December 2019: Latest SEC, FASB & Tax Updates

We are pleased to release MaloneBailey's December 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

www.malonebailey.com

What's the Crunch?

Featured Podcast

FASB Update on Recognition and Measurement of Financial Assets and Financial Liabilities

Accounting and Regulatory Updates

Recent FASB Updates

FASB Accounting Standards Updates - No. 2019-08 —Compensation —Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606)

Recent SEC Updates

Release No. 34-87327: Commission Statement on Market Structure Innovation for Thinly Traded Securities
SEC Staff Speech, What You Don’t Know Can Hurt You by Stephanie Avakian, Co-Director, Division of Enforcement
SEC Staff Speech, Start Off by Making Your Bed: Translating Military Lessons to Entrepreneurship by Martha Miller, Advocate for Small Business Capital Formation
SEC Staff Speech, Dual-Class Shares: A Recipe for Disaster by Rick Fleming, Investor Advocate
SEC Staff Views, Staff Legal Bulletin No. 14K
Release No. IA-5407: Investment Adviser Advertisements; Compensation for Solicitations
Release No. 34-87457: Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice
Proposed Rules, Regulations and Releases
Release No. 33-10720: Filing Fee Disclosure and Payment Methods Modernization

Tax Updates

IRS Published Tax Inflation Adjustment for Tax Year 2020

Extra Crunch

FINRA Compliance Calendar
EITF Flash Report – EITF Reaches Final Consensus
Gaming – AICPA Issues Working Draft for Gaming Industry Guide and Determination of Whether an Equipment Lease is Present
AICPA Auditing Standards Board – October 28-31, 2019 Meeting Minutes Published

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Featured Podcast

FASB Update on Recognition and Measurement of Financial Assets and Financial Liabilities

This month's podcast features a conversation with Julia Zhang, Audit Manager, on a FASB ASU that focuses on technical corrections and improvements to financial instruments and the recognition and measurement of financial assets and financial liabilities. It clarifies the guidance on financial instruments. Please note you can find an in-depth review of this ASU on our website in the Resources section. Simply click on the image below to listen.

Recent FASB Updates & Proposals

FASB Accounting Standards Updates - No. 2019-08 —Compensation —Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606)

Summary - The FASB issued Accounting Standards Update (ASU) No. 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer , that simplifies and increases comparability of accounting for nonemployee share-based payments, specifically those made to customers.

This ASU will affect companies that issue share-based payments (e.g., options or warrants) to their customers. Similar to issuing a cash rebate to a customer, issuing a share-based payment to a customer can incentivize additional purchases. The share-based payments can also serve a strategic purpose by aligning the interests of a supplier and its customer, because the customer’s additional purchases increase its investment in the supplier.

In June 2018, the FASB issued an ASU that expanded the scope of Topic 718, Compensation—Stock Compensation , to include share-based payments to nonemployees in exchange for goods and services. That ASU substantially aligned the accounting for share-based payments to nonemployees and employees. However, it required share-based payments to nonemployee customers to be accounted for under Topic 606, Revenue from Contracts with Customers , as a reduction of revenue, similar to other sales incentives (such as coupons and rebates).

While that ASU provided guidance on the income statement classification of payments to customers (as a reduction of revenue), that ASU did not specify when to measure such awards or how to classify awards on the balance sheet (for example as a liability or as equity). To address diversity in these areas, the new guidance requires companies to measure and classify (on the balance sheet) share-based payments to customers by applying the guidance in Topic 718. As a result, the amount recorded as a reduction in revenue would be measured based on the grant-date fair value of the share-based payment.

Measuring and classifying share-based payments to customers under Topic 718 provide the following improvements:

Fewer measurement dates for the instruments;
Fewer instances of classifying the instruments as liabilities; and
More consistent accounting with share-based payments made to other nonemployees.

ASU No. 2019-08 is effective for entities that have not yet adopted the amendments in ASU No. 2018-07, the amendments in ASU No. 2019-08 are effective for (1) public business entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and (2) other than public business entities in fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

For entities that have adopted ASU No. 2018-07, the amendments in ASU No. 2019-08 are effective in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

An entity may early adopt the amendments in ASU No. 2019-08, but not before it adopts the amendments in ASU No. 2018-07.

For more information, click here .

Recent SEC Updates & Proposals

Release No. 34-87327: Commission Statement on Market Structure Innovation for Thinly Traded Securities

Summary - The SEC issued a statement that invites exchanges and other market participants to submit innovative proposals designed to improve the secondary market structure for exchange listed equity securities that trade in lower volumes, commonly referred to as "thinly traded securities."

