July 2019: Latest SEC, FASB & Tax Updates

We are pleased to release MaloneBailey's July 2019 issue of The Crunch, our newsletter highlighting recent accounting, regulatory and tax updates. This special edition of our newsletter highlights FASB updates that are scheduled to go into effect for periods beginning after December 15, 2019, as well as our recent SEC, FASB and tax updates. Please note that the updates provided in this newsletter are not a comprehensive list. We encourage you to visit the SEC , FASB and IRS websites for more information as well as a complete list of updated rules, regulations and proposals. We invite you to contact us should you have any questions about the information provided in this issue. Please visit our website to review archived versions of this newsletter containing past accounting, regulatory and tax updates.

The MaloneBailey Team

www.malonebailey.com

What's the Crunch?

Featured Podcast

How Millennials Are Changing the Workplace

FASB Update Look Ahead - Preparing for 2020

FASB Updates Going Into Effect in 2020

FASB ASU 2019-05 - Financial Instrument - Credit Losses (Topic 326): Targeted Transition Relief
FASB ASU 2019-04 - Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
FASB ASU 2019-03 - Not-for-Profit Entities (Topic 958): Updating the Definition of Collections
FASB ASU 2019-02 - Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment — Broadcasters — Intangibles — Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials
FASB ASU 2019-01 - Leases (Topic 842): Codification Improvements
FASB ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments—Credit Losses
FASB ASU 2018-18 - Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606
FASB ASU 2018-17 - Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities
FASB ASU 2018-15 - Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
FASB ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
FASB ASU 2017-04 - Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
FASB ASU 2016-13 - Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Accounting and Regulatory Updates

Recent FASB Updates

FASB ASU 2019-06 - Intangibles —Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities
CECL Transition Resource Group
FASB Discusses Financial Performance Reporting
FASB Discusses Agenda Prioritization

Recent SEC Updates

SEC Staff Speech, Reasonableness Pants by Commissioner Hester M. Peirce
SEC Staff Views: Voluntary Compliance with the New Mining Property Disclosure Rules Prior to Completion of EDGAR Reprogramming
SEC Staff Speech, How We Protect Retail Investors by Peter Driscoll, Director, Office of Compliance Inspections and Examinations
SEC Staff Speech, Remarks before the 2019 Baruch College Financial Reporting Conference: Aiming toward the future by Wesley Bricker, Chief Accountant
SEC Staff Speech, How We Howey by Commissioner Hester M. Peirce
SEC Staff Speech, Alligators in Nirvana: Smart Regulation and the Future of Financial Services-Public Policy Conference by Commissioner Hester M. Peirce

Tax Updates

2019 Post-Season Filing Update

Extra Crunch

IASB Proposes Amendments for Interest Rate Benchmark Reform
PCAOB Publishes Staff Guidance on Communication of CAMs
Personalized Career Itineraries Guide and Retain Talented Women
AICPA and NASBA Propose Changes to Fields of Study CPA Standards
AICPA and NASBA Propose Changes to Fields of Study CPA Standards: Explanatory Memorandum Published

About MaloneBailey, LLP

Featured Podcast

Our featured podcast for July 2019 is one we have shared before, but we thought deserves the spotlight again. This episode highlights an important movement affecting organizations in all industries: how millennials are changing the workplace. There are plenty of articles out there talking about millennials, the good and the bad, and how they are living their lives differently from generations before them. From buying houses and starting families later in life to new views on true work-life balance, this generation is all about changing things for the (mostly) better.

Tune in to hear from Raven Fournier, Lead Recruiter at MaloneBailey, who addresses questions like:

Why is there so much buzz around the term 'millennial'?
What does a millennial value?
What are some of the changes organizations are making to employ millennials?

For this podcast and many more, please visit the Resources section of the MaloneBailey website.

FASB Updates Going Into Effect in 2020

FASB ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief

Summary - These amendments provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments—Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement—Overall, and 825-10.

