February 2020: Latest SEC, FASB & Tax Updates

We are pleased to release MaloneBailey's February 2020 issue of The Crunch, our newsletter highlighting recent accounting, regulatory 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

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Featured Podcast

FASB Update on Consolidation Regarding Interest Held through Related Parties that Are Under Common Control

Recent FASB & AICPA Updates

FASB Accounting Standards Updates - Accounting Standards Update No. 2019-12 —Income Taxes (Topic 740) —Simplifying the Accounting for Income Taxes
FASB Accounting Standards Updates - Accounting Standards Update No. 2019-11
FASB Accounting Standards Updates - Accounting Standards Update No. 2019-09 —Financial Services —Insurance (Topic 944) —Effective Date
FASB Accounting Standards Updates - Accounting Standards Update No. 2019-10 —Financial Instruments —Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) —Effective Dates
Liabilities vs. Equity – FASB Discusses Distinguishing Liabilities from Equity
Materiality – AICPA Amends the Description of the Concept of Materiality
Auditing Standards – AICPA Issues Exposure Draft of Conforming Amendments to Recent Standards
Credit Losses – AICPA Issues Working Drafts on Implementation Issues for Credit Loss Standard
Non-GAAP Measures – IASB Proposes Guidance to Bring Greater Transparency to Non-GAAP Measures
Digital Assets – AICPA Issues Practice Aid on Accounting for and Auditing of Digital Assets
General Accounting and Auditing Developments – New Edition of AICPA Alert Published
Property and Liability Insurance Entities – New Edition of AICPA Guide Updated for New Indexes
AICPA Technical Q&As – AICPA Publishes New Technical Q&As
Deferred Taxes – AICPA Issues New TQAs on Deferred Taxes
Local Governments – AICPA Issues New TQAs on State and Local Governments
CPE – AICPA and NASBA Revise Standards for Continuing Professional Education Programs
CPA Exam – AICPA Targets Technology and Core Skills in CPA Exam Practice Analysis

Recent SEC & PCAOB Updates

Topic No. 8: Intellectual Property and Technology Risks Associated with International Business Operations
CF Disclosure Guidance Topic: Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b 2
SEC Staff Speech, Mochas, Mariners, and Morality - Remarks before the National Economists Club by Commissioner Hester M. Peirce
Release No. 33-10738: Amendments to Rule 2-01, Qualifications of Accountants
Release No. 34-87783: Disclosure of Payments by Resource Extraction Issuers
Release No. 33-10734: Amending the “Accredited Investor” Definition
Release No. 34-87607: Use of Derivatives by Registered Investment Companies and Business Development Companies; Required Due Diligence by Broker-Dealers and Registered Investment Advisers Regarding Retail Customers’ Transactions in Certain Leveraged/Inverse Investment Vehicles
Release No. IA-5407: Investment Adviser Advertisements; Compensation for Solicitations
Release No. 34-87782: Risk Mitigation Techniques for Uncleared Security-Based Swaps
Release No. 34-87780: Rule Amendments and Guidance Addressing Cross-Border Application of Certain Security-Based Swap Requirements
Critical Audit Matters – PCAOB Publishes Critical Audit Matters Spotlight
Quality Control – PCAOB Issues Quality Control Concept Release

Tax Updates

New Regulations for Determining Economic Nexus in Texas

Extra Crunch

The Outlook of Finance Decision-Makers for 2020

About MaloneBailey, LLP

Featured Podcast

PODCAST: FASB Update on Consolidation Regarding Interests Held through Related Parties that are Under Common Control

Our featured p odcast highlights a FASB Update on Consolidation Regarding Interests Held through Related Parties that are Under Common Control.

FASB issued the ASU to amend the consolidation guidance on how a reporting entity, that is the single decision maker of a VIE, should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE.

The amendments in this ASU change the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity.

Click on the image below to hear Steven Vertucci, Audit Partner, discuss key aspects on the main provisions of this ASU as well as why it's considered an improvement, who it affects and important questions to ask your accountant.

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

Recent FASB & AICPA Updates

FASB Accounting Standards Updates - Accounting Standards Update No. 2019-12 —Income Taxes (Topic 740) —Simplifying the Accounting for Income Taxes

Summary - The FASB has issued Accounting Standards Update (ASU) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, expected to reduce cost and complexity related to the accounting for income taxes.

The ASU removes specific exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles (GAAP). It eliminates the need for an organization to analyze whether the following apply in a given period:

Exception to the incremental approach for intraperiod tax allocation;
Exceptions to accounting for basis differences when there are ownership changes in foreign investments; and
Exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

The ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for:

Franchise taxes that are partially based on income;
Transactions with a government that result in a step up in the tax basis of goodwill
Separate financial statements of legal entities that are not subject to tax; and
Enacted changes in tax laws in interim periods.

The ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects.

For more information, click here .

FASB Accounting Standards Updates - Accounting Standards Update No. 2019-11

Summary - The FASB issued an Accounting Standards Update (ASU) that addresses issues raised by stakeholders during the implementation of ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

Among other narrow-scope improvements, the new ASU clarifies guidance around how to report expected recoveries. “Expected recoveries” describes a situation in which an organization recognizes a full or partial write-off of the amortized cost basis of a financial asset, but then later determines that the amount written off, or a portion of that amount, will in fact be recovered. While applying the credit losses standard, stakeholders questioned whether expected recoveries were permitted on assets that had already shown credit deterioration at the time of purchase (also known as PCD assets).

In response to this question, the ASU permits organizations to record expected recoveries on PCD assets.

In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities.

The ASU includes effective dates and transition requirements that vary depending on whether or not an entity has already adopted ASU 2016-13.

For more information, click here .

FASB Accounting Standards Updates - Accounting Standards Update No. 2019-09 —Financial Services —Insurance (Topic 944) —Effective Date

Summary - The FASB issued ASU No. 2019-09, Financial Services—Insurance (Topic 944): Effective Date, which finalizes insurance standard effective date delays for all insurance companies that issue long-duration contracts, such as life insurance and annuities. The change to the effective date is as follows:

Insurance (ASU No. 2018-12): For public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The one-time determination of whether an entity is eligible to be a smaller reporting company should be based on an entity’s most recent determination as of November 22, 2019, in accordance with SEC regulations. Early application is permitted.

For all other entities, for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early application is permitted.

For more information, click here .

FASB Accounting Standards Updates - Accounting Standards Update No. 2019-10 —Financial Instruments —Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) —Effective Dates

Summary - The FASB issued an Accounting Standards Update (ASU) that finalizes various effective date delays for standards on current expected credit losses (CECL), leases, and hedging. ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, finalizes various effective date delays for private companies, not-for-profit organizations, and certain smaller reporting companies applying the credit losses (CECL), leases, and hedging standards.

The effective dates for each of the standards are now as follows:

CECL (ASU No. 2016-13) : For public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The one-time determination of whether an entity is eligible to be a smaller reporting company should be based on an entity’s most recent determination as of November 15, 2019, in accordance with SEC regulations.

For all other entities, for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early application is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Leases (ASU No. 2016-02) : 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 over-the-counter market, and an employee benefit plan that files or furnishes financial statements with or to the U.S. Securities and Exchange Commission, for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Earlier application is permitted.

All other entities for financial statements issued for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Earlier application is permitted.

Derivatives and Hedging (ASU No. 2017-12 ): For public business entities, for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

For all other entities, for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.

Early adoption, including adoption in an interim period, is permitted.

For more information, click here .

Liabilities vs. Equity – FASB Discusses Distinguishing Liabilities from Equity

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on December 11, 2019, and discussed comment letter feedback on the July 2019 proposed Accounting Standards Update, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, and began redeliberations.

The FASB affirmed several decisions, including:

To account for convertible instruments as a single unit of account, except in circumstances in which the conversion features are required to be bifurcated under Topic 815, Derivatives and Hedging;
To remove an entity’s ability to overcome the presumption about share settlement when calculating diluted earnings per share (EPS) for a contract that may be settled in either cash or shares; and
To remove certain settlement criteria from Section 815-40-25, Derivatives and Hedging—Contracts in Entity’s Own Equity—Recognition.

For more information, click here .

Materiality – AICPA Amends the Description of the Concept of Materiality

Summary - The ASB issued Statement on Auditing Standards (SAS) No. 138, Amendments to the Description of the Concept of Materiality, and SSAE No. 20 of the same title, to respectively amend various AU-C and AT-C sections in AICPA Professional Standards.

The ASB’s current description of the concept of materiality is consistent with the definition of materiality used by the IASB and the International Auditing and Assurance Standards Board (IAASB). SAS 138 and SSAE 20 align the materiality concepts discussed in AICPA Professional Standards with the description of materiality used by the U.S. judicial system, the auditing standards of the PCAOB, the SEC, and the FASB.

The ASB believes “it is in the public interest to eliminate inconsistencies between the AICPA Professional Standards and the description of materiality used by the U.S. judicial system and other U.S. standard setters and regulators.”

In addition, the ASB believes that, “because the revised definition is aligned with the FASB, the revised description is substantially consistent with current U.S. firm practices with respect to determining and applying materiality in an audit or attest engagement and, accordingly, the amendments are neither expected nor intended to change U.S. practice.”

SAS 138 and SSAE 20 are effective for periods ending, or for practitioners’ examination or review reports dated, on or after December 15, 2020, respectively .

For more information, click here .

