We are pleased to release MaloneBailey's November 2019 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
What's the Crunch?

Featured Podcast

  • FASB Accounting Standards Update on Leases

Accounting and Regulatory Updates

Recent FASB Updates

  • Exposure Draft - Proposed Accounting Standards Update (Revised) 2019-780 —Debt (Topic 470) —Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent) 
  • FASB Agenda – FASB Discusses Agenda Prioritization


Recent SEC Updates

  • Release No. 34-87193: Rescission of Effective-Upon-Filing Procedure for NMS Plan Fee Amendments 
  • Release No. 34-87115: Publication or Submission of Quotations Without Specified Information
  • Release No. 33-10688: Update of Statistical Disclosures for Bank and Savings and Loan Registrants 
  • Release No. 33-10695: Exchange-Traded Funds 
  • Release No. 33-10699: Solicitations of Interest Prior to a Registered Public Offering
  • SEC Staff Speech, Remarks at the SIFMA Equity Market Structure Conference: The Dynamics of our Markets and the Changing Structure on which they are Built by Commissioner Elad L. Roisman 
  • SEC Staff Speech, Remarks at the U.S. Treasury Market Conference by Commissioner Elad L. Roisman
  • SEC Staff Speech, Braided Bread and Boiled Beer: Remarks before the Eurofi Financial Forum 2019 by Commissioner Hester M. Peirce 
  • Derivatives Markets – SEC Commissioner Peirce Discusses International Derivatives Markets 
  • Shareholder Proposals – SEC Staff Provides Guidance on Rule 14a-8 on Shareholder Proposals 
  • Dual-Class Shares – SEC Investor Advocate Discusses Concerns of Dual-Class Shares 
  • Entrepreneurship – SEC Advocate for Small Business Capital Formation Discusses Entrepreneurship 

Tax Updates

  • Treasury Guidance and Proposed Regulations on the Repeal of Section 958(B)(4)

Extra Crunch

  • OTC Markets 2019 Mid Year Review
  • Special Reports – AICPA Issues New TQAs

About MaloneBailey, LLP

  • Complimentary estimate for services
  • Join our team!
Featured Podcast
FASB Accounting Standards Update on Leases

This month, we are featuring a podcast dedicated to the topic of a FASB Accounting Standards Update on Leases. The conversation is led by Patrick Wong, one of MaloneBailey's Senior Audit Managers. Since leasing is so prevalent, it's important that those who use financial statements have a complete and understandable picture of an entity's leasing activities. Click on the image below to hear more about this important topic.
Recent FASB Updates & Proposals
Exposure Draft - Proposed Accounting Standards Update (Revised) 2019-780 —Debt (Topic 470) —Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent)

Summary - The FASB issued for public comment a proposed Accounting Standards Update (ASU) intended to improve guidance used to determine whether debt should be classified as a current or noncurrent liability in a classified balance sheet. Stakeholders are encouraged to review and comment on the proposed ASU by October 28, 2019.

In January 2017, the FASB issued its first proposal on the project, which contained provisions to replace the current, fact-specific guidance with an overarching, cohesive principle for determining whether debt, or other instruments within the scope of the proposal, should be classified as a current or noncurrent liability as of the balance sheet date.

Much of the guidance in this revised proposal is similar to the original 2017 proposal on which the FASB has received extensive feedback. Based on input received from stakeholders, including the Private Company Council, the FASB added proposed requirements related to unused long-term financing arrangements, such as a line of credit, and grace periods. The revised proposal reflects and seeks comments on these changes, as well as the expected costs and expected benefits of the proposed amendments.

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
FASB Agenda – FASB Discusses Agenda Prioritization

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on September 18, 2019, and discussed the results of FASB staff research on four potential projects related to six recent agenda requests.

The FASB added a project to the EITF agenda to address the issuers’ accounting for modifications of equity classified warrants, that is, equity classified freestanding call options that are outside the scope of Topic 718, Compensation—Stock Compensation, or Topic 815, Derivatives and Hedging. The FASB limited the scope of the project to equity classified freestanding call options that remain equity classified after the modifications.