For entities that have not yet adopted ASU No. 2016-13, the effective date and transition methodology are the same as in ASU No. 2016-13.

For entities that have adopted ASU No. 2016-13, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim period after the issuance of ASU No. 2019-05 as an entity has adopted the amendments in ASU No. 2016-13.

The amendments should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings balance in the balance sheet as of the date that an entity adopted ASU No. 2016-13.

For more information, click here .

FASB ASU 2019-04 - Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

Summary - These amendments clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement.

The topics included in this ASU are:

Topic 1: Codification Improvements Resulting from the June 11, 2018 and November 1, 2018 Credit Losses Transition Resource Group (TRG) Meetings;
Topic 2: Codification Improvements to ASU No. 2016-13;
Topic 3: Codification Improvements to ASU No. 2017-12 and Other Hedging Items;
Topic 4: Codification Improvements to ASU No. 2016-01; and
Topic 5: Codification Improvements Resulting from the November 1, 2018 Credit Losses TRG Meeting.

For entities that have not yet adopted the amendments in ASU 2017-12 as of April 25, 2019 (the issuance date of ASU 2019-04), the effective dates and transition requirements for the amendments to Topic 815 are the same as the effective dates and transition requirements in ASU 2017-12.

For entities that have adopted the amendments in ASU 2017-12 as of the issuance date of ASU 2019-04, the effective date is as of the beginning of the first annual reporting period beginning after April 25, 2019. For those entities, early adoption is permitted, including adoption on any date on or after April 25, 2019.

For the amendments related to ASU 2016-01, the effective date is for fiscal years and interim periods beginning after December 15, 2019. Early adoption in any interim period is permitted.

For entities that have not yet adopted the amendments in ASU 2016-13, the effective dates and transition requirements are the same as the effective dates and transition requirements in ASU 2016-13. For entities that have adopted the amendments in ASU 2016-13 as of the issuance date of ASU 2019-04, the effective date is for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted in any interim period as long as the entity has adopted the amendments in ASU 2016-13.

For more information, click here .

FASB ASU 2019-03 - Not-for-Profit Entities (Topic 958): Updating the Definition of Collections

Summary - These amendments modify the definition of the term collections and require that a collection-holding entity disclose its policy for the use of proceeds from when collection items are deaccessioned (i.e., removed from a collection). If a collection-holding entity has a policy that allows proceeds from deaccessioned collection items to be used for direct care, it should disclose its definition of direct care.

The amendments apply to all entities, including business entities, that maintain collections. However, accounting for collections is primarily an issue for certain not-for-profit (NFP) entities because collections often are held by museums; botanical gardens; libraries; aquariums; arboretums; historic sites; planetariums; zoos; art galleries; nature, science, and technology centers; and similar educational, research, and public service organizations that have those divisions.

The amendments are effective for annual financial statements issued for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. Early application of the amendments is permitted. The amendments should be applied on

a prospective basis.

For more information, click here .

FASB ASU 2019-02 - Entertainment-Films-Other Assets-Film Costs (Subtopic 926-20) and Entertainment-Broadcasters-Intangibles-Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials

Summary - The standard addresses when an organization should assess films and license agreements for program material for impairment at the film-group level. The amendments in the standard also:

Revise presentation requirements;
Require that an organization provide new disclosures about content that is either produced or licensed; and
Address cash flow classification for license agreements.

For public companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other organizations, the standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted.

For more information, click here .

FASB ASU 2019-01 - Leases (Topic 842): Codification Improvements

Summary - These amendments align the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement) should be applied. (Issue 1)

The ASU also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities. (Issue 2)

Finally, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. (Issue 3)

The transition and effective date provisions apply to Issue 1 and Issue 2. They do not apply to Issue 3 because the amendments for that Issue are to the original transition requirements in Topic 842.