Auditing Standards – AICPA Issues Exposure Draft of Conforming Amendments to Recent Standards

Summary - The AICPA has issued the Exposure Draft, Proposed Statement on Auditing Standards: Amendments to AU-C Sections 725, 730, 930, 935, and 940. The comment deadline is February 10, 2020.

The proposal would make conforming amendments to AICPA standards for the recently adopted statements on auditing standards (SASs) on auditor reporting and the auditor’s responsibilities relating to other information included in annual reports.

The AICPA’s Auditing Standards Board (ASB) adopted SAS No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, in May 2019. SAS 134 makes important changes to the requirements for the form and content of the auditor’s report issued as a result of an audit of financial statements. In addition, SAS 134 addresses the auditor’s responsibilities to form an opinion on the financial statements.

In July, the ASB adopted SAS 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports. SAS 137 addresses the auditor’s responsibilities relating to other information (financial or nonfinancial), other than financial statements and the auditor’s report thereon, included in an entity’s annual report.

The exposure draft also includes proposed amendments to:

SAS 117, Compliance Audits, as amended (AICPA, Professional Standards, AU-C sec. 935);
SAS 119, Supplementary Information in Relation to the Financial Statements as a Whole, as amended (AICPA, Professional Standards, AU-C sec. 725);
SAS 120, Required Supplementary Information, as amended (AICPA, Professional Standards, AU-C sec. 730);
SAS 122, Statements on Auditing Standards: Clarification and Recodification, as amended, section 930, Interim Financial Information (AICPA, Professional Standards, AU-C sec. 930); and
SAS 130, An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements, as amended (AICPA, Professional Standards, AU-C sec. 940).

If adopted as proposed, the amendments will be effective for periods ending on or after December 15, 2020.

For more information, click here .

Credit Losses – AICPA Issues Working Drafts on Implementation Issues for Credit Loss Standard

Summary - The AICPA’s Financial Reporting Executive Committee (FinREC) has issued three new working drafts of guidance that will be included in the AICPA’s Audit and Accounting Guides. The new working drafts provide guidance on accounting issues for Insurance Entities related to the implementation of FASB Accounting Standards Update (ASU) No. 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts, and ASU No. 2016-13, Financial Instruments-Credit Losses, – Allowance for Credit Losses. The deadline for comments is February 10, 2020 for each of the working drafts.

The new FASB accounting standard on Long-Duration Contracts makes targeted improvements to the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance company. FinREC and the AICPA Insurance Expert Panel will continue to develop working drafts on accounting implementation issues that have been identified for the new standard.

Current Expected Credit Loss, or CECL, is a new standard that will change how many companies, including financial institutions, account for expected credit losses.

The new working drafts are:

Targeted Improvements to Long-Duration Contracts Implementation Issue – Issue #2: Considerations for the Allocation of the Liability for Future Policy Benefits to Revised Units of Account at Transition to FASB ASU 2018-12, for Blocks of Business that had Loss Recognition Prior to the Transition Date;
Allowance for Credit Losses Implementation Issue (with a focus on Insurance Entities) – Issue #34: Considerations Related to ASC Topic 326: Financial Instruments - Credit Losses, for Reinsurance Recoverables; and
Allowance for Credit Losses Implementation Issue (with a focus on Insurance Entities) – Issue #44: Considerations Related to ASC Topic 326: Financial Instruments - Credit Losses, for Premiums Receivable.

The final issues for the Long-Duration Targeted Improvements project will be included in the Audit and Accounting Guide: Life and Health Insurance Entities.

The final issues for the CECL project will be included in the new AICPA Audit and Accounting Guide: Credit Losses, as well as the Audit and Accounting Guides: Life and Health Insurance Entities and Property and Liability Insurance Entities.

For more information, click here .

Non-GAAP Measures – IASB Proposes Guidance to Bring Greater Transparency to Non-GAAP Measures

Summary - The IASB has proposed improvements to the way information is communicated in the financial statements, with a focus on financial performance. Responding to investor demand, the proposals would require more comparable information in the statement of profit or loss and a more disciplined and transparent approach to the reporting of management-defined performance measures (non-GAAP). The comment due date is June 30, 2020.

The proposals cover three main topics:

New subtotals in the statement of profit or loss - Companies would be required to provide three new profit subtotals, including ‘operating profit’. Operating profit is commonly reported by companies but is currently not defined by IFRS Standards, making meaningful comparisons between companies difficult. The new subtotals would give better structure to the information and enable investors to compare companies.

‘Non-GAAP’ transparency - Companies would be required to disclose management performance measures, subtotals of income and expenses that are not specified in IFRS Standards, in a single note to the financial statements. In this note, companies would be required to explain why the measures provide useful information, how they are calculated and to provide a reconciliation to the most comparable profit subtotal specified by IFRS Standards. These requirements would add much-needed transparency and discipline to the use of non-GAAP measures and make it easier for investors to find the information they need to make their own analyses.

