We are pleased to release MaloneBailey's February 2018 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.
We invite you to visit our website to review archived versions of this newsletter containing past accounting, regulatory and tax updates.
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Accounting and Regulatory Updates
Recent FASB Updates & Proposals
Recent SEC Updates & Proposals
- Adoption of Updated EDGAR Filer Manual - Release No. 33-10444
- Investment Company Reporting Modernization - Release No. 33-10442
- Adjustments to Civil Monetary Penalty Amounts
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- SEC Staff Speech, Statement on Cryptocurrencies and Initial Coin Offerings by Chairman Jay Clayton
- SEC Staff Views: Staff Accounting Bulletin No. 117
- SEC Staff Speech, Remarks at the Third Annual Conference on the Evolving Structure of the U.S. Treasury Market by Chairman Jay Clayton
- SEC Staff Speech, Reflections on the Past, Present, and Future of the SEC's Enforcement of the Foreign Corrupt Practices Act Steven R. Peikin, Co-Director, Enforcement Division
- SEC Staff Speech, Statement on Status of the Consolidated Audit Trail by Chairman Jay Clayton
- SEC Staff Speech, Remarks before the Financial Executives International 36th Annual Current Financial Reporting Issues Conference: Effective Financial Reporting in a Period of Change by Wesley R. Bricker, Chief Accountant, Office of the Chief Accountant
- Financial Reporting Manual -- SEC Staff Financial Reporting Manual Updated
- SEC and PCAOB Activities -- 2017 AICPA Year-End SEC and PCAOB Conference
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 Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) - FASB ASU No. 2017-14
Summary -
The FASB has issued Accounting Standards Update (ASU) No. 2017-14, Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606). ASU 2017-14 includes amendments to certain SEC paragraphs within the FASB Accounting Standards Codification (Codification). ASU 2017-14 amends the Codification to incorporate the following previously issued guidance from the SEC.
SEC Staff Accounting Bulletin (SAB) No. 116
The SEC issued SAB 116 to bring existing SEC staff guidance into conformity with the FASB's adoption of and amendments to ASC Topic 606, Revenue from Contracts with Customers. The SAB modified SAB Topic 13, Revenue Recognition, SAB Topic 8, Retail Companies, and Section A, Operating-Differential Subsidies, of SAB Topic 11, Miscellaneous Disclosure. ASU 2017-14 supersedes various SEC paragraphs and amends an SEC paragraph pursuant to the issuance of SAB 116.
SEC Interpretive Release on Vaccines for Federal Government Stockpiles (SEC Release No. 33-10403)
The SEC issued this release to update its 2005 Commission Guidance Regarding Accounting for Sales of Vaccines and Bioterror Countermeasures to the Federal Government for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile. The release stated that consistent with ASC Topic 606, manufacturers should recognize revenue for vaccines that are placed into the Vaccines for Children Program and the Strategic National Stockpile. The release states that until a registrant adopts ASC Topic 606, it should continue referring to the guidance included in the 2005 Release. ASU 2017-14 supersedes various SEC paragraphs and adds an SEC paragraph pursuant to this guidance.
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary
- The FASB has issued a proposed Accounting Standards Update (ASU) for public comment that is intended to help organizations reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (the Act). Comments on the proposed ASU are due by February 2, 2018.
Stakeholders expressed concerns about current Generally Accepted Accounting Principles that required organizations to adjust deferred tax liabilities and assets after a change in tax laws or rates. It is expected that this proposed ASU will eliminate the stranded tax effects associated with the Act's change in the federal corporate income tax rate, while improving the usefulness of information reported to financial statement users.
If adopted as proposed, the amendments would require financial statement preparers to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act (or portion thereof) is recorded. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate.
In the period of the reclassification, organizations would be required to make the following transition disclosures:
- The nature and reason for the change in accounting principle;
- A description of the prior-period information that has been retrospectively adjusted; and
- The effect of the change on affected financial statement line items.
If adopted as proposed, the amendments would be effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption would be permitted. Organizations would be required to apply the proposed amendments retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized.
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary
- The FASB has issued a proposed Accounting Standards Update (ASU) intended to reduce costs and ease implementation of the new Leases standard for financial statement preparers. The FASB stated that it is part of their ongoing effort to proactively address implementation issues raised by stakeholders to ensure a successful transition to the new Leases standard. Comments on the proposed improvements are due by February 5, 2018.