The amendments in this ASU amend Topic 842. That Topic has different effective dates for public business entities and entities other than public business entities. The effective date of those amendments is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years for any of the following:

A public business entity
A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an overthe-counter market
An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC).

For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

Early application is permitted. An entity should apply the amendments as of the date that it first applied Topic 842, using the same transition methodology in accordance with paragraph 842-10-65-1(c).

For more information, click here .

FASB ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses

Summary - The new guidance mitigates transition complexity by requiring entities other than public business entities, including not-for-profit organizations and certain employee benefit plans, to implement the credit losses standard issued in 2016, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. This aligns the implementation date for their annual financial statements with the implementation date for their interim financial statements. The guidance also clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard.

The effective date and transition requirements are the same as the effective dates and transition requirements in the credit losses standard, as amended by the new ASU.

For public business entities that meet the definition of a SEC filer, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For public business entities that do not meet the definition of an SEC filer, for fiscal years beginning after December 15, 2020, including

interim periods within those fiscal years. For all other entities, including not-for-profit entities within the scope of Topic 958 and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

For more information, click here .

FASB ASU 2018-18 - Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606

Summary - A collaborative arrangement is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success. The ASU provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard.

The ASU also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. It accomplishes this by allowing organizations to only present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard. The parts of the collaborative arrangement that are not in the scope of the revenue recognition standard should be presented separately from revenue accounted for under the revenue recognition standard.

For public companies, the amendments in ASU No. 2018-18 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other organizations, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted.

For more information, click here .

FASB ASU 2018-17 - Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities

Summary - The new guidance supersedes the private company alternative for common control leasing arrangements issued in 2014 and expands it to all qualifying common control arrangements.

Under the new standard, a private company could make an accounting policy election to not apply VIE guidance to legal entities under common control (including common control leasing arrangements) when certain criteria are met. This accounting policy election must be applied by a private company to all current and future legal entities under common control that meet the criteria for applying the alternative. A private company will be required to continue to apply other consolidation guidance, specifically the voting interest entity guidance.

Additionally, a private company electing the alternative is required to provide detailed disclosures about its involvement with, and exposure to, the legal entity under common control.

The ASU also amends the guidance for determining whether a decision-making fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in GAAP). Therefore, these amendments likely will result in more decision makers not consolidating VIEs.

For organizations other than private companies, the amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this ASU are effective for a private company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted.

For more information, click here .

FASB ASU 2018-15 - Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

Summary - These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments.

For public business entities, the amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. For all other entities, the amendments are effective for annual periods beginning after December 15, 2020, and interim periods in annual periods beginning after December 15, 2021. Early adoption is permitted.

For more information, click here .

FASB ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

Summary - These amendments modify the disclosure requirements in Topic 820 as follows:

Removals

The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;
The policy for timing of transfers between levels;
The valuation processes for Level 3 fair value measurements; and
For nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period.

Modifications

In lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities;
For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and
The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

Additions

The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and
The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

For all entities, amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

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

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

For more information, click here .

FASB ASU 2017-04 - Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

Summary - These amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.

The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

Effective for public business entities that are a SEC filers for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

A public business entity that is not an SEC filer should adopt ASU 2017-04 for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020.

All other entities, including not-for-profit entities, should adopt ASU 2017-04 for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis.

For more information, click here .

FASB ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Summary - Among other things, these amendments require 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.

In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

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, 2021, including interim periods within those fiscal years.

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 .

Recent FASB Updates & Proposals

FASB ASU 2019-06 - Intangibles - Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities

Summary - The FASB has issued Accounting Standards Update (ASU) No. 2019-06, Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities (NFPs). This ASU is intended to reduce the cost of accounting for goodwill and measuring certain identifiable intangible assets for not-for-profit organizations.

History

In 2014, the Private Company Council (PCC) worked with the FASB to issue two private company alternatives on accounting for goodwill and accounting for identifiable intangible assets in a business combination. Stakeholders told the FASB that these two private company alternatives would also benefit not-for-profit organizations.