Improved disaggregation of information - Investors sometimes find it difficult to unpick a company’s reported information because items may be lumped together with insufficient labelling or explanations. Therefore, the IASB has proposed new guidance to help companies disaggregate information in the most useful way for investors. Companies would also be required to provide better analysis of their operating expenses and to identify and explain in the notes any unusual income or expenses, using the IASB’s definition of ‘unusual’. These requirements would help investors analyze companies’ earnings and forecast future cash flows.

The proposals would result in a new IFRS Standard that sets out general presentation and disclosure requirements relevant for all companies, replacing IAS 1 Presentation of Financial Statements. The IASB is also proposing to amend some other IFRS Standards.

For more information, click here .

Digital Assets – AICPA Issues Practice Aid on Accounting for and Auditing of Digital Assets

Summary - The AICPA has issued the Practice Aid, Accounting for and Auditing of Digital Assets, which includes nonauthoritative guidance for financial statement preparers and auditors in accounting for and auditing digital assets under GAAP and GAAS.

The guidance is divided into Accounting Content and Auditing Content. At the present time, the Practice Aid includes only the Accounting Subgroup, and the Auditing Subgroup will be added when available.

As provided in the Notice to readers, for purposes of the guidance, “digital assets” are defined broadly as digital records, made using cryptography for verification and security purposes, on a distributed ledger (referred to as a blockchain).”

The guidance notes that although digital assets may be described in many terms, the accounting treatment will be determined by the specific terms, form, underlying rights, and obligations of the particular digital asset.

Some of the guidance is in question and answer format. Guidance for the Accounting Subgroup includes questions and responses on the following general topics:

Classification and measurement when an entity purchases crypto assets;
Recognition and initial measurement when an entity receives digital assets that are classified as indefinite-lived intangible assets;
Accounting for digital assets classified as indefinite-lived intangible assets;
Measurement of cost basis of digital assets that are classified as indefinite-lived intangible assets;
Derecognition of digital asset holdings that are classified as indefinite-lived intangible assets; and
Recognition of digital assets when an entity uses a third-party hosted wallet service.

For more information, click here .

General Accounting and Auditing Developments – New Edition of AICPA Alert Published

Summary - The AICPA has published a new Audit and Accounting Alert, General Accounting and Auditing Developments. This alert provides auditors with an overview of recent economic, industry, technical, regulatory, and professional developments that may affect how auditors conduct audits and other engagements. Also, an entity’s internal management can use this alert to address areas of audit concern.

This alert will ensure you have a robust understanding of the business, economic, and regulatory environments in which you and your clients operate.

Key updates include the following:

Economic and Industry Developments;
Legislative and Regulatory Developments;
Audit and Attestation Issues and Developments;
Revenue Recognition;
New Lease Standard;
Accounting for Financial Instruments; and
Recent AICPA Independence and Developments.

For more information, click here .

Property and Liability Insurance Entities – New Edition of AICPA Guide Updated for New Indexes

Summary - The AICPA has issued a new edition of its updated its Audit and Accounting Guide, Property and Liability Insurance Entities. This edition is being released due to the addition of indexes.

For more information, click here .

AICPA Technical Q&As – AICPA Publishes New Technical Q&As

Summary - The AICPA has published new Technical Question and Answers (Q&As) within the Liabilities and Deferred Credits: Deferred Taxes and Specialized Industry Problems:

State and Local Governments sections. These updates:

Adds the following Technical Questions and Answers (Q&A) sections to Liabilities and Deferred Credits: Deferred Taxes:
Q&A section 3300.01, “Background to Section 3300.02 — Revised Section 163(j) Limitation;” and
Q&A section 3300.02, “Evaluation of the Realizability of a Section 163(j) Carryforward.”

Adds the following Q&A sections to Specialized Industry Problems: State and Local Governments:
Q&A section 6950.23, “Background to Section 6950.24;” and
Q&A section 6950.24, “Auditor Assessment of a Special-Purpose Government's Only Immaterial Fiduciary Fund.”

For more information, click here .

Deferred Taxes – AICPA Issues New TQAs on Deferred Taxes

Summary - The AICPA has issued new Technical Questions and Answers (TQAs) under new Section 3300, Deferred Taxes. New TQA Section 3300, Deferred Taxes, includes guidance relating to the limitation on interest deductibility for certain companies adopted under Section 163(j) of the Internal Revenue Code (Code), as amended by the Tax Cuts and Jobs Act of 2017 (TCJA). Section 163(j) is effective for tax years beginning after 2017.

