We are pleased to release MaloneBailey's October 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 SECFASB 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
What's the Crunch?

Featured Podcast
Accounting and Regulatory Updates

Recent FASB Updates & Proposals
Recent SEC Updates & Proposals
Tax Updates
       Featured Podcast



             Recent FASB Updates & Proposals
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract - FASB ASU No. 2018-15  FASB01

Summary Accounting Standards Update (ASU) No. 2018-15 reduces complexity for the accounting for costs of implementing a cloud computing service arrangement.  This standard aligns the accounting for implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. 

The ASU aligns the following requirements for capitalizing implementation costs:
  • Those incurred in a hosting arrangement that is a service contract, and
  • Those incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).
For calendar-year public companies, the changes will be effective for annual periods, including interim periods within those annual periods, in 2020. For all other calendar-year companies and organizations, the changes will be effective for annual periods in 2021, and interim periods in 2022.
 
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans - FASB ASU No. 2018-14    FASB02

Summary ASU No. 2018-14 applies to all employers that sponsor defined benefit pension or other postretirement plans. The amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.
 
Disclosure Requirements Deleted
  • The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year.
  • The amount and timing of plan assets expected to be returned to the employer.
  • The disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law.
  • Related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan.
  • For nonpublic entities, the reconciliation of the opening balances to the closing balances of plan assets measured on a recurring basis in Level 3 of the fair value hierarchy. However, nonpublic entities will be required to disclose separately the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets.
  • For public entities, the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for postretirement health care benefits.
Disclosure Requirements Added
  • The weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates.
  • An explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.
The amendments also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed:
  • The projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets.
  • The accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets.
Effective Date
ASU No. 2018-14 is effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted for all entities.

For more information, click here.

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

Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement - FASB ASU No. 2018-13  FASB03

Summary ASU No. 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820 as follows:

Removals
The following disclosure requirements were removed from Topic 820:
  • The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;
  • The policy for timing of transfers between levels;
  • The valuation processes for Level 3 fair value measurements; and
  • For nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period.
Modifications
The following disclosure requirements were modified in Topic 820:
  • In lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities;
  • For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee's assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and
  • The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.
Additions
The following disclosure requirements were added to Topic 820; however, the disclosures are not required for nonpublic entities:
  • The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and
  • The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.
In addition, the amendments eliminate at a minimum from the phrase "an entity shall disclose at a minimum" to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements.
 
Effective Date
The amendments in ASU No. 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date.

Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date.

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

Codification Improvements to Topic 326, Financial Instruments - Credit Losses - FASB Proposed ASU 2018-270  FASB04

Summary - Proposed Accounting Standards Update (ASU) 2018-270 would amend the transition requirements and scope ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Stakeholders were encouraged to review and provide comment on the proposal by September 19, 2018.

The proposed ASU would mitigate transition complexity by requiring entities other than public business entities to implement it for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. This would align the implementation date for their annual financial statements with the implementation date for their interim financial statements.

The proposed ASU also would clarify that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with Topic 842, Leases.

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

FASB Discusses Debt Classification and Other Matters  FASB05

Summary - The FASB met on August 22, 2018, and continued redeliberations of proposed Accounting Standards Update, Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent). The FASB reached a number of decisions, including the following:
  • Reversed its previous decision that if a long-term financing arrangement is in place as of the balance sheet date (for example, an unused line of credit), the amount of current maturities for any other debt arrangements would be reduced by the unused amount of the long-term financing arrangement up to the amount of the current maturities and classified as a noncurrent liability. Therefore, an unused long-term financing arrangement in place at the balance sheet date should be disregarded in determining the classification of debt.
  • Clarified how to apply the debt classification principle when a debt covenant violation exists and the creditor provides a grace period. Specifically, the Board decided that when a borrower violates a provision of a long-term debt agreement and the creditor provides a specified grace period for the borrower to cure the violation, which makes the debt no longer callable at the balance sheet date, the borrower should classify the debt as a noncurrent liability.
  • To require an entity to disclose information when a borrower violates a provision of a long-term debt agreement and the creditor provides a specified grace period. That disclosure would be required when (1) the violation has not been cured before the financial statements are issued (or are available to be issued) and (2) the violation would make the long-term obligation callable.
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB Discusses Benchmark Interest Rate for Hedge Accounting Purposes  FASB06

Summary - The FASB met on August 29, 2018, and discussed comments received on the proposed Accounting Standards Update (ASU), Derivatives and Hedging (Topic 815): Inclusion of the Overnight Index Swap (OIS) Rate Based on the Secured Overnight Financing Rate (SOFR) as a Benchmark Interest Rate for Hedge Accounting Purposes. 