ASU No. 2019-06

This ASU extends the scope of the two private company alternatives to not-for-profits, enabling organizations to recognize fewer items as separate intangible assets in acquisitions and to account for goodwill in a more cost-effective manner.

In ASU No. 2019-06, instead of testing goodwill for impairment annually at the reporting unit level, a not-for-profit organization that elects the accounting alternative will:

Amortize goodwill over 10 years or less, on a straight-line basis;
Test for impairment upon a triggering event; and
Have the option to elect to test for impairment at the entity level.

A not-for-profit organization also has the option to subsume certain customer-related intangible assets and all noncompete agreements into goodwill, which it subsequently must amortize.

Effective Date

The standard is effective immediately.

For more information, click here .

CECL Transition Resource Group

Summary - CCH has published to ARM implementation memos issued by the FASB’s CECL Resource Group . These memos provide guidance on various implementation issues associated with ASU 2016-13. This group was formed to solicit, analyze, and discuss stakeholder issues arising from implementation of ASU 2016-13.

For more information, click here .

FASB Discusses Financial Performance Reporting

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on April 24, 2019, and discussed an internal view approach to disaggregating income statement expense information. The FASB staff identified and explained the main issues and alternatives for FASB consideration on that approach and the draft preparer outreach materials. The goal of the internal view approach is to disaggregate income statement expense information based on how management internally views consolidated expenses.

The FASB directed its staff to proceed with outreach, affirmed the staff’s outreach strategy, and recommended several types of entities for outreach efforts. Additionally, the FASB highlighted areas for the staff to focus on during outreach with preparers and users.

The FASB directed its staff to conduct outreach with preparers on the operability of the internal view approach as well as other follow-on issues and to conduct outreach with users in order to understand the usefulness of potential outcomes from the internal view approach.

For more information, click here .

FASB Discusses Agenda Prioritization

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on May 8, 2019 and discussed the results of staff research on six potential projects related to eight recent agenda requests and a technical inquiry.The Board decided to add the following projects to the EITF agenda:

Financial Instruments—Clarifying the Interactions between Topic 321, Investments—Equity Securities, and Topic 323, Investments—Equity Method and Joint Ventures.
Revenue Recognition—Contract Modifications of Licenses of Intellectual Property.

The FASB also decided to expand the scope of its project, Improving the Accounting for Asset Acquisitions and Business Combinations , to include the accounting for in-process research and development and contingent consideration obligations recognized upon the initial consolidation of a variable interest entity that is not a business.The FASB decided not to add the following potential projects to its agenda:

Collective Defined Contribution Plans and the Definition of a Defined Contribution Plan;
Share Repurchase Disclosures—Price and Earnings Per Share Effects; or
Accounting for Emissions Trading and Other Environmental Market Transactions.

The FASB also decided to remove the project, Measurement Alternative and Observable Transactions Identified after the Reporting Date , from its research agenda.

For more information, click here .

Recent SEC Updates & Proposals

SEC Staff Speech - Reasonableness Pants by Commissioner Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently shared her views on how the SEC can better get individuals and companies to comply with securities laws. Peirce cautioned that it is the SEC’s “duty as a regulator to provide the public with clear guidance as to how people can comply with our law. We have not yet fulfilled this duty.”

For more information, click here .

SEC Staff Views - Voluntary Compliance with the New Mining Property Disclosure Rules Prior to Completion of EDGAR Reprogramming

Summary - The SEC’s Division of Corporation Finance (Corp Fin) issued a statement, Voluntary Compliance with the New Mining Property Disclosure Rules Prior to Completion of EDGAR Reprogramming . This statement provides guidance to registrants electing to voluntarily comply with the mining property disclosure rules prior to completion of EDGAR reprogramming. Specifically, the statement indicates that “a registrant may immediately elect to voluntarily comply with the new mining property disclosure rules as long as it satisfies all of Subpart 1300’s provisions and existing EDGAR requirements.”