The proposed ASU would simplify transition requirements and, for lessors, provide a practical expedient for the separation of nonlease components from lease components. Specifically, the amendments would:
- Add an option for transition to ASU No. 2016-02, Leases (Topic 842), that would permit an organization to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements; and
- Add a practical expedient that would permit lessors to not separate nonlease components from the associated lease components if certain conditions are met. This practical expedient could be elected by class of underlying assets; if elected, certain disclosures would be required.
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary
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The AICPA has released a new Technical Question and Answer (TQA) and amendments for TQA Section 2220, Long-Term Investments.
Technical Questions and Answers
The new TQA is Section 2220.28, Definition of Readily Determinable Fair Value and Its Interaction With the NAV Practical Expedient. The amendments include changes as follows:
- Amendments to TQA section 2220.18, "Applicability of Practical Expedient;"
- Deletion of TQA section 2220.24, "Disclosures-Ability to Redeem Versus Actual Redemption Request;" and
- Deletion of TQA section 2220.25, "Impact of 'Near Term' on Categorization Within Fair Value Hierarchy."
The AICPA developed TQA Sections 2220.18-.28 to assist reporting entities in implementing FASB ASC 820, Fair Value Measurements, to estimate the fair value of investments in certain entities that calculate net asset value. Sections 2220.18-.27 apply to investments that are required to be measured and reported at fair value and are within the scope of paragraphs 4-5 of FASB ASC 820-10-15.
New Section 2220.28 provides guidance in interpreting and applying the FASB Master Glossary definition of "readily determinable fair value."
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary
- The SEC adopted revisions to the Electronic Data Gathering, Analysis, and Retrieval System ("EDGAR") Filer Manual and related rules to reflect updates to the EDGAR system. Among other things, the manual has been updated to allow, but not require, asset-backed securities filers to submit a combined Form 10-D and Form ABS-EE. The manual has also been updated to allow, but not require, national securities exchanges to submit a new certification form type on EDGAR to evidence the approval of securities for listing on an exchange.
The EDGAR Filer Manual contains all the technical specifications for filers to submit filings using the EDGAR system. Filers must comply with the applicable provisions of the manual in order to assure the timely acceptance and processing of filings made in electronic format.
This final rule is effective upon publication in the Federal Register.
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For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary - The SEC has issued a temporary final rule that modifies its approach to the pending requirement for registered investment companies to file Form N-PORT electronically while the agency continues its previously announced review and uplift of its EDGAR and other systems. According to the SEC, for the first nine months after the Form N-PORT compliance date of June 1, 2018, larger fund groups will maintain the Form N-PORT information in their records and make it available to the SEC upon request in lieu of filing the form on EDGAR. Smaller fund groups will continue to benefit from a filing start date that is one year after larger fund groups begin filing the form.
In May 2017, Chairman Jay Clayton initiated an assessment of the SEC's cybersecurity risk profile and its approach to cybersecurity. Clayton subsequently directed the staff to take a number of steps designed to assess and strengthen the SEC's cybersecurity risk profile. In connection with these ongoing efforts, the agency commenced a focused review and uplift of EDGAR and other systems. Form N-PORT uses the EDGAR system.
The SEC adopted Form N-PORT to require registered investment companies to report enhanced information about their monthly portfolio holdings in a structured data format. Filing of Form N-PORT through the EDGAR system will begin in April 2019 for larger fund groups and in April 2020 for smaller fund groups. To ensure that investors do not lose access to important information, the SEC is requiring funds to continue filing public reports on existing Form N-Q until they begin filing reports on Form N-PORT using EDGAR.
The temporary rule is effective 30 days after publication in the Federal Register and is effective until March 31, 2026.
For more information, click
here
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© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary
- The SEC has issued a notice, Adjustments to Civil Monetary Penalty Amounts. The SEC is publishing this notice pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the Act). This Act requires all agencies to annually adjust for inflation the civil monetary penalties that can be imposed under the statutes administered by the agency and publish the adjusted amounts in the Federal Register. This notice sets forth the annual inflation adjustment of the maximum amount of civil monetary penalties administered by the SEC under the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and certain penalties under the Sarbanes-Oxley Act of 2002. These amounts are effective beginning on January 15, 2018, and will apply to all penalties imposed after that date for violations of the aforementioned statutes that occurred after November 2, 2015
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary -
The SEC staff published guidance for publicly traded companies, auditors, and others to help ensure timely public disclosures of the accounting impacts of the Tax Cuts and Jobs Act (the Act or the TCJA). Specifically, the SEC staff issued Staff Accounting Bulletin (SAB) No. 118. SAB 118 expresses views of the staff regarding application of U.S. GAAP when preparing an initial accounting of the income tax effects of the Act.
