• The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or value using an alternative measurement method) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification;

• The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and

• The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.

• The FASB concluded that the expected benefits of the proposed changes would justify the costs.

• The PCAOB has completed nearly seven years of outreach and public comment in publishing a final auditor reporting standard. If approved by the SEC, the audit reports for public companies would retain a pass/fail opinion, while adding communication of critical audit matters, disclosure of audit firm tenure, and other revisions to clarify the auditor's role and responsibilities and make the auditor's report easier to read. The PCAOB's release is particularly relevant because investors are the primary beneficiaries of an audit and the auditor's report is the primary means by which the auditor communicates to them.

• Regardless of where, or whether, prior years of service of an audit firm is disclosed, the years of experience may be one of the many factors considered by audit committees in their selection and oversight of the external auditor. An audit committee may want to incorporate prior auditor service into its oversight of the auditor's expertise, incentives and, ultimately, appropriate performance in the conduct of the audit.

• In today's interconnected world economy, investors depend on high-quality auditing and auditing standards around the world. U.S. investors routinely invest in companies based outside the United States and listed in non-U.S. jurisdictions to diversify their portfolios. Oversight and governance of international audit and related standards is important so that standards and guidance for auditors support the delivery of high-quality audits.

• Ultimately, management's ability to fulfill its financial reporting responsibilities depends on the effectiveness of internal control over financial reporting which are controls designed to provide reasonable assurance that the company's financial statements are prepared in accordance with GAAP. Over the next several years, updating and maintaining internal controls will be particularly important as companies work through the implementation of the significant new accounting standards. Companies' implementation activities will require careful planning and execution, as well as sound judgment from management.  

• Companies that apply the COSO framework for assessing the effectiveness of internal control over financial reporting might find its five components and related concepts and principles useful in developing a structured approach for implementation and meeting related documentation expectations.

• Public trust in financial reporting is also maintained by protecting the independence of the outside auditor from its audit client. The audit committee must own the selection of the audit firm, make the final decision when it comes time to negotiate the audit fee, and oversee the auditor's independence.

• When selecting a successor auditor, an audit committee should request information to be satisfied that the successor is independent at the start of the audit and professional engagement period. Audit committees should consider circumstances that might require the company to make adjustments to prior period financial statements.

• In both large and small public accounting firms, it is important to identify and then mitigate institutional and individual pressures, which if left unaddressed can have the potential to compromise the skepticism and professional judgment that are critical to audit quality and the detection of material misstatements.

• Public accounting firms must work with the audit committee (and management) to agree on appropriate deadlines and audit fees to ensure that audit quality is consistently maintained.

• The new revenue standard provides a definition of a contract, which encompasses enforceable rights and obligations. Registrants should carefully assess the specific facts and circumstances of each transaction - including all relevant contractual terms - and exercise reasonable judgment when identifying and evaluating each contract with its customers.

• Certain registrants from different industries recently consulted with OCA regarding their application of the guidance for identifying performance obligations. While the industries and facts varied, some important recurring takeaways related to identifying the unit of account: (a) the concept of a "deliverable" under existing revenue guidance should not be presumed to be the same as the concept of a "performance obligation" under the new revenue standard; (b) while the staff did not object to the registrants' proposed accounting for the promised goods and services as a single performance obligation, the staff's views were based on the registrants' careful analysis of the promised goods and services and whether those goods and services were both "capable of being distinct" and "distinct within the context of the contract"; and (c) it's critical that preparers understand the underlying transaction, including their specific facts and circumstances and contractual terms, and then faithfully apply the principles of the new revenue standard.

• OCA was recently consulted on whether the measure of progress should be adjusted for the cost of third-party services provided as part of a single performance obligation. The SEC staff would be skeptical of the broad application of this guidance to other types of arrangements.

• The SEC staff has encouraged companies to provide transition disclosures to investors about the anticipated effects of adoption of the new revenue, leases and credit impairment standards. When a company does not know, or cannot reasonably estimate the expected financial statement impact, that fact should be disclosed. But, in these situations, the SEC staff expects a qualitative description of the effect of the new accounting policies, and a comparison to the company's current accounting to aid investors' understanding of the anticipated impact. It should also disclose the status of its implementation process and significant implementation matters yet to be addressed.

• The transition disclosures should be subject to effective internal control over financial reporting. As management completes portions of its implementation plan for a new GAAP standard and develops an assessment of the anticipated impact of the standard, effective internal controls should be in place to timely identify disclosure content and to provide for appropriately informative disclosure to investors based on the information known at that time.

• From a preliminary look at recent Forms 10-K and 10-Q filings, we continue to be encouraged by the number of companies that have enhanced their transition disclosures. However, the SEC staff observes that some companies indicate that the impact of the new revenue standard is not expected to be material.  The changes in the new revenue standard will impact nearly all companies. Even if the extent of change on the balance sheet or income statement is not deemed to be material, the related disclosures may be material.

• Updating and maintaining internal controls will be particularly important as companies work through the implementation of significant new GAAP standards. Companies' implementation activities will require careful planning and execution, including careful evaluation of the specific facts and circumstances, to determine the appropriate application of new GAAP standards.

• The transition to a new GAAP standard necessitates the need for management to carefully consider whether the transition (or consistent application of the standard once implemented) results in new risks or changes to previously identified risks, including fraud risks.

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