We are pleased to release MaloneBailey's May 2019 issue of The Crunch, our newsletter highlighting recent accounting, regulatory and tax updates. Please note that the updates provided in this newsletter are not a comprehensive list.  We encourage you to visit the  SEC ,  FASB   and  IRS   websites for more information as well as a complete list of updated rules, regulations and proposals.  We invite you to   contact us   should you have any questions about the information provided in this issue.  Please visit our website to review   archived versions   of this newsletter containing past accounting, regulatory and tax updates. The MaloneBailey Team www.malonebailey.com

What's the Crunch? Featured Podcast FASB ASU on Earnings Per Share Accounting and Regulatory Updates Recent FASB Updates & Proposals FASB Accounting Standards Updates No. 2019-02 —Entertainment —Films —Other Assets —Film Costs (Subtopic 926-20) and Entertainment —Broadcasters —Intangibles —Goodwill and Other (Subtopic 920-350) —Improvements to Accounting for Costs of Films and License Agreements for Program Materials FASB Proposed Accounting Standards Update (Revised) 2019-500 —Income Taxes (Topic 740) —Disclosure Framework —Changes to the Disclosure Requirements for Income Taxes (Revision of Exposure Draft Issued July 26, 2016) FASB Discusses Debt Disclosures  Recent SEC Updates & Proposals Release No. 33-10618: FAST Act Modernization and Simplification of Regulation S-K  SEC Staff Speeches, Equity Market Structure 2019: Looking Back & Moving Forward by Chairman Jay Clayton Brett Redfearn, Director, Division of Trading and Markets SEC Staff Speeches, Applying a Principles-Based Approach to Disclosing Complex, Uncertain and Evolving Risks by William Hinman Director, Division of Corporation Finance SEC Staff Speeches, A Start-Up Within the Government - Introducing the SEC’s Office of the Advocate for Small Business Capital Formation by Martha Miller Advocate for Small Business Capital Formation Release No. 33-10619: Securities Offering Reform for Closed-End Investment Companies Tax Updates Deductions for Foreign-Derived Intangible Income (FDII) for U.S. Corporations Extra Crunch OTC Markets Group Introduces Canari OTC Markets Group Investor Relations Strategy Resources About MaloneBailey, LLP

Featured Podcast

The featured podcast for May 2019 highlights a discussion on a FASB Accounting Standards Update (ASU) that simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings.  Simply click the podcast image below to listen to Audit Partner Leah Gonzales' commentary on the topic.

Recent FASB Updates & Proposals

FASB Accounting Standards Updates No. 2019-02 —Entertainment —Films —Other Assets —Film Costs (Subtopic 926-20) and Entertainment —Broadcasters —Intangibles —Goodwill and Other (Subtopic 920-350) —Improvements to Accounting for Costs of Films and License Agreements for Program Materials  Summary -  The FASB has issued ASU 2019-02,  Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials . ASU 2019-02 helps organizations align their accounting for production costs for films and episodic content produced for television and streaming services. In recent years, the entertainment industry experienced a significant change in production and distribution models. For example, online streaming services have introduced subscription-based revenue models. However, current accounting guidance provides organizations in the entertainment industry with differing capitalization requirements for content production: For films, production costs are capitalized. For episodic content (e.g., a TV series that airs a new episode each week), production costs are capitalized subject to a constraint based on contracted revenues in the initial and secondary markets. The standard addresses when an organization should assess films and license agreements for program material for impairment at the film-group level. The amendments in the standard also: Revise presentation requirements; Require that an organization provide new disclosures about content that is either produced or licensed; and Address cash flow classification for license agreements. For public companies, the standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other organizations, the standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB Proposed Accounting Standards Update (Revised) 2019-500 —Income Taxes (Topic 740) —Disclosure Framework —Changes to the Disclosure Requirements for Income Taxes (Revision of Exposure Draft Issued July 26, 2016)  Summary -  The FASB has issued revised proposed Accounting Standards Update (ASU),  Income Taxes (Topic 740) – Disclosure Framework—Changes to the Disclosure Requirements for Income Taxes – Revision of Exposure Draft Issued July 26, 2016.  The FASB intends the proposed amendments in the draft ASU to improve the relevance of current income tax disclosure requirements to financial statement users. Comments are due by May 31, 2019. The proposed ASU is a revision of an exposure draft issued the FASB issued in July 2016. That proposed ASU set forth enhanced disclosure requirements for income taxes. It was part of the FASB’s broader disclosure framework project to improve the effectiveness of disclosures in notes to financial statements. The FASB delayed finalizing the proposal because of potential tax reform. The federal government subsequently passed the Tax Cuts and Jobs Act in December 2017, which substantially changed how U.S. businesses are taxed. As a result, the FASB decided to revise its original proposal. The new proposed ASU reflects these revisions, as well as stakeholder input on the original July 2016 proposal. The revised proposed ASU would ( a ) remove disclosures that no longer are considered cost beneficial or relevant; and ( b ) add disclosure requirements identified as relevant to financial statement users. Additional Disclosures for All Entities In additional disclosure requirements, Topic 740,  Income Taxes , would require all entities to provide the following disclosures: Income (or loss) from continuing operations before income tax expense (or benefit) and before intra-entity eliminations disaggregated between domestic and foreign; Income tax expense (or benefit) from continuing operations disaggregated between federal, state, and foreign; and Income taxes paid disaggregated between federal, state, and foreign. A dditional Disclosures for Public Entities Public business entities would also be required to provide the following disclosure: The line items in the statement of financial position in which the unrecognized tax benefits are presented and the related amounts of such unrecognized tax benefits; The amount and explanation of the valuation allowance recognized and/or released during the reporting period; The total amount of unrecognized tax benefits that offsets the deferred tax assets for carryforwards. In addition, among other changes, the amendments in the proposed ASU would eliminate the requirement for all entities to ( a ) disclose the nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months, or ( b ) make a statement that an estimate of the range cannot be made. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Debt – FASB Discusses Debt Disclosures Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on March 20, 2019, and continued redeliberations of the proposed Accounting Standards Update (ASU), Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent) . The FASB affirmed its previous decision that an unused long-term financing arrangement in place at the balance sheet date should be disregarded in determining the classification of debt. The FASB also decided not to amend the disclosure requirements on the combined aggregate amount of maturities in Topic 470 as part of this project. The FASB directed its staff to draft a revised proposed ASU for vote by written ballot, with a comment period of 45 days. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Recent SEC Updates & Proposals