When the SEC adopted new rules to modernize the property disclosure requirements for mining registrants in October 2018, it adopted a two-year transition period to provide adequate time for registrants to prepare to comply with the updated mining disclosure requirements codified in new Subpart 1300 of Regulation S-K. A mining registrant is not required to comply with the new rules until its first fiscal year beginning on or after January 1, 2021. The SEC previously indicated that a registrant could elect to comply early with the new mining property disclosure rules on a voluntary basis, subject to the SEC’s completion of the necessary EDGAR reprogramming changes, and so long as a registrant abides by all of subpart 1300’s requirements.

Corp Fin indicates that although EDGAR reprogramming changes are still being completed, a registrant may immediately elect to voluntarily comply with the new mining property disclosure rules as long as it satisfies all of Subpart 1300’s provisions and existing EDGAR requirements. If required to file a technical report summary, the registrant should file it as an additional exhibit under Item 601(b)(99) of Regulation S-K or Exhibit No. 15 of Form 20-F. Any maps, diagrams or other graphic material included in the technical report summary must meet EDGAR’s technical specification requirements.

Once the SEC has finalized the EDGAR reprogramming made necessary by the new rules, CCH will publish another notice. At that time, registrants electing early compliance with the new rules will be able to file the technical report summary as an exhibit under Item 601(b)(96) of Regulation S-K, as designated in those rules.

Registrants not electing early compliance should continue looking to Guide 7 for their mining property disclosures until they are required to comply with the rules in Subpart 1300.

For more information, click here .

SEC Staff Speech - How We Protect Retail Investors by Peter Driscoll, Director, Office of Compliance Inspections and Examinations

Summary - Peter Driscoll, SEC Director of Compliance Inspections and Examinations, recently discussed the 2019 priorities for the office. Top priorities include:

Anti-money laundering;
Microcap securities; and
Protection of customer funds.

For more information, click here .

SEC Staff Speech - Remarks before the 2019 Baruch College Financial Reporting Conference: Aiming toward the Future by Wesley Bricker, Chief Accountant

Summary - SEC Chief Accountant Wesley Bricker recently provided his thoughts on the future of financial reporting. Bricker indicated that while he remains “optimistic about the long-term role of financial reporting in the United States and the world, the backdrop is complex. In my view, we face a long term trend of less overall trust and confidence in virtually all institutions, from corporations to audit firms. This trend must be reversed, and we must all work to do so. The future must be met with all of us involved in financial reporting being clear-minded, evidence-based, courageous, and frank regarding the objectives, responsibilities, and sensible expectations for each involved in financial reporting. Confusion or lack of action in this regard undermines purpose, trust, quality, confidence, and ultimately increases costs borne by shareholders.”

Highlights of Bricker’s remarks included:

Confidence in financial reporting is essential to a healthy economy, including in the capital markets. However, financial reporting is a means to an end and not the end.

A company's control environment is a pervasive and vital aspect of getting reporting done right, acknowledging the inherent limitations of any financial reporting process. Ultimately, it is self-defeating for management to issue materially misstated financial statements, or an auditor to certify those financial statements. The costs of financial reporting failure can be substantial.

Perhaps the biggest challenge and focus area facing the auditing profession, and to some extent accounting more generally, is an apparent decline in the attractiveness of auditing, particularly to students.

Non-GAAP is a form of voluntary reporting, designed to supplement (and must be reconciled to, though not supplant, with presentation not more prominent than,) the comparable GAAP numbers. When done properly, the reporting can add critical insight for investors to the company's performance from management's perspective. Integrity and consistency in the non-GAAP and key operational figures are essential characteristics.

