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August 2016 

Greetings,

We are pleased to release MaloneBailey's August 2016 newsletter highlighting recent SEC and FASB updates. Please note that the updates provided in this newsletter are not a comprehensive list. We have selected the updates that we believe may be of relevance to you. Our goal is to provide you with resources to keep you informed of the ever-changing rules and regulations pertaining to regulatory and accounting matters. 

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

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

The MaloneBailey Team
www.malonebailey.com
 
In This Issue

SEC Updates
Recent SEC Updates
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Adoption of Updated EDGAR Filer Manual 

Summary - The SEC has issued a Final Rule, Adoption of Updated EDGAR Filer Manual. This final rule includes revisions to the Electronic Data Gathering, Analysis, and Retrieval System (EDGAR) Filer Manual (EDGAR Filer Manual) and related rules to reflect updates to the SEC's EDGAR system. The updates are being made primarily to support the submission of asset-backed securities (ABS) related form types by registrants whose Standard Industrial Classification code is not 6189. In addition, the final rule includes amendments to terminate support for certain U.S. GAAP taxonomies and to allow certain filers to use "inline XBRL" in their related official filing.
For more information, click here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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Summary - The SEC has published a request for comment on the effectiveness of financial disclosure requirements in Regulation S-X. Regulation S-X contains disclosure requirements on the form and content of financial statements to be included in filings with the SEC. The request for comment focuses on the specific requirements for the form and content of financial disclosures that companies must file with the SEC about acquired businesses, affiliated entities, and guarantors and issuers of guaranteed securities. Comments are requested within 60 days from publication of the request for comment in the Federal Register.
In this request for comment, the SEC seeks public comment on the following specific rules under Regulation S-X, along with certain related requirements:
  • Rule 3-05, Financial Statements of Businesses Acquired or to be Acquired;
  • Rule 3-09, Separate Financial Statements of Subsidiaries Not Consolidated and 50 Percent or Less Owned Persons;
  • Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered; and
  • Rule 3-16, Financial Statements of Affiliates Whose Securities Collateralize an Issue Registered or Being Registered.
As the request for comment provides, the SEC "seeks to better understand how well these requirements, some of which have remained largely the same for many years, are informing investors and we are soliciting comment on how investors use the disclosures to make investment and voting decisions. We are also interested in learning about any challenges that registrants face in preparing and providing the required disclosures." The SEC also indicates that it is "interested in potential changes to these requirements that could enhance the information provided to investors and promote efficiency, competition, and capital formation."
The request for comment is part of the Disclosure Effectiveness Initiative, which is a broad-based SEC staff review of the disclosure requirements and the presentation and delivery of the disclosures. As part of the initiative, the staff in the SEC's Division of Corporation Finance is reviewing the disclosure requirements in Regulation S-K and Regulation S-X, which provides requirements for financial statements, and is considering ways to improve the disclosure regime for the benefit of both companies and investors. The goal is to comprehensively review the requirements and make recommendations on how to update them to facilitate timely, material disclosure by companies and shareholders' access to that information. Initially, the review will focus on the business and financial disclosures required by periodic and current reports, Forms 10-K, 10-Q, and 8-K. Subsequent phases of the project will include compensation and governance information included in proxy statements.
For more information, click here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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Order Granting Limited and Conditional Exemption Under Section 36(a) of the Securities Exchange Act of 1934 from Compliance with Interactive Data File Exhibit Requirement in Forms 6-K, 8-K, 10-Q, 10-K, 20-F and 40-F to Facilitate Inline Filing of Tagged Financial Data 