The FASB also added a project to its technical agenda on the accounting by a joint venture for contributions of nonmonetary assets by the ventures.

The FASB decided not to add the following potential projects to its agenda:
  • Acquired financial assets in a business combination that do not meet the definition of purchased financial assets with credit deterioration; and
  • Recognition and measurement of interest income.

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Recent SEC Updates & Proposals
Release No. 34-87193: Rescission of Effective-Upon-Filing Procedure for NMS Plan Fee Amendments

Summary - The SEC proposed to require an amendment to a national market system plan (NMS plan) that would establish or change a fee or other charge (Proposed Fee Change) to be subject to the standard procedure for NMS plan amendments. The proposal would rescind a rule exception that allows an NMS plan amendment to be effective upon filing if it establishes or changes a fee or other charge. The standard procedure requires publication of the amendment, an opportunity for public comment, and SEC approval by order before the amendment can become effective.

Rule 608(b)(3)(i) of Regulation NMS currently permits a Proposed Fee Change to become effective immediately upon filing with the SEC, and an NMS plan may begin charging the new fee prior to an opportunity for public comment and without agency action. By changing the timing of effectiveness, the proposed rescission of Rule 608(b)(3)(i) provides investors and other market participants an opportunity to voice their views about a Proposed Fee Change prior to the time they are charged a new or changed fee.

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

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Release No. 34-87115: Publication or Submission of Quotations Without Specified Information

Summary - The SEC voted to propose amendments to Exchange Act Rule 15c2-11, which sets out certain requirements with which a broker-dealer must comply before it can publish quotations for securities in the over-the-counter (“OTC”) market. The proposed amendments are designed to modernize Rule 15c2-11, which was last substantively amended in 1991, and to enhance investor protection by requiring that current and publicly available issuer information is accessible to investors. The proposed amendments would provide greater transparency to the investing public by requiring that information about the issuer and the security be current and publicly available before a broker-dealer can begin quoting that security.

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

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Release No. 33-10688: Update of Statistical Disclosures for Bank and Savings and Loan Registrants

Summary - The SEC announced that it has proposed rules to update the statistical disclosures that bank and savings and loan registrants provide to investors, and eliminate disclosures that overlap with SEC rules, U.S. GAAP or IFRS. If adopted as proposed, the rules would replace Industry Guide 3, Statistical Disclosure by Bank Holding Companies , with updated disclosure in a new subpart of Regulation S-K. The proposed rules would apply to bank holding companies, banks, savings and loan holding companies, and savings and loan associations.

According to the SEC, the proposal reflects “the significant financial reporting changes, including the issuance of new accounting standards that have taken place for banking registrants since the agency last updated Industry Guide 3. The proposed rules are also part of an initiative by the Division of Corporation Finance to review disclosure requirements applicable to issuers to consider ways to improve the requirements for the benefit of investors and registrants.”

The SEC’s proposed rules would require disclosure about the following:
  • Distribution of assets, liabilities and stockholders’ equity, the related interest income and expense, and interest rates and interest differential;
  • Weighted average yield of investments in debt securities by maturity;
  • Maturity analysis of the loan portfolio including the amounts that have predetermined interest rates and floating or adjustable interest rates;
  • An allocation of the allowance for credit losses and certain credit ratios; and
  • Information about bank deposits including amounts that are uninsured.

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

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Release No. 33-10695: Exchange-Traded Funds

Summary - The SEC voted to adopt a new rule and form amendments that are designed to modernize the regulation of exchange-traded funds (ETFs), by establishing a clear and consistent framework for the vast majority of ETFs operating today. The adoption will facilitate greater competition and innovation in the ETF marketplace, leading to more choice for investors. It also will allow ETFs to come to market more quickly without the time or expense of applying for individual exemptive relief. In addition, the SEC voted to issue an exemptive order that further harmonizes related relief for broker-dealers.

The rule, form amendments, and related exemptive relief will be published on the Commission’s website and in the Federal Register. All will become effective 60 days after publication in the Federal Register .

