2013 Standard Setter Update - EY Japan · Securities and Exchange Commission ... ASU 2013-11, Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating

2013 Standard Setter Update Financial reporting and accounting developments (current through 31 December 2013)

January 2014

2013 Standard Setter Update Financial reporting and accounting developments

This 2013 Standard Setter Update highlights significant developments in financial accounting and reporting between 1 January 2013 and 31 December 2013. This publication also includes summaries of certain proposals presently under consideration by the Financial Accounting Standards Board (FASB), the Emerging Issues Task Force (EITF), the Private Company Council (PCC), the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), the Auditing Standards Board (ASB) and the Governmental Accounting Standards Board (GASB). Throughout this document, we refer to related EY publications, many of which can be found on our AccountingLink website. We will continue to keep you informed about important developments as they occur.

January 2014

To our clients and other friends

Contents Financial Accounting Standards Board .................................................................... 1 Securities and Exchange Commission ................................................................... 26 Public Company Accounting Oversight Board ........................................................ 45 Auditing Standards Board ..................................................................................... 54 Governmental Accounting Standards Board .......................................................... 62 Effective date matrices ......................................................................................... 67

i

Financial Accounting Standards Board Final FASB guidance

ASU 2013-12, Definition of a Public Business Entity — an Addition to the Master Glossary .......... 1 ASU 2013-11, Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit

When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) ........................ 1

ASU 2013-10, Derivatives and Hedging (Topic 815), Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes (a consensus of the FASB Emerging Issues Task Force) ...................... 2

ASU 2013-09, Fair Value Measurement (Topic 820), Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04 ............... 2

ASU 2013-08, Financial Services — Investment Companies (Topic 946), Amendments to the Scope, Measurement, and Disclosure Requirements .................................................... 3

ASU 2013-07, Presentation of Financial Statements (Topic 205), Liquidation Basis of Accounting ................................................................................................................. 3

ASU 2013-06, Not-for-Profit Entities (Topic 958), Services Received from Personnel of an Affiliate (a consensus of the FASB Emerging Issues Task Force) ......................................... 4

ASU 2013-05, Foreign Currency Matters (Topic 830), Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force) ..................................................... 4

ASU 2013-04, Liabilities (Topic 405), Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force) .............................................. 5

ASU 2013-03, Financial Instruments (Topic 825), Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities ..................................................................... 5

ASU 2013-02, Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income .................................................................. 6

ASU 2013-01, Balance Sheet (Topic 210), Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities ....................................................................................... 6

FASB exposure documents Proposed ASU, Development Stage Entities (Topic 915), Elimination of Certain Financial

Reporting Requirements ................................................................................................. 7 Proposed ASU, Derivatives and Hedging (Topic 815), Determining Whether the Host

Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force) ............................ 7

Proposed ASU, Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force) ........................................................................................... 8

Proposed ASU, Consolidation (Topic 810), Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements (a proposal of the Private Company Council) ......... 8

Pronouncements and proposals

ii 2013 Standard Setter Update Financial reporting and accounting developments

Proposed ASU, Receivables — Trouble Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Collateralized Mortgage Loans upon a Troubled Debt Restructuring (a consensus of the FASB Emerging Issues Task Force) ..................................................... 9

Proposed ASU, Service Concession Arrangements (Topic 853) (a consensus of the FASB Emerging Issues Task Force) ......................................................................................... 10

Proposed ASU (Revised), Consolidation (Topic 810), Measuring the Financial Liabilities of a Consolidated Collateralized Financing Entity (a consensus of the FASB Emerging Issues Task Force) ................................................................................................................. 10

Proposed ASU, Intangibles — Goodwill and Other (Topic 350), Accounting for Goodwill (a proposal of the Private Company Council) ...................................................................... 11

Proposed ASU, Derivatives and Hedging (Topic 815), Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps (a proposal of the Private Company Council) ....... 12

Proposed ASU, Business Combinations (Topic 805), Accounting for Identifiable Intangible Assets in a Business Combination (a proposal of the Private Company Council) ................. 13

Proposed ASU, Insurance Contracts (Topic 834) .................................................................. 13 Proposed ASU, Presentation of Financial Statements (Topic 205), Disclosure of

Uncertainties about an Entity’s Going Concern Presumption ............................................ 14 Proposed ASU (Revised), Leases (Topic 842), a revision of the 2010 proposed FASB

Accounting Standards Update, Leases (Topic 840) ......................................................... 15 Proposed ASU, Technical Corrections and Improvements Related to Glossary Terms ............... 16 Proposed ASU, Investments — Equity Method and Joint Ventures (Topic 323), Accounting

for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force) ......................................................................................... 16

Proposed ASU, Presentation of Financial Statements (Topic 205), Reporting Discontinued Operations ............................................................................................... 17

Proposed ASU, Financial Instruments — Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities ................................................ 17

Proposed ASU, Transfers and Servicing (Topic 860), Effective Control for Transfers with Forward Agreements to Repurchase Assets and Accounting for Repurchase Financings .... 18

Proposed ASU, Financial Instruments — Credit Losses (Subtopic 825-15) ............................... 19 Proposed ASU, Financial Instruments (Topic 825), Disclosures about Liquidity Risk and

Interest Rate Risk ......................................................................................................... 19 Proposed ASU (Revised), Revenue Recognition (Topic 605), Revenue from Contracts

with Customers ............................................................................................................ 20 Proposed ASU, Consolidation (Topic 810), Principal versus Agent Analysis ............................ 22 Discussion Paper — Invitation to Comment, Selected Issues about Hedge Accounting ............... 22

Other FASB EITF Issue 13-F, Classification of Certain Government Insured Residential Mortgage Loans

upon Foreclosure by a Creditor ..................................................................................... 23 Private company decision-making framework ....................................................................... 23 Invitation to comment on the FASB’s disclosure framework project ........................................ 24 What’s next — agenda highlights .......................................................................................... 24

iii

Securities and Exchange Commission SEC final rules

Removal of Certain References to Credit Ratings Under the Securities Exchange Act of 1934 (Release No. 34-71194) ....................................................................................... 26

Removal of Certain References to Credit Ratings Under the Investment Company Act (Release No. 33-9506) ................................................................................................. 26

Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds (Release No. BHCA-1) .............. 26

Broker-Dealer Reports (Release No. 34-70073) .................................................................... 27 Financial Responsibility Rules for Broker-Dealers (Release No. 34-70072) .............................. 28 Eliminating the Prohibition Against General Solicitation and General Advertising in

Rule 506 and Rule 144A Offerings (Release No. 33-9415) .............................................. 28 Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings

(Release No. 33-9414) ................................................................................................. 29

SEC rule proposals and other releases Proposed Rule Amendments for Small and Additional Issues Exemptions Under

Section 3(b) of the Securities Act (Release No. 33-9497) ................................................ 30 Crowdfunding (Release No. 33-9470) .................................................................................. 30 Pay Ratio Disclosure (Release No. 33-9452) ......................................................................... 31 Credit Risk Retention (Release No. 34-70277) ...................................................................... 32 Amendments to Regulation D, Form D and Rule 156 under the Securities Act

(Release No. 33-9416) ................................................................................................. 32 Money Market Fund Reform; Amendments to Form PF (Release No. 33-9408) ........................ 33 Prohibition against Conflicts of Interest in Certain Securitizations (Release No. 34-65355) ...... 34 Reproposal of Shelf Eligibility Conditions for Asset-Backed Securities and Other Additional

Requests for Comment (Release No. 33-9244) ............................................................... 34 Proposed Rules for Nationally Recognized Statistical Rating Organizations

(Release No. 34-64514) ............................................................................................... 35 Incentive-Based Compensation Arrangements (Release No. 34-64140) .................................. 36 End-User Exception to Mandatory Clearing of Security-Based Swaps

(Release No. 34-63556) ............................................................................................... 36 Reporting of Proxy Votes on Executive Compensation and Other Matters

(Release No. 34-63123) ............................................................................................... 37 Short-Term Borrowings Disclosure (Release No. 33-9143) .................................................... 37 Asset-Backed Securities (Release No. 33-9117) .................................................................... 38

iv 2013 Standard Setter Update Financial reporting and accounting developments

Other SEC SEC issues study on Regulation S-K ..................................................................................... 39 SEC staff updates Financial Reporting Manual; releases Disclosure Guidance: Topic No. 6 ........ 39 Court vacates resource extraction rule; SEC plans to repropose............................................. 40 Conflict minerals rule upheld in court ................................................................................... 40 SEC staff issues new interpretive guidance on conflict minerals ............................................. 41 General solicitation rules under Regulation D and disqualification of ‘bad actors’ ..................... 41 SEC staff issues other interpretive guidance ......................................................................... 41 SEC creates portal to submit general solicitation materials voluntarily.................................... 41 SEC staff issues investor alert and small business compliance guides ..................................... 42 NYSE gives new public companies a year to comply with internal audit listing standard ........... 42 Updates to the US GAAP XBRL Taxonomy ............................................................................ 42 Companies may use social media sites to announce material information ............................... 43 SEC Advisory Committee on Small and Emerging Companies ................................................. 43 SEC Investor Advisory Committee ....................................................................................... 44 SEC staff holds decimalization roundtable ............................................................................ 44

Public Company Accounting Oversight Board Final PCAOB guidance

Staff Audit Practice Alert No. 11, Considerations for Audits of Internal Control Over Financial Reporting ...................................................................................................... 45

PCAOB proposed standards and other projects PCAOB Release No. 2013-010, Amendments to Conform the Board’s Rules and Forms to

the Dodd-Frank Act and Make Certain Updates and Clarifications ..................................... 46 PCAOB Release No. 2013-008, Auditing Standard No. 17, Auditing Supplemental

Information Accompanying Audited Financial Statements ............................................... 46 PCAOB Release No. 2013-007, Standards for Attestation Engagements Related to Broker

and Dealer Compliance or Exemption Reports Required by the U.S. Securities and Exchange Commission .................................................................................................. 47

PCAOB Release No. 2013-009, Proposed Auditing Standard, Improving the Transparency of Audits ..................................................................................................................... 48

PCAOB Release No. 2013-005, Proposed Auditing Standards, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion; The Auditor’s Responsibilities Regarding Other Information in Certain Documents Containing Audited Financial Statements and the Related Auditor’s Report; and Related Amendments to PCAOB Standards .................................................................... 48

PCAOB Release No. 2013-004, Proposed Auditing Standard, Related Parties and Proposed Amendments to Certain PCAOB Auditing Standards Regarding Significant Unusual Transactions ................................................................................................... 49

v

PCAOB Release No. 2013-002, Proposed Framework for Reorganization of PCAOB Auditing Standards and Related Amendments to PCAOB Auditing Standards and Rules ..... 50

PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation ...................................................................................................... 50

PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts ........... 51

PCAOB Release No. 2010-003, Proposed Auditing Standard, Confirmation ............................ 51

Other PCAOB PCAOB Release No. 2013-011, Observations Related to the Implementation of the

Auditing Standard on Engagement Quality Review .......................................................... 53

Auditing Standards Board

Final ASB standards Statement on Auditing Standards No. 127, Omnibus Statement on Auditing Standards — 2013 ... 54

ASB exposure drafts Proposed Statement on Standards for Attestation Engagements, Attestation Standards:

Clarification and Recodification ..................................................................................... 55 Proposed Statement on Auditing Standards, Using the Work of Internal Auditors .................... 56

AICPA — other Proposed Statement on Standards for Accounting and Review Services: Framework for

Performing and Reporting on Compilation and Review Engagements ................................ 58 Proposed Statements on Standards for Accounting and Review Services: Preparation

of Financial Statements; Compilation Engagements; and Association With Financial Statements .................................................................................................... 58

Proposed Statements on Standards for Accounting and Review Services: Review of Financial Statements and Review of Financial Statements — Special Considerations ........... 59

Proposed Statements on Standards for Accounting and Review Services: Association With Unaudited Financial Statements; Compilation of Financial Statements; and Compilation of Financial Statements — Special Considerations ............................................................ 60

Agreed-upon procedures guidance for XBRL-formatted information ....................................... 60 AICPA Financial Reporting Framework for Small and Medium-Sized Entities ............................ 61

vi 2013 Standard Setter Update Financial reporting and accounting developments

Governmental Accounting Standards Board Final GASB guidance

GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date — an amendment of GASB Statement No. 68...................................... 62

GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees .................................................................................................... 62

GASB Statement No. 69, Government Combinations and Disposals of Government Operations ............................................................................................... 63

GASB exposure drafts Measurement of Elements of Financial Statements ............................................................... 64

Other GASB GASB Scope of Authority: Consultation Process Policy .......................................................... 65 Update of GASB Comprehensive Implementation Guide ......................................................... 65 Guide to Implementation of GASB Statement 67 on Financial Reporting for Pension Plans ....... 65 Preliminary Views, Fair Value Measurement and Application ................................................. 66

Effective date matrices Effective date matrix — final FASB pronouncements .............................................................. 67 Effective date matrix — final SEC pronouncements and interpretive releases ........................... 71 Effective date matrix — final PCAOB pronouncements and rules ............................................. 72 Effective date matrix — final ASB standards .......................................................................... 73 Effective date matrix — final GASB pronouncements ............................................................. 74

1

ASU 2013-12, Definition of a Public Business Entity — an Addition to the Master Glossary

Date issued: 23 December 2013

Summary The FASB issued a new definition of a public business entity that will be considered in future standard setting, such as determining which entities can use any private company accounting alternatives under US GAAP that the FASB will provide.

Effective date The amendment does not affect existing requirements. The new definition may be used in specifying the scope of future financial accounting and reporting guidance.

Other resources • To the Point, FASB proposes new definition of a public company for future standard setting

(SCORE No. BB2596)

ASU 2013-11, Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force)

Date issued: 18 July 2013

Summary An entity is required to present unrecognized tax benefits as a decrease in a net operating loss, similar tax loss or tax credit carryforward if certain criteria are met. The determination of whether a deferred tax asset is available is based on the unrecognized tax benefit and the deferred tax asset that exists at the reporting date and presumes disallowance of the tax position at the reporting date.

The guidance will eliminate the diversity in practice in the presentation of unrecognized tax benefits but will not alter the way in which entities assess deferred tax assets for realizability.

Effective date and transition The amendments are effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after 15 December 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after 15 December 2014. The amendments should be applied prospectively to unrecognized tax benefits that exist at the effective date. Early adoption is permitted.

Other resources • To the Point, Presentation of unrecognized tax benefits (SCORE No. BB2585)

Financial Accounting Standards Board

Final FASB guidance

http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176163702930

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2596_PrivateCompany_8August2013/$FILE/TothePoint_BB2596_PrivateCompany_8August2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2596_PrivateCompany_8August2013/$FILE/TothePoint_BB2596_PrivateCompany_8August2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2585_TaxBenefits_18July2013/$FILE/TothePoint_BB2585_TaxBenefits_18July2013.pdf

2 2013 Standard Setter Update Financial reporting and accounting developments

ASU 2013-10, Derivatives and Hedging (Topic 815), Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes (a consensus of the FASB Emerging Issues Task Force)


Summary An entity can now designate the Federal Funds Effective Swap Rate (which is the Overnight Index Swap rate, or OIS rate, in the US) as a benchmark interest rate for hedge accounting purposes in addition to the interest rates on direct Treasury obligations of the US government and the London Interbank Offered Rate (LIBOR).

The FASB also eliminated the restriction on designating different benchmark interest rate hedges for “similar hedges,” discussed in ASC 815-20-25-6.

Effective date The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after 17 July 2013.

Other resources • To the Point, Companies can use a new benchmark interest rate for hedge accounting

(SCORE No. BB2582)

• Technical Line, FASB proposes new US benchmark interest rate for hedge accounting (SCORE No. BB2525)

ASU 2013-09, Fair Value Measurement (Topic 820), Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04


Summary The FASB has indefinitely deferred the requirement for certain employee benefit plans to disclose quantitative information about the significant unobservable inputs used to measure the fair value of Level 3 equity investments in their nonpublic plan sponsor and the sponsor’s nonpublic affiliates.

The deferral responds to concerns that the required disclosures could have resulted in an employee benefit plan revealing proprietary information about the financial performance of its nonpublic sponsor or the sponsor’s nonpublic affiliates.

The deferral does not apply to plans that are subject to any filing requirements of the SEC.

Effective date The amendments are effective upon issuance (8 July 2013).

Other resources • To the Point, Fair value disclosure relief for nonpublic employee benefit plans (SCORE No. BB2568)

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2582_BenchmarkInterestRate_17July2013/$FILE/TothePoint_BB2582_BenchmarkInterestRate_17July2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2582_BenchmarkInterestRate_17July2013/$FILE/TothePoint_BB2582_BenchmarkInterestRate_17July2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2525_OIS_18April2013/$FILE/TechnicalLine_BB2525_OIS_18April2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2525_OIS_18April2013/$FILE/TechnicalLine_BB2525_OIS_18April2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2568_FairValue_10July2013/$FILE/TothePoint_BB2568_FairValue_10July2013.pdf

3

ASU 2013-08, Financial Services — Investment Companies (Topic 946), Amendments to the Scope, Measurement, and Disclosure Requirements

Date issued: 7 June 2013

Summary An entity is required to have certain fundamental characteristics and to consider other typical characteristics to qualify as an investment company. Entities regulated under the Investment Company Act of 1940 automatically qualify.

Consistent with current practice, the guidance generally prohibits investment companies from consolidating controlling financial interests in operating entities. It does not address how to account for a controlling financial interest in another investment company. Real estate investment trusts continue to be out of the scope of the guidance.

New disclosures are required.

Effective date The amendments are effective for an entity’s interim and annual reporting periods in fiscal years that begin after 15 December 2013. Earlier application is prohibited.

Other resources • To the Point, Investment company guidance is final (SCORE No. BB2557)

ASU 2013-07, Presentation of Financial Statements (Topic 205), Liquidation Basis of Accounting

Date issued: 22 April 2013

Summary Liquidation accounting is required when liquidation is imminent, unless an entity is outside the scope of the guidance or it is following a liquidation plan established at its inception. Liquidation is considered imminent when the likelihood that the entity will return from liquidation is remote and either (1) a plan for liquidation is approved by those with the authority to do so and the chance of the plan being blocked by other parties is remote or (2) a liquidation plan is imposed by other forces (e.g., involuntary bankruptcy).

Entities using the liquidation basis of accounting will be required to measure their assets at the amount of the expected cash proceeds from liquidation. Liabilities will continue to be recognized at the amount required by other US GAAP. An entity also is required to accrue costs to sell assets, in addition to costs and income that it expects to incur or earn through the end of liquidation if it has a reasonable basis for estimation.

Effective date The amendments are effective for an entity that determines liquidation is imminent during annual reporting periods beginning after 15 December 2013, and interim reporting periods therein. Early adoption is permitted.

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2557_InvestmentCompanies_10June2013/$FILE/TothePoint_BB2557_InvestmentCompanies_10June2013.pdf


Other resources • Technical Line, How investment companies would apply the new guidance on liquidation basis

accounting (SCORE No. BB2632)

• To the Point, FASB issues new liquidation basis accounting guidance (SCORE No. BB2531)

ASU 2013-06, Not-for-Profit Entities (Topic 958), Services Received from Personnel of an Affiliate (a consensus of the FASB Emerging Issues Task Force)

Date issued: 19 April 2013 Summary A recipient not-for-profit entity (NFP) is required to recognize all services received from personnel of an affiliate that directly benefit the recipient NFP and for which the affiliate does not charge the recipient NFP. Those services should be measured at the cost recognized by the affiliate for the personnel providing those services. However, if measuring a service received from personnel of an affiliate at cost will significantly overstate or understate the value of that service, the recipient NFP may elect to recognize that service at its fair value.

