accounting Standards Updates - Accounting Standards Update No. 2022-05 —Financial Services— Insurance (Topic 944) Transition for Sold Contracts
  • Financial Instruments –IASB Publishes Post-Implementation Review of Classification and Measurement Requirements for Financial Instruments 
  • Crypto Assets –FASB Discusses the Accounting and Disclosure of Crypto Assets  
  • Auditing Standards –AICPA Publishes Update to U.S. Auditing Standards
  • International Tax Reform –IASB Proposes Amendments to IAS 12 for International Tax Reform and Pillar Two Model Rules  



Recent SEC & PCAOB Updates


  • Release No. 34-96458: Reopening of Comment Period for Share Repurchase Disclosure Modernization
  • Release No. 34-96496: Regulation Best Execution
  • Release No. 34-96493: Disclosure of Order Execution Information
  • Release No. 34-96495: Order Competition Rule
  • Release No. 34-96494: Regulation NMS: Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders
  • Release No. 33-11139: Technical Amendments to Commission Rules
  • Release No. 33-11140: Adoption of Updated EDGAR Filer Manual
  • Release No. 33-11138: Insider Trading Arrangements and Related Disclosures


Tax


  • Business vs. Hobby - Key Differences You Need to Know




Extra Crunch


  • IR Magazine's Best Practice Report: How to Demonstrate the Value of your IR Program


About MaloneBailey, LLP


Featured Podcast

Navigating the Uplisting Process to the New York Stock Exchange


Summary - In this episode of Everybody Counts, Caroline Rosen, Marketing and Communications Manager, speaks with Paul Dorfman from the New York Stock Exchange (NYSE) who shares his insightful perspectives on the uplisting process, criteria and how to navigate common challenges. This podcast is one of a three-part series with podcasts that also cover uplisting to Nasdaq and ungrading to OTC Markets.


For these podcasts and many more, please visit the Resources section of the MaloneBailey website.


Simply click on the image below to listen to the podcast.


Recent FASB & AICPA Updates

FASB Accounting Standards Updates - Accounting Standards Update No. 2022-06 — Reference Rate Reform (Topic 848) — Deferral of the Sunset Date of Topic 848


Summary - The FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, that extends the period of time preparers can utilize the reference rate reform relief guidance. The amendments in ASU No. 2022-06 are effective for all entities upon issuance.



In 2020, the FASB issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.


The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023.


To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.


For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB Accounting Standards Updates - Accounting Standards Update No. 2022-05 —Financial Services— Insurance (Topic 944) Transition for Sold Contracts


Summary - The FASB has issued Accounting Standards Update (ASU) No 2022-05, Financial Services-Insurance (Topic 944): Transition for Sold Contracts. ASU 2022-05 amends transition guidance in ASU No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI), for contracts that have been derecognized because of a sale or disposal of individual or a group of contracts or legal entities before the LDTI effective date.


In August 2018, the FASB issued ASU No. 2018-12 to improve, simplify, and enhance the financial reporting requirements for long-duration contracts issued by insurance entities. The amendments in ASU No. 2018-12 require an insurance entity to apply a retrospective transition method as of the beginning of the earliest period presented or the beginning of the prior fiscal year if early application is elected.


The FASB received feedback that applying the LDTI guidance to contracts that were derecognized because of a sale or disposal of individual or a group of contracts or legal entities before the LDTI effective date likely would not provide decision-useful information to investors and other allocators of capital and may result in significant operability challenges for insurance entities to apply the guidance.



To address this issue, the ASU amends the LDTI transition guidance to allow an insurance entity to make an accounting policy election to exclude certain contracts or legal entities from applying the LDTI guidance when, as of the LDTI effective date, (a) the insurance contracts have been derecognized because of a sale or disposal and (b) the insurance entity has no significant continuing involvement with the derecognized contracts.


For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Financial Instruments –IASB Publishes Post-Implementation Review of Classification and Measurement Requirements for Financial Instruments

 

Summary - The International Accounting Standards Board (IASB) has published its project report and feedback statement concluding the Post-implementation Review (PIR) of the classification and measurement requirements in International Financial Reporting Standard (IFRS) 9, Financial Instruments.