The FASB reached a number of decisions, including:
  • Confirmed its decision to add the OIS rate based on SOFR as a U.S. benchmark interest rate. The Board also indicated it plans to continue to monitor the development of the SOFR term rate and communicated that it is prepared to consider adding a SOFR term rate as a benchmark interest rate in the future.
  • Confirmed its decisions that the amendments in the final ASU should be applied on a prospective basis for qualifying new or redesignated hedging relationships entered on or after the date of adoption and that no additional disclosure should be required.
  • Retained the scope of the existing project and add a separate project to the Board's agenda to facilitate the LIBOR to SOFR transition and mitigate the effects on financial reporting.
  • Decided to require that the effective date of this Update coincide with the effective date of Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, if an entity has not applied Update 2017-12.
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

             Recent SEC Updates & Proposals
Amendments to Municipal Securities Disclosure - Release No. 34-83885 SEC101

Summary The SEC adopted amendments to enhance transparency in the municipal securities market. The adopted amendments to Rule 15c2-12 of the Securities Exchange Act focus on material financial obligations that could impact an issuer's liquidity, overall creditworthiness, or an existing security holder's rights. Rule 15c2-12 requires brokers, dealers, and municipal securities dealers that are acting as underwriters in primary offerings of municipal securities to reasonably determine that the issuer or obligated person has agreed to provide to the Municipal Securities Rulemaking Board (MSRB) timely notice of certain events. The amendments add two new events to the list included in the rule:
  • Incurrence of a financial obligation of the issuer or obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material; and
  • Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the issuer or obligated person, any of which reflect financial difficulties.
The compliance date for the amendments is 180 days after they are published in the Federal Register.

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

SEC Staff Speeches - Remarks on Capital Formation at the Nashville 36|86 Entrepreneurship Festival by Chairman Jay Clayton  SEC102

Summary SEC Chairman Jay Clayton recently discussed small business capital formation and efforts by the SEC in this area. Clayton indicated that he believes "the SEC should be keenly focused on helping small businesses from coast to coast access capital to grow, create new jobs, and, in turn, provide investors, including our Main Street investors, expanded investment opportunities. That is why we have been reaching out to and engaging with businesses across the country. We also should recognize, in our analysis, the many connections among small, medium and large businesses, long-term investment capital and, importantly, human capital."
 
Clayton shared his views on efforts the SEC has undertaken over the last sixteen months that are intended to foster capital formation, and what should be expected from the SEC's upcoming regulatory agenda. Topics covered by Clayton included:
  • Initial Coin Offerings;
  • Efforts to Promote Capital Formation for Public Companies and Companies Considering Going Public;
  • Scaled Disclosure Framework for Smaller Companies; and
  • Disclosure Modernization and Simplification.
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Summary SEC Chairman Jay Clayton issued a statement clarifying the authority given to SEC staff views vs. the official rules and regulations issued by the SEC. The SEC staff frequently makes their views known through a variety of communications, including written statements, compliance guides, letters, speeches, responses to frequently asked questions and responses to specific requests for assistance. Clayton cautioned that the SEC's "longstanding position is that all staff statements are nonbinding and create no enforceable legal rights or obligations of the Commission or other parties."
 
Clayton believes that the SEC should keep this important distinction in mind and has directed directors of the Division of Enforcement and the Office of Compliance Inspections and Examinations to further emphasize this distinction to their staff. Clayton indicated that "our divisions and offices, including but not limited to the Division of Corporation Finance, the Division of Investment Management and the Division of Trading and Markets, have been and will continue to review whether prior staff statements and staff documents should be modified, rescinded or supplemented in light of market or other developments."

For more information, click  here .