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary -
SEC Chairman Jay Clayton issued a Statement on Cryptocurrencies and Initial Coin Offerings, urging investors to beware when investing in cryptocurrencies and initial coin offerings (ICOs). Clayton warned that a "number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation."
Clayton's statement provides that:
- To date no initial coin offerings have been registered with the SEC. The SEC also has not to date approved for listing and trading any exchange-traded products (e.g., ETFs) holding cryptocurrencies or other assets related to cryptocurrencies.
- If you choose to invest in these products, ask questions and demand clear answers. The SEC has issued investor alerts, bulletins and statements on initial coin offerings and cryptocurrency-related investments, including with respect to the marketing of certain offerings and investments by celebrities and others.
- As with any other type of potential investment, if a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.
- Cryptocurrency and ICO markets span national borders and that significant trading may occur on systems and platforms outside the United States. Your invested funds may quickly travel overseas without your knowledge. As a result, risks can be amplified, including the risk that market regulators, such as the SEC, may not be able to effectively pursue bad actors or recover funds.
Clayton also urged caution for market professionals dealing in cryptocurrencies and ICOs. Clayton cautioned market participants "against promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions." Selling securities generally requires a license, and experience shows that excessive touting in thinly traded and volatile markets can be an indicator of "scalping," "pump and dump" and other manipulations and frauds. Clayton noted specifically on cryptocurrencies:
- While there are cryptocurrencies that do not appear to be securities, simply calling something a "currency" or a currency-based product does not mean that it is not a security. Before launching a cryptocurrency or a product with its value tied to one or more cryptocurrencies, its promoters must either: (a) be able to demonstrate that the currency or product is not a security; or (b) comply with applicable registration and other requirements under our securities laws.
- Brokers, dealers and other market participants that allow for payments in cryptocurrencies, allow customers to purchase cryptocurrencies on margin, or otherwise use cryptocurrencies to facilitate securities transactions should exercise particular caution, including ensuring that their cryptocurrency activities are not undermining their anti-money laundering and know-your-customer obligations.
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary -
The SEC staff has issued Staff Accounting Bulletin (SAB) No. 117 which communicates views on when a registrant adopts FASB Accounting Standards Codification™ Topic 321, Investments-Equity Securities. SAB 117 provides that SAB Topic 5.M is no longer applicable and that, subsequent to a registrant adopting ASC Topic 321, investments in equity securities that would have previously qualified for presenting changes in fair value within other comprehensive income will be measured at fair value, with changes in fair value presented immediately in net income.
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary
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SEC Chairman Jay Clayton recently discussed the fixed income markets. Specifically, Clayton's remarks focused on the following topics:
- Regulatory coordination and its importance to the treasury market;
- Treasury market data; and
- Views regarding the SEC's approach to the future regulation of certain other aspects of the fixed income markets.
Regulatory Coordination
One of the principles that should guide the SEC's work that has previously been identified by Clayton is efficient and effective regulatory coordination. The SEC shares the financial services space with many other regulators and governmental entities that oversee related and overlapping industries and market participants, including those in the fixed income markets. Clayton notes that coordination "among those bodies-locally, nationally and internationally-is essential to a well-functioning regulatory environment and, in turn, well-functioning markets. Said another way, inconsistent, duplicative, fragmented, and unilateral regulation, is at best inefficient and, all too often, provides the seeds for market failures and improper conduct. These inefficiencies and failures have lasting effects on individuals, firms and our economy more generally."
Clayton noted that not only is coordination between and among regulators and government authorities critical, but coordination and open communication between regulators and the various participants in the markets that they oversee is also vitally important. The SEC strives to continuously invest in its knowledge of the markets, firms, and individuals it regulates, as well as those it strives to protect. Clayton noted that he has "instructed our staff to endeavor to engage with, listen to, and learn from investors and industry participants."