Feedback from stakeholders and research undertaken as part of the PIR show that the requirements set out in IFRS 9 are working as intended and provide useful information to the users of financial statements.

In response to feedback, the IASB also has identified areas for research and standard-setting to further enhance information provided to users of financial statements. The IASB has initiated a standard-setting project focused on a company’s assessment of the contractual cash flow characteristics of financial assets with ESG-linked features and on electronic cash transfers as settlement of a financial asset or liability.


The projects also will include:

  • Clarification of the application of contractual cash flow characteristics assessments to contractually linked instruments; and
  • Improvements to disclosures of fair value changes relating to equity instruments a company has presented in other comprehensive income rather than in profit or loss (OCI presentation election).


The IASB expects to publish an exposure draft setting out proposed amendments from this project in Q1 of 2023.


The IASB also has added a research project to its work plan to explore whether it can clarify requirements for applying the effective interest method to financial instruments measured at amortized cost and requirements for modifications of financial instruments.


The IASB reviews major standards several years after their effective date, to learn whether the standard is working as intended. The PIR sought feedback from companies, investors, auditors, standard-setters, regulators and academics. The IASB received 95 comment letters and attended more than 40 meetings with stakeholders from around the world.


The IASB began the PIR of IFRS 9─Impairment in the second-half of 2022 and expects to publish a request for information in the first-half of 2023. 


For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Crypto Assets –FASB Discusses the Accounting and Disclosure of Crypto Assets

 

Summary - As reported in its “Summary of Decisions” publication, the FASB met on December 14, 2022, and discussed how entities that hold crypto assets within the scope of this project should present and disclose crypto assets in the financial statements.


The FASB decided to require an entity to:

  • At a minimum, present the aggregate amount of crypto assets (within the scope of this project) separately from other intangible assets that are measured using other measurement bases;
  • Present gains and losses on crypto assets (within the scope of this project) in net income and present those gains and losses separately from the income statement effects of other intangible assets, such as amortization or impairments; and
  • Classify crypto assets received as noncash consideration during the ordinary course of business that are converted nearly immediately into cash as operating cash flows. 


For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Auditing Standards –AICPA Publishes Update to U.S. Auditing Standards


Summary - The AICPA has published updated U.S. Auditing Standards. This update adds Interpretation No. 1, “Considerations Related to the Use of a SOC 2® Report in an Audit of a User Entity’s Financial Statements” (AU-C sec. 9402 par. .01–.05), of AU-C section 402, Audit Considerations Relating to an Entity Using a Service Organization.


This update also amends the following sections due to the effective dates of Statement on Auditing Standards (SAS) Nos. 142, Audit Evidence (AU-C sec. 500), and 148, Amendment to AU-C Section 935:

  • AU-C section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards ;
  • AU-C section 230, Audit Documentation ;
  • AU-C section 315A, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement ;
  • AU-C section 330, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained ;
  • AU-C section 501A, Audit Evidence — Specific Considerations for Selected Items ;
  • AU-C section 530, Audit Sampling ;
  • AU-C section 540A, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures; and 
  • AU-C section 935, Compliance Audits .
  • This update also adds AU-C section 935A to retain currently effective guidance until SAS No. 148 becomes fully effective.


For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

International Tax Reform –IASB Proposes Amendments to IAS 12 for International Tax Reform and Pillar Two Model Rules

 

Summary - The International Accounting Standards Board (IASB) has published the Exposure Draft, International Tax Reform—Pillar Two Model Rules (Exposure Draft). The Exposure Draft includes proposed amendments to International Accounting Standard (IAS) 12, Income Taxes. The IASB issued the proposed amendments to provide temporary relief from accounting for deferred taxes arising from the imminent implementation of the Pillar Two model rules published by the Organisation for Economic Co-operation and Development (OECD). The deadline for comments is March 10, 2023.


At its meeting in November 2022, the IASB tentatively agreed to propose narrow-scope amendments to IAS 12. The decision arose out of the publication by the OECD in December 2021 of its Pillar Two model rules, Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two): Inclusive Framework on BEPS.


The Pillar Two model rules provide a template for the implementation of a minimum corporate tax rate of 15% that large multinational companies would pay on income generated in each jurisdiction in which they operate.