The new TQAs are:

Background to Section 3100.02 — Revised Section 163(j) Limitation; and
Evaluation of the Realizability of a Section 163(j) Carryforward.

TQA Section 3300.01 discusses the background to the guidance under Section 3300.01. That discussion notes that Code Section 163(j) generally limits deductions for net interest expense to 30% of adjusted taxable income, except for certain small businesses. TQA Section 3300.01 notes that since the enactment of the TCJA, the disallowed interest deduction resulting from the revised Section 163(j) limitation has led to more entities having a deferred tax asset (DTA) for the unlimited interest deduction carryforward provided by the law. Moreover, entities with significant debt and interest expense may have experienced (and expect to continue to experience) disallowed interest deductions every year.

Section 3300.02, Evaluation of the Realizability of a Section 163(j) Carryforward, provides guidance for how an entity should assess realizability of its existing DTA related to disallowed interest deductions when there are (a) reversing deferred tax liabilities (DTLs) and (b) an expectation of future interest expense that also will be limited under Section 163(j).

For more information, click here .

Local Governments – AICPA Issues New TQAs on State and Local Governments

Summary - The AICPA has issued new TQAs under new Section 6950, State and Local Governments. The new paragraphs under TQA Section 6950, State and Local Governments, provide guidance under GASB Statement No. 84, Fiduciary Activities, effective for reporting periods beginning after December 15, 2018.

The new paragraphs are:

23 Background; and
24 Auditor Assessment of a Special-Purpose Government's Only Immaterial Fiduciary Fund.

Paragraph .23, Background, discusses Statement 84, which changed the framework to evaluate whether activities are fiduciary and clarified that the reporting of fiduciary activities applies also to special-purpose governments engaged in business-type activities (BTAs). Under Statement 84, some BTAs will be reporting fiduciary activities for the first time A critical issue involved in implementing Statement 84 is the auditor’s consideration of materiality when a government omits reporting fiduciary activities New paragraph TQA 6950.24, Auditor Assessment of a Special-Purpose Government's Only Immaterial Fiduciary Fund, discusses a situation in which a BTA has not previously reported any fiduciary activities, after evaluation, omits to report its only identified fiduciary fund. Paragraph .24 discusses how the auditor should assess the appropriateness of the government’s omission of the fiduciary fund.

For more information, click here .

CPE – AICPA and NASBA Revise Standards for Continuing Professional Education Programs

Summary - The AICPA and the National Association of State Boards of Accountancy (NASBA) have revised the Statement on Standards for Continuing Professional Education (CPE) Programs (CPE Standards) as well as the NASBA Fields of Study document. The organizations approved the new standards during their respective October and November 2019 Board of Directors meetings. The new CPE Standards are effective as of December 31, 2019. The CPE Standards provide the framework for the development, presentation, measurement and reporting of CPE programs. The CPE Standards reference the NASBA Fields of Study document, which was reviewed and evaluated for currency and relevancy.

Among the most significant changes to the CPE Standards is allowing for adaptive learning self-study programs within the self-study standards with references to the two methodologies to be used in determining the CPE credit for an adaptive learning program. The 2019 CPE Standards permit the use of review questions or other content reinforcement tools in a nano learning program. Additional clarifications have been made with regard to awarding CPE credit in the different instructional delivery methods. Definitions and examples were also included to assist in the application of the 2019 CPE Standards.

The revisions to the CPE Standards “represent the collective efforts of the CPE Standards Working Group, the NASBA’s CPE Committee, and the Joint AICPA/NASBA CPE Standards Committee as well as various individuals and organizations that participated in the exposure draft process,” said Jessica Luttrull, NASBA’s Associate Director of the National Registry. “We are excited to include adaptive learning within the self-study standards. Adaptive learning allows for a more personalized approach by delivering content customized to the learner. Boards of Accountancy, CPAs and CPE providers have recognized the need for CPE to continue to evolve and we believe that the changes included in the 2019 Standards will help keep CPE relevant and meaningful to CPAs.”

The changes to the Fields of Study document focus on providing descriptions that are more current and relevant than the previous version.

For more information, click here .

CPA Exam – AICPA Targets Technology and Core Skills in CPA Exam Practice Analysis

Summary - The AICPA has issued the Exposure Draft and Invitation to Comment, Maintaining the Relevance of the Uniform CPA Examination, that also includes the AICPA 2019 Practice Analysis Report. The Exposure Draft proposes amendments to the CPA Exam Blueprints that would focus on CPA core knowledge and skills. Comments are due by April 30, 2020.

The Exposure Draft incorporates feedback from 80 AICPA volunteer subject matter experts in addition to input from more than 130 CPAs who directly supervise newly licensed CPAs. The resulting Exposure Draft details major themes from the research along with proposed Uniform CPA Exam content additions, changes, and deletions. The goal is for the updates to appear in the CPA Exam Blueprints no later than December 31, 2020. The 16-hour, four-section structure will remain the same.