Effective date and transition The amendments are effective for fiscal years beginning after 15 June 2014, and interim and annual periods thereafter. A recipient NFP may apply the amendments either prospectively or using a modified retrospective approach in which all prior periods presented upon the date of adoption should be adjusted, but no adjustment should be made to the beginning balance of net assets of the earliest period presented. Early adoption is permitted.

Other resources • To the Point, New guidance for not-for-profit entities (SCORE No. BB2518)

ASU 2013-05, Foreign Currency Matters (Topic 830), Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force)

Date issued: 4 March 2013 Summary The amendments specify that a cumulative translation adjustment (CTA) should be released into earnings when an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete liquidation of the foreign entity. For sales of an equity method investment that is a foreign entity, a pro rata portion of CTA attributable to the investment would be recognized in earnings when the investment is sold. When an entity sells either a part or all of its investment in a consolidated foreign entity, CTA would be recognized in earnings only if the sale results in the parent no longer having a controlling financial interest in the foreign entity. In addition, CTA should be recognized in earnings in a business combination achieved in stages (i.e., a step acquisition).

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2632_AMLiquidation_9October2013/$FILE/TechnicalLine_BB2632_AMLiquidation_9October2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2632_AMLiquidation_9October2013/$FILE/TechnicalLine_BB2632_AMLiquidation_9October2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_LiquidationBasis_23April2013/$FILE/TothePoint_LiquidationBasis_23April2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2518_NotforProfit_27March2013/$FILE/TothePoint_BB2518_NotforProfit_27March2013.pdf

5

Effective date and transition The amendments are effective for public companies for fiscal years, and interim periods within those years, beginning after 15 December 2013. For nonpublic entities, the amendments are effective for fiscal years beginning after 15 December 2014, and interim and annual periods thereafter. The amendments should be applied prospectively to derecognition events occurring after the effective date. Early adoption is permitted.

Other resources • EITF Update, January 2013 meeting highlights (SCORE No. BB2487)

ASU 2013-04, Liabilities (Topic 405), Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force)

Date issued: 28 February 2013 Summary This guidance requires an entity that is jointly and severally liable to measure the obligation as the sum of the amount the entity has agreed with co-obligors to pay and any additional amount it expects to pay on behalf of one or more co-obligors. Required disclosures include a description of the nature of the arrangement, how the liability arose, the relationship with co-obligors and the terms and conditions of the arrangement.

Effective date and transition The amendments are effective for public companies for fiscal years, and interim periods within those years, beginning after 15 December 2013. For nonpublic entities, the amendments are effective for fiscal years ending after 15 December 2014, and interim periods and annual periods thereafter. The amendments should be applied retrospectively to all prior periods presented for obligations that exist at the beginning of an entity’s fiscal year of adoption. An entity may elect to use hindsight for the comparative periods (if it changed its accounting as a result of adopting the amendments in the ASU) and should disclose that fact. Early adoption is permitted.

Other resources • EITF Update, January 2013 meeting highlights (SCORE No. BB2487)

ASU 2013-03, Financial Instruments (Topic 825), Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities

Date issued: 7 February 2013 Summary This guidance clarifies that nonpublic entities as defined in Accounting Standards Codification (ASC) 820, Fair Value Measurement, are not required to disclose the fair value hierarchy level for financial instruments that are not measured at fair value on the statement of financial position, but for which fair value is disclosed.

Effective date and transition The ASU was effective immediately and therefore applied to 2012 financial statements.

http://www.ey.com/Publication/vwLUAssetsAL/EITFUpdate_BB2487_18January2013/$FILE/EITFUpdate_BB2487_18January2013.pdf



ASU 2013-02, Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

Date issued: 5 February 2013

Summary This guidance requires companies to report, in one place, information about reclassifications out of accumulated other comprehensive income (AOCI). Companies also are required to present reclassifications by component when reporting changes in AOCI balances. For significant items reclassified out of AOCI to net income in their entirety in the period, companies must report the effect of the reclassifications on the respective line items in the statement where net income is presented. In certain circumstances, this can be done on the face of that statement. Otherwise, it must be presented in the notes. For items not reclassified to net income in their entirety in the period (e.g., pension amounts that are capitalized in inventory), companies must cross-reference in a note to other required disclosures.

Effective date and transition The amendments are effective for public companies in fiscal years, and interim periods within those years, beginning after 15 December 2012. For nonpublic companies, the ASU is effective for fiscal years beginning after 15 December 2013, and interim and annual periods thereafter. The guidance should be applied prospectively.

Other resources • Technical Line, What the new AOCI disclosures will look like (SCORE No. BB2503)

ASU 2013-01, Balance Sheet (Topic 210), Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities

Date issued: 31 January 2013

Summary The amendments limit the scope of ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, to certain derivative instruments (including bifurcated embedded derivatives), repurchase agreements and reverse repurchase agreements, and securities borrowing and lending arrangements that are either (1) offset on the balance sheet or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements as initially written in ASU 2011-11 would have applied more broadly than intended.

Effective date and transition The effective date of the amendments coincides with that of ASU 2011-11 (i.e., for fiscal years beginning on or after 1 January 2013, and interim periods within those years). The amendments will be applied retrospectively for all comparative periods presented on the balance sheet.

Other resources • To the Point, FASB limits the scope of new offsetting disclosure requirements

(SCORE No. BB2492)

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2503_AOCI_27February2013/$FILE/TechnicalLine_BB2503_AOCI_27February2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2492_BalanceSheetOffsetting_31January2013/$FILE/TothePoint_BB2492_BalanceSheetOffsetting_31January2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2492_BalanceSheetOffsetting_31January2013/$FILE/TothePoint_BB2492_BalanceSheetOffsetting_31January2013.pdf

7

Proposed ASU, Development Stage Entities (Topic 915), Elimination of Certain Financial Reporting Requirements

Date issued: 7 November 2013 — comment period ended 23 December 2013

Summary The FASB proposed eliminating the definition of “development stage entities” from US GAAP along with the distinct presentation and disclosure requirements for these entities. The proposal also would eliminate provisions in the consolidation guidance for determining whether these entities are variable interest entities.

Effective date The effective date is yet to be determined.

Other resources • FASB Project Update: Development Stage Entities

Proposed ASU, Derivatives and Hedging (Topic 815), Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force)

Date issued: 23 October 2013 — comment period ended 23 December 2013

Summary All stated and implied substantive terms and features of a hybrid financial instrument issued in the form of shares, including any embedded derivatives, should be considered when determining whether a host contract is more akin to equity or debt (i.e., the “whole instrument” approach).

In evaluating the stated and implied substantive terms and features, the existence or omission of any single term or feature, including an investor-held fixed-price, noncontingent redemption option, would not in and of itself determine the nature of the host contract.

Effective date and transition The effective date is yet to be determined. The effects of initial adoption would be reported as a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early adoption would be permitted.

Other resources • To the Point, Defining host contracts in hybrid instruments issued as shares (SCORE No. BB2649)

• EITF Update, September 2013 meeting highlights (SCORE No. BB2612)

FASB exposure documents

http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FProjectUpdatePage&cid=1176163116561

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2649_HostContracts_8November2013/$FILE/TothePoint_BB2649_HostContracts_8November2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/EITFUpdate_BB2612_16September2013/$FILE/EITFUpdate_BB2612_16September2013.pdf


Proposed ASU, Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force)

Date issued: 23 October 2013 — comment period ended 23 December 2013

Summary A performance target that could be achieved after the requisite service period should be treated as a performance condition that affects vesting. Performance conditions are not reflected in the estimate of the grant-date fair value of the award. Instead, compensation cost is recognized when the achievement of the performance condition is considered “probable.”

Effective date and transition The effective date is yet to be determined. The amendments would be applied on a prospective basis to awards that are granted or modified on or after the effective date. Early adoption would be permitted.

Other resources • EITF Update, September 2013 meeting highlights (SCORE No. BB2612)

• EITF Update, June 2013 meeting highlights (SCORE No. BB2560)

Proposed ASU, Consolidation (Topic 810), Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements (a proposal of the Private Company Council)

Date issued: 22 August 2013 — comment period ended 14 October 2013

Summary The PCC proposed an alternative that would exempt a private company from evaluating whether a legal entity is a variable interest entity (VIE) when certain conditions (i.e., three criteria) are met. Providing a guarantee of the lessor entity’s debt on the leased asset would not preclude the private company from applying this exemption. The PCC concluded that such a guarantee is related to the leasing activity, even when the guarantee exceeds the private company’s lease payments.

If this alternative is elected, a private company would have to make new disclosures about the lessor entity.

In November 2013, the PCC voted to finalize the accounting alternative, adding a fourth criterion. However, based on subsequent stakeholder feedback, the PCC plans to reconsider this criterion at a future PCC meeting.

Effective date and transition The alternative would be effective for the first annual period beginning after 15 December 2014 and interim and annual periods thereafter. If elected, it would be applied using a full retrospective approach to all current and future lessor entities under common control that meet the criteria. Early application would be permitted.


http://www.ey.com/Publication/vwLUAssetsAL/EITFUpdate_BB2560_12June2013/$FILE/EITFUpdate_BB2560_12June2013.pdf

9

Other resources • Technical Line, Considerations for determining whether to elect PCC accounting alternatives

(SCORE No. BB2664)

• To the Point, PCC votes to finalize consolidation alternative, discusses other topics (SCORE No. BB2654)

• Comment Letter (SCORE No. BB2633)

Proposed ASU, Receivables — Trouble Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Collateralized Mortgage Loans upon a Troubled Debt Restructuring (a consensus of the FASB Emerging Issues Task Force)

Date issued: 19 July 2013 — comment period ended 17 September 2013 (Final consensus reached by the EITF in November 2013 and ratified by the FASB in December 2013. A Final ASU has not yet been issued.)

Summary The proposal clarifies that a creditor should be considered to have physical possession of a residential real estate property collateralizing a residential mortgage loan and thus would reclassify the loan to other real estate owned when either (1) the creditor obtains legal title to the residential real estate property or (2) the borrower conveys all interest in the property to the creditor to satisfy the loan by completing a deed in lieu of foreclosure or similar agreement.

The proposed amendments would require additional financial statement disclosures.

Effective date and transition The final consensus would be effective for public entities for fiscal years, and interim periods within those years, beginning after 15 December 2014. For nonpublic entities, the final consensus would be effective for annual periods beginning after 15 December 2014.

The amendments would be applied on either (1) a prospective basis to all existing residential loans and to any new residential loans after the date of adoption or (2) a modified retrospective basis to all residential loans and foreclosed residential real estate properties existing as of the date of adoption. Any necessary reclassification from real estate to loans would be based on the carrying amount of the real estate at the date of adoption. Early adoption would be permitted.

Other resources • EITF Update, November 2013 meeting highlights (SCORE No. BB2655)


http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2664_PCC_26November2013/$FILE/TechnicalLine_BB2664_PCC_26November2013.pdf


http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2654_PCC_14November2013/$FILE/TothePoint_BB2654_PCC_14November2013.pdf


http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2633_PCC_VIE_14October2013/$FILE/CommentLetter_BB2633_PCC_VIE_14October2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/EITFUpdate_BB2655_15November2013/$FILE/EITFUpdate_BB2655_15November2013.pdf



Proposed ASU, Service Concession Arrangements (Topic 853) (a consensus of the FASB Emerging Issues Task Force)

Date issued: 19 July 2013 — comment period ended 17 September 2013 (Final consensus reached by the EITF in November 2013 and ratified by the FASB in December 2013. A Final ASU has not yet been issued.)

Summary A public-to-private service concession arrangement that meets certain conditions would not be subject to the leasing guidance in ASC 840. Instead, an arrangement that meets those conditions would be accounted for by the operating entity in accordance with relevant guidance in US GAAP (e.g., ASC 605).

Effective date and transition The final consensus would be effective for public companies for fiscal years, and interim periods within those years, beginning after 15 December 2014. For nonpublic entities, the final consensus would be effective for annual periods beginning after 15 December 2014.

The amendments would be applied on a modified retrospective basis to all contracts existing at the beginning of the period of adoption and to all contracts entered into thereafter. Early adoption would be permitted.



Proposed ASU (Revised), Consolidation (Topic 810), Measuring the Financial Liabilities of a Consolidated Collateralized Financing Entity (a consensus of the FASB Emerging Issues Task Force)

Date issued: 19 July 2013 — comment period ended 17 October 2013 (Final consensus reached by the EITF in November 2013 and ratified by the FASB in December 2013. A Final ASU has not yet been issued.) Summary When a reporting entity that is required to consolidate a collateralized financing entity (CFE) measures the financial assets and financial liabilities of the CFE at fair value, the aggregate fair value of the financial assets may differ from the aggregate fair value of the financial liabilities.

The EITF’s final consensus requires a reporting entity that is consolidating a CFE to initially measure both the financial assets and financial liabilities using the fair value of the CFE’s financial assets or financial liabilities, whichever is more observable. Similarly, if a reporting entity elects to subsequently measure the financial assets and financial liabilities of a CFE at fair value, the reporting entity would be required to measure the fair value the same way (i.e., using the fair value of the CFE’s financial assets or financial liabilities, whichever is more observable).



11

Effective date and transition The final consensus would be effective for public companies for fiscal years, and interim periods within those years, beginning after 15 December 2014. For nonpublic entities, the amendments would be effective for annual periods beginning after 15 December 2015. The final consensus would be applied on a modified retrospective basis (with a cumulative effect adjustment as of the beginning of the adoption period). Early adoption would be permitted.


Proposed ASU, Intangibles — Goodwill and Other (Topic 350), Accounting for Goodwill (a proposal of the Private Company Council)

Date issued: 1 July 2013 — comment period ended 23 August 2013 (Decision finalized by the PCC in October 2013 and endorsed by the FASB in November 2013. A Final ASU has not yet been issued.) Summary The proposal would allow private companies to amortize goodwill acquired in a business combination and to test goodwill for impairment using a simplified one-step model.

In October 2013, the PCC voted to finalize the proposal, which it modified slightly based on stakeholder feedback. It was endorsed by the FASB on 25 November 2013. The PCC recommendation would allow private companies to elect to amortize goodwill acquired in a business combination on a straight-line basis over 10 years or a period of less than 10 years if the company can demonstrate that another useful life (e.g., the useful life of the primary asset) is more appropriate based on its facts and circumstances. A private company that elects to amortize goodwill would be required to perform a one-step impairment test, at either the entity level or the reporting unit level, when an event or circumstance indicates that the fair value of the entity may be below its carrying amount.

Effective date and transition The PCC recommendation would be effective for annual periods beginning after 15 December 2014 and interim periods thereafter. It would be applied prospectively for all existing goodwill and for all new goodwill generated in future business combinations. Early application would be permitted.


(SCORE No. BB2664)


• To the Point, Private Company Council votes to finalize proposals on interest rate swaps and goodwill (SCORE No. BB2630)







http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2630_PCC_3October2013/$FILE/TothePoint_BB2630_PCC_3October2013.pdf


http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2602_PCCGoodwill_23August2013/$FILE/CommentLetter_BB2602_PCCGoodwill_23August2013.pdf


Proposed ASU, Derivatives and Hedging (Topic 815), Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps (a proposal of the Private Company Council)

Date issued: 1 July 2013 — comment period ended 23 August 2013 (Decision related to the simplified hedge accounting approach finalized by the PCC in October 2013 and endorsed by the FASB in November 2013. A Final ASU has not yet been issued.)

Summary The proposal provided two approaches to simplify the accounting for certain receive-variable, pay-fixed interest rate swaps for private companies: the simplified hedge accounting approach and the combined instrument approach.

In October 2013, the PCC modified the simplified hedge accounting approach and finalized that part of the proposal. It was endorsed by the FASB in November 2013.

The PCC separated the combined instrument approach from the proposal, modified it and asked the FASB staff to perform more research.

The simplified hedge accounting approach would provide a practical expedient for private companies that are not financial institutions to qualify for hedge accounting under ASC 815. Under this approach, the term of the swap could be less than the term of the debt, and the swap would not have to be effective at the same time as the borrowing. Entities that elect the approach would be able to use settlement value, instead of fair value, to measure any interest rate swap meeting the criteria for this approach. Entities also would be permitted to complete the required hedge documentation at any time during the year until the annual financial statements are available to be issued, rather than at the inception, as currently required.

Effective date and transition The PCC recommendation would be effective for annual periods beginning after 15 December 2014 and interim periods thereafter. Entities could elect this approach on a swap-by-swap basis for only swaps existing at the date of adoption and new swaps. The PCC recommendation would be applied using either a modified retrospective approach or a full retrospective approach. Early application would be permitted.


(SCORE No. BB2664)










http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2600_PCCHedging_23August2013/$FILE/CommentLetter_BB2600_PCCHedging_23August2013.pdf

13

Proposed ASU, Business Combinations (Topic 805), Accounting for Identifiable Intangible Assets in a Business Combination (a proposal of the Private Company Council)

Date issued: 1 July 2013 — comment period ended 23 August 2013

Summary Under the proposal, private companies could elect to separately recognize only those intangible assets acquired in a business combination that arise from (1) contractual rights with noncancelable terms or (2) other legal rights.

Based on feedback received during the comment letter period, the PCC subsequently directed the FASB staff to research an approach in which substantially all intangible assets would be subsumed into goodwill. The PCC expressed a preference for an approach in which a private company would not separately recognize intangible assets except for those capable of generating independent and distinct cash flows. The staff also is considering what types of disclosures about intangible assets would be useful in light of this approach.

Effective date and transition The effective date is yet to be determined. The proposed amendments would be applied prospectively for all business combinations entered into on or after the effective date. Early application would be permitted.


(SCORE No. BB2664)




Proposed ASU, Insurance Contracts (Topic 834) Date issued: 27 June 2013 — comment period ended 25 October 2013

Summary The FASB proposed a new principles-based model that would apply to all insurance contracts, not just those issued by insurance entities. The new model would result in the measurement of many insurance contract liabilities based on current assumptions adjusted to reflect the time value of money. The proposal would create a single model for life and annuity contracts that would replace today’s multiple models.

The FASB held joint deliberations with the International Accounting Standards Board (IASB) in an effort to converge guidance for insurance contracts under US GAAP and IFRS, but the FASB and the IASB (collectively, the Boards) weren’t able to agree on key points. They have now issued separate proposals. The FASB hosted several public roundtable meetings on its proposal in December 2013.







http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2603_PCCIntangibles_23August2013/$FILE/CommentLetter_BB2603_PCCIntangibles_23August2013.pdf



Other resources • FASB Project Update: Insurance Contracts — Joint Project of the FASB and IASB

• Technical Line, Insurance contracts proposal would overhaul accounting and disclosures for insurers and others (SCORE No. BB2601)

• To the Point, Accounting for insurance contracts could change significantly (SCORE No. BB2563)

• Insurance Accounting Alert, IASB issues revised exposure draft on insurance contracts (SCORE No. AU1696)


Proposed ASU, Presentation of Financial Statements (Topic 205), Disclosure of Uncertainties about an Entity’s Going Concern Presumption

Date issued: 26 June 2013 — comment period ended 24 September 2013

Summary Management would be required to assess uncertainties that could affect a company’s ability to continue as a going concern both in the 12 months and 24 months after the financial statement date and to provide disclosures when certain thresholds are met. The proposal would significantly change practice. Today, the independent auditor has primary responsibility for assessing a company’s ability to continue as a going concern.