Release No. 33-10618: FAST Act Modernization and Simplification of Regulation S-K  Summary - The SEC adopted amendments to modernize and simplify disclosure requirements for public companies, investment advisers, and investment companies. The SEC indicated that these “amendments are expected to benefit investors by eliminating outdated and unnecessary disclosure and making it easier for them to access and analyze material information.” The amendments are based on recommendations in the SEC staff’s FAST Act Report as well as a broader review of the agency’s disclosure rules. The amendments are intended to improve the readability and navigability of company disclosures, and to discourage repetition and disclosure of immaterial information. Specifically, the SEC indicated that the amendments will, among other things: Increase flexibility in the discussion of historical periods in Management’s Discussion and Analysis; Allow companies to redact confidential information from most exhibits without filing a confidential treatment request; and Incorporate technology to improve access to information on the cover page of certain filings. Among other things, the amendments make changes to SEC Regulations S-K, M-A, AB, S-T, and various forms. Specific changes include: Registrants will generally be able to exclude discussion of the earliest of three years in MD&A if they have already included the discussion in a prior filing. Registrants will be able to omit confidential information in material contracts and certain other exhibits without submitting a confidential treatment request to the Commission, so long as the information is: (i) not material; and (ii) would likely cause competitive harm to the registrant if publicly disclosed. Only newly reporting registrants will be required to file material contracts that were entered within two years of the applicable registration statement or report. Registrants will not be required to file attachments to their material agreements if such attachments do not contain material information or were not otherwise disclosed. Registrants will need to provide disclosure about a physical property only to the extent that it is material to the registrant. Registrants will be required to disclose on the form cover page the national exchange or principal U.S. market for their securities, the trading symbol, and title of each class of securities. The amendments relating to the redaction of confidential information in certain exhibits will become effective upon publication in the  Federal Register . The rest of the amendments will be effective 30 days after they are published in the  Federal Register , except that the requirements to tag data on the cover pages of certain filings are subject to a three-year phase-in, and the requirement that certain investment company filings be made in HTML format and use hyperlinks will be effective for filings on or after April 1, 2020.   For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches, Equity Market Structure 2019: Looking Back & Moving Forward by Chairman Jay Clayton Brett Redfearn, Director, Division of Trading and Markets  Summary  - SEC Chairman Jay Clayton and Brett Redfearn, Director of the SEC’s Division of Trading and Markets, recently spoke on the SEC’s efforts regarding equity market structure, including areas of focus in 2019. Specifically, Clayton and Redfearn discussed the efforts by the SEC on: Transaction fee pilot; Greater transparency of broker order routing practices; and Operational transparency of alternative trading systems. For 2019, Clayton and Redfearn indicated that the following areas would be a focus for 2019: Regulation NMS; Thinly traded securities; Combating retail fraud; and Market data and access. For more information, click here. © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches, Applying a Principles-Based Approach to Disclosing Complex, Uncertain and Evolving Risks by William Hinman Director, Division of Corporation Finance  Summary  - William Hinman, SEC Director of the Division of Corporation Finance (Corp Fin), recently spoke about how the U.S. securities disclosure requirements, which are largely principles-based, apply in areas where the disclosure topics may be complex, associated with uncertain risks and rapidly evolving. Hinman discussed Brexit disclosures and noted that Corp Fin sees a “wide range of disclosures, even within the same industry. Some companies provided generic disclosure, merely stating that Brexit presents a risk, that the outcome is uncertain and that it could materially and adversely impact the business and its operations. In my opinion, this type of disclosure does little to explain to investors the potential specific impact of Brexit on a company’s business and operations and is insufficient to guide investors in a meaningful manner.” While Brexit disclosures will be specific to each company, Hinman recommended companies consider the following when drafting them: Is the business exposed to new regulatory risk given the uncertainty of which set of laws and regulations will apply and whether transition agreements will be in place? Are there significant supply chain risks due to the potential disruption to the U.K.’s access to free trade agreements with other nations and any resulting changes in tariffs on exports and imports? Does the company face a material risk of losing customers, a decrease in sales or revenues or an increase in costs due to tariffs or other factors? Does the company have exposure to currency devaluation, foreign currency exchange rate risk or other market risk? What is the company’s exposure to contractual risk in the face of Brexit? Hinman also commented on sustainability disclosures noting that “the market is still evaluating what, if any, additional disclosure on these topics would provide consistently material and useful information. The marketplace evolution of sustainability disclosures is ongoing – companies certainly provide more sustainability information than they did ten years ago – and allowing this evolution to continue should provide market participants with a continued opportunity to sort out the types of information they find useful.” As the SEC approaches sustainability disclosures or other disclosure topics, Hinman is cognizant that “imposing specific bright-line requirements can increase the costs associated with being a public company and yet not deliver the relevant and material information that market participants are seeking. Adding requirements to the disclosure regime that do not deliver benefits that justify their costs decreases the attractiveness of our public markets, which in turn can reduce the number of public investment options available to all investors.” For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches, A Start-Up Within the Government - Introducing the SEC’s Office of the Advocate for Small Business Capital Formation by Martha Miller Advocate for Small Business Capital Formation  Summary  - Martha Miller, Advocate for Small Business Capital Formation, recently spoke about the newest office within the SEC, the Office of the Advocate for Small Business Capital Formation. Miller indicated that the new office “was created to give an independent voice to small businesses in D.C., and I am keenly aware that most of them do not have paid lobbyists and advisors championing their causes within the beltway. Our mission is to advocate for small businesses and their investors, and to help these companies access capital markets, strengthening their voice within the SEC and the broader regulatory landscape.” Areas of focus of the office include: Working with small businesses to understand their capital formation issues through education and outreach; Helping small businesses resolve issues with the SEC and self-regulatory organizations, including by recommending policy changes; and Analyzing the potential impact of proposed rules and regulations likely to significantly affect small businesses. For more information, click here . © 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Tax Updates