Internal control over financial reporting (ICFR) fosters reliability in the financial reporting process and has benefited from time and attention. The SEC, its staff, and the PCAOB, have issued a range of resources in the past to assist companies, audit committees, and management in strengthening ICFR. Bricker cautioned that the disclosure of material weaknesses in ICFR does not obviate the need to remediate those weaknesses in a reasonable period of time.

Auditor independence is fundamental to the credibility of audit reports and investor confidence in them. The judgments auditors make in the course of their audit work must be objective and impartial. Auditors are being asked with some frequency in the fund industry to consider providing permissible tax services to the fund, subject to pre-approval. Auditors and independent audit committees, of course, must take care to adhere to the law in both the process and conclusions. In doing so, attention should be given to avoiding scope creep into prohibited services, such as bookkeeping or other services related to the accounting records or financial statements.

Audit committees work in the interest of shareholders, and they have a clear information advantage over outside shareholders. As such, Bricker encourages voluntary audit committee-related disclosures, which he believes are becoming more prominent in filings. Bricker is encouraged by this momentum in audit committee disclosures over the past several years, recognizing there is always more that could be done.

Bricker discussed several focus areas for the future of financial reporting, including:

Evolution of technology. Technology is a prominent force that has been a catalyst of profound changes to business models, business process, accounting, and auditing. The opportunities and benefits of technology provide also come with risks and complexities. For example, data security and privacy concerns are immensely important. How we respond to these challenges will have a profound effect on our capital markets. As such, collectively we need to understand these changes through the lens of our capital markets, particularly in their impact on financial reporting. Adequately preparing the next generation of the accounting profession for such challenges will be critical to that understanding.

Small business. Auditors serve a vital role in providing candid feedback to the small businesses they audit, in either a financial statement only audit or an integrated audit. Bricker believes auditors can effectively serve this role within the boundaries of the independence rules. It is essential for auditors to have processes and controls to help mitigate the occurrence of a violation of the independence rules.

Audit firms can provide both audit and permissible other services to the same public audit client and serve the public and shareholder interests of strengthening companies and their financial reporting, while also in many cases benefitting audit quality. Mandates for disclosures always come at a cost, and such cost could be disproportionately burdensome on small businesses. Bricker indicated that the graduated disclosures or phased implementation has been positive.

International trends. It is crucial to identify similarities and differences in financial reporting and auditing standards across countries and reconcile them where possible. Differences in these standards and their applications contribute to uneven financial reporting quality and audit quality. This in turn manifests in additional costs that investors bear in acquiring and processing information about foreign companies relative to domestic companies and imposes significant costs on foreign companies seeking cross-listing.

An effective and efficient global capital market depends on high-quality financial information that is reliable and comparable, regardless of country of origin. Continually advancing the goal of disclosure of information across borders requires the cooperative efforts of all participants in the capital raising and financial reporting processes, including national governments, regulators, the international business community, international financial institutions, accounting and audit standard setters, and audit firms. I am concerned about national approaches that structurally intertwine private sector and public-sector responsibilities and blur the lines of responsibilities and accountabilities of each and adding additional undefined, and multilayered, incentives. Bricker cautioned that a regulatory process that lacks transparency and consistency can risk placing other interest well ahead of investors' interests and that it is our collective obligation to put investors' interests, notably their long-term interests, first.

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SEC Staff Speech - How We Howey by Commission Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently discussed the definition of securities given new investment vehicles and the need for the SEC to continue to provide guidance on this issue. Peirce cautioned that “securities laws do not cease to operate as a new industry develops. Consequently, individuals and companies in the industry must comply with our securities laws or risk becoming the subject of an enforcement action. It is therefore our duty as a regulator to provide the public with clear guidance as to how people can comply with our law. We have not yet fulfilled this duty.”

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SEC Staff Speech - Alligators in Nirvana: Smart Regulation and the Future of Financial Services - Public Policy Conference by Commission Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently discussed her views on considering the level of SEC regulation and the future of financial services. Peirce indicated that sometimes “the best choice will be to leave a problem to the market to solve. In other instances, the best choice will be a government solution that draws on market forces and takes into account government incentives and human tendencies.”