In issuing the proposed amendments, the IASB is responding to stakeholders’ concerns about the potential implications of these rules for the accounting for income tax in financial statements. In particular, stakeholders were concerned about the uncertainty over the accounting for deferred taxes arising from the rules. They said there was an urgent need for clarity in the light of the imminent implementation of these Pillar Two model rules in some jurisdictions.


The proposed amendments would introduce:

  • A temporary exception to the accounting for deferred taxes arising from the implementation of the rules; and
  • Targeted disclosure requirements for affected companies.


More than 135 countries and jurisdictions representing more than 90% of global GDP have agreed to the Pillar Two model rules. These rules:

  • Address the tax challenges arising from the digitalization of the economy; and
  • Provide a template for the implementation of a minimum corporate tax rate of 15% that large multinational companies would pay on income generated in each jurisdiction in which they operate.



Due to the project’s accelerated nature, the IASB plans to finalize any amendments to IAS 12 in the second quarter of 2023, subject to comments on the Exposure Draft. 



For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Recent SEC & PCAOB Updates

Release No. 34-96458: Reopening of Comment Period for Share Repurchase Disclosure Modernization


Summary - he SEC reopened the comment period on proposed amendments intended to modernize and improve the disclosure required about an issuer’s repurchases of its equity securities, often referred to as buybacks.


The SEC indicates it “is reopening the comment period because, after the proposed amendments were published for public comment, The Inflation Reduction Act of 2022 was enacted. The law imposes upon certain corporations a non-deductible excise tax equal to one percent of the fair market value of any stock of the corporation repurchased by such corporation during the taxable year. As a result, the Commission staff has prepared a memorandum that discusses potential economic effects of the new excise tax that may be helpful in evaluating the proposed amendments.”


The amendments were initially proposed by the SEC in December 2021, and the comment period for the proposal was reopened in October 2022. The staff memorandum is available for review as part of the public comment file. The public comment period will remain open for 30 days after publication in the Federal Register.

 

For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-96496: Regulation Best Execution


Summary - The SEC has proposed for public comment Regulation Best Execution, which would establish through Commission rules a best execution regulatory framework for brokers, dealers, government securities brokers, government securities dealers, and municipal securities dealers. While a best execution rule was first established in 1968 by the National Association of Securities Dealers, Inc., the predecessor to the Financial Industry Regulatory Authority, Inc., the proposed rule, if adopted, would create the first SEC-established rule concerning best execution.


Proposed Regulation Best Execution would require broker-dealers to establish, maintain, and enforce written policies and procedures reasonably designed to comply with the proposed best execution standard. Further, the proposal would require these policies and procedures to address how broker-dealers will comply with the best execution standard and how they will determine the best market and make routing or execution decisions for customer orders.



The public comment period will remain open until March 31, 2023, or until 60 days after the date of publication of the proposing release in the Federal Register, whichever is later.


For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-96493: Disclosure of Order Execution Information


Summary - The SEC has proposed for public comment amendments that would update the disclosure required under Rule 605 of Regulation NMS for order executions in national market system stocks, which are stocks listed on a national securities exchange. The SEC indicates that Rule 605 was adopted in 2000 and provides visibility into execution quality at different market centers. It has not been substantively updated since it was adopted.


The proposed amendments would expand the scope of entities subject to Rule 605, modify the information required to be reported under the rule, and change how orders are categorized for the purposes of the rule. Among other things, the proposal would:

  • Expand the scope of entities that must produce monthly execution quality reports to include broker-dealers with a larger number of customers.
  • Modify the definition of “covered order” to include certain orders submitted outside of regular trading hours and certain orders submitted with stop prices. The proposed amendments would capture more relevant execution quality information for these orders by requiring statistics to be reported from the time such orders become “executable.”


The proposed amendments to how orders are categorized would require the reporting of execution quality information for fractional share orders, odd-lot orders, and larger-sized orders. Further, the proposal would require that the time of order receipt and time of order execution be measured in increments of a millisecond or finer and that realized spread be calculated at both 15 seconds and one minute. The proposal would also require new statistical measures of execution quality, such as average effective over quoted spread (a percentage-based metric that represents how much price improvement orders received) and a size improvement benchmark. Finally, the proposal would enhance the accessibility of the required reports by requiring all entities subject to the rule to make a summary report available to the public.