At the same time, the AICPA and the National Association of State Boards of Accountancy (NASBA) are collaborating on CPA Evolution, a separate initiative that focuses on the future of the licensure model and the transformation of the profession as it relates to technology.

According to Michael Decker, AICPA vice president of examinations, the “last practice analysis laid a solid foundation with the creation of the CPA Exam Blueprints and the existing Exam structure.” Further, during “this year’s multi-phased research, we used a targeted approach that included working with ﬁrms of all sizes and their insights into technology, data analytics, and core competencies will help us ensure the Exam remains current and relevant.”

The Invitation to Comment gives stakeholders an opportunity to provide additional input on related topics or potential Uniform CPA Exam changes that are longer-term proposals and require further considerations. Given the need for more research, there are no deﬁnitive plans or anticipated implementation timelines.

Themes identified during the practice analysis included the following:

The current Uniform CPA Exam structure and Blueprints are well-positioned to accept changes that reﬂect a greater assessment of technology and data analytics;
Newly licensed CPAs must have an understanding of business processes, information systems, data ﬂows and internal controls;
Newly licensed CPAs must have a digital and data-driven mindset; and
The profession is placing greater reliance on SOC reports as clients are outsourcing more accounting processes, which impacts the work of newly licensed CPAs.

The AICPA proposes 46 changes to the CPA Exam Blueprints that include content to be added to the Exam in response to the identiﬁed themes. They also address content either to be removed or assessed at a diﬀerent skill level to better focus on the core knowledge and skills required of newly licensed CPAs to protect the public interest.

For more information, click here .

Recent SEC & PCAOB Updates

Topic No. 8: Intellectual Property and Technology Risks Associated with International Business Operations

Summary - Corp Fin has issued CF Disclosure Guidance: Topic No. 8, Intellectual Property and Technology Risks Associated with International Business Operations. This guidance provides Corp Fin’s views regarding disclosure obligations that companies should consider with respect to intellectual property and technology risks that may occur when they engage in international operations.

For more information, click here .

CF Disclosure Guidance Topic: Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b 2

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has issued CF Disclosure Guidance: Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2. This guidance addresses how and what to submit when filing an application objecting to public release of information otherwise required to be filed under the Securities Act and the Securities Exchange Act. This guidance replaces and supersedes the guidance provided in Staff Legal Bulletins 1 and 1A.

For more information, click here .

SEC Staff Speech, Mochas, Mariners, and Morality - Remarks before the National Economists Club by Commissioner Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently spoke to economists on data and the trend towards sustainability investing. Regarding sustainability, Peirce indicated that the “motivating force behind this trend seems to be that finance has been too focused on raw dollars, and insufficiently focused on building a financial system that fosters a better, more sustainable society. Regulators are thinking about how they can force financial firms to take into account environmental and social considerations as they allocate capital.”

For more information, click here .

Release No. 33-10738: Amendments to Rule 2-01, Qualifications of Accountants

Summary - The SEC announced that it is proposing amendments to codify certain staff consultations and modernize certain aspects of its auditor independence framework. The proposed amendments would update select aspects of the nearly two-decade-old auditor independence rule set to more effectively structure the independence rules and analysis so that relationships and services that would not pose threats to an auditor’s objectivity and impartiality do not trigger non-substantive rule breaches or potentially time consuming audit committee review of non-substantive matters.

Since the initial adoption of the auditor independence framework in 2000 and revisions in 2003, there have been significant changes in the capital markets and those who participate in them. The proposed amendments primarily focus on fact patterns presented to Commission staff through consultations that involve a relationship with, or services provided to, an entity that has little or no relationship with the entity under audit, and no relationship to the engagement team conducting the audit. In these scenarios, the staff regularly observes that the audit firm is objective and impartial and, as a result, does not object to their continuing the audit relationship with the audit client.

The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register.

For more information, click here .

Release No. 34-87783: Disclosure of Payments by Resource Extraction Issuers

Summary - The SEC has issued for public comment rules that would require resource extraction issuers to disclose payments made to foreign governments or the U.S. federal government for the commercial development of oil, natural gas, or minerals.

The SEC first adopted rules in this area in 2012, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The 2012 rules were vacated by the U.S. District Court for the District of Columbia. The SEC then adopted new rules in 2016, which were disapproved by a joint resolution of Congress pursuant to the Congressional Review Act.

Although the joint resolution of Congress vacated the 2016 rules, the statutory mandate remains in effect. As a result, the SEC is statutorily obligated to issue a rule. Under the Congressional Review Act, however, the SEC may not reissue the same rule in “substantially the same form” or issue a new rule that is “substantially the same” as the disapproved rule.

