We are pleased to release MaloneBailey's November 2017 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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What's the Crunch?
Featured Podcast
Accounting and Regulatory Updates
Recent FASB Updates & Proposals
Recent SEC Updates & Proposals
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 The featured podcast in the November 2017 newsletter features Leah Gonzales, Audit Partner, and Caroline Rosen, Marketing Manager, as they discuss the new revenue recognition guidance, which goes into effect January 1, 2018. Click below to hear the newest updates regarding revenue recognition and what to expect when it goes into effect.
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Missed our Look Ahead for 2018?
Visit our website for the July 2017 newsletter, which highlights
the
FASB updates that will be going into effect in 2018.
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Summary -
The FASB has issued ASU No. 2017-13. This ASU adds, amends, and supersedes SEC paragraphs of the Accounting Standards Codification (ASC) related to the adoption and transition provisions of ASU No. 2014-09, Revenue From Contracts with Customers and ASU 2016-02, Leases, for public business entities. The ASU is titled ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.
ASU 2017-13 codifies portions of an SEC Staff Announcement made at the July 20, 2017 Emerging Issues Task Force (EITF) meeting essentially delaying the effective date of the revenue recognition and leases standards for a subset of public entities . The SEC Observer made the following SEC Staff Announcement, "Transition Related to Accounting Standards Updates No. 2014-09 and 2016-02," at the July 20, 2017 EITF meeting:
The SEC staff would not object to a public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity's filing with the SEC adopting: (1) ASC Topic 606, Revenue from Contracts with Customers for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019, and (2) ASC Topic 842, Leases for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.
A public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity's filing with the SEC may still elect to adopt ASC Topic 606 and ASC Topic 842 according to the public business entity effective dates.
This announcement is applicable only to public business entities that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity's filing with the SEC. This announcement is not applicable to other public business entities.
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary
- The FASB has issued proposed Accounting Standards Update (ASU), Codification Improvements, to improve US GAAP. Comments are due on the proposed ASU by December 4, 2017.
The items covered in this proposed ASU include, among other things:
- Comprehensive Income - Overall (Subtopic 220-10) - Clarifies that the guidance in paragraph 220-10-45-10B, that the recognition of tax benefits related to deductible temporary differences and carryforwards arising from a quasi-reorganization as defined in Subtopic 852-20, are not an item of comprehensive income.
- Debt-Modifications and Extinguishments (Subtopic 470-50) - The guidance in paragraph 470-50-40-2 requires that the difference between the reacquisition price of debt and the net carrying amount of extinguished debt be recognized in income in the period of extinguishment. This amendment clarifies that: (1) when the fair value option has been elected on extinguished debt, the net carrying amount of the extinguished debt equals its fair value at the reacquisition date; and (2) related gains or losses in other comprehensive income must be included in net income upon extinguishment of the debt.
- Compensation-Stock Compensation-Income Taxes (Subtopic 718-740) - Clarifies that an entity should recognize excess tax benefits (or tax deficiencies) in the period when the tax deduction for compensation expense is taken on the entity's tax return. This includes deductions that are taken on the entity's return in a different period from when the event that gives rise to the tax deduction occurs and the uncertainty about whether: (a) the entity will receive a tax deduction, and (b) the amount of the tax deduction is resolved.
- Business Combinations-Income Taxes (Subtopic 805-740) - Removes a list of three methods for allocating the consolidated tax provision to an acquired entity after acquisition that is inconsistent with guidance in Topic 740. These three methods can be found in paragraph 805-740-25-13.
- Fair Value Measurement-Overall (Subtopic 820-10) - Revises the current guidance to allow portfolios of financial instruments and nonfinancial instruments accounted for as derivatives in accordance with Topic 815, Derivatives and Hedging, to use the portfolio exception to valuation.
- Plan Accounting-Defined Contribution Pension Plans-Investments-Other (Subtopic 962-325) - Removes the stable value common collective trust fund from the illustrative example in paragraph 962-325-55-17 to avoid the interpretation that such an investment should always be measured using the net asset value per share practical expedient. Rather, a plan would need to evaluate whether a readily determinable fair value exists.
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Leases (Topic 842) - Land Easement Practical Expedient for Transition to Topic 842 - FASB Proposed ASU 2017-290
Summary
- The FASB has issued a proposed Accounting Standards Update (ASU), Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, intended to clarify the application of the new leases guidance to land easements. Stakeholders were asked to review and provide comments on the proposed ASU by October 25, 2017.