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Release No. 33-10699: Solicitations of Interest Prior to a Registered Public Offering

Summary - The SEC voted to adopt a new rule that extends a “test-the-waters” accommodation, currently a tool available to emerging growth companies (EGCs), to all issuers.

Under the new rule, all issuers will be allowed to gauge market interest in a possible initial public offering or other registered securities offering through discussions with certain institutional investors prior to, or following, the filing of a registration statement. These communications will be exempt from restrictions imposed by Section 5 of the Securities Act on written and oral offers prior to or after filing a registration statement. The expanded test-the-waters provision will provide all issuers with flexibility in determining whether to proceed with a registered public offering while maintaining appropriate investor protections.

The new rule is one of several SEC initiatives that build on JOBS Act provisions intended to encourage companies to access our public markets.

The rule will become effective 60 days after publication in the Federal Register .

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
SEC Staff Speech, Remarks at the SIFMA Equity Market Structure Conference: The Dynamics of our Markets and the Changing Structure on which they are Built by Commissioner Elad L. Roisman

Summary - SEC Commissioner Elad L. Roisman recently spoke about equity market structure and related regulation. Topics discussed by Roisman included:
  • Broker-dealer best execution obligations;
  • Order protection rule; and
  • Order management systems

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
SEC Staff Speech, Remarks at the U.S. Treasury Market Conference by Commissioner Elad L. Roisman

Summary - SEC Commissioner Elad L. Roisman recently spoke at a US Treasury market conference. Roisman considered whether “the U.S. Treasury market may benefit from certain elements of SEC oversight that are comparable to the agency’s existing oversight of the equity markets.” Topics discussed by Roisman included:

  • Alternative trading systems requirements; and
  • Regulation Systems Compliance.

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
SEC Staff Speech, Braided Bread and Boiled Beer: Remarks before the Eurofi Financial Forum 2019 by Commissioner Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently discussed international derivatives markets and the need for a level of unity around the globe on regulating these markets. Peirce indicated that the shared concern “for global derivatives markets serves not only to help those markets function well, but to deepen cross-border relationships. I know that we will learn much from each other in the process and expect that the end result will be a system in which we all work together—each within our own jurisdiction—to achieve the goal of a shared financial market that is robust and focused on facilitating, not undermining, the broader economy.”

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Shareholder Proposals – SEC Staff Provides Guidance on Rule 14a-8 on Shareholder Proposals

Summary - The SEC staff has published Staff Legal Bulletin No. 14K. This bulletin provides information for companies and shareholders regarding Rule 14a-8 under the Securities Exchange Act of 1934 (Exchange Act). This bulletin is part of a continuing effort by the SEC staff to provide guidance on important issues arising under Exchange Act Rule 14a-8. Specifically, this bulletin contains information regarding:
  • The analytical framework of Rule 14a-8(i)(7);
  • Board analyses provided in no-action requests to demonstrate that the policy issue raised by the proposal is not significant to the company;
  • The scope and application of micromanagement as a basis to exclude a proposal under Rule 14a-8(i)(7); and
  • Proof of ownership letters.

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Dual-Class Shares – SEC Investor Advocate Discusses Concerns of Dual-Class Shares

Summary - SEC Investor Advocate Rick Fleming recently expressed his concerns with the increased use of dual-class shares by companies that seek to go public. Fleming cautioned that “companies with dual-class structures tend to underperform companies with dispersed voting power.” 

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Entrepreneurship – SEC Advocate for Small Business Capital Formation Discusses Entrepreneurship

Summary - SEC Advocate for Small Business Capital Formation Martha Miller recently discussed entrepreneurship at a conference for military veteran business owners. Miller indicated that “small businesses and their investors are looking for the most efficient way to raise the capital they need. We also understand one size does not fit all.” 

For more information, click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Tax Updates
Treasury Guidance and Proposed Regulations on the Repeal of Section 958(B)(4)

Summary - Rev. Proc. 2019-40 was issued on October 1, 2019 by the Department of the Treasury and the Internal Revenue Service and it provides guidance related to the repeal of Section 958(b)(4) to certain U.S. persons that own stock in certain foreign corporations.
 