According to the SEC, low trading volumes “may drive higher transaction costs for investors, may present challenges for investors seeking to establish or unwind meaningful positions, and may negatively impact an issuer's cost of capital. The Commission is interested in proposals to address these issues by improving the secondary market structure for thinly traded securities. The Commission's statement lays out various considerations that may be helpful for a proposal to address, including whether and under what circumstances it would be appropriate to suspend unlisted trading privileges on multiple exchanges and whether exemptive relief from Regulation NMS and other rules under the Securities Exchange Act of 1934 would improve trading and liquidity.”

For more information, click here .

SEC Staff Speech, What You Don’t Know Can Hurt You by Stephanie Avakian, Co-Director, Division of Enforcement

Summary - SEC Co-Director Stephanie Avakian recently discussed enforcement actions taken by the SEC Enforcement Division. Avakian indicated that the division is “spending a lot of time on is identifying material financial conflicts of interest, particularly those conflicts that are harmful to investors.” Avakian discussed the Share Class Selection Disclosure self-reporting initiative that the Enforcement Division undertook last year. The Initiative was designed to identify and address harm resulting from undisclosed conflicts of interest in the sale of mutual fund shares by investment advisers.

For more information, click here .

SEC Staff Speech, Start Off by Making Your Bed: Translating Military Lessons to Entrepreneurship by Martha Miller, Advocate for Small Business Capital Formation

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 .

SEC Staff Speech, Dual-Class Shares: A Recipe for Disaster by Rick Fleming, Investor Advocate

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 .

SEC Staff Views, Staff Legal Bulletin No. 14K

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.

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. 34-87457: Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice

Summary - The SEC voted to propose amendments to its rules governing proxy solicitations to enhance the quality of the disclosure about material conflicts of interest that proxy voting advice businesses provide their clients.

The SEC voted to propose amendments to its rules governing proxy solicitations to enhance the quality of the disclosure about material conflicts of interest that proxy voting advice businesses provide their clients. The proposal would also provide an opportunity for a period of review and feedback through which companies and other soliciting parties would be able to identify errors in the proxy voting advice. The review and feedback period would only be available to companies that file definitive proxy materials 25 days or more in advance of the relevant meeting. The Commission’s proposal aims to enhance the accuracy and transparency of the information that proxy voting advice businesses provide to investors and others who vote on investors’ behalf, and thereby facilitate their ability to make informed voting decisions.

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

For more information, click here .

Proposed Rules, Regulations and Releases

Summary - The SEC voted to propose amendments to modernize the rule that governs the process for shareholder proposals to be included in a company’s proxy statement.

The proposed amendments would update the criteria, including the ownership requirements, that a shareholder must satisfy to be eligible to require a company to include a proposal in its proxy statement. In the proposed amendments, the SEC has maintained the long-standing $2,000 minimum ownership threshold. However, the proposed amendments would require that, in order to take advantage of that ownership threshold, a proponent must have held the shares for at least three years in order to demonstrate long-term investment in the company. The proposed amendments would also update the “one proposal” rule to clarify that a single person may not submit multiple proposals at the same shareholder’s meeting on behalf of different shareholders.

In addition, the proposal would update, for the first time since 1954, the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings. Under the proposed amendments, for example, a proposal would need to achieve support by at least 5 percent of the voting shareholders in its first submission in order to be eligible for resubmission in the following three years. Proposals submitted two and three times in the prior five years would need to achieve 15 percent and 25 percent support, respectively, in order to be eligible for resubmission in the following three years.

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. 33-10720: Filing Fee Disclosure and Payment Methods Modernization

Summary - The SEC has issued for public comment a proposed rule, Filing Fee Disclosure and Payment Methods Modernization . This proposal would modernize filing fee disclosure and payment methods. Specifically, the SEC is proposing to amend most fee-bearing forms, schedules, statements, and related rules to require each fee table and accompanying disclosure to include all required information for fee calculation in a structured format.

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

For more information, click here.

Tax Updates

IRS Published Tax Inflation Adjustment for Tax Year 2020

Summary - The IRS has announced the tax year 2020 annual inflation adjustments. Key changes include:

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased from $19,000 to $19,500.
The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500.
The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.
The standard deduction for married filing jointly rises to $24,800 for tax year 2020, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 in for 2020, up $200, and for heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.
For tax year 2020, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,350, the same as for tax year 2019; but not more than $3,550, an increase of $50 from tax year 2019. For self-only coverage, the maximum out-of-pocket expense amount is $4,750, up $100 from 2019. For tax year 2020, participants with family coverage, the floor for the annual deductible is $4,750, up from $4,650 in 2019; however, the deductible cannot be more than $7,100, up $100 from the limit for tax year 2019. For family coverage, the out-of-pocket expense limit is $8,650 for tax year 2020, an increase of $100 from tax year 2019.
For tax year 2020, the foreign earned income exclusion is $107,600 up from $105,900 for tax year 2019.
Estates of decedents who die during 2020 have a basic exclusion amount of $11,580,000, up from a total of $11,400,000 for estates of decedents who died in 2019.
The annual exclusion for gifts is $15,000 for calendar year 2020, as it was for calendar year 2019.