SEC filers also would be required to disclose in the notes to the financial statements that there is substantial doubt about a company’s ability to continue as a going concern when the likelihood of the company’s inability to meet its obligations within 24 months after the financial statement date becomes probable. When evaluating whether substantial doubt exists, management would consider all of its plans, including plans that are not in the “ordinary course of business.”

The FASB reviewed the feedback it received and decided to redeliberate several of the proposal’s key provisions. The FASB also said it plans to perform additional outreach to obtain more feedback on key elements of the proposal, especially from preparers, due to the small number of comments provided on the proposal.


Other resources • FASB Project Update: Going Concern

• To the Point, Management would have to assess going concern uncertainties (SCORE No. BB2564)



http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2601_InsuranceContracts_22August2013/$FILE/TechnicalLine_BB2601_InsuranceContracts_22August2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2601_InsuranceContracts_22August2013/$FILE/TechnicalLine_BB2601_InsuranceContracts_22August2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2563_InsuranceContracts_27June2013/$FILE/TothePoint_BB2563_InsuranceContracts_27June2013.pdf

http://www.ey.com/Publication/vwLUAssets/IASB_issues_revised_Exposure_Draft_on_Insurance_Contracts/$FILE/Insurance_Accounting_Alert_June_2013.pdf

http://www.ey.com/Publication/vwLUAssets/IASB_issues_revised_Exposure_Draft_on_Insurance_Contracts/$FILE/Insurance_Accounting_Alert_June_2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2638_Insurance_28October2013/$FILE/CommentLetter_BB2638_Insurance_28October2013.pdf


http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2564_GoingConcern_28June2013/%24FILE/TothePoint_BB2564_GoingConcern_28June2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2629_GoingConcern_24September2013/$FILE/CommentLetter_BB2629_GoingConcern_24September2013.pdf

15

Proposed ASU (Revised), Leases (Topic 842), a revision of the 2010 proposed FASB Accounting Standards Update, Leases (Topic 840)

Date issued: 16 May 2013 — comment period ended 13 September 2013

Summary The FASB and the IASB issued new exposure drafts that would require lessees to recognize assets and liabilities arising from their involvement in most leases. All entities would classify leases to determine how to recognize lease-related revenue and expense. Classification also would affect what lessors record on the balance sheet.

Classification would be based on the portion of the economic benefits of the underlying asset expected to be consumed by the lessee over the lease term. The Boards proposed basing classification primarily on the nature of the asset being leased (e.g., leases of property generally would be Type B, and leases of assets that are not property generally would be Type A). Certain conditions would overcome the presumptive classifications.

Lessees would initially recognize and measure Type A and B leases in the same manner, but the subsequent measurement of the right-of-use assets would differ. Type A leases generally would have a front-loaded lease expense recognition pattern, and Type B leases generally would have a straight-line lease expense recognition pattern.

Lessors would account for Type A leases using an approach similar to today’s sales-type lease accounting, and for Type B leases using a method similar to today’s operating lease accounting.

The FASB and the IASB hosted several joint public roundtable meetings in September and October 2013 on their joint proposals. The Boards discussed the feedback they received on their joint lease accounting proposals and plan to redeliberate several topics.


Other resources • FASB Project Update: Leases — Joint Project of the FASB and the IASB

• To the Point, Boards to redeliberate key aspects of lease accounting — again (SCORE No. BB2657)

• Technical Line, How the lease accounting proposal might affect your company (SCORE No. BB2589)

• Technical Line, A closer look at the new lease accounting proposal (SCORE No. BB2542)

• To the Point, Boards issue new proposal to put most leases on the balance sheet (SCORE No. BB2540)



http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2657_Leases_21November2013/$FILE/TothePoint_BB2657_Leases_21November2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2589_Leases_25July2013/$FILE/TechnicalLine_BB2589_Leases_25July2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2589_Leases_25July2013/$FILE/TechnicalLine_BB2589_Leases_25July2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2542_Leases_23May2013/$FILE/TechnicalLine_BB2542_Leases_23May2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2540_Leases_16May2013/$FILE/TothePoint_BB2540_Leases_16May2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2540_Leases_16May2013/$FILE/TothePoint_BB2540_Leases_16May2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2611_LeasesED_13September2013/$FILE/CommentLetter_BB2611_LeasesED_13September2013.pdf


Proposed ASU, Technical Corrections and Improvements Related to Glossary Terms Date issued: 6 May 2013 — comment period ended 5 August 2013 Summary The FASB proposed technical corrections to the glossary to eliminate duplicative terms and those that don’t appear anywhere else in the Codification and make other changes.

Effective date The FASB subsequently decided that the proposed amendments would be effective as of the date of issuance.

Other resources • FASB Project Update: Technical Corrections and Improvements


Proposed ASU, Investments — Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force)

Date issued: 17 April 2013 — comment period ended 17 June 2013 (Final consensus reached by the EITF in November 2013 and ratified by the FASB in December 2013. A Final ASU has not yet been issued.) Summary The proposal revised the conditions that an entity must meet to elect to use the effective yield method when accounting for qualified affordable housing project investments.

In the final consensus, the EITF decided to change the method of amortizing a Low Income Housing Tax Credit (LIHTC) investment from the effective yield method to a proportional amortization method. The amortization would be proportional to the tax credits and tax benefits received but, under a practical expedient that would be available in certain circumstances, amortization could be proportional to only the tax credits. Reporting entities that invest in LIHTC investments through a limited liability entity could elect the proportional amortization method if certain conditions are met. The guidance would not extend to other types of tax credit investments.

Effective date and transition The final consensus would be effective for public entities for fiscal years, and interim periods within those years, beginning after 15 December 2014. For nonpublic entities, the final consensus would be effective for annual periods beginning after 15 December 2014. The final consensus would be applied retrospectively with early adoption permitted. An entity would have the option to continue using the effective yield method for existing LIHTC investments that are currently accounted for under that method.


• EITF Update, September 2013 meeting highlights (SCORE No. BB2612)

• EITF Update, March 2013 meeting highlights (SCORE No. BB2506)


http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2591_TechnicalCorrections_25July2013/$FILE/CommentLetter_BB2591_TechnicalCorrections_25July2013.pdf



http://www.ey.com/Publication/vwLUAssetsAL/EITFUpdate_BB2506_15March2013/$FILE/EITFUpdate_BB2506_15March2013.pdf

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Proposed ASU, Presentation of Financial Statements (Topic 205), Reporting Discontinued Operations

Date issued: 2 April 2013 — comment period ended 30 August 2013

Summary The FASB proposed new criteria for reporting a discontinued operation that would raise the threshold to qualify (i.e., a separate major line of business or major geographical area). The proposal also would remove the current scope exceptions (e.g., the disposal of an equity method investment) and the requirement to eliminate significant continuing involvement with discontinued operations and continuing cash flows from these operations. Additional disclosures about discontinued operations and new disclosures about certain individually material disposal transactions that would not meet the definition of a discontinued operation would be required.

In November 2013, the FASB decided to incorporate in the definition of a discontinued operation a requirement that a disposition represent a strategic shift in an entity’s operations. The FASB has completed redeliberations.

Effective date and transition The FASB subsequently decided that the amendments would apply for public entities prospectively to all disposals (or classifications as held for sale) that occur for annual periods beginning on or after 15 December 2014, and interim periods within that year. For nonpublic entities, the amendments would be applied prospectively to all disposals (or classifications as held for sale) that occur within annual periods ending on or after 15 December 2015, and interim periods thereafter. Early application is permitted.

Other resources • FASB Project Update: Reporting Discontinued Operations

• To the Point, Discontinued operations to reflect strategic shifts (SCORE No. BB2658)


Proposed ASU, Financial Instruments — Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities

Date issued: 14 February 2013 — comment period ended 15 May 2013

Summary The FASB proposed a new classification and measurement model for financial instruments that would apply to all entities. Classification and measurement of financial instruments under the proposal would be based on the cash flow characteristics and an entity’s business model for managing such instruments. The proposed model would result in more instruments being classified at fair value through net income (FV-NI) than under today’s guidance.

In September 2013, the FASB and the IASB began redeliberations. The FASB has asked the staff to pursue alternative approaches.


http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2658_DiscontinuedOperations_20November2013/$FILE/TothePoint_BB2658_DiscontinuedOperations_20November2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2604_DiscountedOperations_26August2013/$FILE/CommentLetter_BB2604_DiscountedOperations_26August2013.pdf



Other resources • FASB Project Update: Accounting for Financial Instruments — Classification and Measurement —

Joint Project of the FASB and IASB

• Technical Line, FASB’s new classification and measurement model — a closer look (SCORE No. BB2504)

• To the Point, FASB proposes new classification and measurement model (SCORE No. BB2498)


Proposed ASU, Transfers and Servicing (Topic 860), Effective Control for Transfers with Forward Agreements to Repurchase Assets and Accounting for Repurchase Financings

Date issued: 15 January 2013 — comment period ended 29 March 2013

Summary The FASB proposed accounting for all cash-settled repurchase-to-maturity transactions (i.e., repurchase agreements that terminate on a financial instrument’s maturity date) as secured borrowings rather than sales. The proposal also would eliminate existing guidance for evaluating the accounting for repurchase financings (i.e., a repurchase agreement that relates to a previously transferred financial asset between the same counterparties). In addition, the proposal would require new disclosures.

Effective date The Board subsequently decided that for public business entities, the changes would be effective for annual periods, and interim periods within those annual periods, beginning after 15 December 2014. For all other entities, the changes would be effective for annual periods beginning after 15 December 2014, and interim periods beginning after 15 December 2015. The Board decided not to allow early adoption for a public business entity. An entity other than a public business entity may elect to apply the requirements for interims periods beginning after 15 December 2014, as required for a public business entity.

Other resources • FASB Project Update: Transfers and Servicing: Repurchase Agreements and Similar Transactions

• To the Point, FASB proposes more changes to accounting for repurchase agreements (SCORE No. BB2486)


http://www.fasb.org/cs/ContentServer?site=FASB&c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FProjectUpdatePage&cid=1176159267718#%23


http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2504_ClassificationMeasurement_6March2013/$FILE/TechnicalLine_BB2504_ClassificationMeasurement_6March2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2498_ClassificationMeasurement_14February2013/$FILE/TothePoint_BB2498_ClassificationMeasurement_14February2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2539_RecognitionMeasurement_15May2013/$FILE/CommentLetter_BB2539_RecognitionMeasurement_15May2013.pdf

http://www.fasb.org/cs/ContentServer?site=FASB&c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FProjectUpdatePage&cid=1176159942530

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2486_RepoAccounting_17January2013/$FILE/TothePoint_BB2486_RepoAccounting_17January2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2486_RepoAccounting_17January2013/$FILE/TothePoint_BB2486_RepoAccounting_17January2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2519_RepurchaseAgreements_29March2013/$FILE/CommentLetter_BB2519_RepurchaseAgreements_29March2013.pdf

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Proposed ASU, Financial Instruments — Credit Losses (Subtopic 825-15) Date issued: 20 December 2012 — comment period ended 31 May 2013 Summary The FASB proposed a new principles-based credit impairment model for financial assets classified and measured at amortized cost or FV-OCI. All companies would be affected by the proposal, which would change the way they estimate credit losses on receivables (e.g., trade, lease, reinsurance), debt securities and loans, including loan commitments. The proposal would remove the probable threshold for recognizing credit losses and require an entity to estimate, at each reporting date, the contractual cash flows it does not expect to collect.

The FASB and the IASB had worked on a joint solution and developed the three-bucket expected loss model, but the FASB simplified its proposal in response to feedback from constituents who expressed concern about the model’s complexity and how it would work in practice. The IASB proposed its three-bucket model in March 2013.

The FASB began redeliberations on the proposed model in September 2013.


Other resources • FASB Project Update: Accounting for Financial Instruments — Credit Impairment — Joint Project of

the FASB and IASB

• Technical Line, FASB’s credit loss proposal — a closer look (SCORE No. BB2488)

• To the Point, FASB proposes new credit impairment model (SCORE No. BB2469)


Proposed ASU, Financial Instruments (Topic 825), Disclosures about Liquidity Risk and Interest Rate Risk

Date issued: 27 June 2012 — comment period ended 25 September 2012 Summary The FASB proposed requiring all entities to significantly expand their disclosures in the notes to their financial statements about risks inherent in financial instruments. All entities would be required to provide quantitative and qualitative liquidity risk disclosures in their audited financial statements. The proposal is intended to provide financial statement users with information to help them assess an entity’s ability to meet its obligations. Entities that meet the proposed definition of a financial institution, including reportable segments of nonfinancial institutions that qualify as such, also would have to provide interest rate risk disclosures.

Tabular disclosures would be supplemented by narrative disclosures to help financial statement users understand the entity’s exposure to the particular risk depicted in the tables.



http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2488_CreditImpairment_21January2013/$FILE/TechnicalLine_BB2488_CreditImpairment_21January2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2469_CreditImpairment_20December2012/$FILE/TothePoint_BB2469_CreditImpairment_20December2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2547_Impairment_31May2013/$FILE/CommentLetter_BB2547_Impairment_31May2013.pdf


As a result of negative constituent feedback, the Board has asked its staff to review the needs originally expressed by users and challenge whether the proposal’s objectives should be modified.


Other resources • FASB Project Update: Accounting for Financial Instruments: Liquidity and Interest Rate Disclosures

• Technical Line, Liquidity and interest rate risk — new disclosures proposed for all entities (SCORE No. BB2370)


Proposed ASU (Revised), Revenue Recognition (Topic 605), Revenue from Contracts with Customers

Date issued: 14 November 2011 — comment period ended 13 March 2012

Summary The FASB and the IASB issued a revised joint proposal to create a single, global revenue recognition model. The joint model retains the five steps in the Boards’ initial 2010 proposal and would apply to most contracts with customers. Leases, insurance contracts, financial instruments, collaborative arrangements, guarantees and certain nonmonetary transactions would be excluded from the scope of the guidance. Revenue would be recognized in a manner that depicts the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled, subject to certain limitations.

In August 2013, the FASB and the IASB said they plan to create a joint transition resource group to focus on the revenue recognition standard. The group will solicit and discuss implementation issues and provide information that the Boards can use to determine what action, if any, is needed. The group will not issue guidance.

The FASB and the IASB have completed redeliberations and are working to finalize the joint revenue recognition standard that they plan to issue in the first quarter of 2014.

Effective date and transition The FASB has decided the standard would be effective for public companies for annual reporting periods, and interim periods within those reporting periods, beginning after 15 December 2016. For nonpublic companies, the standard would be effective for annual reporting periods beginning after 15 December 2017, and interim and annual periods thereafter. Nonpublic companies would be permitted to early adopt, but not earlier than the effective date for public companies. Companies would be permitted to apply the standard retrospectively or on a modified retrospective basis.


http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2370_FinancialInstruments_29June2012/$FILE/TechnicalLine_BB2370_FinancialInstruments_29June2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2370_FinancialInstruments_29June2012/$FILE/TechnicalLine_BB2370_FinancialInstruments_29June2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2410_LiquidityIRRDisclosures_25September2012/$FILE/CommentLetter_BB2410_LiquidityIRRDisclosures_25September2012.pdf

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Other resources • FASB Project Update: Revenue Recognition — Joint Project of the FASB and IASB

• To the Point, It’s time to start preparing for the new revenue standard (SCORE No. BB2667)

• To the Point, Boards conclude redeliberations on revenue recognition proposal (SCORE No. BB2645)

• To the Point, Boards’ deliberations on remaining topics delay final revenue standard (SCORE No. BB2623)

• To the Point, Boards near completion of the revenue recognition standard (SCORE No. BB2590)

• To the Point, Revenue recognition for credit card rewards and in-substance real estate (SCORE No. BB2545)

• Technical Line, Final revenue standard is taking shape (SCORE No. BB2517)

• To the Point, Boards revisit disclosure, transition and effective date for revenue standard (SCORE No. BB2502)

• To the Point, Boards address various industry-specific issues in revenue proposal (SCORE No. BB2491)

• To the Point, Boards check a few more items off their list in revenue redeliberations (SCORE No. BB2467)

• To the Point, Boards explore a new direction on license arrangements (SCORE No. BB2442)

• To the Point, Licenses constrain progress on revenue redeliberations (SCORE No. BB2440)

• To the Point, Boards to reconsider key issues in revenue recognition project (SCORE No. BB2342)

• To the Point, Media and entertainment entities raise key issues in revenue recognition project (SCORE No. BB2344)

• To the Point, Technology entities raise key issues in revenue recognition project (SCORE No. BB2343)

• To the Point, More work needed on revenue recognition (SCORE No. BB2314)

• To the Point, Surprises lurk in the proposed revenue recognition model (SCORE No. BB2245)

• Technical Line, Double-exposure: The revised revenue recognition proposal (SCORE No. BB2231)1

• To the Point, A new proposal for revenue recognition (SCORE No. BB2210)



1 A number of industry supplements to this Technical Line are available.


http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2667_RevenueTransition_5December2013/$FILE/TothePoint_BB2667_RevenueTransition_5December2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2645_RevenueRecognition_31October2013/$FILE/TothePoint_BB2645_RevenueRecognition_31October2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2645_RevenueRecognition_31October2013/$FILE/TothePoint_BB2645_RevenueRecognition_31October2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2623_Revenue_19September2013/$FILE/TothePoint_BB2623_Revenue_19September2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2623_Revenue_19September2013/$FILE/TothePoint_BB2623_Revenue_19September2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2590_RevenueRedeliberations_25July2013/$FILE/TothePoint_BB2590_RevenueRedeliberations_25July2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2545_RevenueRedeliberations_29May2013/$FILE/TothePoint_BB2545_RevenueRedeliberations_29May2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2545_RevenueRedeliberations_29May2013/$FILE/TothePoint_BB2545_RevenueRedeliberations_29May2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2517_Revenue_21March2013/$FILE/TechnicalLine_BB2517_Revenue_21March2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2502_RevenueRedeliberations_21February2013/$FILE/TothePoint_BB2502_RevenueRedeliberations_21February2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2502_RevenueRedeliberations_21February2013/$FILE/TothePoint_BB2502_RevenueRedeliberations_21February2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2491_RevenueRedeliberations_31January2013/$FILE/TothePoint_BB2491_RevenueRedeliberations_31January2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2491_RevenueRedeliberations_31January2013/$FILE/TothePoint_BB2491_RevenueRedeliberations_31January2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2467_RevenueRedeliberations_20December2012/$FILE/TothePoint_BB2467_RevenueRedeliberations_20December2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2467_RevenueRedeliberations_20December2012/$FILE/TothePoint_BB2467_RevenueRedeliberations_20December2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2442_LicenseArrangements_29November2012/$FILE/TothePoint_BB2442_LicenseArrangements_29November2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2440_RevenueRecognition_21November2012/$FILE/TothePoint_BB2440_RevenueRecognition_21November2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2342_RevenueRecognition_24May2012/$FILE/TothePoint_BB2342_RevenueRecognition_24May2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2344_RevenueRecognitionMedia_24May2012/$FILE/TothePoint_BB2344_RevenueRecognitionMedia_24May2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2344_RevenueRecognitionMedia_24May2012/$FILE/TothePoint_BB2344_RevenueRecognitionMedia_24May2012.pdf



http://www.ey.com/Publication/vwLUAssetsAL/ToThePoint_BB2314_RevenueRecognition_15March2012/$FILE/ToThePoint_BB2314_RevenueRecognition_15March2012.pdf

http://www.ey.com/Publication/vwLUAssets/TothePoint_BB2245_RevRecAmendments_5January2012/$FILE/TothePoint_BB2245_RevRecAmendments_5January2012.pdf

http://www.ey.com/Publication/vwLUAssets/TechnicalLine_BB2231_RevenueRecognition_12December2011/$FILE/TechnicalLine_BB2231_RevenueRecognition_12December2011.pdf

http://www.ey.com/Publication/vwLUAssets/TothePoint_BB2210_RevenueRecognition_14November2011/$FILE/TothePoint_BB2210_RevenueRecognition_14November2011.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2441_IGforED2_27November2012/$FILE/CommentLetter_BB2441_IGforED2_27November2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2311_RevenueContractsCustomers_13March2012/$FILE/CommentLetter_BB2311_RevenueContractsCustomers_13March2012.pdf


Proposed ASU, Consolidation (Topic 810), Principal versus Agent Analysis Date issued: 3 November 2011 — comment period ended 15 February 2012 Summary The proposal would affect how all reporting entities evaluate whether they should consolidate another entity. For VIEs and voting partnerships, a reporting entity’s decision maker would evaluate three qualitative factors to determine whether it is using its power as a principal or as an agent. Principals would be required to consolidate. The proposal also would align the consideration of removal and participating rights in the Voting Model with the Variable Interest Model. The proposal could affect the determination of whether an entity is a VIE and whether a reporting entity is the primary beneficiary of a VIE.