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Tax Updates

2019 Post-Season Filing Update

Summary - Wolters Kluwer Tax & Accounting has published its post-season tax briefing which highlights major tax law developments, including the introduction of Safe Harbor on the 100% bonus depreciation caps on luxury cars, and proposed regulations for deduction on FDII and GILTI.

To view the complete tax briefing, please click here .

Extra Crunch

IASB Proposes Amendments for Interest Rate Benchmark Reform

Summary - The International Accounting Standards Board (IASB) has published the Exposure Draft, Interest Rate Benchmark Reform–Proposed amendments to IFRS 9 and IAS 39 . The new Exposure Draft proposes changes to International Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement, and International Financial Reporting Standard (IFRS) 9, Financial Instruments, in light of the reform of interest rate benchmarks such as interbank offer rates (IBORs). Comments were due by June 17, 2019. The IASB has proposed to amend IFRS 9 and IAS 39 to provide relief from specific hedge accounting requirements that could have resulted in the discontinuation of hedge accounting solely due to the uncertainty arising from interest rate benchmark reform. IFRS require companies to use forward-looking information to apply hedge accounting. While interest rate benchmark reform is ongoing, there is uncertainty on when the current interest rate benchmarks will be replaced and with what interest rate. Without the proposed amendments, this uncertainty could result in a company having to discontinue hedge accounting solely because of the reform’s effect on its ability to make forward-looking assessments. This could result in reduced usefulness of the information in the financial statements for investors.The IASB is also considering the accounting implications arising from the reform in two stages. These proposed amendments relate to the effects of uncertainty in the period leading up to the replacement of interest rate benchmarks. As more information becomes available about the replacements, the IASB will assess the potential accounting implications of reform and determine whether to take further action. The IASB expects to release the final standard later in 2019.

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PCAOB Publishes Staff Guidance on Communication of CAMs

Summary - The Public Company Accounting Oversight Board (PCAOB) has published an additional staff guidance document, Implementation of Critical Audit Matters : A Deeper Dive on the Communication of CAMs (Communicating CAMs) to supplement its previously released guidance documents.

In 2017, the PCAOB adopted the new auditing standard, AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion . Among other requirements, AS 3101 and related amendments require auditors to include in the auditor's report a discussion of the critical audit matters, or CAMs. “Critical audit matters” are matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involve especially challenging, subjective, or complex auditor judgment. The SEC approved AS 3101 on October 23, 2017.

In addition to Communicating CAMs, to assist users in reporting CAMs, the PCAOB previously published the following Staff guidance documents headed “Implementation of Critical Audit Matters,” including:

“The Basics,” which provides a high level overview of the CAM requirements;
“Staff Observations from Review of Audit Methodologies,” which includes thematic observations that arose from the PCAOB’s Chief Auditor’s review of audit firm methodologies; and
“A Deeper Dive on the Determination of CAMs,” which includes PCAOB Staff answers to frequently asked questions for determining CAMs.

The new guidance document, “Communicating CAMs,” includes an overview of the CAMs, discusses how auditor is to communicate CAMs, and, using a Staff Frequently Asked Questions (FAQ) format, provides answers to questions that may arise when the auditor is communicating CAMs under AS 3101. The Staff FAQs provide guidance on:

How auditors should describe the principal considerations that led them to determine if a matter is a CAM;
The considerations that apply in describing audit procedures as part of communicating how a CAM was addressed in the audit;
The considerations that apply in describing the outcome of audit procedures or key observations with respect to a matter;
How CAM communications relate to company disclosures and other information the company has made publicly available;
For recurring CAMs, how the auditors should apply the CAM communication requirements;
Whether there is a specific order in which CAMs should appear in the CAM section of the auditor’s report; and
How the CAM requirements apply to a dual-dated auditor’s report.