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. To address the diversity in practice that exists in how organizations currently account for land easements, this proposed ASU would clarify that land easements should be evaluated under the new leases guidance.
However, some stakeholders have pointed out that the requirement to evaluate all existing land easements not previously assessed under the existing leases guidance to determine if they meet the definition of a lease under the new leases standard would be costly and complex (e.g., because of the volume and age of those easements). 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.
Consequently, the proposed ASU also would address concerns about the costs and complexity of complying with the transition requirements of the new leases guidance by providing an optional transition expedient for land easements not previously assessed under the existing leases guidance.
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Technical Corrections and Improvements to Recently Issued Standards - Accounting Standards Update No. 2016-02, Leases (Topic 842) - FASB Proposed ASU 2017-310
Summary
- The FASB has issued a proposed ASU, Technical Corrections and Improvements to Recently Issued Standards: Accounting Standards Update No. 2016-02, Leases (Topic 842). On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions.
The Board has an ongoing project on its agenda about technical corrections and improvements to clarify the Codification or to correct unintended application of guidance. Those items generally are not expected to have a significant effect on current accounting practice or create a significant administrative cost for most entities. The amendments in this proposed Update are of a similar nature to the items typically addressed in the Codification improvements project. However, the FASB decided to issue a separate proposed Update for technical corrections and improvements related to Update 2016-02 to increase stakeholder awareness of the proposed amendments and to expedite the improvements.
Comments on this proposed ASU are due November 13, 2017.
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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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 - FASB Proposed ASU 2017-300
Summary
- The FASB has issued a proposed ASU, Technical Corrections and Improvements to Recently Issued Standards: Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Among other things, this proposed ASU addresses the following issues:
- Issue 1: Equity Securities without a Readily Determinable Fair Value- Discontinuation - The proposed amendment would clarify that an entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance with Topic 820, Fair Value Measurement, through an election that would apply to that security and all other securities of the same type.
- Issue 2: Equity Securities without a Readily Determinable Fair Value-Adjustments - The proposed amendment would clarify that the adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place.
- Issue 3: Forward Contracts and Purchased Options - The proposed amendment would clarify that remeasuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities.
- Issue 4: Presentation Requirements for Certain Fair Value Option Liabilities - The proposed amendment would clarify that when the fair value option is elected for a financial liability, the guidance in paragraph 825-10-45-5 should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging-Embedded Derivatives, or 825-10.
- Issue 5: Fair Value Option Liabilities Denominated in a Foreign Currency - The proposed amendments would clarify that for financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument-specific credit risk should first be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability should be remeasured into the functional currency of the reporting entity using end-of-period spot rates.
- Issue 6: Transition Guidance for Equity Securities without a Readily Determinable Fair Value - The proposed amendment would clarify that the prospective transition approach for equity securities without a readily determinable fair value in ASU 2016-01 is meant only for instances in which the measurement alternative is applied.
The proposed effective date for entities that have early adopted the guidance on the presentation change related to fair value option liabilities and the amendments in this proposed ASU that are relevant to fair value option liabilities would be effective upon issuance of a final ASU and the transition requirements would be the same as those in ASU No. 2016-01. For the remaining proposed amendments, the effective date and transition requirements would be the same as the effective date and transition requirements in ASU No. 2016-01.
Comments on this proposed ASU are due November 13, 2017.
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Consolidation (Topic 812) - Reorganization - FASB Proposed ASU 2017-280
Summary
- The FASB has issued proposed Accounting Standards Update (ASU), Consolidation (Topic 812): Reorganization. The FASB is issuing this proposed ASU in response to stakeholders' concerns that the consolidation guidance in Topic 810, Consolidation, as currently organized, is difficult to understand and navigate.
To address those concerns, the amendments in this proposed ASU would reorganize and clarify certain items within the consolidation guidance. The amendments to reorganize the consolidation guidance include the amendments in the proposed ASU, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, for illustrative purposes only. That proposed ASU has been exposed for public comment separately.