The public comment period will remain open until March 31, 2023, or until 60 days after the date of publication of the proposing release in the Federal Register, whichever is later.


For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-96495: Order Competition Rule


Summary - The SEC has proposed for public comment a rule that would require certain orders of individual investors to be exposed to competition in fair and open auctions before such orders could be executed internally by any trading center that restricts order-by-order competition.


If adopted, the proposed rule generally would prohibit a “restricted competition trading center” such as a wholesaler from internally executing “segmented orders” – orders for NMS stocks that are made for an account of a natural person or an account held in legal form on behalf of a natural person or group of related family members and in which the average daily number of trades executed in NMS stocks was less than 40 in each of the six preceding calendar months – unless the orders are first exposed to competition in a “qualified auction” operated by an “open competition trading center.” The proposed rule would also include limited exceptions to this general prohibition, such as for orders executed at a very favorable price for the individual investor.



The public comment period will remain open until March 31, 2023, or until 60 days following publication of the proposing release in the Federal Register, whichever is later.


For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-96494: Regulation NMS: Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders


Summary - The SEC has proposed for public comment proposed amendments to certain rules under Regulation NMS to adopt variable minimum pricing increments, or “tick sizes,” for the quoting and trading of NMS stocks, reduce access fee caps for protected quotations, and accelerate the transparency of the best priced orders available in the market. The proposed amendments are designed to enhance trading opportunities for all investors and to help ensure that orders placed in the national market system reflect the best prices available for all investors.



Specifically, the Commission proposed to amend Rule 612 of Regulation NMS to establish variable minimum pricing increments for quotations and orders in NMS stocks that are priced at, or greater than, $1.00 per share based on objective and measurable criteria and make such minimum pricing increments applicable to the trading of all NMS stocks regardless of price, subject to certain specified exceptions. Under the proposal, the primary listing exchanges would measure and calculate the Time Weighted Average Quoted Spread for the relevant NMS stock and determine the applicable minimum pricing increment.


The public comment period will remain open until March 31, 2023, or until 60 days following publication of the proposing release in the Federal Register, whichever is later.


For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-11139: Technical Amendments to Commission Rules


Summary - The SEC has issued Final Rule, Technical Amendments to Commission Rules. This final rule includes technical amendments to the Code of Federal Regulations (CFR). Specifically, this rule amends part 200 of 17 CFR in order to conform with current Federal Register requirements of structuring statutory authority citations within the CFR. The technical amendments move the citations of statutory authority for part 200 of 17 CFR from the subpart level to the part level and amend related citations to remove duplicative statutory citations at the subpart level.



These amendments are effective December 21, 2022.


For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-11140: Adoption of Updated EDGAR Filer Manual


Summary - The SEC has published Final Rule, Adoption of Updated EDGAR Filer Manual. This final rule adopts amendments to Volumes I and II of the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) Filer Manual and related rules and forms.



This final rule is effective upon publication in the Federal Register.


For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-11138: Insider Trading Arrangements and Related Disclosures


Summary - The SEC adopted amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 (Exchange Act) and new disclosure requirements to enhance investor protections against insider trading. The amendments include updates to Rule 10b5-1(c)(1), which provides an affirmative defense to insider trading liability under Section 10(b) and Rule 10b-5. Collectively, the SEC indicates that the “final rules aim to strengthen investor protections concerning insider trading and to help shareholders understand when and how insiders are trading in securities for which they may at times have material nonpublic information.”



