We are pleased to release MaloneBailey's November 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.

The MaloneBailey Team

www.malonebailey.com

What's the Crunch?

Featured Podcast

Accounting and Regulatory Updates

Recent FASB Updates & Proposals

Recent SEC Updates & Proposals

Tax Updates

Extra Crunch

About MaloneBailey, LLP

Our featured podcast for November  2018 is a discussion on technology and its impact on the audit function. Steven Vertucci and Jimmy Thompson, Audit Partners, talk about how the evolution of technology is changing the way things are done in the audit space. Click on the image below to listen to our featured podcast.

EITF Reaches Consensus-for-Exposures

Summary - The EITF met and discussed the following two issues:

Regarding Issue 18-A, the EITF discussed whether to move forward on issuing a proposed ASU on the recognition aspects of Issue 18-A, or whether to issue a separate discussion paper to get input on both recognition and measurement aspects before issuing a proposed ASU. The EITF supported issuing a proposed ASU based on the recognition aspects in the previously reached consensus-for-exposure and to issue a separate discussion paper to receive further feedback from constituents on measurement aspects.

The EITF reached a consensus-for-exposure on Issue 18-B. The EITF discussed alternatives for the unit of account for impairment related to an episodic television series. The EITF supported amending the unit of account for impairment in Subtopic 926-20 to be the lowest level of identifiable cash flows in certain situations.

For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

U.S. Securities and Exchange Commission Strategic Plan

Summary -  The SEC announced a new strategic plan to guide the agency’s work over the next four years with a primary focus on investors, innovation, and performance. The plan’s goals reflect the agency’s commitment to its longstanding mission while leveraging the opportunities and addressing the challenges that come from fast-evolving markets, products and services. The strategic plan includes the following goals:

  

The SEC’s new strategic plan was published in accordance with the  Government Performance and Results Modernization Act of 2010,  which requires federal agencies to outline their missions, planned initiatives, and strategic goals for a four-year period.

For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches - Pickups and Put Downs: Remarks at the Financial Planning Association 2018 Major Firms Symposium by Commissioner Hester M. Peirce

Summary -  SEC Commissioner Hester M. Peirce recently discussed the SEC regulatory approaches and how these approaches can best suit today’s markets and technology. Commissioner Peirce suggested ways in which the SEC can make it easier for investors, whether on their own or with the help of financial professionals, to plan for their futures and avoid predictable investment pitfalls that too many Americans encounter. Peirce provided her thoughts on ways the SEC can facilitate fund adaptation of technological and other innovations to better serve investors and provide them with a wider selection of investment choices.

For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches, Why and Whither Title VII?: Remarks before the 2018 ISDA Annual North America Conference by Commissioner Hester M. Peirce 

Summary -  SEC Commissioner Hester M. Peirce recently discussed the SEC's efforts on derivatives and derivative dealers regulation. Peirce discussed the remaining derivative dealer regulations rulemaking outstanding and indicated that "the immediate task is to take the steps necessary to stand up our dealer regime. I believe we need to finalize these three remaining rules expeditiously. I also believe we need to make some adjustments in other areas, including, in some cases, rules that have already been finalized, to ensure that dealers are able to register and come into compliance with the relevant Title VII requirements in a way that avoids unnecessary market disruption. In my view, once we have completed this work, we will need to turn to the task of getting transactions reported and disseminated to the public.

For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches, Wolves and Wolverines: Remarks at the University of Michigan Law School by Commissioner Hester M. Peirce 

Summary -  SEC Commissioner Hester M. Peirce recently spoke to a group of law students covering a number of topics, including digital assets and the SEC. Hester indicated that in her "short time as a commissioner, innovations such as blockchain, cryptocurrencies, and digital assets have moved from technological novelties to policy flashpoints. Technology has continually reshaped, and often immeasurably improved, our lives from the beginning of human history. The capital markets are no exception. They have been the origin of some technological innovations and heavy users of others. Technology in the capital markets, though, is often derided as a source of problems, not a place to look for solutions. I hope that, with careful—but not paralyzing— deliberation, we at the SEC can foster an environment in which truly useful developments can flourish without either undue intrusion on our part, or, of course, undue harm to investors or other market actors. Once again, we must not fall into the trap of substituting our regulatory judgment about which technologies will succeed in transforming our markets for the judgment of people in the marketplace."