Specifically, the consolidation guidance currently in Topic 810 would be reorganized into a new Topic (Topic 812), with separate Subtopics for variable interest entities (VIEs) and voting interest entities (Subtopics 812-20, Consolidation-Variable Interest Entities, and 812-30, Consolidation-Voting Interest Entities, respectively). The guidance for "Consolidation of Entities Controlled by Contract" currently in Topic 810 would be moved to Topic 958, Not-for-Profit Entities, because that guidance is applicable only for not-for-profit entities. The guidance currently in Subtopic 810-30 for research and development arrangements would be superseded. Certain areas of the guidance would be clarified to make the consolidation guidance easier to understand without the intent of: (a) changing analyses performed, or (b) outcomes currently reached by stakeholders.
Comments on the proposed ASU are due December 4, 2017.
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Revenue Recognition - PCAOB Publishes Staff Audit Practice Alert on Auditing the New Accounting Standard for Revenue
Summary
- The PCAOB published a staff audit practice alert to assist auditors in applying PCAOB standards when auditing companies' implementation of the new revenue accounting standard from the FASB. Staff Audit Practice Alert No. 15:Matters Related to Auditing Revenue from Contracts with Customers, highlights PCAOB requirements and other considerations for audits of a company's implementation of the new revenue accounting standard, including:
- Transition disclosures and transition adjustments;
- Internal control over financial reporting;
- Fraud risks;
- Revenue recognition; and
- Disclosures.
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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EITF Matters - Results of the October 12, 2017 EITF Meeting
Summary
- As reported in our EITF Flash Report, the EITF continued its deliberations on 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 majority of task force members were supportive of a revised alternative provided by the FASB staff that concludes that all cloud computing arrangements (CCAs) include a software element and be within the scope of Codification Subtopic 350-40 on internal-use software.
In Codification Subtopic 350-40, costs associated with implementation activities are not capitalized as a separate or stand-alone asset. Instead, the software is the identified asset and costs of implementation activities are added to the measurement of the software asset if they are incurred to get the asset ready for its intended use. The revised alternative supported by most of the task members identifies a software element (and the right-to-use that software) in all CCAs, which is the asset to which implementation costs can be added.
The official minutes to this meeting will be posted in Accounting Research Manager as soon as they are available. The next EITF meeting is scheduled for November 16, 2017.
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary
- The SEC has approved interpretive guidance to assist companies in their efforts to comply with the pay ratio disclosure requirement mandated by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the SEC's rule implementing the pay ratio requirement, companies are required to begin making pay ratio disclosures in early 2018. The SEC's guidance:
- States the SEC's views on the use of reasonable estimates, assumptions and methodologies, and statistical sampling permitted by the rule;
- Clarifies that a company may use appropriate existing internal records, such as tax or payroll records, in determinations about the inclusion of non-U.S. employees and in identifying the median employee; and
- Provides guidance as to when a company may use widely recognized tests to determine whether its workers are employees for purposes of the rule.
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary - The staff in the SEC's Division of Corporation Finance (Corp Fin) has updated certain guidance in its Financial Reporting Manual (Manual). Updates to the Manual include revisions to:
- Describe communications with Corp Fin's Office of the Chief Accountant and provide contact information;
- Clarify that questions about applying the guidance on abbreviated financial statements to a predecessor entity should be directed to Corp Fin's Office of the Chief Accountant; and
- Clarify the guidance on the omission of financial information from draft and filed registration statements.
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
.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary
- The SEC's Advisory Committee on Small and Emerging Companies has issued a final report. The report was prepared to memorialize the recommendations made by the Committee over the past six years and to identify areas for continued focus.
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Summary -
The staff in the Division of Corporation Finance (Corp Fin) has issued guidance about the pay ratio rule that includes examples illustrating how reasonable estimates and statistical methodologies may be used, is intended to assist companies with their compliance efforts and reduce the costs associated with preparing disclosures. Corp Fin encourages companies to contact the staff if additional interpretive questions arise as the compliance date approaches.
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Security Act Rules - SEC Staff Updates Compliance and Disclosure Interpretation
Summary -
The staff in the Division of Corporation Finance (Corp Fin) of the SEC has updated its Compliance and Disclosure Interpretation (C&DI), Securities Act Rules. This C&DI provides Corp Fin interpretations of the rules adopted under the Securities Act of 1933.
The SEC staff has added new questions 182.21-182.23 to the C&DI. The new guidance provides information on offerings under Regulation A on Form 8-A.
