We are pleased to release MaloneBailey's March 2018 issue of The Crunch, our newsletter highlighting recent accounting and regulatory updates. Please note that the updates provided in this newsletter are not a comprehensive list.  We encourage you to visit the SEC and FASB 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.

The MaloneBailey Team
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Featured Podcast
Accounting and Regulatory Updates

       Featured Podcast
PODCAST1The featured podcast in the March 2018 edition of The Crunch features Annie Yan, Audit Manager and Caroline Rosen, Marketing Manager, as they discuss the classification of certain cash receipts from topic 230, Statement of Cash Flows. This update goes into effect in December 2018. Click below to hear the newest updates regarding cash flows and what to expect when it goes into effect. 

Classification of Certain Cash Receipts and Cahs Payments
          Recent FASB Updates & Proposals 

SummaryThe FASB issued an Accounting Standards Update (ASU) that helps organizations address certain stranded income tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act.
ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.
The ASU requires financial statement preparers to disclose:
  • A description of the accounting policy for releasing income tax effects from AOCI;
  • Whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act; and
  • Information about the other income tax effects that are reclassified.
The amendments affect any organization that is required to apply the provisions of Topic 220, Income Statement-Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP.
The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.

For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Summary  The FASB has issued Accounting Standards Update (ASU) No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, which clarifies the application of the new leases guidance to land easements and eases adoption efforts for some land easements.
ASU 2018-01 is expected to reduce the cost of adopting the new leases standard for certain land easements. It is also an attempt to help ensure that companies can make a successful transition to the standard without compromising the quality of information provided to investors about these transactions.
Land easements (also commonly referred to as rights of way) represent the right to use, access, or cross another entity's land for a specified purpose. Land easements are used by utility and telecommunications companies, for example, when they need to take a small strip of land, or easement, to bury wires. Not all companies have historically accounted for them as leases.
Stakeholders pointed out that the requirement to evaluate all old and existing land easements, sometimes numbering in the tens of thousands, to determine if they meet the definition of a lease under the new standard could be very costly. They also noted there would be limited benefit to applying this requirement, as many of their land easements would not meet the definition of a lease, or even if they met that definition, many of their easements are prepaid and, therefore, already are recognized on the balance sheet.
The land easements ASU addresses this by:
  • Providing an optional transition practical expedient that, if elected, would not require an organization to reconsider their accounting for existing land easements that are not currently accounted for under the old leases standard; and
  • Clarifying that new or modified land easements should be evaluated under the new leases standard, once an entity has adopted the new standard.
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Summary  As reported in its "Summary of Board Decisions" publication, the FASB met on February 7, 2018, and discussed the project scope for potential improvements to Topic 808, Collaborative Arrangements, based on the feedback received during workshops held with stakeholders in December 2017. The FASB decided to retain the current scope of the project. The current scope includes certain transactions between participants of a collaborative arrangement; it excludes transactions directly related to sales to third parties. The current scope clarifies when certain transactions are within the scope of the revenue guidance; it does not include the development of a model for the financial reporting for non-revenue transactions.
On the remaining issues for deliberations, the FASB decided the following:
  • Entities would be required to apply the amendments resulting from the proposed ASU using a retrospective approach. The amendments would be required to be applied retrospectively as of an entity's adoption date of Topic 606, Revenue from Contracts with Customers, subject to modification using the practical expedients in paragraph 606-10-65-1(h).
  • Additional recurring disclosures should not be required as a result of the targeted improvements, given the existing disclosures in Topics 606 and 808.
The FASB concluded that it received sufficient information and analysis to make an informed decision on the expected costs of the targeted improvements. Subject to what it learns from comment letters, the FASB believes that the expected benefits of the targeted improvements justify the expected costs. The FASB authorized its staff to draft a proposed Update for vote by written ballot that will be issued for public comment for a 45-day comment period.

For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Summary - As reported in its "Summary of Board Decision" publication, the FASB met on January 18, 2018, and discussed comments received and redeliberated issues related to the proposed ASU, Technical Corrections and Improvements to Recently Issued Standards: Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB3Leases - FASB Discusses Improvements to Leases Standard

SummaryAs reported in its "Summary of Board Decision" publication, the FASB met on January 24, 2018, and discussed the feedback received on its proposed ASU, Technical Corrections and Improvements to Recently Issued Standards: II. Accounting Standards Update No. 2016-02, Leases (Topic 842).

