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Featured Podcast 

The featured podcast in the September 2017 newsletter features Patrick Wong, Senior Audit Manager, as he discusses one of the newest FASB updates on Topic 842 regarding leases. Patrick provides commentary on who this update will affect and when it will go into effect. Please click here for a complete summary of the Topic 842 updates.

FASB Accounting Standards Update on Leases

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.

September 2017

We are pleased to release MaloneBailey's September 2017 newsletter highlighting recent SEC and FASB updates and proposals. Please note that the updates provided in this newsletter are not a comprehensive list. We have selected the updates that we believe may be relevant to you. Our goal is to provide you with resources to keep you informed of the ever-changing rules and regulations related to regulatory and accounting matters. 

This edition of our newsletter also includes a brief overview of the results from OTC Markets Group's Small-Cap Survey. This survey discusses the challenges small-cap companies face when it comes to driving and increasing investor interest in their stocks. Click here to jump to the article. 

We encourage you to visit the SEC and FASB websites for more information as well as a complete list of updated rules, regulations and proposals. We invite you to contact us should you have any questions about the information provided in this issue. You can find a list of MaloneBailey partners and their contact information at the end of this newsletter. 

For easy navigation, please refer to the 'In This Issue' section, which contains a hyperlinked table of contents of rule regulation proposals and updates that may affect you. We invite you to visit our website to review archived versions of this newsletter containing past SEC and FASB updates and proposals.

The MaloneBailey Team
2017 OTC Markets Group Small Cap Survey: Review of the Challenges Faced by Small-Cap Companies

OTC Markets Group recently released results for its inaugural Small-Cap Survey.  Survey results include insights from 117 CEOs and CFOs about what kinds of challenges they face when it comes to driving and increasing investor interest in their stock. Survey participants (small cap U.S. and international companies trading on OTCQX and OTCQB markets) were surveyed between March and May 2017. Jason Paltrowitz, Executive Vice President of Corporate Services at OTC Markets Group, recently authored a blog article summarizing the findings from this survey. Below is a sampling of some of its key takeaways.

For a full summary of the results, please click here. Next month, we look forward to hosting a representative from OTC Markets Group to discuss this survey and its findings on our podcast Everybody Counts. Be sure to tune in.

Key Takeaways from the 2017 Small Cap Survey
  • Executives of small-cap companies are still reticent when it comes to engaging an untapped resource of retail investors.
  • Attracting retail investors and garnering paid-for analyst research is not top-of-mind for smaller issuers.
  • Over 73% of those surveyed said that investor relations is still being managed by the CEO/CFO rather than a dedicated IR Person (12.1%) or external IR firm (9.5%).
  • Management is only spending 11% of its time on investor outreach.
  • Over 68% reported they don't have analysts covering their stock.
  • Only 28.5% use or intend to use paid-for research.
  • Almost 10% of small cap companies have never heard of paid-for equity research.
  • 92.2% of the companies that raised capital last year used a private placement or private-investment-in-public-equity (PIPE) financing.
  • 83.3 % of those planning to raise capital in 2017 plan to use those offering types.
  • 6.35% of respondents plan to raise capital this year under the Jumpstart Our Business Startups Act (JOBS Act) Regulation A+, compared to only 1.6% who used that option in 2016.
  • Challenges for small-cap companies included changes in market structure, increased listing requirements and decline in research sponsorship.
          Recent FASB Updates & Proposals

Summary The FASB has issued a proposed Accounting Standard Update (ASU) to clarify and improve the scope and the accounting guidance for contributions received and made, primarily by not-for-profits. Stakeholders are asked to review and provide comment on the proposed ASU by November 1, 2017.

The proposed ASU helps organizations decide if transactions should be accounted for as a contribution or an exchange. Organizations would accomplish this by using clarifying guidance to evaluate whether a resource provider is receiving value in return for the resources transferred.
The proposed ASU also helps organizations evaluate such arrangements by using an improved framework to determine whether a contribution is conditional or unconditional, and better distinguish a donor-imposed condition from a donor-imposed restriction
Accounting for contributions is an issue primarily for not-for-profit organizations because contributions are a significant source of revenue. However, the amendments in this proposed ASU would apply to all organizations that receive or make contributions of cash and other assets, including business enterprises.
The proposed amendments would not apply to transfers of assets from the government to businesses. The guidance would apply to both a recipient of contributions received and a resource provider of contributions made.
The proposed standard follows the same effective dates as ASC Topic 606, Revenue from Contracts with Customers: 
  • A public company or a not-for-profit organization that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market would apply the new standard to annual reporting periods beginning after December 15, 2017, including interim periods within that annual period.
  • Other organizations would apply the standard to annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.
Early adoption would be permitted irrespective of the early adoption of the amendments in ASC Topic 606.