Summary - The SEC announced that it will allow companies to voluntarily file structured financial statement data in a format known as "Inline XBRL." According to the SEC, this initiative represents "another step in the SEC's continuing efforts to modernize and enhance its requirements to facilitate transparency of, and access to, companies' disclosures."
The SEC's rules require operating companies to structure financial statement data in their filings, including annual and quarterly reports, using eXtensible Business Reporting Language (XBRL), which is a machine-readable format. Companies currently are required to provide this XBRL structured data as an exhibit to these filings. Since these requirements were first adopted, technology has evolved and now enables filers to integrate XBRL structured data within their HTML filings through a format known as Inline XBRL.
The SEC has issued an order under the Securities Exchange Act of 1933 to allow companies to file structured financial statement data required in their annual and quarterly reports that is integrated within their HTML filings through March 2020. The Inline XBRL format has the potential to provide a number of benefits to companies and users of the information. According to the SEC's order, the format could decrease filing preparation costs, improve the quality of structured data, and, by improving data quality, increase the use of XBRL data by investors and other market participants.
The SEC believes that the experience and feedback received from the use of this option could facilitate the development of Inline XBRL preparation and analysis tools, provide investors and companies with opportunities to evaluate its usefulness, and help inform any future SEC rulemaking in this area.
The EDGAR system has been upgraded to facilitate the use of Inline XBRL. An updated EDGAR Filer Manual provides the technical requirements needed for filers to begin using Inline XBRL.
For more information, click here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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Staff Speech, Remarks at the FINRA Foundation 2015 National Financial Capability Study Release by Mary Jo White, SEC Chair

Summary - SEC Chair Mary Jo White recently spoke at the release of the FINRA Foundation's "2015 National Financial Capability Study." FINRA has been performing the study since 2009 with the overarching research objectives to benchmark key indicators of financial capability and evaluate how these indicators vary with underlying demographic, behavioral, attitudinal and financial literacy characteristics. Chair White noted that the 2015 study "provides some very illuminating data and insights on the financial well-being of Americans, and on their knowledge, attitudes, and behaviors. It describes the financial habits and thinking of Americans with data we might not otherwise have. For financial regulators, this is invaluable feedback that helps us assess the impact of what we are doing and how we may need to adjust our focus and increase and change our outreach."
For more information, click here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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Staff Speech, Keynote Address, SEC Regulation Outside the United States "The SEC at Home and Abroad" by Andrew J. Donohue, Chief of Staff

Summary -  SEC Chief of Staff, Andrew J. Donohue, recently gave the keynote speech at the "InvestoRegulation Conference," held in London, UK. Mr. Donohue discussed the SEC's work related to securities regulation outside the U.S. Mr. Donohue noted that throughout his career "whether at the SEC or in the private sector, I have witnessed the expanding intersection between U.S. securities regulation and the global securities community. This can be seen in the number of SEC-regulated parties that reside abroad, the amount of cross border holdings, and the ever-growing level of cooperation among international regulators."
 
Mr. Donohue's comments focused on the following three developments:
  • The SEC's global reach within the securities industry;
  • The importance of international cooperation on the major issues facing today's markets; and
  • Highlights of the great work of the SEC and its staff during Chair Mary Jo White's tenure.
For more information, click here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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Staff Speech, Keynote Address, International Corporate Governance Network Annual Conference: Focusing the Lens of Disclosure to Set the Path Forward on Board Diversity, Non-GAAP, and Sustainability by Mary Jo White, SEC Chair 