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

Summary - On June 28, 2018, the SEC amended two rules that affect a broad cross-section of SEC registrants:
  • Small Public Company Threshold - By changing the quantitative thresholds that define a "smaller reporting company," more public companies are eligible to use the SEC's reduced disclosure requirements.
  • Data Tagging (XBRL) - These changes require operating companies and funds to embed XBRL tags directly into their SEC filings. The new data tagging requirements ("Inline XBRL" or "iXBRL") phase in over three years. As a result of the new approach to data tagging, one document is readable by both humans and machines. Previously, XBRL formatted data was provided separately.
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

        Tax Updates
On September 13, the House Ways and Means Committee approved the Republican Tax Reform 2.0 package. The measure, consisting of three separate bills, will reach the House floor for a full chamber vote by the end of September. The Tax Reform 2.0 package includes the following bills:
  • Protecting Family and Small Business Tax Cuts Act of 2018 (H.R. 6760)
  • Family Savings Act of 2018 (H.R. 6757)
  • American Innovation Act of 2018 (H.R. 6756)
Tax Reform 2.0 is billed as the follow-up to the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97), which was the largest overhaul of the Internal Revenue Code in more than 30 years. Though due to Senate rules requiring 60 votes for passage, the bills face a doubtful future even if approved by the House. 

For the full scope of  Tax Reform 2.0, please click here

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

For answers to your tax questions, please contact Nicole Zhao.

 
        Extra Crunch
FINRA Releases Report on the Rise of RegTech 
EX02
FINRA released a white paper outlining recent regulatory technology (RegTech) developments within the securities industry and potential opportunities and implications these technologies may have for broker-dealers.
 
The report follows an in-depth review conducted by FINRA on the emergence of RegTech tools within the securities industry and summarizes the study's key findings. Notably, FINRA highlights five areas where industry participants have most prominently leveraged RegTech innovations: surveillance and monitoring, customer identification and antimoney laundering compliance, regulatory intelligence, reporting and risk management and investor risk assessment.

For more information on the report, please click here

Source: FINRA

New Capital Markets Study: International Public Companies Get Home Market and US Boost From Cross-Trading on OTCQX EX01
  
International companies, with a primary listing outside the US, experienced a 28% increase in trading volume by number of shares within their home market after joining the OTCQX® Best Market, according to a new study released today by OTC Markets Group Inc. (OTCQX: OTCM). In addition, companies saw a 7-fold increase in US ownership.

For more information on the study, please click here

Source:  OTC Markets

New Compliance Product Helps Improve Analysis of 1800+ Small Cap Securities Listed on U.S. Stock Exchanges EX03
The Small Cap Listed Compliance Product allows firms to enhance their due diligence
 and establish a standardized framework to analyze securities across the listed and OTC equity small cap market.

The new product extends OTC Markets Group's compliance coverage in order to help AML and risk management teams holistically cover the US small cap market, which will benefit investors, market participants and small-cap issuers. The file, created twice daily, provides key compliance data for over 1,800 sub $500 million market cap equities listed on a national stock exchange, including:
  • Active and Historical Stock Promotion Data
  • Penny Stock Status
  • OTC Graduate Data
Additional fields include Micro Cap Status; Security Name Change History; Current and Former Shell Status; and Stock Split History.

For more information, please click here

Source:  OTC Markets

Transfer Agent Verified Shares Program Expands; Rule Updates for OTCQX and OTCQB Companies Beginning in 2019 EX04
In August, OTC Markets Group announced that Action Stock Transfer, Manhattan Transfer Registrar Co., Mountain Share Transfer, Pacific Stock Transfer and Securities Transfer Corporation joined OTC Markets' Transfer Agent Verified Shares Program. Twenty-five transfer agents, representing 91% of US companies trading on their OTCQX and OTCQB, are now included among a distinguished roster of leading transfer agents that are working with OTC Markets Group to create better informed and more efficient financial markets.
 
Effective January 1, 2019, OTC Markets Group plans to require all US companies trading on the OTCQX and OTCQB Markets to provide verified share data through a transfer agent who participates in the Transfer Agent Verified Share Program.
 

For more information, please click here

Source:  OTC Markets

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