Peirce went on to caution that new technologies could upend, among other things, how securities transactions are conducted, how companies are governed, and the way retail investors engage in the financial markets. For those concerned about “wolves” in the financial industry preying on retail investors, new technologies offer great promise. Technological change is leading to better products and services for retail investors, greater ease for investors seeking to trade and monitor their investments, and opportunities for new competitors to challenge the incumbents. Technology, if we allow it, can make the capital markets more competitive and more investor-friendly. Peirce indicated that she is "confident, however, that new technology will make our capital markets work better for investors, open new opportunities for a whole generation of innovators, and enable us as securities regulators to be better at tracking down the wolves and holding them to account."

For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches, From the Data Rush to the Data Wars: A Data Revolution in Financial Markets by Commissioner Kara M. Stein 

Summary -  SEC Commissioner Kara M. Stein recently spoke about the importance of data to our financial markets. Stein indicated that “the prolific availability of data and information has disrupted and transformed the capital markets. Financial services companies look nothing like they did in the ’20s and ’30s. Stock exchanges, securities brokers and dealers, investment advisers, and other key participants in the securities markets now look and act more like technology companies. In fact, today’s investors may only interact with a software program or smartphone app when making investment decisions or executing transactions.” Stein cautioned that it “makes sense that these transformative changes are provoking new and complicated questions about data ownership, use, availability, and protection. In order to oversee the financial markets with insight and intelligence, the Commission I am a member of, the U.S. Securities and Exchange Commission needs to start grappling with some of the potential answers to these questions.”

Topics discussed by Stein included:



For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches, My Beef with Stakeholders: Remarks at the 17th Annual SEC Conference, Center for Corporate Reporting and Governance by Commissioner Hester M. Peirce 

Summary -  SEC Commissioner Hester M. Peirce recently spoke about the scope of those considered stakeholders in the corporate setting. Peirce indicated that the phrase stakeholder "is so popular precisely because it is so elastic. In the corporate context, however, that elasticity has some troubling implications. It is used to refocus corporate decision-makers on constituencies other than their shareholders. In the stakeholder-centric view of the world, a corporation and its directors owe a duty not just to shareholders, but to a broader group of ‘stakeholders.’"

For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches, Measuring the Impact of the SEC’s Enforcement Program by Stephanie Avakian, Co-Director, Division of Enforcement  

Summary -  Stephanie Avakian, Co-Director of the SEC's Division of Enforcement, recently spoke about the SEC's Enforcement Program performance. Avakian cautioned that he fellow co-director and her "fundamentally reject the premise these analyses embrace – that numbers – standing alone – can adequately measure the success or impact of an enforcement program. Statistics such as the number of actions the SEC brought in a fiscal year and the dollar amount of judgments and orders obtained in that year are interesting so far as they go, but they only tell us so much. Put simply, statistics do not provide a full and meaningful picture of the quality, nature, and effectiveness of the Division’s efforts."

Specific topics covered by Avakian included:



For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches, Unfair Exchange: The State of America's Stock Markets by Commissioner Robert J. Jackson Jr. 

Summary -  SEC Commissioner Robert J. Jackson, Jr. recently spoke about the state of America's stock markets. Jackson indicated "that it’s time to put the “exchange” back in the Securities and Exchange Commission. I want to highlight four puzzling practices in today’s markets—the two-tiered system for stock-price information, legal limits on exchange liability when they harm investors, the structure of stock exchanges themselves, and payments exchanges make to brokers who send orders their way—that don’t look like the kind of competition that American investors deserve. And I want to highlight the way forward for us at the SEC."

For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches, Motherhood and Humble Pie: Remarks before the Cato Institute’s FinTech Unbound Conference by Commissioner Hester M. Peirce 

Summary -  SEC Commissioner Hester M. Peirce recently spoke about new financial technologies (FinTech) and the need for more nimble regulatory approaches. Peirce indicated that “because most of us regulators are neither entrepreneurs nor technologists, we should respond to attempts to bring innovative solutions into the financial markets with an appropriate degree of humility.”

Peirce cautioned that “an essential step to encouraging innovations in our markets is to provide innovators with greater clarity and certainty in their interactions with the Commission and its staff. Innovators are often reluctant to ask for regulatory permission for fear of getting an adverse response.”