Other resources • FASB Project Update: Consolidation: Principal versus Agent Analysis

• Technical Line, Consolidation and investment company accounting could change (SCORE No. BB2228)

• To the Point, Consolidation models may move closer together (SCORE No. BB2209)

• Financial Reporting Developments, Consolidation and the variable interest model (SCORE No. BB1905)


Discussion Paper — Invitation to Comment, Selected Issues about Hedge Accounting Date issued: 9 February 2011 — comment period ended 25 April 2011 Summary After proposing amendments related to hedging in the May 2010 exposure draft on financial instruments, the FASB sought comments on the IASB hedging proposal that would significantly change the hedge accounting model in IFRS. The questions in the FASB’s discussion paper suggest that the FASB may be contemplating how to incorporate some of the IASB’s ideas into its hedging framework. The FASB plans to begin redeliberations after its work on classification and measurement and impairment of financial instruments is substantially complete.


Other resources • FASB Project Update: Accounting for Financial Instruments — Hedge Accounting — Joint Project of

the FASB and IASB

• Technical Line, Hedge accounting: Is convergence possible? (SCORE No. BB2125)

• To the Point, Hedge accounting — FASB seeks reaction to IASB’s proposed model (SCORE No. BB2088)



http://www.ey.com/Publication/vwLUAssets/TechnicalLine_BB2228_ConsolidationICE_8December2011/$FILE/TechnicalLine_BB2228_ConsolidationICE_8December2011.pdf

http://www.ey.com/Publication/vwLUAssets/TothePoint_BB2209_Consolidation_4November2011/$FILE/TothePoint_BB2209_Consolidation_4November2011.pdf

http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingDevelopments_BB1905_VariableInterestEntities_20June2013/$FILE/FinancialReportingDevelopments_BB1905_VariableInterestEntities_20June2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingDevelopments_BB1905_VariableInterestEntities_20June2013/$FILE/FinancialReportingDevelopments_BB1905_VariableInterestEntities_20June2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2282_Consolidation_15February2012/$FILE/CommentLetter_BB2282_Consolidation_15February2012.pdf



http://www.ey.com/Publication/vwLUAssetsPI/TechnicalLine_BB2125_FinancialInstruments_28April2011/$FILE/TechnicalLine_BB2125_FinancialInstruments_28April2011.pdf

http://www.ey.com/Publication/vwLUAssetsPI/TothePoint_BB2088_HedgeAccounting_10Feb2011/$FILE/TothePoint_BB2088_HedgeAccounting_10Feb2011.pdf

http://www.ey.com/Publication/vwLUAssetsPI/CommentLetter_BB2120_FinancialInstruments_25April2011/$FILE/CommentLetter_BB2120_FinancialInstruments_25April2011.pdf

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EITF issues approved but not issued in Q4 2013

EITF Issue 13-F, Classification of Certain Government Insured Residential Mortgage Loans upon Foreclosure by a Creditor

Consensus-for-exposure reached by the Task Force in November 2013 and ratified by the Board in December 2013. A Proposed ASU has not yet been issued. Summary The consensus-for-exposure applies to residential mortgage loans issued that have both of the following characteristics: (1) the loan has a government guarantee (that is not separable from the loan) entitling the creditor to the full unpaid principal balance of the loan and (2) at the time of foreclosure, the creditor has the intent to make a claim on the guarantee and the ability to recover through the guarantee. The EITF reached a consensus-for-exposure that upon foreclosure, a creditor would reclassify the loan and record (as a single unit of account) a separate receivable at the full amount of the guarantee. No additional disclosures would be required.

Effective date and transition The effective date is to be determined. An entity would be required to use the same transition method that it chooses when applying the final consensus on Reclassification of Collateralized Mortgage Loans upon a Troubled Debt Restructuring (see discussion above). That is, the transition method would be applied on either (1) a prospective basis to all existing residential loans and to any new residential loans after the date of adoption or (2) a modified retrospective basis to all residential loans and foreclosed residential real estate properties existing as of the date of adoption. Early adoption would be permitted.


Other developments

Private company decision-making framework Date issued: 23 December 2013 Summary The FASB issued a private company decision-making framework that it and the PCC plan to use to identify the differences in the information needs of users of private company and public company financial statements. The FASB and the PCC intend to use the framework to find opportunities for private companies to reduce the cost and complexity of preparing US GAAP financial statements.

Other resources • To the Point, Private company framework approved, PCC proposes consolidation alternative

(SCORE No. BB2584)

Other FASB


http://www.ey.com/Publication/vwLUAssetsAL/FASB_PCDecisionFramework_23December2013/$FILE/FASB_PCDecisionFramework_23December2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2584_PrivateCompanyFramework_18July2013/$FILE/TothePoint_BB2584_PrivateCompanyFramework_18July2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2584_PrivateCompanyFramework_18July2013/$FILE/TothePoint_BB2584_PrivateCompanyFramework_18July2013.pdf


Invitation to comment on the FASB’s disclosure framework project Date issued: 12 July 2012 — comment period ended 30 November 2012

Summary The FASB issued an invitation to comment on a discussion paper on a framework for improving the effectiveness of disclosures in the notes to the financial statements by clearly communicating the information that is most important to the users of a company’s financial statements. The framework is intended to promote consistent decisions about disclosure requirements by the FASB and to provide a judgment framework for each company to use in determining which disclosures are relevant to users of its financial statements.

The FASB subsequently decided to separate the entity’s decision process and the Board’s decision process into two separate projects and possible exposure drafts.

Other resources • FASB Project Update: Disclosure Framework

• To the Point, Now is the time to address disclosure overload (SCORE No. BB2367)


What’s next — agenda highlights FASB agenda In addition to the topics above, the FASB’s agenda includes:

• Not-for-profit financial reporting: financial statements

• Clarifying the definition of a business

• Investment companies: disclosures about investments in another investment company

• Accounting for goodwill for public business entities and not-for-profits

• Accounting for government assistance

• Not-for-profit financial reporting: other financial communications

• Pensions and other postretirement benefits

EITF agenda The EITF also is discussing Recognition of new accounting basis (pushdown) in certain circumstances (EITF Issue 12-F).

PCC agenda The next PCC meeting will be held on 28 January 2014.

http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FProjectUpdatePage&cid=1176156344894#%23

http://www.ey.com/Publication/vwLUAssets/ToThePoint_BB2367_DisclosureOverload_21June2012/$FILE/TothePoint_BB2367_DisclosureOverload_21June2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2445_DisclosureFramework_30November2012/$FILE/CommentLetter_BB2445_DisclosureFramework_30November2012.pdf

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Other resources • FASB Project Roster & Status

• EITF Update, November 2013 meeting highlights (SCORE No. BB2655)

• EITF Update, March 2013 meeting highlights (SCORE No. BB2506)

• EITF Update, January 2013 meeting highlights (SCORE No. BB2487)

• Technical Line, Considerations for determining whether to elect PCC accounting alternatives (SCORE No. BB2664)


http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1218220137074


http://www.ey.com/Publication/vwLUAssetsAL/EITFUpdate_BB2506_15March2013/$FILE/EITFUpdate_BB2506_15March2013.pdf







Removal of Certain References to Credit Ratings Under the Securities Exchange Act of 1934 (Release No. 34-71194)

Date issued: 26 December 2013 Summary As part of the efforts to reduce regulator and investor reliance on credit ratings, the SEC approved amendments to rules under the Exchange Act of 1934 to remove references to credit ratings in the broker-dealer financial responsibility and confirmation of transaction rules. These amendments would preclude broker-dealers from relying on credit ratings when calculating their net capital. To avoid taking a higher “haircut” for purposes of computing net capital, a broker-dealer would have the option of assessing whether the security (e.g., commercial paper, nonconvertible debt, preferred stock) has only a “minimal amount of credit risk,” by considering factors related to its credit and liquidity risk. Broker-dealers will be required to establish, maintain and enforce written policies and procedures for assessing whether a position has a minimal amount of credit risk.

Effective date The new rules are effective 180 days after publication in the Federal Register.

Removal of Certain References to Credit Ratings Under the Investment Company Act (Release No. 33-9506)


Summary The SEC adopted final rules to remove requirements in SEC rules under the Investment Company Act of 1940 that certain securities held by funds as collateral for repurchase agreements satisfy a specific credit rating. Instead, the new rules require the fund’s board of directors to assess the counterparty’s liquidity and ability to meet financial obligations. Although credit ratings may be used as a factor when evaluating credit quality, the board of directors may not rely solely on credit ratings of a nationally recognized statistical rating organization (NRSRO) without performing additional due diligence. The rules also amend Forms N-1A, N-2 and N-3 to no longer require use of NRSRO credit ratings when disclosure of portfolio holdings is based on credit quality.

Effective date The new rules are effective 30 days after publication in the Federal Register, and compliance with the new rules is required 180 days after publication in the Federal Register.

Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds (Release No. BHCA-1)


Summary The SEC and four other federal agencies jointly issued final rules prohibiting “banking entities” from engaging in trading of securities, derivatives, commodity futures and options on these instruments for their own accounts (i.e., proprietary trading) and from owning or sponsoring hedge funds and private equity funds.

Securities and Exchange Commission

SEC final rules

http://www.sec.gov/rules/final/2013/34-71194.pdf

27

The rules, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and known collectively as the Volcker rule, provide certain exemptions allowing banking entities (defined as insured depository institutions and those that control or are affiliated with them) to continue underwriting, market-making and hedging activities and trading certain government obligations. The rules generally do not apply to foreign banking entities that meet certain criteria.

The level of required compliance activity depends on the size of the entity and the extent of its trading. CEOs of larger banks will have to attest annually in writing that their banks have in place processes to establish, maintain, enforce, review, test and modify compliance.

Effective date The rules are effective 21July 2015. However, banks with significant permitted trading operations will have to report certain quantitative information, beginning between 30 June 2014 and 31 December 2016, depending on the size of the bank’s trading assets and liabilities.

Broker-Dealer Reports (Release No. 34-70073) Date issued: 30 July 2013 Summary The SEC issued a final rule resulting in significant changes to the broker-dealer reporting requirements. Broker-dealers that maintain custody of a customer’s securities and cash are subject to strict requirements under federal securities laws designed to protect and account for these assets. Currently, Section 17 of the Exchange Act and Rule 17a-5 together require a broker-dealer to file an audited annual report with the SEC and the self-regulatory organization designated to examine that broker-dealer. The new rule adds the following requirements:

• A broker-dealer that has custody of the customers’ assets must file an annual “compliance report” with the SEC to verify it is adhering to broker-dealer capital requirements, protecting customer assets it holds and periodically sending account statements to customers. The broker-dealer also must engage a PCAOB-registered independent public accountant to conduct an examination of certain statements in its compliance report.

• A broker-dealer that does not have custody of its customers’ assets must file an “exemption report” citing its exemption from the compliance reporting requirements. The broker-dealer must engage a PCAOB-registered independent public accountant to perform a review of certain statements in its exemption report.

All broker-dealers will be required to file a new unaudited form (Form Custody) with the SEC each quarter that will provide information on whether they maintain custody of customer and non-customer assets, and, if so, how the assets are maintained.

Effective date All broker-dealers will be required to comply with the Form Custody reporting requirements beginning with the quarter ending 31 December 2013. The requirement for broker-dealers to file either a compliance report or an exemption report is effective 1 June 2014.

Other resources • To the Point, SEC finalizes sweeping changes to broker-dealer reporting rule (SCORE No. BB2595)

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2595_BrokerDealer_8August2013/$FILE/TothePoint_BB2595_BrokerDealer_8August2013.pdf


Financial Responsibility Rules for Broker-Dealers (Release No. 34-70072) Date issued: 30 July 2013

Summary The SEC issued final rules to amend the financial responsibility rules designed to better protect a broker-dealer’s customers and enhance the SEC’s ability to monitor and prevent unsound business practices. The new rules amend the net capital, customer protection, books and records, and notification rules for broker-dealers.

Effective date The new rules were effective 21 October 2013.

Other resources • To the Point, SEC finalizes sweeping changes to broker-dealer reporting rule (SCORE No. BB2595)

Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings (Release No. 33-9415)


Summary The SEC adopted final rules allowing general solicitation and advertising in certain offerings of restricted securities that are exempt from registration provided all purchasers are accredited investors, as mandated by the Jumpstart Our Business Startups Act (JOBS Act).

The new Rule 506(c) of Regulation D allows any company (whether public or private, established or startup) to expand its pool of potential investors without SEC registration. Issuers relying on the Rule 506(c) exemption are permitted to advertise their offerings if they take reasonable steps to verify that the actual purchasers are accredited investors, as defined in Rule 501 of Regulation D.

The final rule also revised Securities Act Rule 144A, which governs the resale of restricted securities primarily by larger institutional investors known as qualified institutional buyers (QIBs). Offers of restricted securities can be made to investors that are not QIBs as long as the securities are sold only to investors that the seller and any person acting on its behalf reasonably believe are QIBs.

Effective date The final rules were effective 23 September 2013.

Other resources • To the Point, SEC allows general solicitation and disqualifies ‘bad actors’ (SCORE No. CC0371)

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2595_BrokerDealer_8August2013/$FILE/TothePoint_BB2595_BrokerDealer_8August2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_CC0371_ExemptOfferings_11July2013/$FILE/TothePoint_CC0371_ExemptOfferings_11July2013.pdf

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Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings (Release No. 33-9414)

Date issued: 10 July 2013 Summary The SEC adopted a final rule that disqualifies issuers from using any exemption under Rule 506 of Regulation D if the offering involves certain felons and other “bad actors.” The rule was mandated by the Dodd-Frank Act.

The rule applies to issuers (including predecessor and affiliated entities) and their directors, executive officers and 20% beneficial owners and to investment managers, underwriters and other promoters, including their directors and executive officers. Disqualifying events include convictions, injunctions and stop or disciplinary orders from various state and federal agencies. Issuers must consider look-back periods of generally five or 10 years, depending on the disqualifying event.

Effective date Disqualification applies only to events that occur after 23 September 2013 (the effective date), but prominent disclosure to purchasers is required about disqualifying events that occurred before the effective date.




Proposed Rule Amendments for Small and Additional Issues Exemptions Under Section 3(b) of the Securities Act (Release No. 33-9497)

Date issued: 18 December 2013 — comment period ends 60 days after publication in the Federal Register

Summary The SEC proposed amendments to Regulation A to allow exempt public offerings of up to $50 million, as mandated by the JOBS Act.

The proposed amendments would establish two tiers under Regulation A:

• Tier 1, which would cover public offerings of up to $5 million within a 12-month period, would retain many of the existing requirements of Regulation A.

• Tier 2 would allow exempt public offerings of up to $50 million within 12 months, but would require more robust initial and ongoing reporting. As required by the JOBS Act, the SEC will review the $50 million offering limit every two years. The first review is expected to be completed by 5 April 2014.

For offerings up to $5 million within 12 months, companies could elect to follow either the Tier 1 or Tier 2 requirements. The proposed rules would pre-empt state securities laws known as Blue Sky laws for Tier 2 offerings. However, companies that conduct Tier 2 offerings would have to provide audited financial statements and meet ongoing reporting requirements similar to those of smaller reporting companies. Investors in Regulation A transactions still count toward the security holder threshold that requires registration under the Securities Exchange Act of 1934 (Exchange Act).

Effective date The proposal does not suggest an effective date.

Other resources • To the Point, SEC proposes ‘Regulation A+’ to expand exempt offerings (SCORE No. CC0385)

Crowdfunding (Release No. 33-9470)

Date issued: 23 October 2013 — comment period ends 3 February 2014

Summary The SEC proposed rules that would allow startups and other small businesses to raise small amounts of capital from potentially large pools of investors over the internet in a process known as “crowdfunding.” US companies (including their predecessors and any commonly controlled companies) could raise a maximum of $1 million (subject to inflation adjustments at least every five years) in any 12-month period. The proposal would require these offerings to be handled by an intermediary registered with the SEC that would facilitate awareness and communication between the issuer and potential investors. The proposal would limit the amount individuals could invest in crowdfunding offerings over a 12-month period based on their annual income or net worth.

SEC rule proposals and other releases

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_CC0385_RegulationA_19December2013/$FILE/TothePoint_CC0385_RegulationA_19December2013.pdf

http://www.sec.gov/rules/proposed/2013/33-9470.pdf

31

The rules were mandated by the JOBS Act, which created an exemption from SEC registration for capital raised this way. Under the JOBS Act, investors in crowdfunding transactions would not count toward the security holder threshold that requires registration under the Exchange Act. Companies using this exemption would be required to disclose certain financial and other information about these offerings and report to investors annually. Companies would have to file annual financial statements that are audited, reviewed or certified by the CEO and accompanied by a tax return, depending on the size of the offering.

Effective date The proposal does not suggest an effective date. The SEC staff has reminded companies that the use of the crowdfunding exemption is unlawful until the SEC adopts final rules.

Other resources • To the Point, SEC proposes rules to permit crowdfunding (SCORE No. CC0378)

Pay Ratio Disclosure (Release No. 33-9452)

Date issued: 18 September 2013 — comment period ended 2 December 2013

Summary The SEC proposed a rule that would require most registrants to calculate and disclose the median annual compensation of all of their employees (excluding the principal executive officer), the annual compensation of their principal executive officer and the ratio of these two amounts. Emerging growth companies, smaller reporting companies, foreign private issuers and certain other filers would not have to provide the proposed disclosures.