The proposed rules include several changes compared to the 2016 rules vacated pursuant to the Congressional Review Act. For example, the proposed rules would:

Revise the definition of the term “project” to require disclosure at the national and major subnational political jurisdiction, as opposed to the contract level;
Revise the definition of “not de minimis” to include both a project threshold and an individual payment threshold so that disclosure with respect to payments to governments that equal or exceed $150,000 would be required when the total of the individual payments related to a project equal or exceed $750,000;
Add two new conditional exemptions for situations in which a foreign law or a pre-existing contract prohibits the required disclosure;
Add an exemption for smaller reporting companies and emerging growth companies; and
Revise the definition of “control” to exclude entities or operations in which an issuer has a proportionate interest.

The proposal will have a 60-day public comment period following its publication in the Federal Register.

For more information, click here .

Release No. 33-10734: Amending the “Accredited Investor” Definition

Summary - The SEC has issued for public comment proposed amendments to the definition of Accredited Investor, one of the principal tests for who is eligible to participate in our private capital markets. The proposal seeks to update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in our private capital markets.

The proposed amendments would allow more investors to participate in private offerings by adding new categories of natural persons that may qualify as accredited investors based on their professional knowledge, experience, or certifications. The proposal would also expand the list of entities that may qualify as accredited investors by, among other things, allowing any entity that meets an investments test to qualify.

The public comment period will remain open for 60 days following publication in the Federal Register.

For more information, click here .

Release No. 34-87607: Use of Derivatives by Registered Investment Companies and Business Development Companies; Required Due Diligence by Broker-Dealers and Registered Investment Advisers Regarding Retail Customers’ Transactions in Certain Leveraged/Inverse Investment Vehicles

Summary - The SEC has issued for public comment a proposed rule, Use of Derivatives by Registered Investment Companies and Business Development Companies; Required Due Diligence by Broker-Dealers and Registered Investment Advisers Regarding Retail Customers’ Transactions in Certain Leveraged/Inverse Investment Vehicles.

The SEC is re-proposing rule 18f-4, a new exemptive rule under the Investment Company Act of 1940 designed to address the investor protection purposes and concerns underlying section 18 of the Act and to provide an updated and more comprehensive approach to the regulation of funds’ use of derivatives and the other transactions addressed in the proposed rule.

Comments on this proposal are due 60 days from publication in the Federal Register.

For more information, click here .

Release No. IA-5407: Investment Adviser Advertisements; Compensation for Solicitations

Summary - The SEC announced that it has voted to propose amendments to modernize the rules under the Investment Advisers Act addressing investment adviser advertisements and payments to solicitors. The proposed amendments are intended to update these rules to reflect changes in technology, the expectations of investors seeking advisory services, and the evolution of industry practices.

According to the SEC, the proposed amendments to the advertising rule “would replace the current rule’s broadly drawn limitations with principles-based provisions. The proposed approach would also permit the use of testimonials, endorsements, and third-party ratings, subject to certain conditions, and would include tailored requirements for the presentation of performance results based on an advertisement’s intended audience.”

The proposed amendments to the solicitation rule would expand the current rule to cover solicitation arrangements involving all forms of compensation, rather than only cash, subject to a new de minimis threshold. They also would update other aspects of the rule, such as who is disqualified from acting as a solicitor under the rule.

The public comment period will remain open for 60 days following publication of the proposal in the Federal Register.

For more information, click here .

Release No. 34-87782: Risk Mitigation Techniques for Uncleared Security-Based Swaps

Summary - The SEC adopted rules requiring the application of risk mitigation techniques to portfolios of uncleared security-based swaps. New Rules 15Fi-3, 15Fi-4, and 15Fi-5 establish requirements for registered security-based swap dealers and major security-based swap participants to:

Periodically reconcile outstanding security-based swaps with counterparties;
Engage in certain forms of portfolio compression exercises, as appropriate; and
Execute written trading relationship documentation with each of their counterparties prior to, or contemporaneously with, executing a security-based swap transaction.

These rules are effective 60 days after publication in the Federal Register.

For more information, click here .

Release No. 34-87780: Rule Amendments and Guidance Addressing Cross-Border Application of Certain Security-Based Swap Requirements

Summary - The SEC adopted a package of rule amendments, guidance, and a related order to expand and improve the framework for regulating cross-border security-based swaps, including single-name credit default swaps. The adoption of this package also improves the SEC’s broad security-based swap regulatory regime as it triggers the compliance date for security-based swap entities to register with the SEC and the implementation period for previously adopted rules under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These rules establish a coherent approach to the regulation of margin, capital, segregation, recordkeeping and reporting and business conduct for security-based swaps.

These rules are effective the later of March 1, 2020 or 60 days after publication in the Federal Register .