The changes to the rule:

  • Update the conditions that must be met for the 10b5-1 affirmative defense. Specifically, the amendments adopt cooling-off periods for persons other than issuers before trading can commence under a Rule 10b5-1 plan.
  • Condition that all persons entering into a Rule 10b5-1 plan must act in good faith with respect to the plan.
  • Provide that directors and officers must include representations in their plans certifying at the time of the adoption of a new or modified Rule 10b5-1 plan that: (1) they are not aware of any material nonpublic information about the issuer or its securities; and (2) they are adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5.
  • Restrict the use of multiple overlapping trading plans and limit the ability to rely on the affirmative defense for a single-trade plan to one single-trade plan per twelve-month period for all persons other than issuers.
  • Require more comprehensive disclosure about issuers’ policies and procedures related to insider trading, including quarterly disclosure by issuers regarding the use of Rule 10b5-1 plans and certain other trading arrangements by its directors and officers for the trading of its securities.
  • Require disclosure of issuers’ policies and practices around the timing of options grants and the release of material nonpublic information.
  • Require that issuers report on a new table any option awards beginning four business days before the filing of a periodic report or the filing or furnishing of a current report on Form 8-K that discloses material nonpublic information, including earnings information, other than a Form 8-K that discloses a material new option award grant under Item 5.02(e), and ending one business day after a triggering event.
  • Require that insiders that report on Forms 4 or 5 indicate by checkbox that a reported transaction was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and to disclose the date of adoption of the trading plan.
  • Require that bona fide gifts of securities that were previously permitted to be reported on Form 5 be reported on Form 4.


The final rules will become effective 60 days following publication of the adopting release in the Federal Register. Section 16 reporting persons will be required to comply with the amendments to Forms 4 and 5 for beneficial ownership reports filed on or after April 1, 2023. Issuers will be required to comply with the new disclosure requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F and in any proxy or information statements in the first filing that covers the first full fiscal period that begins on or after April 1, 2023. The final amendments defer by six months the date of compliance with the additional disclosure requirements for smaller reporting companies.


For more information, click here.


© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Tax

Business vs. Hobby – Key Differences You Need to Know

Written by Travis Moffett, Tax Manager


There are many of us that have been engaged in various hobbies throughout the years. We live during a time when anyone can make a little side money in addition to their primary job. Although not every activity that generates revenue is considered a business. Let’s walk through the differences and how they’re treated for tax purposes.


How is a hobby different from a business?

To some, any activity that you engage in which makes income would be considered a business. However, the IRS takes a more objective approach to determine the difference between a hobby and a business. The IRS has created a nine-point hobby vs. business test to determine whether your activity is a hobby or business:

  1. Do you treat the activity like a business by maintaining accounting records?
  2. Do you put in the time and effort appropriate to turn a profit?
  3. Do you depend on the activity’s income for your livelihood?
  4. Are the losses sustained in the activity beyond your control?
  5. Did the losses happen during the activity’s startup phase?
  6. Have you changed your operations to try to achieve or improve profitability?
  7. Do you or your advisors have the knowledge to run a successful business?
  8. Have you profited from running similar businesses in the past?
  9. Has the activity ever made a profit and, if so, how much?
  10. Can you reasonably expect the activity to earn a profit from the appreciation of assets used in the activity?


If the answers to most, if not all, of these questions are “yes”, then you are most likely running a business. Otherwise, you should seek advice from a tax accountant as businesses and hobbies receive different tax treatment.


Can you take tax deductions for a hobby?

With the implementation of the Tax Cuts and Jobs Act (TCJA) of 2017, hobby expenses are no longer deductible to offset hobby income. For this reason, there is no tax incentive for pursuing revenue-generating hobbies. The TCJA discontinued miscellaneous itemized deductions for individuals which is where hobby expenses would be previously reported. On the other hand, businesses are allowed to deduct any ordinary and necessary expenses which can result in a loss to offset other taxable income.


Keep accurate records

If you want your activity to be recognized as a business, you must ensure that you keep accurate records. Keep track of expenses, log transactions, make a business plan, keep separate business accounts, and send out invoices. These are some of the key factors which can be used to show the IRS you are operating a legitimate business.


If you have any questions, please feel free to contact us at nzhao@malonebailey.com. 


Extra Crunch

IR Magazine's Best Practice Report: How to Demonstrate the Value of your IR Program


Summary - IR Magazine issued this best practices report that, according to the website, covers these five objectives for IR professionals:


  • Make sure your story is being heard and understood by Wall Street
  • Identify some of the common ways to measure success
  • Maximize your investor targeting efficiency
  • Find out why share price valuation is hard to ignore
  • Factor in external reference points


To view the report and more from IR Magazine, please click here.


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