The proposal does not prescribe a “one-size-fits-all” approach. Instead, the proposed rule allows each company to consider its facts and circumstances in determining the appropriate approach when calculating the median compensation of its employees. Under the proposal, when determining the median compensation, a company would be allowed to first identify its median employee by using any “consistently applied compensation measure.” The proposal also would allow registrants to identify the median employee by using their entire employee population or by using a statistical sample of that population.

Effective date The proposal would require a company to disclose its pay ratio for its first fiscal year beginning on or after the effective date of the rule, which hasn’t been set.

Other resources • To the Point, SEC proposes rule requiring most companies to disclose ‘pay ratio’

(SCORE No. CC0375)

• Comment Letter (SCORE No. CC0382)

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_CC0378_Crowdfunding_24October2013/$FILE/TothePoint_CC0378_Crowdfunding_24October2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_CC0375_PayRatio_19September2013/$FILE/TothePoint_CC0375_PayRatio_19September2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_CC0375_PayRatio_19September2013/$FILE/TothePoint_CC0375_PayRatio_19September2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_CC0382_PayRationDisclosure_2December2013/$FILE/CommentLetter_CC0382_PayRationDisclosure_2December2013.pdf


Credit Risk Retention (Release No. 34-70277)

Date issued: 28 August 2013 — comment period ended 30 October 2013

Summary The SEC, along with five other federal agencies, jointly reproposed a rule required by Section 941(b) of the Dodd-Frank Act that requires sponsors of securitizations of certain asset-backed securities (ABS) to retain at least 5% credit risk in the underlying assets of such securities.

The revised proposal attempts to address concerns raised about a 2011 proposal. The new proposal provides more flexibility for sponsors to meet the 5% risk retention threshold, including, among other options, using fair value instead of par value to measure certain retained interests and conforming the definition of a qualified residential mortgage (QRM) in the rule to the Consumer Financial Protection Bureau’s definition of a qualified mortgage. As required by the Dodd-Frank Act, the proposal exempts securitizations of QRMs from risk retention. Like the risk retention requirements in the original proposal, those in the new proposal would exempt a sponsor from risk retention if the ABS are exclusively collateralized by commercial loans, commercial mortgages or automobile loans that meet specified underwriting standards. Government-guaranteed securitizations and assets also would be exempt from the proposal.

Effective date The proposal suggests that risk retention requirements would become effective, for securitization transactions collateralized by residential mortgages other than QRMs, one year after the date on which the final rules are published in the Federal Register, and two years after that date for any other securitization transactions within the scope of the rule.

Other resources • Comment Letter (SCORE No. CC0379)

Amendments to Regulation D, Form D and Rule 156 under the Securities Act (Release No. 33-9416)

Date issued: 10 July 2013 — comment period ended 4 November 2013

Summary The SEC proposed rules to amend Regulation D, Form D and Rule 156 under the Securities Act to require issuers to provide more information to enhance the ability of the SEC to evaluate market practices in offerings under new Rule 506(c). Issuers would need to:

• File Form D with the SEC 15 calendar days before beginning a general solicitation of an offering under Rule 506(c) and a closing amendment at the conclusion of any exempt offering under Regulation D

• Continue to file a new or amended Form D within 15 calendar days after the date of the first sale of securities

http://www.ey.com/Publication/vwLUAssetsAL/SECProposal_RiskRetention_28August2013/%24FILE/SECProposal_RiskRetention_28August2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_CC0379_CreditRiskRetention_30October2013/$FILE/CommentLetter_CC0379_CreditRiskRetention_30October2013.pdf

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• Provide information in Form D about the issuer and the offering under Rule 506(c), including the types of investors, use of proceeds, types of general solicitation used and methods used to verify purchasers’ accredited status

• Provide certain cautionary language in written solicitation materials (and provide them to the SEC on a confidential basis for the first two years Rule 506(c) is in effect) to inform potential investors of the risks associated with the offering and the fact that purchasers must be accredited investors



Money Market Fund Reform; Amendments to Form PF (Release No. 33-9408)


Summary The SEC proposed amendments to certain rules under the Investment Company Act of 1940 to minimize money market funds’ exposure to rapid redemptions and to make the risks of investing in the funds more transparent.

The proposal includes two alternatives that the Commission is considering separately and in combination. One alternative would require all institutional prime money market funds to operate with a floating net asset value (NAV) and use a more precise method to price their shares. Retail and government money market funds would be exempt from this requirement. The other alternative would allow nongovernment money market funds to impose redemption fees of up to 2% if their weekly liquid assets fall below a certain threshold and allow their boards to suspend redemptions for up to 30 days. The proposal also includes amendments related to investment portfolio diversification, disclosures and stress-testing requirements.

Effective date The proposal does not suggest an effective date. Affected money market funds would have two years after the rules are finalized to convert to a floating NAV.



http://www.sec.gov./rules/proposed/2013/33-9408.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_CC0374_MoneyMarketFund_12September2013/$FILE/CommentLetter_CC0374_MoneyMarketFund_12September2013.pdf


Prohibition against Conflicts of Interest in Certain Securitizations (Release No. 34-65355)

Date issued: 19 September 2011 — comment period ended 13 February 2012

Summary The SEC proposed a rule that would implement Section 621 of the Dodd-Frank Act and prohibit entities that package and sell ABS from benefiting directly or indirectly from certain adverse events (e.g., a decline in the performance of the underlying asset pool, a decline in market value of the ABS) if a reasonable investor would consider the conflict important to his or her investment decision. The proposal also would prohibit entities involved in creating or selling an ABS from participating in transactions in which they would benefit directly or indirectly from adverse events for one year after the first sale of the ABS. Exceptions include activities related to risk-mitigating hedging, liquidity commitments and bona fide market making.


Reproposal of Shelf Eligibility Conditions for Asset-Backed Securities and Other Additional Requests for Comment (Release No. 33-9244)

Date issued: 26 July 2011 — comment period ended 4 October 2011

Summary As originally proposed in April 2010, in lieu of Forms S-1 and S-3, the registration of ABS would use new Form SF-1 and new Form SF-3, which could be used for delayed ABS offerings (i.e., shelf registration). Under the reproposal in response to the Dodd-Frank Act, the following conditions would be required at the time of the ABS offering in order to use Form SF-3:

• Certification by an executive officer of the issuer that the disclosure is accurate and that the securitization is designed to produce cash flows in amounts sufficient to service expected payments

• Appointment of a credit risk manager to review assets if certain trigger events occur

• Procedures to resolve pending or disputed requests to repurchase assets alleged to not comply with representations and warranties

• Agreement that the issuer will provide notice in a public filing if an investor asks to communicate with other investors

• Delinquent assets cannot be more than 20% of the asset pool

• The residual value of physical assets, other than motor vehicles, underlying securitized leases cannot be more than 20% of the asset pool

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The SEC also requested further public comment on disclosures that, as originally proposed (see the Asset-Backed Securities rule proposal below), would require ABS issuers to provide standardized data on specific loans and assets within an ABS pool (or group-level data for securitized credit card receivables) in eXtensible Markup Language both at the time of securitization and on an ongoing basis.


Proposed Rules for Nationally Recognized Statistical Rating Organizations (Release No. 34-64514)

Date issued: 18 May 2011 — comment period ended 8 August 2011

Summary The SEC proposed rules to improve the quality, integrity and transparency of credit ratings issued by a NRSRO. The proposed rules would require each NRSRO to, among other things:

• File an annual report assessing the effectiveness of its internal controls in assigning credit ratings

• Prohibit its credit-rating analysts from participating in both the sales and marketing of its products and services and determining or monitoring credit ratings

• Establish a process to review and revise, if necessary, a rating when an employee who participated in determining the rating is hired within one year by the entity being rated or by the issuer, underwriter or sponsor of a product subject to the rating

• Establish standards of training, experience and competence of credit analysts

• Publicly disclose its methodology for determining credit ratings, as approved by the board of directors, in addition to the assumptions underlying the methodology and any changes or errors in methodology

• Disclose statistics and other data (e.g., frequency of default by companies or products rated) to allow investors to better analyze the NRSRO’s performance

The proposal also would require issuers and underwriters of ABS and NRSROs to disclose the findings and conclusions of any third-party due diligence service provider with respect to ABS. The proposed rules were required by Section 932 of the Dodd-Frank Act.



http://www.ey.com/Publication/vwLUAssetsPI/CommentLetter_CC0332_SEC_8August2011/$FILE/CommentLetter_CC0332_SEC_8August2011.pdf


Incentive-Based Compensation Arrangements (Release No. 34-64140) Date issued: 29 March 2011 — comment period ended 31 May 2011 Summary The SEC (along with other financial regulators) proposed a rule on incentive-based compensation by financial institutions, such as brokers, dealers or investment advisers, with assets of $1 billion or more. The rule would:

• Require a financial institution to provide a report describing the firm’s incentive-based compensation arrangements

• Prohibit incentive-based compensation arrangements that encourage inappropriate risk-taking

• Prohibit incentive-based compensation arrangements that have not been adopted under policies and procedures developed and maintained by the institution and approved by its board of directors

The proposal would require financial institutions with assets of $50 billion or more to defer 50% of executive officer incentive compensation for three years. During that period, any deferred incentive-based compensation would be adjusted for losses incurred by the financial institution after the compensation was initially awarded. The proposed rule is required by Section 956 of the Dodd-Frank Act.

Effective date The proposal suggests an effective date of six months after a final rule is published in the Federal Register.

End-User Exception to Mandatory Clearing of Security-Based Swaps (Release No. 34-63556)

Date issued: 15 December 2010 — comment period ended 22 July 2013

Summary The Dodd-Frank Act established a framework for regulating the over-the-counter swaps markets and requires that swaps be centrally cleared if the transactions are of a type that the Commodity Futures Trading Commission (CFTC) or SEC determines must be cleared. Counterparties meeting certain criteria, however, may continue to hedge commercial risks without being subject to the increased costs associated with the new requirements. The SEC proposed a rule describing the steps an end-user would need to take to inform the regulators about how it meets its financial obligations when engaging in a security-based swap transaction that is exempt from mandatory clearing under Section 763 of the Dodd-Frank Act.


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Reporting of Proxy Votes on Executive Compensation and Other Matters (Release No. 34-63123)

Date issued: 18 October 2010 — comment period ended 18 November 2010

Summary Section 951 of the Dodd-Frank Act requires institutional investors to report, at least annually, how they voted on executive compensation matters. The SEC proposed requiring institutional investment managers that manage a portfolio with an aggregate value in equity securities of at least $100 million to disclose the securities voted, executive compensation matters voted on, the number of shares voted and how the manager voted these shares.

Effective date The proposed effective dates have passed. These dates will be reevaluated when the SEC issues a final rule.

Short-Term Borrowings Disclosure (Release No. 33-9143)

Date issued: 17 September 2010 — comment period ended 29 November 2010

Summary The SEC proposed amendments to require new disclosures about short-term borrowings in management’s discussion and analysis of financial condition and results of operations (MD&A). The proposal would require quantitative and qualitative disclosures about various types of short-term borrowings in annual and interim MD&A, including the average amount outstanding during the reporting period, the maximum outstanding during the reporting period and the reasons for any material differences between average and period-end amounts. The SEC staff has said that it is considering concerns expressed about the potential cost of these proposed requirements.


Other resources • Hot Topic, SEC proposal: Short-term borrowings disclosures in MD&A (SCORE No. CC0303)


http://www.ey.com/Publication/vwLUAssets/HotTopic_CC0303_SEC_22September2010/$FILE/HotTopic_CC0303_SEC_22September2010.pdf

http://www.ey.com/Publication/vwLUAssets/CommentLetter_SEC_1December2010/$FILE/CommentLetter_SEC_1December2010.pdf


Asset-Backed Securities (Release No. 33-9117)

Date issued: 7 April 2010 — comment period ended 2 August 2010

Summary Before the Dodd-Frank Act was enacted, the SEC proposed amendments to Regulation AB regarding the offering, disclosures and reporting processes for publicly issued ABS. The proposed amendments would establish special registration forms for ABS, new conditions for ABS shelf registrations, more detailed disclosures about specific loans and assets within the ABS pool and filing of a computer program to model the cash flow provisions of the transaction agreement. The proposed amendments also would impose new disclosure and reporting requirements for many privately placed ABS.

The SEC reproposed some aspects of the proposal in July 2011 (see above).


Other resources • Hot Topic, SEC proposal: Asset-backed securities (SCORE No. CC0296)


http://www.ey.com/Publication/vwLUAssets/HotTopic_CC0296_SEC_16April2010/$FILE/HotTopic_CC0296_SEC_16April2010.pdf

http://www.ey.com/Publication/vwLUAssets/CommentLetter_SEC_2August2010/$FILE/CommentLetter_SEC_2August2010.pdf

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SEC issues study on Regulation S-K

Summary The SEC staff issued its Report on Review of Disclosure Requirements in Regulation S-K (Study). The Study was mandated by the JOBS Act, which required the SEC to (1) comprehensively analyze the current registration requirements of Regulation S-K and (2) determine how those requirements could be modernized to simplify the SEC’s registration process and reduce the cost of compliance for emerging growth companies (EGCs).

The SEC staff recommended that the Commission undertake a comprehensive, rather than a targeted, review of current SEC disclosure requirements. The SEC staff said that the Study is merely a starting point toward disclosure simplification, and more research and outreach must be performed before the SEC proposes specific changes. Pursuant to the JOBS Act mandate, the Study identifies potential areas for scaled disclosure by EGCs, but supports a broad review that reconsiders disclosures by all public companies.

Other resources • To the Point, SEC staff recommends a comprehensive review of SEC disclosure requirements

(SCORE No. CC0386)

SEC staff updates Financial Reporting Manual; releases Disclosure Guidance: Topic No. 6

Summary The staff of the Division of Corporation Finance (Division) updated its Financial Reporting Manual (FRM) this year to include multiple changes and clarifications, such as:

• Incorporating the financial reporting and disclosure requirements for EGCs under Title I of the JOBS Act and the FAQs that were previously issued by the staff for EGCs

• No longer requiring registrants that acquire oil and gas properties to formally request permission from the staff to file abbreviated financial statements instead of full financial statements under S-X Rule 3-05, if certain conditions are met

• Describing the form and content of abbreviated financial statements for acquired oil and gas properties

• Outlining presentation of pro forma financial information and forward-looking disclosures after the acquisition of selected parts of another entity

• Allowing deferral of recalculating the significance of equity method investees pursuant to S-X Rule 3-09 after a retrospectively applied change in accounting principle, until the registrant files its next Form 10-K (i.e., significance does not have to be recalculated for any registration statements filed before that time)

The Division staff also made substantial revisions to its guidance in the FRM on Rule 3-14 of Regulation S-X (Rule 3-14), which requires registrants to present the audited financial statements of significant consummated or probable acquisitions of real estate operations. Application of Rule 3-14

Other SEC

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_CC0386_RegulationSKStudy_2January2014/$FILE/TothePoint_CC0386_RegulationSKStudy_2January2014.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_CC0386_RegulationSKStudy_2January2014/$FILE/TothePoint_CC0386_RegulationSKStudy_2January2014.pdf


has been subject to various interpretations by the SEC staff, preparers and their advisers. Companies contemplating acquisitions of real estate or forming a real estate investment trust (REIT) should become familiar with Rule 3-14 and the SEC staff’s recent revisions to its guidance.

The SEC staff also released Disclosure Guidance: Topic No. 6 that focuses on disclosures by non-traded REITs but may also apply to disclosures related to offerings by traded REITs or other registrants that apply Securities Act Industry Guide 5.

Other resources • Technical Line, How to apply S-X Rule 3-14 and the latest SEC staff guidance to real estate

acquisitions (SCORE No. CC0373)

• Technical Line, Implementing the JOBS Act (SCORE No. CC0363)

Court vacates resource extraction rule; SEC plans to repropose Summary A judge in the US District Court for the District of Columbia vacated the SEC’s final rule that would have required resource extraction issuers to disclose payments made to US and foreign governments beginning 1 October 2013.

In his opinion dated 2 July 2013, the judge cited two errors in the SEC’s interpretation of Section 1504 of the Dodd-Frank Act as the basis for sending the final rule back to the SEC. First, the judge ruled that the SEC misinterpreted Section 1504 by mandating public disclosure by each registrant subject to the rule. The judge concluded that, although the Dodd-Frank Act requires disclosure of information by registrants to the SEC, it “says nothing about whether the disclosure must be public or may be made to the Commission alone.” Instead, the Dodd-Frank Act directs the SEC to make public a compilation of the payment data submitted by registrants. In addition, the judge found that the SEC’s rejection of any exemption for payments in specific countries that prohibit public disclosure was “arbitrary and capricious.” The judge found that a “fuller analysis was warranted” in evaluating whether to provide such an exemption.

The SEC did not appeal the judge’s decision and plans to repropose the rule.

Conflict minerals rule upheld in court Summary A judge in the US District Court for the District of Columbia upheld the SEC’s conflict minerals rule, granting the SEC’s motion for summary judgment in a challenge brought by business groups. The plaintiffs have appealed this decision. The rule requires registrants to disclose the use of conflict minerals in their products, and whether any of those minerals originated in certain conflict-ridden regions of Africa and financed or benefited armed groups. Companies should be assessing what they need to disclose about conflict minerals while monitoring the legal challenge. Affected issuers must file their first Form SD disclosing this information for calendar year 2013 by 2 June 2014 (because 31 May falls on a weekend).

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_CC0373_SXRule314_7November2013/$FILE/TechnicalLine_CC0373_SXRule314_7November2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_CC0373_SXRule314_7November2013/$FILE/TechnicalLine_CC0373_SXRule314_7November2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_CC0363_JOBSAct_7November2013/$FILE/TechnicalLine_CC0363_JOBSAct_7November2013.pdf

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SEC staff issues new interpretive guidance on conflict minerals Summary The Division issued a set of frequently asked questions (FAQs) to help registrants prepare to comply with the new conflict mineral disclosure requirements. The 12 FAQs primarily relate to the rule’s scope, what is considered a “product” and the timing and disclosure requirements of Form SD.

The FAQs address some, but not all, of the implementation issues that registrants are facing to comply with the new disclosure requirements. The SEC staff has said that it is still addressing other questions, which could result in additional FAQs.

General solicitation rules under Regulation D and disqualification of ‘bad actors’ Summary The Division issued a series of new Compliance and Disclosure Interpretations (CDIs) on the use of general solicitation and advertising in certain exempt offerings and on “bad actor” disqualification and disclosure requirements (both rules are described in the final rules section above).

SEC staff issues other interpretive guidance Summary The Division issued a series of new CDIs that contain the following staff views that could affect financial reporting:

• Registrants are not required to report an impairment under Item 2.06 of Form 8-K that “coincides with” the preparation, review or audit of financial statements to be included in their next periodic report, even if the conclusion was not reached “in connection with” those processes as stated in the form instructions.

• The disclosure within the compensation discussion and analysis of non-GAAP measures used to assess actual performance relative to target levels is not subject to Regulation G and Item 10(e) of Regulation S-K, which address the disclosure and use of non-GAAP measures in SEC filings, if their use is limited to the discussion of performance against non-GAAP targets.