For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB4EITF Flash Report - EITF Meeting Results Discussed

Summary -   Th e EITF held a meeting today to continue its discussion of EITF Issue No. 17-A, "Customer's Accounting for Implementation, Setup, and Other Upfront Costs (Implementation Costs) Incurred in a Cloud Computing Arrangement That Is Considered a Service Contract." The EITF members voted to issue a consensus-for-exposure for public comment on Issue 17-A.
Issue 17-A Discussion
The majority of the EITF members supported the view that all hosting arrangements are within the scope of Subtopic 350-40. The task force also agreed that the consensus-for-exposure should address income statement alignment of implementation costs expensed with the presentation of other costs associated with a cloud computing contract.
The EITF was supportive of remaining silent on whether the amendments resulting from Issue 17-A could be applied by analogy to other contracts that are not within the scope of this project, including contracts that provide the right to use intangible assets.
The EITF discussed possible disclosures of implementation costs related to cloud computing arrangements. The members discussed whether any proposed disclosures should be tailored to just cloud computing contracts or whether they would also be tailored to software arrangements. Most members supported aligning the disclosure requirements for implementation costs for both cloud computing and software arrangements.
Regarding transition and related transition disclosures, the EITF members supported permitting an entity to choose between prospective and retrospective transition. Such a transition approach would be consistent with the transition requirements for the amendments in FASB ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement.
FASB Staff Draft Q&As
The EITF also discussed FASB Staff draft Questions and Answers (Q&As) on the financial reporting effects of the Act. This guidance would be in addition to the FASB staff's Q&As issued on January 11, 2018, that focused on guidance for private companies and not-for-profit organizations.
The Q&As discussed at the EITF meeting were:
  • Whether to Discount Alternative Minimum Tax Credits That Become Refundable;
  • Whether to Discount the Tax Liability on the Deemed Repatriation;
  • The Accounting for Global Intangible Low-Taxed Income; and
  • The Accounting for the Base Erosion Anti-Abuse Tax.
The EITF members did not raise any significant concerns regarding the guidance within these draft Q&A's. The FASB staff intends to issue these new Q&As publicly within the next few days.

For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB5Income Taxes - FASB Discusses Financial Reporting for Tax Reform

Summary - As  reported in its "Summary of Board Decisions" publication, the FASB met on January 10, 2018, and decided to add a project to its agenda on the reclassification of certain tax effects from accumulated other comprehensive income to retained earnings. The FASB reached a number of decisions on this matter, including to:
  • Require a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects resulting from the newly enacted corporate tax rate in the Tax Cuts and Jobs Act.
  • Add a broader project to its research agenda on the accounting for subsequent effects of changes in deferred tax liabilities and assets that were originally charged or credited directly to equity ("backwards tracing").
  • Require the application of the reclassification to each period in which the effect of the Tax Cuts and Jobs Act (or portion thereof) is recorded. That requirement would be applied retrospectively to the date of enactment if the forthcoming accounting guidance is not adopted early.
  • Require certain specified transition disclosures.
For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