Summary - SEC Chair Mary Jo White recently spoke at an International Corporate Governance Network conference. In her remarks, Ms. White indicated that the SEC staff is preparing a recommendation to the SEC to propose amending the rule to require companies to include in their proxy statements more meaningful board diversity disclosures on their board members and nominees where that information is voluntarily self-reported by directors. Chair White indicated that some "may oppose even minimally more prescriptive diversity disclosure requirements. My view is that the SEC has a responsibility to ensure that our disclosure rules are serving their intended purpose of meaningfully informing investors. This rule does not and it should be changed. Our lens of board diversity disclosure needs to be re-focused in order to better serve and inform investors."
Chair White also discussed the role of the SEC in corporate governance, the use of non-GAAP financial measures, and sustainability disclosures. Highlights of Ms. White's remarks on these issues included:
  • The SEC has an impact on corporate governance through its disclosure powers, requiring public companies to provide investors with the information they need to make informed investment and voting decisions. The SEC thus does not decide who may sit on a corporate board, but its rules do require disclosure about those who serve or are nominated to serve as directors and, importantly, why they were selected to serve.
  • In connection with the SEC staff's ongoing disclosure effectiveness review, the SEC recently issued a broad-based concept release seeking input from investors, issuers and other affected market participants on its business and financial disclosure requirements. The SEC's overall challenge is to re-focus the lens of disclosure to better serve today's investors. The challenge for investors is even greater- to use your voices not only to inform us about the disclosures you need to make informed decisions, but also to influence corporate behavior to better protect and generate sustainable corporate value.
  • Ms. White generally thinks it is a good idea to provide companies with flexibility to use non-GAAP measures that are not misleading and the SEC does hear that investors want such information. But recently Chair White has had significant concerns about companies taking this flexibility too far and beyond what is intended and allowed by its rules. In too many cases, the non-GAAP information, which is meant to supplement the GAAP information, has become the key message to investors, crowding out and effectively supplanting the GAAP presentation. Ms. White strongly urged companies to carefully consider recent guidance on non-GAAP measures issued by the SEC staff and to revisit their approach to non-GAAP disclosures.
  • On the use of non-GAAP measures, Chair White indicated that the SEC is watching this space very closely and are poised to act through the filing review process, enforcement and further rulemaking if necessary to achieve the optimal disclosures for investors and the markets.
  • SEC rules and guidance are clear that, to the extent issues about sustainability are material to a company's financial condition or results of operations, they must be disclosed. But deciding whether such disclosures are triggered in a particular context is often easier said than done when trying to calibrate materiality to phenomena that have a longer term horizon than most other financial metrics do.
  • At this juncture, the path forward on enhancing sustainability reporting is clearly still developing. Unlike financial disclosures, established and agreed upon sustainability metrics for reporting do not yet exist. In many countries outside of Europe and South Africa, sustainability reporting is still largely voluntary. There is much debate about climate change and how to address it.
  • Although the SEC is seeing increased disclosure and engagement on sustainability matters, it is taking a more focused look at such disclosures, particularly related to climate change, in annual filing reviews. There is, in short, more work and thinking to be done on sustainability reporting at the SEC, and by companies and investors, including on whether, when, where, and how to provide disclosure and what precisely should be provided. The issue has the SEC's attention, but disclosure alone will not achieve the ultimate results many investors and other constituents are seeking.
For more information, click here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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Staff Speech, Remarks before the 35th Annual SEC and Financial Reporting Institute Conference by Wesley R. Bricker, Deputy Chief Accountant

Summary - Wesley R. Bricker, SEC Deputy Chief Accountant, recently spoke at the "35th Annual SEC and Financial Reporting Institute Conference" held in Los Angeles, CA. Mr. Bricker discussed a number of financial reporting matters, including:
  • Implementation activities related to the recently issued standards on revenue recognition and leasing;
  • The continued focus on internal control over financial reporting (ICFR);
  • Opportunities to provide input to the PCAOB regarding its important standard setting activities; and
  • Continued vigilance on the responsibilities for maintaining auditor independence.
Highlights of Mr. Bricker's remarks regarding the implementation of the new accounting standards on revenue recognition and leases include:
  • Given the pervasiveness of the new accounting standards on revenue recognition and leases, now is a good time for companies to focus on audit committee and investor outreach and education regarding the effect of the new standards on companies' financial reporting. It is also a good time for companies, their audit committees, and their auditors to assess the quality and status of implementation plans so that the implementation of the standards achieves the financial reporting objectives intended by the standard setters.
  • The SEC staff has continues to actively monitor the profession's transition efforts including the FASB's Revenue Transition Resource Group ("TRG") and the AICPA's Financial Reporting Executive Committee, among others, to identify the nature and volume of implementation questions and views on those questions. Mr. Bricker indicated his concern that other application questions have not yet been fully resolved by the AICPA industry groups or, if needed, presented to the TRG for resolution. Mr. Bricker cautioned that "to the extent that preparers, industry groups, or other constituents have identified questions but have chosen not to raise them in hopes of preserving their current accounting, let me caution you that auditors, regulators, and others will look to understand those revenue policies and how they are consistent with the principles in the new revenue recognition standard. It's just a matter of timing as to when we gain that understanding, whether before or after companies implement the standard."
  • The SEC staff has received consultations from registrants on their particular accounting policies for revenue recognition under the new standard. In forming its views, the SEC staff considers first the nature, design, and economic substance of the transaction, then the: (a) language in the standard and the related basis for the standard setters' conclusions; (b) implementation discussions, such as those at the TRG; and (c) objectives expressed in the standard for consistency and comparability. Mr. Bricker also discussed specific issues recently consulted on by OCA, including the definition of a contract within Topic 606 and revenue recognition associated with certain royalties.
  • The SEC staff has long advised that a registrant should provide transition disclosures to investors of the impact that a recently issued accounting standard will have on its financial statements when that standard is adopted in a future period. The preparation of the transition disclosures should be subject to effective ICFR and disclosure controls and procedures. As management completes portions of its implementation plan related to revenue recognition and develops an assessment of the anticipated impact the standard will have on the company's financial statements, internal and disclosure controls should be designed and implemented to timely identify relevant disclosure content from the implementation assessments and to ensure, where necessary, that appropriately informative disclosure is made. Investors should expect the level of transition disclosures to increase as a company progresses in its implementation plans and, when necessary, engage with company management to understand these disclosures.
  • As with revenue recognition, Mr. Bricker encourages companies to assess the quality and status of implementation plans to achieve the financial reporting objectives intended by the standard setters, while also providing timely investor education on the anticipated effect of the lease standard prior to adoption.
For more information, click here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Recent FASB Updates
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FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Summary -  The FASB has issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.
 