• Registrants that are subject to the SEC’s disclosure rules for oil- and gas-producing activities using enhanced recovery techniques can classify reserves as proved and developed before receiving a production response if they have made all of the required expenditures and the reserves meet the proved and developed criteria in Rules 4-10(a)(22) and 4-10(a)(6) of Regulation S-X, respectively.

SEC creates portal to submit general solicitation materials voluntarily Summary The SEC created a portal for registrants to voluntarily submit general solicitation materials used in Rule 506(c) offerings. The materials submitted will not be made publicly available on the SEC’s website.

As described in the proposed rule section above, the SEC has proposed requiring issuers to provide more information with respect to offerings under Regulation D to enhance its ability to observe market practices and evaluate how lifting the ban on general solicitation is affecting capital formation and investor protection.

http://www.sec.gov/divisions/corpfin/guidance/conflictminerals-faq.htm


SEC staff issues investor alert and small business compliance guides Summary The SEC’s Office of Investor Education and Advocacy issued an investor alert for the new rules on general solicitation to educate individual investors about advertisements and announcements for investment opportunities in certain securities offerings.

In addition, the SEC’s Division of Corporation Finance issued the following small business compliance guides:

• Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 Offerings and Related Disclosure Requirements

• Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings and Related Disclosure Requirements

• Broker-Dealer Reports

NYSE gives new public companies a year to comply with internal audit listing standard Summary The SEC approved a New York Stock Exchange (NYSE) rule that gives companies listing their securities for the first time in an initial public offering or an initial Exchange Act registration (e.g., a spin-off) a year to comply with its requirement to have an internal audit function.

In order for a company to qualify for this relief, its audit committee must state in its charter that it will assist the board of directors in overseeing the design and implementation of the internal audit function during the transition period. The audit committee also must meet periodically with management to discuss implementation plans, budgets and staffing of the internal audit function and review those plans with the board. NYSE listing standards continue to allow companies to outsource their internal audit function.

Updates to the US GAAP XBRL Taxonomy Summary The SEC updated EDGAR to support the 2013 US GAAP XBRL Taxonomy and made the 2011 taxonomy unavailable for use. Companies that use the 2012 taxonomy are not required to start using the 2013 taxonomy, but the SEC staff strongly encourages registrants to adopt the latest version of the US GAAP taxonomy.

The FASB made available the 2014 US GAAP Financial Reporting Taxonomy (2014 taxonomy), along with a taxonomy viewer and guidance that describes changes from the 2013 taxonomy. The 2014 taxonomy may be used for SEC XBRL Exhibit submissions only after it is adopted by the SEC, which is expected in the first half of 2014. Until then, companies should continue to use the 2013 or 2012 version of the taxonomy.

Other resources • Technical Line, Using the 2013 XBRL US GAAP Taxonomy (SCORE No. CC0369)

http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_CC0369_XBRLTaxonomy_25April2013/$FILE/TechnicalLine_CC0369_XBRLTaxonomy_25April2013.pdf

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Companies may use social media sites to announce material information Summary The SEC said in a Report of Investigation (Report) that companies may use social media sites such as Facebook and Twitter to communicate material information, as long as they tell investors in advance which outlets they intend to use and the types of information they may disclose.

The Commission emphasized that communications made through social media must comply with Regulation Fair Disclosure (Regulation FD), which requires companies to distribute material information to the public broadly and nonexclusively. The SEC addressed these requirements in its 2008 Guidance on the Use of Company Web Sites, which it confirmed also should be followed when using social media sites. In its Report, the SEC states, “Personal social media sites of individuals employed by a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information. Without adequate notice that such a site may be used for this purpose, investors would not have an opportunity to access this information or, in some cases, would not know of that opportunity, at the same time as other investors.”

SEC Advisory Committee on Small and Emerging Companies Summary The SEC Advisory Committee on Small and Emerging Companies (the Committee) was established in 2011 to provide the SEC with a formal mechanism to receive advice and recommendations related to small and emerging companies in the areas of capital formation, trading securities, public reporting and corporate governance. In September 2013, the SEC extended the Committee’s charter for another two-year term.

This year, the Committee recommended that the SEC increase the public float threshold for smaller reporting companies (SRC) to $250 million from $75 million and expand the financial reporting and disclosure relief for SRCs. This relief would (1) permanently extend to SRCs some of the temporary relief provided to EGCs by the JOBS Act (i.e., exemption from Section 404(b) auditor attestation on internal control over financial reporting, shareholder say-on-pay, public company accounting standards transition, and any new PCAOB rules requiring mandatory audit firm rotation or auditor discussion and analysis), (2) exempt all SRCs from some of the executive compensation disclosures required by the Dodd-Frank Act (i.e., CEO pay ratio, relationship of executive compensation to financial performance), (3) exempt SRCs from the requirement to file their financial information in XBRL format and (4) limit the Item 601(b)(10) of Regulation S-K exhibit filing requirement to material contracts.

In addition, the Committee recommended that the SEC (1) permit increased trading price increments known as tick sizes for smaller exchange-listed companies and (2) promote the creation of a new US equity market for small and emerging companies that would be limited to sophisticated investors. The Committee also recommended that the Commission, where appropriate, share with certain members of Congress the Committee’s belief that specialized disclosures required by the Dodd-Frank Act (including those related to conflict minerals and, at the time of the recommendation, payments by resource extraction issuers) have a negative effect on capital formation and impose disproportionate costs on small businesses without providing decision-useful information to investors.


SEC Investor Advisory Committee Summary The Investor Advisory Committee (the Committee), which was established by the Dodd-Frank Act to advise the SEC on regulatory priorities on initiatives to protect investors and to promote investor confidence, issued a series of recommendations related to XBRL at its July 2013 meeting. The Committee recommended that the SEC adopt a “culture of smart disclosure” to promote standardization and facilitate the use of interactive data. The Committee also recommended that each division within the SEC integrate data tagging into all future rulemaking and provide adequate resources to the SEC’s Office of Interactive Disclosure. In addition, the Committee recommended that the SEC take steps to reduce the cost of providing tagged data, particularly for smaller issuers.

This year, the Committee also recommended that the Commission:

• Request that Congress allow “user fees” for SEC-registered investment advisers to fund an enhanced investment adviser examination

• Conduct rulemaking to (1) impose fiduciary duties on broker-dealers that provide personalized investment advice to retail investors and (2) require broker-dealers to provide plain-English disclosure to customers, potential customers and investment advisers describing the nature of services offered, fees and compensation, conflicts of interest, and disciplinary record

SEC staff holds decimalization roundtable

Summary The SEC held a roundtable to discuss the effect of trading and quoting securities in one-penny increments, known as decimalization, on small and mid-sized companies, market professionals, investors and US securities markets. Some participants in the roundtable, including market participants, suggested that the SEC launch a pilot program to examine whether changes to its current trading increments would benefit the US marketplace. The roundtable was recommended by an SEC staff report that was mandated by the JOBS Act.

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Staff Audit Practice Alert No. 11, Considerations for Audits of Internal Control Over Financial Reporting

Date issued: 24 October 2013

Summary The PCAOB issued Practice Alert No. 11 in which it highlighted “significant audit practice issues” involving internal control over financial reporting (ICFR), including the following topics:

• Risk assessment and the audit of internal control

• Selecting controls to test

• Testing management review controls

• Information technology considerations, including system generated data and reports

• Rollforward of controls tested at an interim date

• Using the work of others

• Evaluating identified control deficiencies

The practice alert notes that management and audit committees may want to consider the topics covered in the alert. For example, the PCAOB said that audit committee members may want to ask auditors about internal and PCAOB inspection findings in this area. The PCAOB also suggested that audit committee members ask how the controls being tested in the current audit address the assessed risks of material misstatement for relevant assertions of significant accounts and disclosures. In addition, the PCAOB suggested audit committee members ask whether the auditor has adjusted the nature, timing and extent of its control testing and substantive audit procedures in response to risks related to identified control deficiencies.

The PCAOB publishes staff audit practice alerts to highlight new, emerging or otherwise noteworthy circumstances that may affect how auditors conduct audits. Staff audit practice alerts do not establish rules and do not reflect Board determinations or judgments about the conduct of any particular firm, auditor or other person.

Other resources • Staff Audit Practice Alert No. 11, Considerations for Audits of Internal Control Over Financial

Reporting

Public Company Accounting Oversight Board

Final PCAOB guidance

http://pcaobus.org/Standards/QandA/10-24-2013_SAPA_11.pdf

http://pcaobus.org/Standards/QandA/10-24-2013_SAPA_11.pdf


PCAOB Release No. 2013-010, Amendments to Conform the Board’s Rules and Forms to the Dodd-Frank Act and Make Certain Updates and Clarifications

Date adopted: 4 December 2013 (subject to SEC approval)

Summary In conformance with the Dodd-Frank Act, which gives the PCAOB oversight authority for the audits of brokers-dealers registered with the SEC, these amendments insert references to audits and auditors of broker-dealers in relevant Board rules, and call for broker-dealer audit client information on the Board's registration, withdrawal, and reporting forms.

The amendments also (1) require registered firms that audit broker-dealers to comply with certain of the Board's professional practice standards, (2) update a number of Board rules and forms based on the Board's experience administering and enforcing PCAOB rules, and (3) make certain updates to the Board's ethics and independence requirements.

If approved by the SEC, the amendments to the PCAOB's rules and Ethics Code will take effect on 1 June 2014.

Other resources • Comment Letter (SCORE No. BB2337)

PCAOB Release No. 2013-008, Auditing Standard No. 17, Auditing Supplemental Information Accompanying Audited Financial Statements

Date adopted: 10 October 2013 (subject to SEC approval)

Summary The PCAOB adopted Auditing Standard No. 17 (AS 17), Auditing Supplemental Information Accompanying Audited Financial Statements that establishes the auditor’s responsibilities when performing audit procedures and reporting on supplemental information that accompanies the audited financial statements of broker-dealers and others, such as certain employee benefit plans that must file with the SEC audited financial statements and schedules prepared in accordance with certain financial reporting requirements of the Employee Retirement Income Security Act of 1974.

AS 17 and related amendments, if approved by the SEC, will be effective for reports on supplemental information that accompanies financial statements for fiscal years ending on or after 1 June 2014.


PCAOB proposed standards and other projects

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2337_PCAOB-DFAmendments_30April2012/$FILE/CommentLetter_BB2337_PCAOB-DFAmendments_30April2012.pdf

http://www.ey.com/Publication/vwLUAssets/CommentLetter_BB2182_PCAOB_12September2011/$FILE/CommentLetter_BB2182_PCAOB_12September2011.pdf

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PCAOB Release No. 2013-007, Standards for Attestation Engagements Related to Broker and Dealer Compliance or Exemption Reports Required by the U.S. Securities and Exchange Commission

Date adopted: 10 October 2013 (subject to SEC approval)

Summary The PCAOB adopted two new attestation standards, Examination Engagements Regarding Compliance Reports of Brokers and Dealers and Review Engagements Regarding Exemption Reports of Brokers and Dealers.

The Examination standard requires auditors to obtain sufficient appropriate evidence to opine on a broker-dealer’s statements in its compliance report as to whether:

• The broker-dealer’s internal control over compliance was effective during and as of the end of the most recent fiscal year.

• The broker-dealer was in compliance with the net capital rule and the reserve requirements rule as of the end of the most recent fiscal year.

• The information used by the broker-dealer to state whether it was in compliance with the net capital rule and reserve requirements rule was derived from its books and records.

The Review standard requires auditors to obtain moderate assurance about the following statements in the broker-dealer’s exemption report:

• A statement that identifies the “exemption provisions” under which the broker-dealer claimed an exemption

• A statement that the broker-dealer (1) met the identified exemption provisions throughout the most recent fiscal year without exception or (2) met the identified exemption provisions throughout the most recent fiscal year, except as described in the exemption report

• If applicable, a statement that identifies each exception during the most recent fiscal year in meeting the identified exemption provisions and that briefly describes the nature of each exception and the approximate date(s) on which the exceptions existed

The new standards will be effective, subject to approval by the SEC, for examination engagements and review engagements of fiscal years ending on or after 1 June 2014.




PCAOB Release No. 2013-009, Proposed Auditing Standard, Improving the Transparency of Audits

Date issued: 4 December 2013 — comment period ends 3 February 2014

Summary The PCAOB reproposed a requirement that auditors include in the auditor’s report: (1) the name of the engagement partner who led the audit for the most recent period, (2) the names, locations and extent of participation (as a percentage of total audit hours) of other public accounting firms that participated in the audit and (3) the locations and extent of participation by other individuals or companies that are not employed by the auditor. The proposal notes that issuers would likely be required to obtain a consent from the engagement partner named in the report, as well as from the participating firms named in the report, including affiliates of the signing firm. A final standard may be issued in the first half of 2014.

PCAOB Release No. 2013-005, Proposed Auditing Standards, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion; The Auditor’s Responsibilities Regarding Other Information in Certain Documents Containing Audited Financial Statements and the Related Auditor’s Report; and Related Amendments to PCAOB Standards

Date issued: 13 August 2013 — comment period ended 11 December 2013

Summary The PCAOB proposed two standards and amendments that would significantly change the auditor’s reporting model and broaden the auditor’s responsibilities related to the information that is outside the audited financial statements. While the proposal would retain the pass/fail approach of the audit opinion, it would also require auditors to:

• Identify and include in their reports a discussion of “critical audit matters” (CAMs)

• Include information on auditor independence and auditor tenure

• Include information related to the auditor’s responsibilities for the financial statement footnotes and the risk of material misstatement due to fraud

The proposal would define CAMs as matters involving the most difficult, subjective or complex auditor judgments, including areas that posed the most difficulty to the auditor in obtaining audit evidence and/or forming an opinion on the financial statements. For each CAM, auditors would describe the considerations that led them to identify the matter as a CAM and, when applicable, refer to the financial statement accounts and disclosures that relate to the CAM.

The PCAOB proposal would also require auditors to perform additional procedures to evaluate information that is outside the audited financial statements. Under the proposal, the auditor’s report would include information about the auditor’s responsibilities to evaluate information outside the financial statements, along with the results of that evaluation. Information outside the financial statements would include, for example, management’s discussion and analysis and, in certain instances, the company’s definitive proxy statement.

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The auditor’s evaluation would consider whether the other information contained a material misstatement of fact or material inconsistencies with amounts or information or the manner of their presentation in the audited financial statements. The auditor’s report would communicate the auditor’s responsibilities for evaluating this information and the results of the evaluation.

We believe that as a whole this initiative represents an opportunity to increase the usefulness of auditors’ reports. However, as more fully discussed in our To the Point and comment letter, we believe there are a number of areas that present significant challenges and require careful consideration.

The proposed standards would be effective, subject to SEC approval, for audits of financial statements for fiscal years beginning on or after 15 December 2015.

Other resources • To the Point, Sweeping changes to auditor’s report may be on the horizon (SCORE No. EE0928)

• Comment Letter (SCORE No. EE0944)

PCAOB Release No. 2013-004, Proposed Auditing Standard, Related Parties and Proposed Amendments to Certain PCAOB Auditing Standards Regarding Significant Unusual Transactions

Date issued: 7 May 2013 — comment period ended 8 July 2013 Summary The PCAOB reproposed an auditing standard and related amendments that would expand the procedures auditors perform to identify an entity’s related parties, to understand the nature of the relationships between the entity and related parties and to understand the terms and business purpose, or lack thereof, of the entity’s transactions with related parties. The proposal also would require the auditor to perform procedures, as part of its assessment of the risk of material misstatement in the financial statements, to obtain an understanding of a company’s relationships and transactions with executive officers. The proposal clarifies that the auditor would not be required to make a determination or recommendation about the reasonableness of compensation arrangements, as some had thought the original proposal would have required.

The PCAOB also reproposed amendments on auditing significant unusual transactions, defined as significant transactions outside the normal course of business of a company or that otherwise appear to be unusual due to their timing, size or nature.

The PCAOB requested views on economic considerations related to implementation, including whether the proposal should apply to audits of emerging growth companies. The PCAOB is expected to finalize the proposal in the first quarter of 2014. The final standard, if approved by the SEC, is expected to be effective for audits of financial statements with fiscal years beginning on or after 15 December 2014.

Other resources • Comment Letter (SCORE No. EE0922)

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_EE0928_AuditorReportingModel_26September2013/$FILE/TothePoint_EE0928_AuditorReportingModel_26September2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_EE0944_PCAOBAuditorReportingProposal_18December2013/$FILE/CommentLetter_EE0944_PCAOBAuditorReportingProposal_18December2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/PCAOBProposal_RelatedParties_7May2013/$FILE/PCAOBProposal_RelatedParties_7May2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_EE0922_PCAOBRPTReproposal_8July2013/$FILE/CommentLetter_EE0922_PCAOBRPTReproposal_8July2013.pdf


PCAOB Release No. 2013-002, Proposed Framework for Reorganization of PCAOB Auditing Standards and Related Amendments to PCAOB Auditing Standards and Rules

Date issued: 26 March 2013 — comment period ended 28 May 2013 Summary The PCAOB proposed for comment a framework for reorganizing its auditing standards. The proposed reorganization is intended to present the standards in a logical order that generally follows the flow of the audit process to help users navigate the standards more easily.

Under the proposal, auditing standards the PCAOB has issued and interim standards would be reorganized by topic with a single numbering system. The standards would be grouped into the following categories: general auditing standards, audit procedures, auditor reporting, matters relating to filings under federal securities laws and other matters associated with audits.

The PCAOB did not propose to redraft any standards or make substantive changes to their requirements. In conjunction with the proposed reorganization, however, the PCAOB did propose to rescind certain auditing standards that it believes are no longer necessary. After consideration of the comments received, the Board intends to release and seek comment on the amendments necessary to implement the reorganization of the auditing standards during the first half of 2014.

Other resources • Comment Letter (SCORE No. EE0920)

PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation

Date issued: 16 August 2011 — comment period ended 19 November 2012

Summary The PCAOB issued a concept release seeking comment on possible ways to enhance auditor independence, objectivity and professional skepticism, including mandatory audit firm rotation. Mandatory firm rotation would limit the number of consecutive years that a registered public accounting firm could serve as the auditor of a public company.

The concept release noted that proponents of mandatory rotation believe it would allow auditors to better withstand client pressures and provide a “fresh look” at the company’s financial reporting, while opponents believe it would lower audit quality. The PCAOB also is considering other ways to enhance auditor independence, objectivity and professional skepticism.

In December 2012, at the American Institute of Certified Public Accountants (AICPA) National Conference on Current SEC and PCAOB Developments, PCAOB Board members Jay Hanson and Jeanette Franzel said the PCAOB will be “taking a pause” on its mandatory audit firm rotation initiative to evaluate the feedback it has received and will take other steps to improve auditor independence and objectivity based on the feedback. Those efforts include the PCAOB’s release on Information for Audit Committees About the PCAOB Inspection Process, the adoption of AS 16, Communications with Audit Committees, and its release of a practice alert on professional skepticism.