             Recent SEC Updates & Proposals

Summary SEC Chairman Jay Clayton recently criticized certain legal advice given on initial coin offerings (ICOs) and warned of the emergence of overnight blockchain companies. Clayton also provided an updated on rulemaking under the Dodd-Frank Act.
Legal Advice and ICOs
Clayton indicated that "there are ICOs where the lawyers involved appear to be, on the one hand, assisting promoters in structuring offerings of products that have many of the key features of a securities offering, but call it an "ICO," which sounds pretty close to an "IPO."  On the other hand, those lawyers claim the products are not securities, and the promoters proceed without compliance with the securities laws, which deprives investors of the substantive and procedural investor protection requirements of our securities laws."
Clayton also cautioned that he has seen instances where lawyers "appear to have taken a step back from the key issues - including whether the "coin" is a security and whether the offering qualifies for an exemption from registration - even in circumstances where registration would likely be warranted. These lawyers appear to provide the "it depends" equivocal advice, rather than counseling their clients that the product they are promoting likely is a security. Their clients then proceed with the ICO without complying with the securities laws because those clients are willing to take the risk."
Clayton indicated that he has instructed the SEC staff to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws and the professional obligations of the U.S. securities bar.
While the SEC recognizes that in some ICOs there is no market professional involved, the SEC is undertaking significant efforts to educate the public that unregistered securities investments offered by unregistered promoters, with no securities lawyers or accountants on the scene, are, in a word, dangerous.
Overnight Blockchain Companies
Clayton raised concerns about public companies that shift their business models seemingly overnight to capitalize on the perceived promise of blockchain technology. Clayton indicated that the "SEC is looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering."
Dodd-Frank Act Rulemaking
Clayton provided an update to outstanding rulemaking under the Dodd-Frank Act. Clayton noted "how quickly we can complete the remaining Dodd-Frank rules is a multi-variable function and two of the key variables - there are many - are mission-critical demands and the complexity of the mandates themselves."
Regarding the SEC's work on executive compensation rules for both public companies and SEC-regulated entities, Clayton indicated that a serial approach is likely to be most efficient and best serve the SEC's mission. Clayton praised the recently issued interpretive guidance to help companies comply with the new pay ratio rules. Clayton noted that this guidance was "true to the statutory mandate, practical, and intended to help companies reduce compliance costs. With those same themes in mind, I am discussing with my fellow Commissioners and the staff how best to address the remaining mandatory executive compensation rules."
Regarding the SEC's rulemaking on specialized disclosure rules, such as resource extraction disclosure, Clayton indicated that in the case of resource extraction, the task is difficult and it is clear some stand poised to challenge the SEC's work, whatever its outcome. However, Clayton cautioned that this does not relieve the SEC of "its responsibility. With that perspective, I have asked the staff to craft rules for consideration by the Commission that meet the objectives of Congress, take into account this array of procedural and substantive constraints, and bring finality to these matters."

For more information, click here.
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SummarySEC Chairman Jay Clayton recently spoke about the current state of shareholder engagement, including the roles of institutional and activist investors and how those roles have changed over time. Clayton noted that regulators have mandated or suggested rule sets, including disclosure requirements and incentive driving requirements and prohibitions, "that have reduced the opportunities for misalignment between shareholders and managers. Based on my observations and, more significantly, my interactions with various market participants, I believe it is clear that governance has improved as a result."
Clayton discussed issues market regulators need to keep in mind to ensure their efforts keep up with ever-changing markets, including:
  • Various layers between the ultimate owners of capital and corporate management;
  • Principal-agent and shareholder alignment issues; and
  • Corporate governance.
For more information, click here .
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
        Extra Crunch

OTC Markets is pleased to share their latest Annual Review.

The document highlights the milestones and events from the past year as OTC Markets continued to champion access to efficient public trading markets for innovative and entrepreneurial companies.

Please take a moment to review the key developments on the OTCQX Best Market and the OTCQB Venture Market.

Summary The Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the World Business Council for Sustainable Development (WBCSD) have released a draft of proposed guidance, Applying Enterprise Risk Management to Environmental, Social and Governance-Related Risks (Draft Guidance). The comment deadline is June 30, 2018.
The existing COSO framework, Enterprise Risk Management - Integrating with Strategy and Performance, is an applied enterprise risk management frameworks (ERM). The goal of the COSO ERM Framework is to help organizations create, preserve, sustain and realize value while improving their approach to managing risk.
The purpose of the Draft Guidance, if adopted in its current form, is designed to help organizations respond to the increasing prevalence and severity of Environmental, Social and Governance (ESG)-related risks, ranging from extreme weather events to product safety recalls.
The Draft Guidance includes:
  • The evolving global risk landscape;
  • Common ESG issues and related risks and opportunities impacting business;
  • Examples of risk events and consequences of failure to manage them;
  • Principles of the COSO ERM Framework;
  • Methods to overcome ESG-related risk challenges, including identifying and assessing the severity of risks with uncertain financial consequences; and
  • Innovative responses for addressing ESG-related risks and seizing opportunities.
For more information, please click here

        About MaloneBailey, LLP

Should you be interested in a complimentary estimate for audit or consulting services, please contact Caroline Rosen at crosen@malonebailey.com or 713.343.4286.