Under the original Section 958(b)(4), Section 318(a)(3) downward attribution rules of constructive ownership was not to be applied so as to consider a U.S. person as owning stock owned by a foreign person. As a result of the 2017 Tax Reform and the repeal of Section 958(b)(4), stock of a foreign corporation owned by a foreign person can be attributed to a U.S. person under Section 318(a)(3) for purposes of determining whether the U.S. person is a U.S. shareholder of the foreign corporation and, therefore, whether the foreign corporation is a controlled foreign corporation (CFC). In another words, U.S. persons that were not previously treated as U.S. shareholders may now be treated as U.S. shareholders, and foreign corporations that were not previously treated as CFCs may now be treated as CFCs.
 
On October 2, 2019, the Department of the Treasury and the Internal Revenue Service proposed regulations pertaining to the repeal of Section 958(b)(4), which affect U.S. persons that have ownership interests in or that make or receive payments to or from certain foreign corporations.

For more information, please click here .

If you have any questions, please don’t hesitate to contact Nicole Zhao at nzhao@malonebailey.com .
Extra Crunch
OTC Markets 2019 Mid Year Review

Summary - According to its website, the mission of OTC Markets to is "to provide companies with more efficient solutions to better engage and inform investors." In this mid year review, OTC Markets highlights that it welcomed nearly 200 companies to its OTCQX and OTCQB Markets and launched its Virtual Conference platform. It also moved into new office space in New York and London. These highlights and many more are reviewed in the report along with other key milestones.

For more information, please click here .
Special Reports – AICPA Issues New TQAs

Summary - The AICPA has released new Technical Question and Answers (TQAs) for Section 9100, Special Reports, to assist users with compliance audits (single audits) performed under Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. The Office of Management and Budget (OMB) Compliance Supplement (supplement), issued annually, serves to identify existing important compliance requirements that the federal government expects to be considered as part of a single audit.

2019 Compliance Supplement
The OMB made significant changes to the 2019 Compliance Supplement, compared to prior years. It revised the approach used by the federal government to identify the compliance requirements subject to the compliance audit. The 2019 Compliance Supplement, like previous annual Compliance Supplements, added, deleted, and modified prior Supplement sections. However, the OMB changed the maximum number of compliance requirements. In previous annual editions of the supplement, federal agencies identified all applicable compliance requirements for programs included in the supplement from 12 potential types of compliance requirements. The number of compliance requirements subject to the audit is now limited to six, with the exception of the Research and Development (R&D) cluster. The R&D cluster is permitted to identify seven compliance requirements as subject to the audit.

For purpose of determining the number of requirements, the requirements relating to A. Activities Allowed and Unallowed, and B. Allowable Costs and Cost Principles, are treated as one requirement. In addition, the OMB revised the Part 2 matrix to reflect this change for all programs, as well as the related program sections in Parts 4 and 5. Additionally, this requirement mandate does not apply to programs not included in the 2019 Supplement.

September TQAs
AICPA’s TQAs include nonauthoritative guidance in applying AICPA standards but are not themselves sources of established authoritative principles. The new TQAs provide guidance for single audits and for applying the 2019 Compliance Supplement. The new TQAs, 9110.24 through 9110.27 include:
  • 24 Background to Sections 9110.25–.27 — OMB 2019 Compliance Supplement;
  • 25 Opining on Compliance When the OMB Compliance Supplement Excludes Direct and Material Compliance Requirements From the Scope of a Single Audit;
  • 26 Opining on Compliance When the OMB Compliance Supplement Excludes Direct and Material Compliance Requirements From the Scope of a Single Audit; and
  • 27 Including an Other-Matter Paragraph to Describe the OMB Compliance Supplement Change in Approach for Identifying the Requirements Subject to the Single Audit.

For more information, please click here .

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
About MaloneBailey, LLP
Should you be interested in a complimentary estimate for audit, tax or consulting services, please contact Caroline Rosen at crosen@malonebailey.com or 713.343.4286.

Join our team! MaloneBailey is actively hiring for a variety of positions at this time. Please visit the Careers section of our website for a glimpse of what it's like to work at MaloneBailey as well as a list of open positions and instructions for applying.
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