Treasury Market Data
The SEC, as well as the other authorities responsible for this market and other markets, needs a clear and precise understanding of the trends, dynamics and risks in the Treasury market. Clayton cited FINRA's rule change that requires FINRA member broker-dealers to report transactions in Treasury securities to FINRA's TRACE system has helped get better treasury market data. However, gaps in data remain as noted in the Treasury Department's Capital Markets Report, which also includes a number of important recommendations to improve FINRA's TRACE system.
Fixed Income Regulation Efforts
Clayton highlighted the SEC's creation of the new Fixed Income Market Structure Advisory Committee (the Committee). The Committee, whose initial focus will be on the corporate and municipal bond markets, will advise the SEC on the efficiency and resiliency of these markets and help the SEC identify opportunities for regulatory improvements. Clayton noted that he has "long believed that there should be additional regulatory focus on these important and growing markets, notwithstanding several meaningful and impactful regulatory initiatives in recent years. Indeed, the corporate and municipal debt markets are particularly significant to retail investors, as well as American companies and our national infrastructure."
Topics Clayton believes the Committee may address in future include:
- Bond market liquidity;
- Broad implications of the growth and proliferation of bond funds and exchange traded products;
- Whether the SEC should undertake efforts with respect to pre-trade transparency in these markets; and
- How technologies are changing the markets.
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary -
Steven R. Peikin, Co-Director of the SEC's Enforcement Division, recently reflected on the SEC's enforcement of the Foreign Corrupt Practices Act (FCPA). Peikin noted that "collaboration and coordination is integral to the Division of Enforcement's efforts to combat bribery through the enforcement of the FCPA, and the OECD has played a pivotal role in fostering global efforts against bribery and corruption."
Past Enforcement of FCPA
Peikin noted that over the last 40 years, enforcement of the FCPA has been a fundamental part of the SEC's enforcement mission. Recognizing the increasingly specialized nature of FCPA practice, in 2010, the Enforcement Division formed a specialized unit dedicated to investigating potential violations of the FCPA. The SEC's focus on FCPA enforcement has yielded significant results. Since the creation of the FCPA Unit in 2010, the SEC has brought 106 FCPA-related actions against 101 entities and 38 individuals.
Future of FCPA Enforcement
As SEC Chairman Jay Clayton noted during his confirmation hearing, bribery and corruption have no place in society. Charles Cain was just last week appointed as Chief of the FCPA Unit. Peikin noted that "Cain has devoted much of his career to FCPA enforcement matters, has handled some of the Commission's most significant cases and, prior to his appointment, served as Deputy Chief and Acting Chief of the Unit."
In his view, Peikin believes that U.S. authorities cannot go it alone in fighting corruption given the increasingly international enforcement environment. As global markets become more interconnected and complex, no one country or agency can effectively fight bribery and corruption by itself. Anti-corruption enforcement is a team effort. Peikin observes that "the level of cooperation and coordination among regulators and law enforcement worldwide is on a sharply upward trajectory, particularly in matters involving corruption. In fact, in the past fiscal year alone, the SEC has publicly acknowledged assistance from 19 different jurisdictions in FCPA matters."
Companies cannot engage in bribery without the actions of culpable individuals. Peikin noted that the SEC's Enforcement Division is broadly committed to holding individuals accountable when the facts and the law support doing so.
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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SEC Staff Speech, Statement on Status of the Consolidated Audit Trail by Chairman Jay Clayton
Summary -
SEC Chairman Jay Clayton issued a statement rejecting a request for delay in implementation requirements of the Consolidated Audit Trail (CAT). CAT would consolidate compiling detailed information of orders and trades for U.S. equity and options markets to better protect investors. CAT was adopted under Rule 613 of Regulation NMS in the wake of the 2010 "Flash Crash."
Request for Implementation Delay
A number of U.S. equity exchanges requested relief in the form of a delay in the timeline of certain milestones to implementing CAT. Clayton refused to provide such relief that he is "not in a position to support the issuance of the requested relief on the terms currently proposed. That said, I will continue to engage with the SROs on these issues, and I have instructed the SEC staff to make themselves available to the SROs as necessary or appropriate. I urge the SROs to continue their efforts to work cooperatively with each other and to meet their responsibilities as promptly as practicable."