For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Summary  The AICPA's Financial Reporting Executive Committee (FinREC) has published a new working draft with proposed guidance for implementing the FASB's revenue recognition standard in FASB Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). The working draft, Engineering & Construction Contractors, Issue #4-4: Uninstalled Materials, discusses accounting for items procured for installation in a construction project but not immediately installed.
The working draft is revenue recognition implementation guidance that will be added, if approved, to the AICPA's Audit and Accounting Guide, Revenue Recognition. The deadline for providing feedback on these working drafts is October 2, 2017. 

For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SummaryAs discussed in its "Summary of Board Decisions" publication, the FASB met on August 2, 2017, and decided to propose amendments to the transition provisions in Topic 842 for certain land easements that existed before that Topic's effective date. Specifically, as a practical expedient, the FASB would provide optional transition guidance that would permit an entity not to apply Topic 842 to land easements that existed before that Topic's effective date, provided that the entity does not currently apply Topic 840 to those land easements. An entity should continue to apply its current accounting policies for accounting for land easements that existed before the effective date of Topic 842. When Topic 842 becomes effective, an entity will apply Topic 842 to all new (or modified) land easement arrangements to determine whether the arrangements should be accounted for as leases under Topic 842. The Board also decided to amend Example 10 of Subtopic 350-30 on intangibles other than goodwill to eliminate the perceived inconsistency between that example and Topic 842.
The FASB also began redeliberating the amendments in proposed Accounting Standards Update, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The meeting topic was the liability for future policy benefits for nonparticipating traditional and limited-payment insurance contracts. The FASB reached a number of decisions, including the following:
  • Assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited-payment contracts should be updated.
  • The effect of assumption changes should be calculated and recorded on a catch-up basis in net income.
  • Cash flow assumptions should be reviewed and updated on an annual basis, at the same time every year, or more frequently in interim reporting periods if evidence suggests that earlier cash flow assumptions should be revised.
  • The provision for risk of adverse deviation and premium deficiency tests should be eliminated for nonparticipating traditional and limited-payment contracts. The net premium ratio should be capped at 100 percent. 
For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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             Recent SEC Updates & Proposals
ASU2017-10Report of Investigation Pursuant to Section 21(a) of the Securities Exchange 
Act of 1934 - the DAO - Release No. 34-81207 

Summary The SEC issued a Report of Investigation (Report) cautioning market participants that offers and sales of digital assets by "virtual" organizations are subject to the requirements of the federal securities laws. Such offers and sales, conducted by organizations using distributed ledger or blockchain technology, have been referred to, among other things, as "Initial Coin Offerings" or "Token Sales." Whether a particular investment transaction involves the offer or sale of a security - regardless of the terminology or technology used - will depend on the facts and circumstances, including the economic realities of the transaction.
The SEC's Report found that tokens offered and sold by a "virtual" organization known as "The DAO" were securities and therefore subject to the federal securities laws. The Report confirms that issuers of distributed ledger or blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies. Those participating in unregistered offerings also may be liable for violations of the securities laws. Additionally, securities exchanges providing for trading in these securities must register unless they are exempt. The purpose of the registration provisions of the federal securities laws is to ensure that investors are sold investments that include all the proper disclosures and are subject to regulatory scrutiny for investors' protection.
The SEC's Report stems from an inquiry that the agency's Enforcement Division launched into whether The DAO and associated entities and individuals violated federal securities laws with unregistered offers and sales of DAO Tokens in exchange for "Ether," a virtual currency. The DAO has been described as a "crowdfunding contract" but it would not have met the requirements of the Regulation Crowdfunding exemption because, among other things, it was not a broker-dealer or a funding portal registered with the SEC and the Financial Industry Regulatory Authority.

For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SummarySEC Chairman, Jay Clayton, recently opened the SEC's National Compliance Outreach Program for Broker-Dealers with remarks on the importance of coordination among regulators in the oversight of broker-dealers. Mr. Clayton noted that broker-dealer regulation "is one of many areas where such regulatory coordination is vital. And I am pleased to say that strong coordination between the SEC and FINRA is particularly evident here today. Indeed, this is the sixth year that the SEC and FINRA have teamed up for this event, which provides an open forum for regulators - as well as broker-dealer compliance, audit and other professionals - to share information about strong compliance practices."
Chairman Clayton noted that not only is coordination between regulators essential - but coordination and open communication between regulators and the industries that they regulate is also vitally important. To be effective, regulators must continuously invest in our knowledge and understanding of the markets and individuals we regulate. This current knowledge base is critical to the SEC.