For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches, Remarks before the AICPA National Conference on Banks & Saving Institutions by Wesley Bricker, Chief Accountant 

Summary -  SEC Chief Accountant Wesley Bricker recently spoke at the AICPA’s National Conference on Banks & Saving Institutions. While Bricker’s comments were directed at financial institutions, other entities may find his remarks informative on the topics of:

Highlights of Bricker’s remarks are provided below.

 

Implementation of the New Accounting Standards on Credit Losses

Bricker believes “implementation of CECL can result in financial reporting that better reflects management’s expectations and an institution’s credit risk information.” Bricker cautioned that adoption plans for CECL should consider requirements under the federal securities laws and expectations set forth in SEC guidance for preparers to:

The SEC staff guidance included within SEC Staff Accounting Bulletin (SAB) 102 will continue to be relevant, even after being updated to align the concepts to an expected loss measurement that incorporates reasonable and supportable forecasts. These principles include maintaining documentation and supporting evidence to facilitate the review, validation, and audit of that estimate.

Bricker urged active involvement by company audit committees in the implementation of this standard. The audit committee plays a vital role in overseeing a company’s financial reporting, including the implementation of new accounting standards. Anticipated impacts of the standard may need to be communicated externally as well to help avoid surprises. Transition disclosures enable investors to understand the anticipated effects of the new standard.

Digital Asset Activities

Regarding the emergence of digital assets, Bricker indicated that it “is critical that we keep ourselves informed about emerging technologies so that the accounting profession can continue to perform the essential gatekeeper function for issuer compliance related to financial reporting.” Companies must continue to maintain appropriate books and records, regardless of whether distributed ledger technology (such as Blockchain) smart contracts, and other technology-driven applications are (or are not) used. Bricker cautioned that the auditor of an issuer, broker-dealer, or investment adviser is required to determine the nature and extent of the audit procedures to perform based on the circumstances of the entity and the auditing standards applied. Distributed ledger technology and digital assets, despite their exciting possibilities, do not alter the fundamental responsibility of companies to comply with existing requirements of securities laws. Bricker’s remarks included brief illustrative examples of new technologies with consideration of compliance with existing securities laws requirements, including books and records, internal accounting controls, fair value or related party disclosure requirements, and consideration of loss contingencies.

Expanded Auditor’s Report



Bricker provided a brief update on the status of implementation of the PCAOB’s new auditing standard for auditor reports and, in particular, the pending inclusion of critical audit matters (or CAMs) within the auditor’s report. Bricker indicated that the “goal of the new standard is to make the auditor’s report more informative and relevant to investors and other users of the financial statements.” Ongoing dialogue among auditors, audit committees, management, and others, will be critical.

Bricker is pleased to see the PCAOB staff’s update to its guidance for applying the auditor reporting standard and, if needed, encourage the PCAOB to consider further updates as it relates to CAMs. I am also pleased with the level of dialogue including through dry-runs between auditors, audit committees, and management. Bricker noted that these “dry runs can help auditors and audit committees plan for meaningful information specific to the audit to be included in the audit report. Please consider sharing your experiences with the PCAOB staff and with us at the SEC as we monitor the implementation of critical audit matters.”

 

For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Amendments to Rules for Nationally Recognized Statistical Ratings Organizations - Release No. 34-84289

Summary -  The SEC announced that it has voted to propose rule amendments to codify an existing temporary exemption for credit rating agencies registered with the Commission as nationally recognized statistical rating organizations (NRSROs). Rule 17g-5(a)(3) under the Securities Exchange Act established a program to provide information necessary to determine a structured finance product’s credit rating to NRSROs that were not hired by the issuer, sponsor, or underwriter of the structured finance product. Prior to the compliance date for Rule 17g-5(a)(3), the Commission granted a temporary conditional exemption to the rule for certain structured finance products issued by non-U.S. persons and offered and sold outside the United States. The Commission subsequently extended this exemption.

The amendments proposed by the Commission “would codify the existing temporary exemption to Rule 17g-5(a)(3) and clarify the exemption’s conditions. The proposed amendments would also clarify the conditions applicable to similar exemptions in Exchange Act Rules 17g-7(a) and 15Ga-2 so that the approach among these exemptions remains consistent. Rule 17g-7(a) requires an NRSRO to disclose certain information when it publishes a rating action. Rule 15Ga-2 requires an issuer or underwriter to disclose the findings and conclusions of any third-party due diligence report it obtains with respect to an asset-backed security that is to be rated by an NRSRO.”

The public comment period will remain open for 30 days following publication of the proposing release in the  Federal Register.