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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SEC Staff Speech, Remarks before the Financial Executives International 36th Annual Current Financial Reporting Issues Conference: Effective Financial Reporting in a Period of Change by Wesley R. Bricker, Chief Accountant, Office of the Chief Accountant
Summary -
Wesley R. Bricker, Chief Accountant of the SEC, discussed effective financial reporting in a period of change. Bricker noted that without "reliable financial information, supported by high quality accounting and auditing, investors cannot properly judge the opportunities and risks of investment choices to allocate capital to public companies, a key part of the American economy. Accounting and auditing may not readily grab the general public's attention, but they are nonetheless important to the livelihoods of all Americans." Bricker discussed a number of important financial reporting changes, including new accounting standards, the new auditor's reporting model, and blockchain technology.
Revenue Recognition Standard Implementation
Bricker commended the many companies that have expended great effort to make significant progress in implementing the new revenue standard. However he also warned that some public companies "may need to accelerate the pace of their work to complete their implementation timely. Where there is a risk of material misstatement, companies need to have internal controls that address the judgments and estimates required of management to implement and, subsequently, apply the new standard." The effectiveness of internal controls over the transition adjustment and ongoing application of the new standard should be supported by appropriate documentation of significant judgments and decisions.
Bricker also emphasized the important role audit committees should be playing in the implementation efforts associated with the new revenue recognition standard. Audit committees should anticipate receiving, as part of required communications, information from the auditor about any concerns with the anticipated implementation. Bricker noted that it "can be valuable for audit committees to listen for any differences in assessment of implementation status, milestones, or issue resolution between management's and the auditor's presentations. Increasingly through the third and fourth quarter reporting, I anticipate companies to be in a position to disclose in their SAB 74 disclosures the anticipated impact, at least qualitatively and directionally, of adoption of the revenue standard." Bricker and other members of the SEC staff have previously discussed SAB 74 disclosures related to the new accounting standards on revenue recognition, leases, and credit losses.
Leases Standard Implementation
Bricker expects the implementation of the new leases standard to be a significant effort for most companies. Bricker cited several expected steps required to implement the leases standard, including (but not limited to):
- Identifying relevant legal contracts;
- Evaluating whether an arrangement is or contains a lease; and
- Applying the new leases standard to arrangements within its scope.
Like the revenue standard, the leases standard will require reasonable judgment in certain areas, and developing well-reasoned judgments frequently requires time. Companies should identify the accounting questions relative to their arrangements and begin working through those questions in a timely manner.
While not required, Bricker noted that the OCA staff has observed a best practice is "for companies to commence efforts to implement the new leases standard concurrently (or partially concurrently) with the new revenue standard." Companies that wait to begin addressing the new leases standard until after they have implemented the new revenue standard may find that they have limited their time for implementation. Insufficient time could impact, among other items, the ability of a company to make reasonable judgments and to complete its accounting analysis.
Auditor's Reporting Model
Bricker discussed the SEC's recent approval of a PCAOB standard that will provide significant changes to the independent auditor's report. Under the standard, beginning this year-end, the auditor's report will contain clarifications regarding independence, auditor responsibilities, and communication of an auditor's continuous years of service to the company. The auditor's report will continue to provide a pass or fail opinion. The standard has phased effective dates with audit reports that communicate critical audit matters required for large accelerated filers 18 months before being required for all others. Beginning with audits of fiscal years ending on or after June 30, 2019, reports on large accelerated filers will include communication about critical audit matters. (Editor's Note: Communication of critical audit matters will apply to audits of all other public companies for fiscal years ending on or after December 15, 2020. All other changes to the auditor's reports not related to critical audit matters are effective for fiscal years ending on or after December 15, 2017).
Bricker cautioned that he supports the new auditor's reporting model, but "to achieve its full potential, the requirements must be effectively implemented." As part of getting started, Bricker encourages auditors to:
- Update their methodologies;
- Provide necessary training; and
- At the engagement team level, use the transition period to engage in dialogue with audit committees so that audit committees have time to understand the types of matters that may be communicated as critical audit matters in the audit reports.
Bricker expects the PCAOB will conduct a timely and effective post-implementation review on the requirements of the new standard. Bricker noted that during the phased effective dates "the SEC staff will review carefully the results of the post-implementation procedures and work with the PCAOB as it considers whether additional changes to the requirements are needed, including to the implementation date for non-large accelerated filers."