For more information, click here .

Critical Audit Matters – PCAOB Publishes Critical Audit Matters Spotlight

Summary - The PCAOB has published staff guidance on Critical Audit Matters (CAMs) in a Spotlight document. The information in this CAMs Spotlight is not staff guidance, but rather it highlights timely and relevant observations for auditors and other key stakeholders. The PCAOB staff plans to share insights on additional topics in future Spotlight documents.

For more information, click here .

Quality Control – PCAOB Issues Quality Control Concept Release

Summary - The PCAOB has issued a concept release on a potential approach to revising the PCAOB's quality control standards. The release solicits public comment to inform the PCAOB on the approach and what changes it might propose in the future to strengthen the PCAOB's requirements for audit firms' quality control systems. The comment deadline is March 16, 2020.

The PCAOB's current quality control standards were originally adopted by the PCAOB in 2003. The auditing environment has changed significantly since that time, and the PCAOB's current quality control standards do not reflect relevant developments affecting audit and assurance practices and firms' quality control systems.

According to PCAOB Chairman William D. Duhnke, the PCAOB “is committed to promoting consistent, high-quality audits," and that an “effective quality control system within an audit firm can serve to prevent, identify, and remediate audit quality deficiencies, which is why I believe it is prudent to strengthen our related standards."

The PCAOB noted that based on information gathered through its oversight, outreach, and research activities, future revisions to the PCAOB's quality control standards should be built on an integrated risk-based framework. The PCAOB is considering using the recently proposed International Auditing and Assurance Standards Board's (IAASB’s) analogous firm-level quality control standard, International Standard on Quality Management (ISQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements, as a starting point for a future PCAOB quality control standard.

The concept release explains that many firms that follow PCAOB standards also follow the IAASB standards (or standards based on IAASB's standards), and therefore, the PCAOB believes that it would not be practical to require firms to comply with fundamentally different quality control standards. The concept release also describes certain incremental or alternative requirements to ISQM 1 that may be appropriate for firms performing engagements under PCAOB standards.

The PCAOB has also issued the companion, Fact Sheet: Quality Control Concept Release (Fact Sheet), with details of the Concept Release and information on the IAASB’s proposed ISQM 1.

For more information, click here .

Tax Updates

New Regulations for Determining Economic Nexus in Texas

Summary – Historically, states have used physical presence standards to determine state franchise and sales tax nexus. Significant growth in interstate e-commerce over the years led to the Supreme Court case South Dakota v. Wayfair, Inc., which established other determining factors such as gross sales revenue and transaction volume to be more appropriate factors for use in determining state nexus for remote sellers.

Most states have amended their laws to establish economic nexus based on the Wayfair decision changes in state tax codes and regulations should be carefully reviewed when planning for your upcoming tax returns. The Texas Comptroller of Public Accounts recently amended the Texas Administrative Code rule §3.286 on January 1, 2019 for sales and use tax, which is enforced after October 1, 2019. A separate amendment was finalized on December 20,2019 for franchise tax nexus to the Texas Amin. Code § 3.586, which will begin with the federal income tax year of 2019 or later.

Texas established a safe harbor with a threshold of $500,000 of Texas gross revenue as the economic nexus standard for both sales and franchise tax. If Texas gross revenue for remote sellers of tangible personal property exceeds this threshold, a permit must be obtained and sales tax should be collected. Similarly, a taxable entity doing business in the state with Texas gross receipts exceeding the threshold is subject to Texas franchise tax, even if the entity has no physical presence in the state. A taxable entity is considered to be “doing business” in Texas the earliest of the following (1) the date the entity establishes physical presence in Texas; (2) the date a use tax permit has been obtained; or (3) the first day the entity’s Texas gross receipts exceed $500,000 for th e federal income tax accounting period .

Click here for more information.

Should you have any questions regarding your entity filing requirements, please contact our Senior Tax Manager, Nicole Zhao .

Extra Crunch

Journal of Accountancy: The Outlook of Finance Decision-Makers for 2020

Summary - According to the Journal of Accountancy, "positive sentiment about the U.S. economy is easy to find among CPA decision-makers in business and industry, despite obstacles and the uncertainty that regularly accompanies an election year. Ken Witt, CPA, CGMA, lead manager for management accounting and member engagement for the Association of International Certified Professional Accountants, breaks down the reasons for optimism and hesitance for the year ahead."

What you’ll learn from this episode:

Why the optimists in a recent survey see 2020 as a time for their businesses to grow.
The concerns of those that are pessimistic or neutral about business growth this year.
The issue that has ranked atop CPA decision-makers’ list of top challenges for 10 consecutive quarters.
How sentiment and spending plans are viewed in an election year.

For more information and to play to episode, click here .

About MaloneBailey, LLP

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