Deductions for Foreign-Derived Intangible Income (FDII) for U.S. Corporations By Nicole Zhao, CPA, Senior Tax Manager at MaloneBailey, LLP The IRS recently issued proposed regulations under IRC Section 250 regarding the deductions for foreign-derived intangible income (FDII) for U.S. Corporations. The deduction is an amount equal to 37.5% of the corporation’s FDII, which reduces the effective tax rate to 13.125% on this portion of income.   The requirements to enjoy this tax benefit are simple: C Corporation Positive taxable income Direct eligible income derived from foreign countries (not through a foreign subsidiary) Even income derived from selling to foreign related parties qualifies for this reduced tax rate.   The Company will calculate the ratio of its Foreign Derived Deduction Eligible Income over its Total Deduction Eligible Income, then apply this ratio to its Deemed Intangible Income. Deemed Intangible Income  is the excess of the Deduction Eligible Income over the Deemed Tangible Income Return of the corporation. Deemed Tangible Income Return is 10 percent of the corporation’s qualified business asset investment (net basis of fixed assets calculated under ADS) and represents a routine return that is not eligible for the preferential tax treatment.   If you are interested in learning more on this tax saving opportunity, please contact Nicole Zhao.

Extra Crunch

OTC Markets Group Introduces Canari   In its April 2019 monthly newsletter, OTC Markets Group announced Canari SM , a premium web-based tool designed to provide users with a comprehensive view of quantitative compliance data for OTCQX, OTCQB, Pink and Grey Market securities. According to the newsletter, OTC Markets Group explains, "through its intuitive user interface, Canari helps clients quickly access risk scoring metrics and drill down into 110 essential data points at the security level. The tool also provides the latest metrics in aggregate across a range of data points including risk scoring changes, price movement and newly promoted securities. Canari also includes quote and reference data on exchange-listed securities and will be expanded to include compliance data points on the small cap listed market." For more information about Canari, visit the OTC Markets Group website . OTC Markets Group: Investor Relations Strategy OTC Markets Group provides an investor relations strategy resource on its website for small cap companies. The resource offers tips for creating solid IR activities, best practices for attracting investors, the pros and cons of four financing options, information about accessing the public markets and more. To access the Investor Relations Strategy webpage, please click here .

About MaloneBailey, LLP

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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