Blockchain Technology
The OCA is focused on the use of blockchain technology by those who may be utilizing capital from investors, in particular our Main Street investors, to develop possible applications in light of the fact that financial information is important to investor decision making. As a result, Bricker noted that OCA is investing time to understand blockchain technology applications such as cryptocurrencies, coins, tokens and so forth as they are offered, bought, held, sold, and traded. Bricker noted that the SEC's existing accounting and auditing requirements, books and records requirements, auditor independence rules, and the federal securities laws provide a basis for dealing with blockchain technology applications. Bricker provided that these existing SEC requirements "collectively form a framework for us, and they should as well for everyone, because these requirements apply to all matters within the purview of the SEC, even if they were developed prior to the emergence of the types of facts and circumstances, including blockchain technology applications."
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Financial Report Manual - SEC Staff Financial Reporting Manual Updated
Summary -
The staff in the SEC's Division of Corporation Finance (Corp Fin) has updated certain guidance in its Financial Reporting Manual (Manual). Corp Fin has updated the FRM to:
- Include revised guidance related to the pro forma impact of adopting new accounting standards;
- Address adoption of new accounting standards after Emerging Growth Company status is lost; and
- Clarify the effective dates for certain public business entities for FASB Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, and ASU No. 2016-02, Leases.
The Manual was originally prepared by the Corp Fin staff to serve as internal guidance but later made public in an effort to increase transparency of informal staff interpretations. Because of its informal nature, the Manual does not necessarily contain a discussion of all material considerations necessary to reach an accounting or disclosure conclusion. Such conclusions about a particular transaction are very fact dependent and require careful analysis of the transaction and of the relevant authoritative accounting literature and SEC requirements. The information in the Manual is non-authoritative.
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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SEC and PCAOB Activities - 2017 AICPA Year-End SEC and PCAOB Conference
Summary -
CCH Incorporated has posted remarks presented at the 2017 AICPA National Conference on SEC and PCAOB Developments held on December 4-6, 2017, in Washington, D.C. Principal themes of the conference included:
- The continued importance of transparency and integrity on financial reporting, including the role of the auditor in providing assurance and trust in the financial reports of entities;
- Implementation efforts associated with adoption of new accounting standards on revenue recognition, leases, financial instruments, and credit losses;
- The importance of internal control over financial reporting (ICFR), including the designing and implementation of controls;
- The important role of auditors, including the importance of testing the effectiveness of ICFR;
- The use of non-GAAP financial measures in financial reporting; and
- Accounting and auditing quality and their influence on capital formation and economic success.
CCH has also published an Overview of the conference to SEC Practice, including discussions of various remarks from staff members of the SEC.
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary
- On January 11, 2018, the IRS issued new income tax withholding tables. These tables show new tax rates as well as other changes for individuals implemented by the Tax Cuts and Jobs Act (P.L. 115-97), which was enacted December 22, 2017. Employers must implement the updated withholding rules by February 15, 2018.
The new tables reflect the increase in the standard deduction, the repeals of personal exemptions and new tax rates and brackets. They are designed to produce the correct amount of tax withholding and are also intended to avoid over- and under- withholding of tax.
For more information, click here.
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Summary
- The FASB staff issued four Staff Q&A documents that address issues related to the Tax Cuts and Jobs Act on January 22, 2018. The Q&As address the following topics:
- Whether to discount the tax liability on the deemed repatriation
- Whether to discount alternative minimum tax credits that become refundable
- Accounting for the base erosion anti-abuse tax
- Accounting for global intangible low-taxed income
For full explanations of the above Q&As, please visit the FASB website here.
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Commission Staff Provides Regulatory Guidance for Accounting Impacts of the Tax Cuts and Jobs Act
FOR IMMEDIATE RELEASE
2017-237
Washington D.C., Dec. 22, 2017 - The Securities and Exchange Commission today announced publication of staff guidance for publicly traded companies, auditors, and others to help ensure timely public disclosures of the accounting impacts of the Tax Cuts and Jobs Act (the Act). Specifically, the staff of the Office of the Chief Accountant and the Division of Corporation Finance issued the following interpretations:
- Staff Accounting Bulletin (SAB) No. 118 expresses views of the staff regarding application of U.S. GAAP when preparing an initial accounting of the income tax effects of the Act.