The PCAOB staff developed Communicating CAMs through discussions with auditors regarding their experiences conducting dry runs of CAMs with their audit clients, the staff’s review of methodologies submitted by 10 U.S. audit firms that collectively audit approximately 85% of large accelerated filers, and other outreach efforts.

For more information, please click here .

Personalized Career Itineraries Guide and Retain Talented Women

Summary - CCH has published a new edition of Public Accounting Report (PAR), Personalized Career Itineraries Guide and Retain Talented Women - May 2019 . This special edition of PAR covers the Accounting MOVE Project, which surveys participating firms on key factors that drive the retention and advancement of women. Other topics in this edition of PAR include:

Why do rising women opt out; and
To retain rising women, invest in relationships.

For more information, please click here .

AICPA and NASBA Propose Changes to Fields of Study CPA Standards

Summary - The AICPA and the National Association of State Boards of Accountancy (NASBA) have jointly published an exposure draft with proposed revisions to the Statement on Standards for Continuing Professional Education Programs (CPE Standards). The organizations have also proposed changes to the NASBA Fields of Study document because the CPE Standards exposure draft references the Fields of Study document. The comment deadline for both exposure drafts is August 31, 2019.

The AICPA and NASBA jointly publish the CPE Standards, which provide a framework for the development, presentation, measurement, and reporting of CPE programs. The last revision of the CPE Standards was effective September 1, 2016.

The two exposure drafts were issued with the following accompanying documents:

Explanatory Memorandum detailing changes from existing Standards and requests for comment (discussed below);
Red-lined version of the 2016 CPE Standards, indicating where revisions are proposed (available on ARM); and
Red-lined version of the 2016 Fields of Study document, indicating where revisions are proposed (available on ARM).

The proposed amendments to the CPE Standards propose several new and revised definitions, including, for example, for adaptive learning, content reinforcement tools and content reviewer, and subject matter expert. There are also proposed amendments Article III – Standards for CPE Program Sponsors: Program Development .

Significant proposals for the program development standards:

Clarify that in certain limited circumstances, an element of engagement may not be appropriate, and that those cases must be documented;
Now refer to review questions as “review questions or other content reinforcement tools” to allow for flexibility and innovation by CPE providers;
Require compliant feedback for “true or false” questions even though they do not count towards the minimum number of required review questions;
Align terms of asynchronous and synchronous learning activities;
Clarify that a qualified assessment in blended learning must be completed with a minimum passing grade of 70 percent as in self-study programs; and
Clarify that courses offered for credit from an accredited university or college are deemed blended learning programs.

In addition, the exposure drafts also propose changes to the Program Presentation and Program Measurement sections.

The exposure draft of the NASBA Fields of Study Document includes a reminder to sponsors that a sponsor may re-issue a certificate of completion to a CPA in the instance that the field of study does not align to a CPA’s state board of accountancy’s accepted fields of study. The CPE sponsor is responsible for ensuring that the alternate, state-specific fields of study under which the credits are being awarded reasonably reflect the underlying content of the course. The Fields of Study document also proposes amendments to the Information Technology field of study language to reflect the organization of other fields of study in the document and ensure that current, relevant terms were used in the description.

For more information, please click here .

AICPA and NASBA Propose Changes to Fields of Study CPA Standards - Explanatory Memorandum Published

Summary - As discussed above, the AICPA and the National Association of State Boards of Accountancy (NASBA) have jointly published an exposure draft with proposed revisions to the Statement on Standards for Continuing Professional Education Programs (CPE Standards). The organizations have also proposed changes to the NASBA Fields of Study document because the CPE Standards exposure draft references the Fields of Study document. The comment deadline for both exposure drafts is August 31, 2019.

The proposal documents include this Explanatory Memorandum detailing changes from existing Standards and requests for comment. This memorandum discusses proposed changes to existing standards.

For more information, please click here .

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