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_EE0920_PCAOB_STNDRDreorg_28May2013/$FILE/CommentLetter_EE0920_PCAOB_STNDRDreorg_28May2013.pdf

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Other resources • To the Point, PCAOB public meeting on auditor independence and audit firm rotation

(SCORE No. EE0900)

• Technical Line, Respondents to PCAOB overwhelmingly oppose mandatory audit firm rotation (SCORE No. BB2256)

• Technical Line, What to consider when responding to the PCAOB about auditor independence and audit firm rotation (SCORE No. BB2191)

• To the Point, PCAOB seeks comment on mandatory audit firm rotation (SCORE No. EE0876)


• Summary of key messages — PCAOB concept release on auditor independence and mandatory firm rotation (SCORE No. BB2218)

PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts

Date issued: 5 August 2010 — comment period ended 3 November 2010

Summary The PCAOB issued a two-part release to (1) highlight the scope of Section 105(c)(6) of the Sarbanes-Oxley Act of 2002, which authorizes the PCAOB to impose sanctions on registered public accounting firms and their supervisory personnel for failing to reasonably supervise an associated person who has violated certain laws, rules or standards and (2) solicit comment on specific rulemaking concepts that, while not imposing any new supervision responsibilities, would require firms to make and document clear assignments of the supervision responsibilities that are already required to be part of any audit practice. The PCAOB’s current standard-setting agenda notes that the PCAOB has analyzed comments received but does not provide a timeline for further action.


PCAOB Release No. 2010-003, Proposed Auditing Standard, Confirmation

Date issued: 13 July 2010 — comment period ended 13 September 2010

Summary The PCAOB issued a proposed auditing standard on confirmation that would supersede PCAOB interim standard AU Section 330, The Confirmation Process. The proposed standard would expand the current presumptive requirement to confirm accounts receivable to include (1) receivables that arise from credit sales, loans or other transactions and (2) cash and other relationships with financial institutions. The proposed standard also would require the auditor to perform confirmation procedures in response to significant risks that relate to the relevant assertions that can be adequately addressed by confirmation

http://www.ey.com/Publication/vwLUAssetsAL/ToThePoint_EE0900_PCAOBOpenMeeting_27March2012/$FILE/ToThePoint_EE0900_PCAOBOpenMeeting_27March2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/ToThePoint_EE0900_PCAOBOpenMeeting_27March2012/$FILE/ToThePoint_EE0900_PCAOBOpenMeeting_27March2012.pdf

http://www.ey.com/Publication/vwLUAssets/TechnicalLine_BB2256_AuditFirmRotation_5January2012/$FILE/TechnicalLine_BB2256_AuditFirmRotation_5January2012.pdf

http://www.ey.com/Publication/vwLUAssets/TechnicalLine_BB2256_AuditFirmRotation_5January2012/$FILE/TechnicalLine_BB2256_AuditFirmRotation_5January2012.pdf

http://www.ey.com/Publication/vwLUAssets/TechnicalLine_BB2191_PCAOB_30September2011/$FILE/TechnicalLine_BB2191_PCAOB_30September2011.pdf

http://www.ey.com/Publication/vwLUAssets/TechnicalLine_BB2191_PCAOB_30September2011/$FILE/TechnicalLine_BB2191_PCAOB_30September2011.pdf

http://www.ey.com/Publication/vwLUAssets/TothePoint_EE0876_PCAOBAuditorRotation_17August2011/$FILE/TothePoint_EE0876_PCAOBAuditorRotation_17August2011.pdf

http://www.ey.com/Publication/vwLUAssets/CommentLetter_BB2219_FirmRotation_18November2011/$FILE/CommentLetter_BB2219_FirmRotation_18November2011.pdf

http://www.ey.com/Publication/vwLUAssets/KeyMessages_BB2218_FirmRotation_18November2011/$FILE/KeyMessages_BB2218_FirmRotation_18November2011.pdf

http://www.ey.com/Publication/vwLUAssets/KeyMessages_BB2218_FirmRotation_18November2011/$FILE/KeyMessages_BB2218_FirmRotation_18November2011.pdf

http://www.ey.com/Publication/vwLUAssets/CommentLetter_PCAOB_12November2010/$FILE/CommentLetter_PCAOB_12November2010.pdf


procedures. In addition, the proposed standard introduces certain limitations on the involvement of internal auditors in the confirmation process and also would require expanded procedures to be performed both in evaluating the evidence received from confirmation procedures and when agreeing to management’s requests not to confirm certain accounts, balances or other items. The PCAOB’s current standard-setting agenda notes that the PCAOB has analyzed comments and is drafting a reproposal, but it does not provide a timeline for further action.



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PCAOB Release No. 2013-011, Observations Related to the Implementation of the Auditing Standard on Engagement Quality Review


Summary The PCAOB said in a report on audit firms’ implementation of its engagement quality review (EQR) standard that the firms’ methodologies were generally consistent with the standard, but they did not always result in an appropriately executed EQR. In a number of cases, the report said, the engagement quality reviewer didn’t identify audit deficiencies that the PCAOB said resulted in insufficiently supported opinions.

The PCAOB suggested that audit committee members ask independent auditors about their EQR processes, including: (1) how the audit firm selects, evaluates and incentivizes its engagement quality reviewers, (2) the reviewer’s qualifications, including years of experience at the firm or in the issuer’s industry, (3) whether the reviewer has a history of failing to detect deficiencies that should have been detected and later were detected in external or internal inspections, (4) how the reviewer performed his or her review, including the timing and extent of the review, (5) the total hours devoted to the EQR, and (6) the most significant matters the reviewer identified that needed additional audit procedures or follow-up.

Other resources • PCAOB report: Observations Related to the Implementation of the Auditing Standard on

Engagement Quality Review

Other PCAOB

http://pcaobus.org/Inspections/Documents/120613_EQR.pdf

http://pcaobus.org/Inspections/Documents/120613_EQR.pdf


Statement on Auditing Standards No. 127, Omnibus Statement on Auditing Standards — 2013

Date issued: January 2013

Summary This Statement on Auditing Standards (SAS) amends AU-C section 600, Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors), and AU-C section 800, Special Considerations — Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks.

The amendments to AU-C section 600 allow the auditor’s report on the group financial statements to refer to the audit of a component auditor when the component’s financial statements are prepared using a different financial reporting framework than that used for the group financial statements, if certain criteria are met. The amendments also add or clarify certain related requirements.

AU-C section 800 was amended to add a basis of accounting described as “a definite set of logical, reasonable criteria that is applied to all material items appearing in financial statements” to special purpose frameworks. As defined currently, “special purpose framework” includes only a cash, tax, regulatory or contractual basis of accounting. This amendment makes AU-C section 800 substantially consistent with the auditing standards before the issuance of SAS No. 122, Statements on Auditing Standards: Clarification and Recodification.

Effective date The amendments in SAS No. 127 were effective for periods ending on or after 15 December 2012.

Other resources • To the Point, New group audit standard may require action by governments and auditors

(SCORE No. EE0917)

Auditing Standards Board

Final ASB standards

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_EE0917_GroupAudits_19March2013/$FILE/TothePoint_EE0917_GroupAudits_19March2013.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_EE0917_GroupAudits_19March2013/$FILE/TothePoint_EE0917_GroupAudits_19March2013.pdf

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Proposed Statement on Standards for Attestation Engagements, Attestation Standards: Clarification and Recodification

Date issued: 24 July 2013 — comment period ended 24 October 2013

Summary This proposed Statement on Standards for Attestation Engagements (SSAE) would supersede AT section 20, Defining Professional Requirements in Statements on Standards for Attestation Engagements; AT section 50, SSAE Hierarchy; AT section 101, Attest Engagements; and AT section 201, Agreed-Upon Procedures Engagements. The ASB began clarifying the Statements on Auditing Standards (SASs), and it has substantially completed that effort. The ASB has now begun clarifying the SSAEs, beginning with those standards that provide a framework for performing and reporting on attestation engagements. The proposed SSAE is consistent with the ASB’s clarity drafting conventions.

The ASB has made additional changes to the content of the existing attestation standards. The most significant changes include:

• Restructuring of attestation standards — The proposed SSAE restructures the attestation standards so that the requirements and guidance applicable to any attestation engagement are in Chapter 1, “Concepts Common to All Attestation Engagements.” Separate chapters for examination, review and agreed-upon procedures engagements (i.e., Chapter 2, “Examination Engagements;” Chapter 3, “Review Engagements;” and Chapter 4, “Agreed-Upon Procedures Engagements,” respectively) build on the common concepts chapter and include performance and reporting requirements and application guidance tailored to the specific type of engagement. The subject-matter-specific chapters are expected to be contained in chapters 5–10 of the clarified attestation standards. Those chapters will be exposed for comment at a later date and are not included in this proposed SSAE.

• Required assertion in examinations and reviews — For all examination and review engagements, the proposed SSAE would require the practitioner to obtain a written assertion from the responsible party about the measurement or evaluation of the subject matter against the applicable criteria. The guidance previously allowed for exceptions when the engaging party was not the responsible party, and the practitioner could perform the examination or review without obtaining the written assertion, but is required to restrict the use of the report. This alternative would no longer be permitted.

• Required representation letters in examinations and reviews — In the current SSAEs, certain subject-matter-specific AT sections require the practitioner to obtain a representation letter. The proposed SSAE requires a representation letter in all examination and review engagements. However, if a responsible party who is not the engaging party refuses to provide the practitioner with a representation letter, the practitioner would not necessarily be required to conclude that a scope limitation exists if the practitioner is able to obtain satisfactory oral responses from the responsible party to the matters ordinarily included in the representation letter. In these circumstances, the use of the examination or review report would be restricted to the engaging party.

• Risk assessment for examination engagements — The proposed SSAE requires practitioners to obtain a more in-depth understanding of the development of the subject matter than currently required in order to better identify the risks of material misstatement in an examination engagement.

ASB exposure drafts


• Incorporation of detailed requirements — The proposed SSAE incorporates a number of detailed requirements (such as the need for an engagement letter or equivalent and for written representations in examinations and reviews) that are similar to those contained in the SASs; the International Auditing and Assurance Standards Board (IAASB) exposure draft, International Standard on Assurance Engagements (ISAE) 3000 (Revised), Assurance Engagements Other than Audits and Reviews of Historical Financial Information; and ISAE 3410, Assurance Engagements on Greenhouse Gas Emissions.

• Scope limitation imposed by the engaging party or the responsible party — Under the proposed SSAE, a practitioner is no longer required to disclaim an opinion or withdraw from an engagement if the engaging party or responsible party imposes restrictions that significantly limit the scope of the engagement. Instead, the proposed SSAE states that based on the practitioner’s assessment of the effect of the scope limitation, the practitioner should express a qualified opinion, disclaim an opinion or withdraw from the engagement (when withdrawal is possible under applicable laws or regulations).

Effective date The effective date for the proposed SSAE has not been determined. The ASB does not anticipate that the effective date would be for reports dated before 15 December 2014.


Proposed Statement on Auditing Standards, Using the Work of Internal Auditors

Date issued: 15 April 2013 — comment period ended 15 July 2013

Summary This proposed SAS would supersede SAS No. 65, The Auditor’s Consideration of the Internal Audit Function in an Audit of Financial Statements (AICPA Professional Standards, AU section 322 and AU-C section 610, Using the Work of Internal Auditors). The proposed standard is part of the ASB’s clarity project and largely converges with the International Standards on Auditing (ISA).

The proposal introduces the concept of a “systematic and disciplined approach,” consistent with ISA 610, Using the Work of Internal Auditors (Revised 2013). As a prerequisite to using the work of the internal audit function, the external auditor would be required to evaluate the application by the internal audit function of a systematic and disciplined approach, including quality control. The ASB believes this would require the external auditor to perform an additional and explicit evaluation to conclude on the appropriateness of using the work of internal auditors. Application guidance is provided in the proposed standard.

In keeping with existing practice, the ASB proposal would not include the following requirements and application guidance from ISA 610 (Revised 2013) related to using internal auditors in a direct assistance capacity:

• The requirement that the external auditor not use internal auditors to provide direct assistance in specified circumstances

http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2669_AttestationEngagements_29November2013/$FILE/CommentLetter_BB2669_AttestationEngagements_29November2013.pdf

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• The requirement to explicitly obtain the agreement of those charged with governance that the proposed nature and extent of the use of internal auditors to provide direct assistance is not excessive

• The requirement that, prior to using internal auditors to provide direct assistance for purposes of the audit, the external auditor (1) obtain written agreement from an authorized representative of the entity that the internal auditors will be allowed to follow the external auditor’s instructions and that the entity will not intervene in the work the internal auditor performs for the external auditor, and (2) obtain written agreement from the internal auditors that they will keep confidential specific matters as instructed by the external auditor and inform the external auditor of any threat to their objectivity

The proposed changes are described more fully in the exhibit of the proposed SAS.

Effective date The proposed SAS would be effective for audits of financial statements for periods ending on or after 15 December 2014.


Proposed Statement on Standards for Accounting and Review Services: Framework for Performing and Reporting on Compilation and Review Engagements

Date issued: 26 November 2013 — comment period ends 2 May 2014 Summary The proposed Statement on Standards for Accounting and Review Services (SSARS) issued by the Accounting and Review Services Committee (ARSC) would supersede paragraphs .01-.04 and .09-.51 of AR section 60, Framework for Performing and Reporting on Compilation and Review Engagements. The proposed SSARS applies the ARSC’s clarity drafting conventions. The ARSC believes that there would be no significant changes to existing AR section 60 if the proposed SSARS is issued as a final standard.

AR section 60 provides a framework for performing and reporting on compilation and review engagements. This section also sets forth the meaning of certain terms used when describing the professional requirements imposed on accountants performing compilation and review engagements.

Effective date The proposed SSARS would be effective for compilations and reviews of financial statements for periods ending on or after 15 December 2015. Early implementation is permitted.

Proposed Statements on Standards for Accounting and Review Services: Preparation of Financial Statements; Compilation Engagements; and Association With Financial Statements

Date issued: 23 October 2013 — comment period ends 2 May 2014

Summary The proposed SSARSs issued by the ARSC would supersede paragraphs .05–.06 of AR section 60, Framework for Performing and Reporting on Compilation and Review Engagements, AR section 80, Compilation of Financial Statements, AR section 110, Compilation of Specified Elements, Accounts, or Items of a Financial Statement, AR section 300, Compilation Reports on Financial Statements Included in Certain Prescribed Forms, and AR section 600, Reporting on Personal Financial Statements Included in Written Personal Financial Plans.

ARSC proposes to issue three new SSARSs as follows:

• The proposed SSARS Preparation of Financial Statements would provide requirements and guidance that would apply when an accountant is engaged to prepare financial statements for an entity but not to perform a compilation, review or audit of those financial statements.

• The proposed SSARS Compilation Engagements would provide requirements and guidance that would apply only when an accountant is engaged to perform a compilation of historical financial statements.

• The proposed SSARS Association With Financial Statements would provide requirements and guidance that would apply when an accountant agrees to permit the use of the accountant’s name in a report, document, or written communication that includes financial statements with respect to which the accountant did not issue a compilation, review or audit report.

AICPA — other

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The proposed standards should not be considered simply a clarity redraft of the existing SSARSs because they represent a significant revision in requirements when an accountant is engaged to prepare financial statements, as well as a repositioning of the compilation service that differs from what the current standards provide for in several important aspects. The expected significant effects on practice with respect to these proposed revisions are discussed within the proposed standards.

Effective date The proposed SSARS Preparation of Financial Statements would be effective for the preparation of financial statements for periods ending on or after 15 December 2015. Early implementation is permitted.

The proposed SSARS Compilation Engagements would be effective for compilation reports on financial statements for periods ending on or after 15 December 2015. Early implementation is permitted.

The proposed SSARS Association With Financial Statements would be effective for financial statements with which the accountant is associated on or after 15 December 2015. Early implementation is permitted.

Proposed Statements on Standards for Accounting and Review Services: Review of Financial Statements and Review of Financial Statements — Special Considerations

Date issued: 15 November 2012 — comment period ended 26 April 2013

Summary The proposed SSARSs issued by the ARSC would supersede paragraphs 1.07-.08 and 3.01-.73 of SSARS No. 19, Compilation and Review Engagements (AICPA Professional Standards, AR sections 60 and 90). They would apply the ARSC’s clarity drafting conventions and make other changes to existing standards. Some of the more significant proposed changes include:

• Scope: The proposed SSARSs would be able to be applied (adapted as necessary in the circumstances) to other historical financial information on which the accountant has been engaged to issue a review report. Therefore, specific elements, accounts or items of a financial statement, supplementary information, required supplementary information, financial information included in a tax return or other historical financial information may be reviewed in accordance with SSARSs.

• Requirement to Obtain a Signed Engagement Letter or Other Suitable Form of Written Communication: This proposal would require the engagement letter or other suitable form of written communication to be signed by (1) the accountant or the accountant’s firm and (2) management or, if applicable, those charged with governance. AR section 90 currently requires that the accountant document the understanding with management about the services to be performed for review engagements through a written communication with management, but does not require either party to sign the document.

• Emphasis-of-Matter and Other-Matter Paragraphs in the Accountant’s Review Report: This proposal would require the accountant to include an emphasis-of-matter paragraph in its review report when:

• Financial statements are prepared in accordance with a special purpose framework.


• Management revises financial statements for a subsequently discovered fact that became known to the accountant after the report release date and the accountant’s review report for the revised financial statements differs from the original financial statements.

• The accountant draws attention to a matter appropriately presented or disclosed in the financial statements because the matter, in the accountant’s professional judgment, is of such importance that it is fundamental to the user’s understanding of the financial statements.

In addition, the accountant would be required to include an other-matter paragraph in the accountant’s review report:

• Related to required supplementary information

• When the accountant considers it necessary to communicate a matter that is not presented or disclosed in the financial statements that, in the accountant’s professional judgment, is relevant to the users’ understanding of the review, the accountant’s responsibilities or the accountant’s review report

If the accountant expects to include an emphasis-of-matter or other-matter paragraph in the accountant’s review report, the proposal would require the accountant to communicate this expectation and the proposed wording of the paragraph with management and those charged with governance.

Effective date The proposed SSARSs would be effective for reviews of financial statements for periods ending on or after 15 December 2014. Early implementation would not be permitted.

Proposed Statements on Standards for Accounting and Review Services: Association With Unaudited Financial Statements; Compilation of Financial Statements; and Compilation of Financial Statements — Special Considerations

In January 2013, ARSC withdrew the exposure draft of the proposed SSARSs: Association With Unaudited Financial Statements; Compilation of Financial Statements; and Compilation of Financial Statements—Special Considerations, based on responses in the 92 comment letters it received.

Agreed-upon procedures guidance for XBRL-formatted information Summary The AICPA issued Statement of Position (SOP) 13-2, Performing Agreed-Upon Procedures Engagements That Address the Completeness, Mapping, Consistency, or Structure of XBRL-Formatted Information. While the SOP provides guidance for practitioners, it also can be used by companies to identify and perform review procedures and develop controls over the XBRL creation process.

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AICPA Financial Reporting Framework for Small and Medium-Sized Entities Date issued: 10 June 2013

Summary The AICPA issued a financial reporting framework for small and medium-sized entities (SMEs) that these private entities can choose to use when US GAAP financial statements are not required. The framework, which is non-authoritative, is intended to make financial reporting less costly and complex when US GAAP financial statements are not required.

The Financial Accounting Foundation issued a statement that emphasizes the need to understand the differences between the AICPA framework and the joint efforts of the FASB and the Private Company Council to address the accounting concerns of nonpublic entities.