The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.
 
Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.
 
The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization's portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.
 
In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.
 
The ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). For public companies that are not SEC filers, the ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other organizations, the ASU on credit losses will take effect for fiscal years beginning after December 15, 2020, and for interim periods within fiscal years beginning after December 15, 2021.
 
Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

For more information, click here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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FASB Accounting Standards Update No. 2015-14, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date

Summary -  The FASB has issued Accounting Standards Update (ASU) No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
 
All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in ASU 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU 2014-09.

For more information, click here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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FASB Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory
 
Summary -  The FASB has issued Accounting Standards Update (ASU) No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Topic 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin.
 
The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost.
 
An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method.
 
The amendments in this Update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards.
 
For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.

For more information, click  here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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FASB Accounting Standards Update No. 2015-08, Business Combinations (Topic 805): Pushdown Accounting

Summary -  The FASB has issued ASU No. 2015-08, Business Combinations (Topic 805): Pushdown Accounting-Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115. This ASU amends various SEC paragraphs of the FASB Accounting Standards CodificationTM pursuant to the issuance of SEC Staff Accounting Bulletin No. 115.

For more information, click here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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FASB Accounting Standards Update No. 2015-05, Intangibles -Goodwill and Other -Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement

Summary -  The FASB has issued ASU No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. Existing GAAP does not include explicit guidance about a customer's accounting for fees paid in a cloud computing arrangement. Examples of cloud computing arrangements include: (a) software as a service; (b) platform as a service; (c) infrastructure as a service; and (d) other similar hosting arrangements.
 
The amendments add guidance to Subtopic 350-40, Intangibles - Goodwill and Other - Internal-Use Software, which will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The guidance already exists in the FASB Accounting Standards Codification™ in paragraphs 985-605-55-121 through 55-123, but it is included in a Subtopic applied by cloud service providers to determine whether an arrangement includes the sale or license of software.
 
The amendments provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments do not change the accounting for a customer's accounting for service contracts. As a result of the amendments, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets.
 
For public business entities, the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. For all other entities, the amendments will be effective for annual periods beginning after December 15, 2015, and interim periods in annual periods beginning after December 15, 2016. Early adoption is permitted for all entities.
 
An entity can elect to adopt the amendments either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. For prospective transition, the only disclosure requirements at transition are the nature of and reason for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change. For retrospective transition, the disclosure requirements at transition include the requirements for prospective transition and quantitative information about the effects of the accounting change.

For more information, click here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.