For more information, click here .
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Summary The SEC has issued for public comment a Proposed Rule, Covered Securities Pursuant to Section 18 of the Securities Act of 1933. This proposal would amend Rule 146 under Section 18 of the Securities Act of 1933 ("Securities Act"), as amended, to designate certain securities on Investors Exchange LLC (IEX) as covered securities for purposes of Section 18(b) of the Securities Act. Rule 146(b) lists those national securities exchanges, or segments or tiers thereof, that the SEC has determined to have listing standards that are "substantially similar" to those of the Named Markets and thus securities listed on such exchanges are deemed "Covered Securities."  Covered securities under Section 18(b) of the Securities Act are exempt from state law registration requirements.
Comments on the proposal were due August 21, 2017.

For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
SummaryThe SEC has issued for public comment a Notice of Filing of Proposed Rules on The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, and Departures from Unqualified Opinions and Other Reporting Circumstances, and Related Amendments to Auditing Standards. This document seeks feedback from constituents on the PCAOB's previously adopted new auditing standard, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.
The new PCAOB standard is designed to enhance the relevance and usefulness of the auditor's report by providing additional and important information to investors. The new rules are subject to approval by the SEC.
The new standard and related amendments require auditors to include in the auditor's report a discussion of the critical audit matters (CAMs). "Critical audit matters" are matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involve especially challenging, subjective, or complex auditor judgment.
The new standard requires the auditor's report to:
  • Discuss CAMS;
  • Disclose the tenure of an auditor, specifically, the year in which the auditor began serving consecutively as the company's auditor; and
  • Include the phrase, "whether due to error or fraud," in the description of the auditor's responsibility under PCAOB standards to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.
The standard also retains the pass/fail model of the existing auditor's report.
The final standard applies to audits conducted under PCAOB standards. Communication of CAMs is not required for audits of emerging growth companies; brokers and dealers; investment companies other than business development companies; and employee stock purchase, savings, and similar plans.
The new requirements are to be phased in, to provide investors and other financial statement users with new information as soon as reasonably practicable, while allowing accounting firms, companies, and audit committees time to prepare for implementation of the CAM reporting requirements.
Comments are due 21 days from publication of the notice in the Federal Register. 

For more information, click here.
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

          Welcome Connie Zhang, CPA, Tax Partner
MaloneBailey is pleased to announce that Connie Zhang, CPA, has joined the firm as Tax Partner. MaloneBailey's tax department delivers tax planning, compliance and consulting services to individuals and businesses, both privately-held and publicly-traded. Our comprehensive tax service offering includes international tax services as well.

For more information about our tax services as well as a complimentary consultation and estimate for service, please contact Caroline Rosen by email at  or by phone, 713.343.4286.

International tax services:
  • In-bound strategic tax planning, compliance and consulting
  • Global tax minimization plans
  • Transaction support for cross-border M&A
    • Tax due diligence
    • Tax (re)structuring
    • Post M&A integration
    • Exit strategy formulation/implementation
  • Private wealth management for individuals
    • Pre & post immigration tax planning for high net worth individuals and their businesses
    • Global financial asset reporting
Individual tax services:
  • Tax return preparation: U.S. federal, state and local
  • Estate and gift tax planning
  • Business succession planning and exit strategies
  • Year-round income tax planning
  • Private wealth management and tax planning
  • Tax consulting services and special projects
  • Foreign bank account disclosure and FATCA compliance
Business tax services:
  • Tax return preparation: federal, state, local
    • Corporations, partnerships and LLCs
    • Disregarded entities
  • Franchise tax requirements
  • Tax consulting services and special projects
  • Strategic tax planning
  • Merger and acquisition tax planning
  • Foreign bank account disclosures and FATCA compliance 
  • Expatriate tax consulting and tax return preparation
Strategic tax planning requires seasoned tax professionals who are equipped with knowledge of the ever changing tax rules and regulations, as well as industry requirements, that may affect you or your business. Our team of tax experts are available year-round, not just around deadlines, to provide advice on your tax needs. From making decisions on whether or not to buy a new company to decisions on how to structure a merger or acquisition, our clients turn to us for our advice. As our clients also look to us to maximize tax benefits while mitigating tax risks, we proactively examine every available option before arriving at the final solution.

MaloneBailey is a member of Nexia International, a leading, global network of independent accounting and consulting firms. With over 650 offices in 115 countries, Nexia has over 28,000 personnel around the world. This network of international affiliates allows us to provide expertise on local tax and accounting rules and regulations for the 115 countries represented. For more information about Nexia International, please visit . For more information about MaloneBailey, we invite you to visit our website, .