For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Interim Reporting -- SEC Staff Publishes Updated Compliance and Disclosure Interpretation

Summary - The staff in the Division of Corporation Finance (Corp Fin) of the SEC has issued an update to its Compliance and Disclosure Interpretation (C&DI), Exchange Act Forms. Corp Fin has added a new question 105.09 that provides guidance on the timing of compliance with the new requirement to present the changes in shareholders’ equity in the interim financial statements (either in a separate statement or footnote) in quarterly reports on Form 10-Q. This guidance is provided given that the SEC’s final rule that includes this requirement has been published but is not yet effective. The amendments are effective for all filings made 30 days after publication in the Federal Register, which has not yet occurred.

Corp Fin provided that in light of the anticipated timing of effectiveness of the amendments and expected proximity of effectiveness to the filing date for most filers’ quarterly reports, the SEC staff would not object if the filer’s first presentation of the changes in shareholders’ equity is included in its Form 10-Q for the quarter that begins after the effective date of the amendments. For example, assuming an effective date of October 25, a December 31 fiscal year-end filer could omit this disclosure from its September 30, 2018 Form 10-Q. Likewise, a June 30 fiscal year-end filer could omit this disclosure from its September 30, 2018 and December 31, 2018 Forms 10-Q; however, the staff would object if it did not provide the disclosures in its March 31, 2019 Form 10-Q.

For more information, click here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

2018 Tax Law Change on Meals & Entertainment Deductions

The 2017 Tax Cuts and Jobs Acts (TCJA) have changed the business expense deductions for meals and entertainment. Recently, the IRS issued guidance on this matter.

Generally speaking, entertainment, amusement and recreation expenses are not deductible. For business meal expenses, taxpayer may take 50% deduction if:

What Do You Need to Do?

To maximize your tax deductions on business meal expenses, and to sustain your tax position during a potential IRS audit, we suggest accommodating the tax law changes by modifying your chart of accounts. You may set up the following accounts:

For your convenience, we have created a chart to help you navigate some of the changes:

Please also click here for the IRS Notice 2018-76. This serves as current guidance until the proposed regulations are issued.

Should you have any questions, please contact Nicole Zhao for more information.

Public Accounting Report: Professors Say Their Top Accounting Students Hope to Work...Where?

Summary  - CCH has published a new edition of the Public Accounting Report (PAR), Professors Say Their Top Accounting Student Hopes to Work ... Where? - September 2018. Other topics discussed in this edition include:

PAR is the leading provider of competitive intelligence for public accounting firms and the profession. It is renowned for its straight reporting and analysis of the news, developments, and trends that have defined the profession for more than 20 years. Public Accounting Report is written for public accounting firm partners and professionals, opinion leaders, and industry observers.

For more information on Public Accounting Report, click  here .

© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Choosing the Right Path: How to Maximize Your Market Strategy

Companies that trade on OTC Markets often face the decision of whether to move to an exchange listing. This recent study provides evidence that U.S. issuers that move to an exchange prematurely often see a decline in value rather than value creation.

For more information, click  here .

Source:  OTC Markets

OTC Markets Group Participates in SEC Roundtable Sponsored by the Division of Trading and Markets

Summary - On September 26, OTC Markets Group was pleased to take part in the SEC's Roundtable on Regulatory Approaches to Combating Retail Investor Fraud, hosted by the Division of Trading and Markets. OTC Markets Group CEO Cromwell Coulson participated in a panel discussion on Trading Halts and General Counsel Dan Zinn spoke on a panel focused on Rule 15c2-11 and enhancing public disclosure requirements.

“Fraudulent and manipulative promotion schemes corrupt the efficient market pricing process, hinder small company capital formation, and harm retail investors,” said Cromwell Coulson, CEO. “Because regulation alone cannot address all sources of fraud, we must empower individuals with the information they need to make better-informed investment decisions. Shining the electric light of data-driven markets that incentivize corporate disclosure, combined with common-sense regulation, are the most effective investor protection tools.”

In conjunction with their participation in the Roundtable, OTC Markets Group submitted a list of targeted  Regulatory Recommendations  that would help to combat retail investor fraud, improve market efficiency and bring greater transparency to our public markets.

For more information, click  here .

Source:  OTC Markets

Should you be interested in a complimentary estimate for audit, consulting and tax services, please contact Caroline Rosen at [email protected] or 713.343.4286.

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