Other resources • To the Point, Proposed non-GAAP framework could make reporting easier for SMEs

(SCORE No. BB2427)

http://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/PCFR/DownloadableDocuments/FRF-SME/FRF-SMEs-Framework.PDF

http://www.accountingfoundation.org/cs/ContentServer?c=FAFContent_C&pagename=Foundation%2FFAFContent_C%2FFAFNewsPage&cid=1176162897591

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2427_NonGAAPFramework_7November2012/$FILE/TothePoint_BB2427_NonGAAPFramework_7November2012.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2427_NonGAAPFramework_7November2012/$FILE/TothePoint_BB2427_NonGAAPFramework_7November2012.pdf


GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date — an amendment of GASB Statement No. 68

Date issued: 25 November 2013

Summary This Statement amends GASB Statement No. 68, Accounting and Financial Reporting for Pensions, to require that at transition, a government recognize a beginning deferred outflow of resources for its pension contributions made during the time between the measurement date of the beginning net pension liability and the beginning of the initial fiscal year of implementation. This eliminates a potential source of understatement of the restated beginning net position and expense in a government's first year of implementing GASB Statement No. 68.

Effective date Statement 71 is effective at the same time as Statement 68, which is effective for fiscal years beginning after 15 June 2014.

GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees

Date issued: 22 April 2013

Summary The Statement provides accounting and financial reporting guidance to state and local governments that offer nonexchange financial guarantees and for governments that receive nonexchange financial guarantees on their obligations. The Statement requires a state or local government guarantor that offers a nonexchange financial guarantee to another government, organization or individual to recognize a liability on its financial statements when it is more likely than not that the guarantor will be required to make a payment to the obligation holders under the agreement. The Statement also requires:

• A government guarantor to consider qualitative factors (e.g., whether the issuer is experiencing significant financial difficulty, initiating the process of entering into bankruptcy or financial reorganization) when determining whether a payment on its guarantee is more likely than not to be required

• An issuer government that is required to repay a guarantor for guarantee payments made to continue to report a liability unless legally released (in which case the government would recognize revenue as a result of being relieved of the obligation)

• A government guarantor or issuer to disclose information about the amounts and nature of nonexchange financial guarantees

Effective date Statement 70 is effective for periods beginning after 15 June 2013 with earlier application encouraged.

Governmental Accounting Standards Board

Final GASB guidance

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GASB Statement No. 69, Government Combinations and Disposals of Government Operations

Date issued: 22 January 2013

Summary The Statement provides state and local governments with standards for financial reporting on government combinations (mergers, acquisitions and transfers of operations) and disposals (sales and transfers) of government operations, including:

• Determining whether a specific government combination is a government merger, government acquisition, or transfer of operations

• Using carrying values (generally, the amounts recognized in the pre-combination financial statements of the combining governments or operations) to measure the assets, deferred outflows of resources, liabilities and deferred inflows of resources combined in a government merger or transfer of operations

• Measuring acquired assets, deferred outflows of resources, liabilities and deferred inflows of resources based on their acquisition values in a government acquisition

• Reporting the disposal of government operations that have been transferred or sold

Effective date and transition Statement 69 is effective for periods beginning after 15 December 2013, on a prospective basis, with earlier application encouraged.


Measurement of Elements of Financial Statements


Summary This proposed Concepts Statement would establish two approaches to measuring assets and liabilities: Initial amounts would be determined at the time an asset is acquired or a liability is incurred, and remeasured amounts would be determined as of the date of each year’s financial statements.

The GASB also is proposing four measurement attributes (i.e., the characteristic of an asset or liability that is being measured) that may be considered for use by standard setters, depending on the circumstances: historical cost, fair value, replacement cost and settlement amount.

GASB exposure drafts

65

GASB Scope of Authority: Consultation Process Policy

Date issued: 19 November 2013

Summary The Financial Accounting Foundation (FAF) Board of Trustees adopted a policy outlining a pre-agenda consultation process that the GASB and the FAF's Standard-Setting Process Oversight Committee will follow to determine whether information the GASB might consider is financial accounting and reporting information within the scope of the GASB's standard-setting mission. The consultation will not focus on a specific standard-setting project.

The policy reiterates that the FAF trustees will not be involved in the GASB's agenda-setting process or its independent standard-setting process.

Update of GASB Comprehensive Implementation Guide

Summary The GASB updated its Comprehensive Implementation Guide (the Guide) through 30 June 2013. The Guide was developed to help financial statement preparers and attestors implement and apply a number of GASB pronouncements. It consolidates previously issued Implementation Guides, codifies the questions and answers from the original guides, and updates answers to recognize the effects of standards that have been issued since the release dates of the individual guides. Some questions from the previous guides have been deleted, and new questions have been added.

Guidance in an Implementation Guide is limited to clarifying, explaining or elaborating on an underlying standard (usually a Statement, Interpretation or Technical Bulletin). The topics may include issues raised by constituents in due process or as a result of subsequent application of a standard, as well as issues anticipated by the GASB staff. Generally, a GASB Statement or Interpretation would be more appropriate to address new issues or to amend existing guidance on issues previously addressed.

The GASB’s Implementation Guides are classified as category (d) in the hierarchy of generally accepted accounting principles, as set forth in Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. As a result, practitioners may be called upon to justify departures from guidance contained in this guide.

The Guide is effective upon issuance.

Guide to Implementation of GASB Statement 67 on Financial Reporting for Pension Plans

Date issued: 27 June 2013

Summary The implementation guide for GASB Statement No. 67, which is effective for periods beginning after 15 June 2013, is an authoritative resource that addresses the following topics:

• The scope and applicability of GASB Statement No. 67, Financial Reporting for Pension Plans

• The classification of pensions as defined benefit or defined contribution

Other GASB


• The determination of the number of pension plans that should be reported

• The recognition of certain transactions and other events in defined benefit pension plan financial statements

• Note disclosures and required supplementary information

• The calculation of the net pension liability

In November 2013, the GASB issued an online toolkit designed to help preparers and auditors of state and local government pension plans implement the new accounting and financial reporting standards.

Preliminary Views, Fair Value Measurement and Application


Summary The Preliminary Views document describes how fair value should be defined and measured, what assets and liabilities should be measured at fair value, and what information about fair value should be disclosed in the notes to the financial statements.

The GASB believes that investments generally should be measured at fair value. An investment would be defined as a security or other asset that a government holds primarily for the purpose of income or profit and the present service capacity of which is based solely on its ability to generate cash, to be sold to generate cash or to procure services for the citizenry. Certain investments would be excluded from measurement at fair value and should continue to be measured according to existing GASB standards.

In the Preliminary Views document, the GASB proposes expanding current fair value disclosures to include the levels in the fair value hierarchy of inputs a government uses to measure fair value and the judgments made to arrive at those inputs.

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Note: Early adoption generally is permitted unless otherwise noted.

Number Title Effective for public entities Effective for nonpublic entities

ASU 2013-12 Definition of a Public Business Entity—An Addition to the Master Glossary

The Board will consider using the new definition in standard setting activities subsequent to 23 December 2013.

Not applicable.

ASU 2013-11 Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists

Effective for fiscal years, and interim periods within those years, beginning after 15 December 2013.


ASU 2013-10 Derivatives and Hedging (Topic 815), Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes

Effective for qualifying new or redesignated hedging relationships entered into on or after 17 July 2013.

Effective for qualifying new or redesignated hedging relationships entered into on or after 17 July 2013.

ASU 2013-09 Fair Value Measurement (Topic 820), Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04

Employee benefit plans subject to SEC filing requirements: not applicable.

Other employee benefit plans: effective upon issuance (8 July 2013).

ASU 2013-08 Financial Services — Investment Companies (Topic 946), Amendments to the Scope, Measurement, and Disclosure Requirements

Effective for interim and annual reporting periods in fiscal years that begin after 15 December 2013. Earlier application is prohibited.

Effective for interim and annual reporting periods in fiscal years that begin after 15 December 2013. Earlier application is prohibited.

ASU 2013-07 Presentation of Financial Statements (Topic 205), Liquidation Basis of Accounting

Effective for an entity that determines liquidation is imminent during annual reporting periods beginning after 15 December 2013, and interim reporting periods therein.

Effective for an entity that determines liquidation is imminent during annual reporting periods beginning after 15 December 2013, and interim reporting periods therein.

ASU 2013-06 Not-for-Profit Entities (Topic 958), Services Received from Personnel of an Affiliate

Effective for fiscal years beginning after 15 June 2014, and interim and annual periods thereafter.

Effective for fiscal years beginning after 15 June 2014, and interim and annual periods thereafter.

ASU 2013-05 Foreign Currency Matters (Topic 830), Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity


Effective for fiscal years beginning after 15 December 2014, and interim and annual periods thereafter.

ASU 2013-04 Liabilities (Topic 405), Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date


Effective for fiscal years ending after 15 December 2014, and interim and annual periods thereafter.

Effective date matrices

Effective date matrix — final FASB pronouncements



ASU 2013-03 Financial Instruments (Topic 825), Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities

Not applicable. Effective immediately and applies to 2012 financial statements.

ASU 2013-02 Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income


Effective for fiscal years beginning after 15 December 2013, and interim and annual periods thereafter.

ASU 2013-01 Balance Sheet (Topic 210), Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities

Effective for fiscal years beginning on or after 1 January 2013, and interim periods within those annual periods (i.e., at the same time as ASU 2011-11).

Effective for fiscal years beginning on or after 1 January 2013, and interim periods within those annual periods (i.e., at the same time as ASU 2011-11).

ASU 2012-07 Entertainment — Films (Topic 926), Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs

SEC filers: effective for impairment assessments performed on or after 15 December 2012.

Other entities: effective for impairment assessments performed on or after 15 December 2013.

ASU 2012-06 Business Combinations (Topic 805), Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution

Effective for fiscal years, and interim periods within those years, beginning on or after 15 December 2012.

Effective for fiscal years, and interim periods within those years, beginning on or after 15 December 2012.

ASU 2012-05 Statement of Cash Flows (Topic 230), Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows

Effective for fiscal years, and interim periods within those years, beginning after 15 June 2013.

Effective for fiscal years, and interim periods within those years, beginning after 15 June 2013.

ASU 2012-04 Technical Corrections and Improvements

Effective upon issuance (1 October 2012) for amendments that do not have transition guidance. Amendments that are subject to transition guidance: effective for fiscal periods beginning after 15 December 2012.

Effective upon issuance (1 October 2012) for amendments that do not have transition guidance. Amendments that are subject to transition guidance: effective for fiscal periods beginning after 15 December 2013.

ASU 2012-02 Intangibles — Goodwill and Other (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment

Effective for annual and interim impairment tests performed for fiscal years beginning after 15 September 2012.

Effective for annual and interim impairment tests performed for fiscal years beginning after 15 September 2012.

ASU 2012-01 Health Care Entities (Topic 954), Continuing Care Retirement Communities — Refundable Advance Fees

Effective for fiscal periods beginning after 15 December 2012.

Effective for fiscal periods beginning after 15 December 2013.

69


ASU 2011-12 Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05



ASU 2011-11 Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities

Effective for fiscal years beginning on or after 1 January 2013, and interim periods within those annual periods.

Effective for fiscal years beginning on or after 1 January 2013, and interim periods within those annual periods.

ASU 2011-10 Property, Plant, and Equipment (Topic 360), Derecognition of in Substance Real Estate — a Scope Clarification

Effective for fiscal years, and interim periods within those years, beginning on or after 15 June 2012.


ASU 2011-09 Compensation — Retirement Benefits — Multiemployer Plans (Subtopic 715-80), Disclosures about an Employer’s Participation in a Multiemployer Plan

Effective in annual periods for fiscal years ending after 15 December 2011.

Effective in annual periods for fiscal years ending after 15 December 2012.

ASU 2011-08 Intangibles — Goodwill and Other (Topic 350), Testing Goodwill for Impairment

Effective for annual and interim goodwill impairment tests performed for fiscal years beginning after 15 December 2011.

Effective for annual and interim goodwill impairment tests performed for fiscal years beginning after 15 December 2011.

ASU 2011-07 Health Care Entities (Topic 954), Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities


Effective for the first annual period ending after 15 December 2012, and interim and annual periods thereafter.

ASU 2011-06 Other Expenses (Topic 720), Fees Paid to the Federal Government by Health Insurers

Effective for calendar years beginning after 31 December 2013.

Effective for calendar years beginning after 31 December 2013.

ASU 2011-05 Comprehensive Income (Topic 220), Presentation of Comprehensive Income



ASU 2011-04 Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs

Effective for interim and annual periods beginning after 15 December 2011. Early adoption is not permitted.

Effective for annual periods beginning after 15 December 2011. Early adoption is permitted for nonpublic entities, but only for interim periods beginning after 15 December 2011.

ASU 2011-03 Transfers and Servicing (Topic 860), Reconsideration of Effective Control for Repurchase Agreements

Effective for the first interim or annual period beginning on or after 15 December 2011. Early adoption is not permitted.

Effective for the first interim or annual period beginning on or after 15 December 2011. Early adoption is not permitted.



ASU 2011-02 Receivables (Topic 310), A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring

Effective for the first interim or annual period beginning on or after 15 June 2011, and should be applied retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption.

Effective for annual periods ending after 15 December 2012, including interim periods within those annual periods.

ASU 2010-28 Intangibles — Goodwill and Other (Topic 350), When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts

Effective for fiscal years, and interim periods within those years, beginning after 15 December 2010. Early adoption is not permitted.

Effective for fiscal years, and interim periods within those years, beginning after 15 December 2011. Nonpublic entities may early adopt the amendments using the effective date for public entities.

ASU 2010-26 Financial Services — Insurance (Topic 944), Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

Effective for fiscal years beginning after 15 December 2011, and interim periods within those fiscal years.

Effective for fiscal years beginning after 15 December 2011, and interim periods within those fiscal years.

71

Title Effective date

Removal of Certain References to Credit Ratings Under the Securities Exchange Act of 1934

180 days after publication in the Federal Register

Removal of Certain References to Credit Ratings Under the Investment Company Act

30 days after publication in the Federal Register; compliance with the new rules is required by 180 days after publication in the Federal Register.

Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds

21July 2015; however, banks with significant permitted trading operations will have to report certain quantitative information, beginning 30 June 2014 until 31 December 2016, depending on the size of the bank’s trading assets and liabilities.

Broker-dealer reports All broker-dealers will be required to comply with the Form Custody reporting requirements beginning with the quarter ending 31 December 2013.The requirement for broker-dealers to file either a compliance report or an exemption report is effective 1 June 2014.

Financial responsibility rules for broker-dealers 21 October 2013. Eliminating the prohibition against general solicitation and general advertising in Rule 506 and Rule 144A offerings

23 September 2013.

Disqualification of felons and other “bad actors” from Rule 506 offerings

23 September 2013; however, disqualification applies only to events that occur after the effective date.

Conflict minerals Issuers are required to file Form SD for each calendar year, with an initial report for 2013 to be filed by 2 June 2014. During a transition period of two years, or four years for smaller reporting companies, an issuer may describe its products as “DRC conflict undeterminable” if it is unable to determine whether they are conflict free.

Iran Threat Reduction and Syria Human Rights Act of 2012 The Act was effective 10 August 2012. Disclosure is required in periodic reports with filing due dates after 6 February 2013.

Listing standards for compensation committees The proxy disclosure requirements are effective for shareholder meetings after 1 January 2013 at which directors are elected. The NYSE and NASDAQ rule changes have tiered effective dates between 1 July 2013 and 31 October 2014 (see above).

Net worth standard for accredited investors 27 February 2012; however, Section 413 of the Dodd-Frank Act was effective 21 July 2010.

Mine safety disclosure 27 January 2012; however, Section 1503 of the Dodd-Frank Act was effective 20 August 2010.

Shareholder approval of executive compensation and golden parachute compensation

4 April 2011; however, the rule requires both the initial “say-on-pay” vote and the initial frequency vote at the first annual meeting occurring on or after 21 January 2011. Smaller reporting companies are required to comply with the “say-on-pay” and frequency votes for shareholder votes after 21 January 2013. Issuers must hold shareholder votes on golden parachutes and make the related disclosures in proxies for mergers or similar transactions filed on or after 25 April 2011.

Effective date matrix — final SEC pronouncements and interpretive releases



Auditing Standard No. 17, Auditing Supplemental Information Accompanying Audited Financial Statements

Effective for reports on supplemental information that accompanies financial statements for fiscal years ending on or after 1 June 2014 (pending approval by the SEC).

Attestation Standard No. 1, Examination Engagements Regarding Compliance Reports of Brokers Dealers

Effective for examination engagements of fiscal years ending on or after 1 June 2014 (pending approval by the SEC).

Attestation Standard No. 2, Review Engagements Regarding Exemption Reports of Brokers and Dealers

Effective for review engagements of fiscal years ending on or after 1 June 2014 (pending approval by the SEC).

Auditing Standard No. 16, Communications with Audit Committees

Effective for audits of financial statements for fiscal years beginning on or after 15 December 2012.

Rule 7101, Allocation of Issuer Accounting Support Fee Amendments effective for the 2012 funding cycle.

Effective date matrix — final PCAOB pronouncements and rules

73


SAS No. 127, Omnibus Statement on Auditing Standards — 2013

Effective for periods ending on or after 15 December 2012.

SAS No. 126, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (Redrafted)

Effective for audits of financial statements for periods ending on or after 15 December 2012.

SAS No. 125, Alert That Restricts the Use of the Auditor’s Written Communication

Effective for the auditor’s written communications related to audits of financial statements for periods ending on or after 15 December 2012. For all other engagements conducted in accordance with GAAS, this SAS is effective for the auditor’s written communications issued on or after 15 December 2012.

SAS No. 124, Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country


SAS No. 123, Omnibus Statement on Auditing Standards 2011

Effective for periods ending on or after 15 December 2012.

SAS No. 122, Statements on Auditing Standards: Clarification and Recodification


Effective date matrix — final ASB standards



Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date — an amendment of GASB Statement No. 68

Effective simultaneously with the provisions of Statement No. 68, for fiscal years beginning after 15 June 2014. Earlier application is encouraged.

Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees

Effective for financial statements for periods beginning after 15 June 2013. Earlier application is encouraged.

Statement No. 69, Government Combinations and Disposals of Government Operations

Effective for financial statements for periods beginning after 15 December 2013 with application on a prospective basis. Earlier application is encouraged.

Statement No. 68, Accounting and Financial Reporting for Pensions — an amendment of GASB Statement No. 27

Effective for financial statements for fiscal years beginning after 15 June 2014. Earlier application is encouraged.

Statement No. 67, Financial Reporting for Pension Plans — an amendment of GASB Statement No. 25

Effective for financial statements for fiscal years beginning after 15 June 2013. Earlier application is encouraged.

Statement No. 66, Technical Corrections — 2012 (an amendment of GASB Statements No. 10 and No. 62)

Effective for financial statements for periods beginning after 15 December 2012. Earlier application is encouraged.

Statement No. 65, Items Previously Reported as Assets and Liabilities


Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions, an amendment of GASB Statement No. 53


Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position


Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements


Statement No. 61, The Financial Reporting Entity: Omnibus, an amendment of GASB Statements No. 14 and No. 34


Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements


Statement No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans

The provisions of Statement 57 related to the use and reporting of the alternative measurement method were effective immediately after issuance on 31 December 2009. The provisions related to the frequency and timing of measurements are effective for actuarial valuations first used to report funded status information in OPEB plan financial statements for periods beginning after 15 June 2011. Earlier application is encouraged.

Effective date matrix — final GASB pronouncements

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