For a complete list of adjustments, please click here .

If you have any questions, please don’t hesitate to contact Nicole Zhao at nzhao@malonebailey.com .

Extra Crunch

FINRA Compliance Calendar

Summary - FINRA offers a Compliance Calendar complete with upcoming deadlines and events.

Recent enhancements to the calendar, per the FINRA website, include:

Overdue Filings: displays all overdue filings for your firm.
Export: allows you to export a month of regulatory deadlines and events into excel format.
Email: allows you to send a regulatory deadline/event via email.
Calendar: allows you to add a regulatory deadline/event to your calendar.

For more information, please click here .

EITF Flash Report – EITF Reaches Final Consensus

Summary - At its November 7, 2019 meeting, the EITF reached a final consensus on Issue No. 19-A, Financial Instruments-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 . The guidance:

Requires entities to consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of the measurement alternative under Topic 321 immediately before applying or upon discontinuing the equity method of accounting under Topic 323, Investments―Equity Method and Joint Ventures.
Provides that an entity, when determining the appropriate Topic to apply, should not consider whether the equity security underlying a forward contract or purchased option would, individually or with existing investments, be accounted for under the equity method upon settlement of the forward contract or exercise of the purchased option.
Requires prospective transition and disclosure of the nature of and reasons for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change.

The consensus provides staggered effective dates. The final consensus must still be ratified by the FASB. The EITF is expected to present the final consensus on Issue 19-A for ratification at the FASB meeting scheduled for November 20, 2019.

The EITF also discussed Issue No. 19-B, Revenue Recognition-Contract Modifications of Licenses of Intellectual Property. This project examines the following two issues: (1) accounting for contract modifications under which the contract term for existing rights is extended, while also adding rights; and (2) accounting for the revocation of licensing rights (including conversion of term software licenses to SaaS [software as a service] arrangements).

The EITF did not reach any consensus on this issue and is expected to discuss further FASB staff research and outreach in the future.

For more information, please click here .

Gaming – AICPA Issues Working Draft for Gaming Industry Guide and Determination of Whether an Equipment Lease is Present

Summary - The AICPA’s Financial Reporting Executive Committee (FinREC) has issued a new working draft of guidance that will be included in the AICPA’s Audit and Accounting Guide – Gaming – Proposed Wording to be Included in the Gaming Industry Guide – Equipment Leases. The deadline for comments is December 19, 2019.

FinREC is requesting feedback on the proposed language that addresses gaming entities’ determination of whether various pricing arrangements convey a lease under FASB Accounting Standard Codification™ Topic 842, Leases .

The Working Draft and the Audit and Accounting Guide relate to the new leases standard adopted by the FASB in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Issued in February 2016, ASU 2016-02 requires lessees to recognize assets and liabilities for all leases (with an exception for short-term leases). Lessor accounting is essentially unchanged. ASU 2016-02 also eliminates leveraged-lease accounting, and a lessor accounts for leases that would have qualified as leveraged leases under the previous rules consistently with other leases.

FinREC developed the Working Draft as part of an Audit and Accounting Guide discussing implementation of the rules for Leases. The Working Draft will be included in the Audit and Accounting Guide upon issuance.

The draft focuses on the types of gaming machine supply arrangements and determining whether those arrangements constitute a lease, including:

Identified assets and consideration of substitution rights;
Determination of whether a contract conveys the right to control the use of an identified asset;
Determination of lease term and assessment of factors indicating that renewals may be reasonably certain;
Scoping and application of practical expedients;
Participation and daily fee arrangements;
Wide area progressive (WAP) arrangements, including operator and manufacturing accounting; and
Utility products arrangements.

For more information, please click here .

AICPA Auditing Standards Board – October 28-31, 2019 Meeting Minutes Published

Summary - The AICPA’s Auditing Standards Board has published minutes from its October 28-31, 2019 meeting. Topics discussed at this meeting included:

Attestation standards;
Audit evidence; and
Description of materiality.

For more information, please click here .

About MaloneBailey, LLP

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