- Compliance and Disclosure Interpretation 110.02 expresses views of the staff regarding the applicability of Item 2.06 of Form 8-K with respect to reporting the impact of a change in tax rate or tax laws pursuant to the Act.
Director of the Division of Corporation Finance Bill Hinman stated, "This guidance recognizes that investors demand and deserve high-quality information, while also recognizing that entities may face challenges in accounting for one of the most comprehensive changes to the U.S. federal tax code since 1986."
Chief Accountant Wes Bricker added, "Allowing entities to take a reasonable period to measure and recognize the effects of the Act, while requiring robust disclosures to investors during that period, is a responsible step that promotes the provision of relevant, timely, and decision-useful information to investors."
The statements in Staff Accounting Bulletins and Compliance and Disclosure Interpretations are not rules, regulations, or statements of the Commission. They represent interpretations and practices followed by the SEC's Office of the Chief Accountant and the Division of Corporation Finance in administering the disclosure requirements of the federal securities laws. As such, the Commission has neither approved nor disapproved these interpretations.
Fact Sheet
- The Tax Cuts and Jobs Act represents one of the most significant overhauls to the United States federal taxcode since 1986 and could have a significant impact on an entity's domestic and international tax consequences.
- ASC Topic 740 provides guidance addressing changes in tax laws or tax rates to be recognized in the financial reporting period that includes the enactment date, which is the date the Act is signed into law - i.e., Dec. 22, 2017.
- The magnitude of the changes in the Act may give rise to certain operational challenges and constraints for entities when complying with the requirements under ASC Topic 740 upon issuance of an entity's financial statements for the reporting period in which the Act is enacted.
New Guidance Contained in SAB 118
- The staff is issuing guidance in SAB 118 to address certain fact patterns where the accounting for changes in tax laws or tax rates under ASC Topic 740 is incomplete upon issuance of an entity's financial statements for the reporting period in which the Act is enacted.
- Under the staff guidance in SAB 118, in the financial reporting period the Act is enacted, the income tax effects of the Act (i.e., only for those tax effects in which the accounting underSC 740 is incomplete) would be reported as a provisional amount based on a reasonable estimate (to the extent a reasonable estimate can be determined), which would be subject to adjustment during a "measurement period" until the accounting under ASC 740 is complete. The measurement period would be limited under the staff's guidance.
- The staff's guidance would also describe supplemental disclosures that should accompany the provisional amounts, including the reasons for the incomplete accounting, the additional information or analysis that is needed, and other information relevant to why the registrant was not able to complete the accounting required under ASC 740 in a timely manner.
New Guidance Contained in C&DI 110.02
- The staff is issuing guidance in C&DI 110.02 to clarify how registrants making use of the measurement period approach in SAB 118 will be expected to comply with their obligations under 2.06 of Form 8-K with respect to disclosure of material impairments of assets.
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OTC Markets Comment Letter on FINRA Rule 6432
Summary -
OTC Market Group recently submitted
a comment letter on FINRA Rule 6432
to the Financial Industry Regulatory Authority, Inc. (FINRA) in response to the request for comments on FINRA Rules Impacting Capital Formation.
In the letter, OTC Markets Group recommends that FINRA work with the SEC to make Rule 6432 more efficient and regulatorily relevant by adopting a disclosure-based approach and promoting the public availability of information. Their letter recommends the following simple modifications to the administration of Rule 6432 that would provide immense benefits to smaller companies looking to access well-regulated secondary markets:
- Making the Form 211 review process more efficient by adopting an objective review standard and implementing a three-day turnaround;
- Requiring that Form 211 materials be made public and issuers (not broker-dealers) be liable for any misrepresentations;
- Outsourcing certain Form 211 functions to IDQSs, including allowing an IDQS to file a Form 211 directly with FINRA and to review Form 211 filings submitted by other broker-dealers;
- Allowing IDQSs the authority to develop disclosure regimes and initiate trading halts;
- Amending FINRA Rule 5250 to allow broker-dealer compensation for information gathering and Form 211 filing, provided that all such payments are fully disclosed; and
- Allowing multiple market makers to quote a security immediately after a Form 211 is cleared.
Please click here to read the full comment letter.
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Should you be interested in a complimentary estimate for audit, tax or consulting services, please contact Caroline Rosen at [email protected] or 713.343.4286.
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