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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SEC Staff Interpretations - SEC Staff Updates Compliance and Disclosure Interpretation
Summary -
The staff in the Division of Corporation Finance (Corp Fin) of the SEC has updated the following Compliance and Disclosure Interpretations (C&DIs):
- Regulation S-K; and
- Securities Act Rules
These C&DIs provide Corp Fin interpretations of rules adopted under Regulation S-K and the Securities Act of 1933. Corp Fin has updated the Regulation S-K C&DI to revise Question 128C.01, withdraw Question 128C.05, and add new Question 128C.06. These updates provide guidance on the pay ratio disclosure rule.
Corp Fin has updated its Securities Act Rules C&DI to update guidance throughout the following sections:
- 141 (intrastate offers and sales);
- 254-258 (Regulation D);
- 260 (exemption for limited offers and sales); and
- 541 (intrastate offers and sales).
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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2017 Year-End Tax Planning: Tax Reform, IRS, Court Decisions & More Add to Uncertainties to Year-End
Summary
-
Year-end
2017
presents a unique set of challenges for taxpayers. At the top of the list are the uncertainties created by the possibilities within proposed
tax
reform legislation - what changes might be made, and whether those changes would be retroactive for
2017
. Also presenting a unique challenge before
year-end
is the Trump administration's initiative to
"streamline"
rules and regulations. Meanwhile, the usual flood of court decisions and IRS guidance has continued, also presenting new opportunities-and pitfalls-that require
year-end
action. Equally important to
2017
year-end
tax
planning
, as for any year, is a look at each particular taxpayer's circumstances, past, present and future, to capitalize on targeted
tax
rules or mitigate against their application.
For highlights of various considerations especially particular to
tax
planning at
year-end
2017, see Wolters Kluwer's latest
Tax Briefing,
2017 Year-End Tax Planning
.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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OTC Markets Group Proposes Amendments to the OTCQB Standards
Summary -
OTC Markets Group has published proposed amendments to the OTCQB Standards. The proposal includes
:
- A notification of a change in Annual Fees to $12,000;
- A modification to the procedures for new applicants to request exemption from the requirement to meet the bid test for 30 days prior to approval for OTCQB. This will allow certain Companies that have no prior public market in the U.S. to begin trading on OTCQB more quickly; and
- Additions of definitions for Public Float, Affiliate, and Immediate Family Member to improve the quality and standardize the share data that OTCQB Companies make publicly available to their investors.
Below is a further description of each of these items:
Annual Fee
The Annual Fee is $12,000 (U.S.) for each twelve-month period, if paid in advance. In the alternative, the Company may opt to pay two semi-annual installments of $6,500 (U.S.).
Bid Price of $0.01 Eligibility Standard
Have proprietary priced quotations published by a Market Maker in OTC Link ATS with a closing bid price of at least $0.01 a) for each of the 30 calendar days immediately preceding the Company's application for OTCQB and b) as of the date OTC Markets Group approves its application to join the OTCQB market.
If there has been no prior public market for the Company's securities in the U.S. and FINRA has recently approved a Form 211 relating to the Company's securities with a bid price equal or greater to $0.01 or the Company's securities are traded on a Qualified Foreign Exchange at a price equal to or greater than $0.01, then the Company may apply in writing to OTC Markets Group for an exemption from Section 1.1(3)(a) of these OTCQB Standards, which exemption may be granted by OTC Markets Group in its sole and absolute discretion and subject to FINRA approval of the Form 211.
Any such exemption will be conditioned upon the bid price for such Company's securities remaining over $0.01 for each of the 30 calendar days immediately subsequent to the Company being first quoted on the OTCQB market.
Definitions
"Public Float" shall mean the total number of unrestricted shares not held directly or indirectly by an officer, director, any person who is the beneficial owner of more than 10 percent of the total shares outstanding, or any Affiliates thereof, or any Immediate Family Members of officers, directors and control persons.
"Affiliate"
is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, an officer, a director, or a shareholder beneficially-owning 10 percent or more of the Company's outstanding shares.
"Immediate Family Member"
shall mean any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of such director, executive officer or nominee for director, and any person (other than a tenant or employee) sharing the household of such officer, director, or control person.
Comment Period of 30 days:
OTC Markets Group welcomes your feedback about the proposed changes. Send comments and questions to Mike Vasilios, Vice President of Issuer Compliance at [email protected] by November 15, 2017.
Effective Date of Proposed Changes:
The proposed rules are scheduled to become effective January 1, 2018.
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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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