We are pleased to release MaloneBailey's August 2021 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
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What's the Crunch?
Featured Podcast
- Reimagining the Workplace: A Discussion on the Hybrid Approach
Recent Accounting & Regulatory Updates
Recent FASB & AICPA Updates
- Proposed Accounting Standards Update 2021-003 —Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities
- Management Commentary –IASB Consults on a New Framework for Management Commentary
- Employee Benefit Plans –New Edition of AICPA Best Practices in Presentation and Disclosure Published
- Digital Assets –2021 Edition of AICPA Practice Aid on Accounting for and Auditing of Digital Assets Published
- State and Local Governments – New Edition of AICPA Audit and Accounting Guide Published
- Auditing Standards Board – Highlights of AICPA Auditing Standard Board’s March 10, 2021 Meeting Published
- Sustainability Reporting – Study by AICPA, IFAC and CIMA Shows Lack of Standardization in Sustainability Assurance
- Intangible Assets – FASB Discusses Identifiable Intangible Assets
- Leases –FASB Discusses Leases with Variable Lease Payments
- Agreed-Upon Procedures – AICPA Issues SOP on Agreed-Upon Procedures Related to Rated Exchange Act Asset-Backed Securities Third-Party Due Diligence Services
Tax Updates
- Tax Information for Homeowners
Extra Crunch
About MaloneBailey, LLP
- Welcome Joe Longoria, New Audit Partner
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Reimagining the Workplace: A Discussion on the Hybrid Approach
Summary - Post pandemic life in the office is shaping up to look and feel different for many organizations worldwide. After having worked from home for more than a year, many organizations have announced their decision to implement a hybrid approach moving forward, that is combining workdays at the office and at home. Rethinking where and how we work is a hot topic today and one that many organizations are grappling with.
Shelby Stevens from the HR Department at MaloneBailey and Caroline Rosen from the Marketing Department at MaloneBailey discuss the blended approach, its benefits and challenges, considerations for putting a long term plan in place, how to address the 'culture' concern, employee burnout and mental wellness and the policies, tools, and training offerings to consider when weighing this approach.
Simply click on the image below to listen to the podcast. For this podcast and many more, please visit the Resources section of our website. |
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Recent FASB & AICPA Updates |
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Proposed Accounting Standards Update 2021-003 —Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities
Summary - The FASB issued a proposed Accounting Standards Update (ASU) that would improve discount rate guidance for lessees that are not public business entities—including private companies, not-for-profit organizations, and employee benefit plans. It is intended to reduce the expected cost of implementing the lease standard (Topic 842) for those entities while retaining the expected benefits for users of financial statements. Stakeholders are encouraged to review and provide comment on the proposed ASU by July 16, 2021.
Topic 842 currently provides lessees that are not public business entities with a practical expedient that allows them to make an accounting policy election to use a risk-free rate as the discount rate for all leases. The FASB originally provided this practical expedient to relieve those lessees from having to calculate an incremental borrowing rate, which could create unnecessary cost and complexity.
Some private company stakeholders expressed reluctance to use the risk-free rate election for all leases. Those stakeholders noted that in the current economic environment, a risk-free rate (for example, a U.S. Treasury rate) is low compared with their expected average incremental borrowing rates, and that using the risk-free rate election could increase an entity’s lease liabilities and right-of-use assets.
To address these concerns, the amendments in the proposed ASU would allow lessees that are not public business entities to make the risk-free rate election by class of underlying asset, rather than at the entity-wide level. It also would require that, when the rate implicit in the lease is readily determinable for any individual lease, a lessee would use that rate (rather than a risk-free rate or an incremental borrowing rate), regardless of whether it has made the risk-free rate election.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Management Commentary – IASB Consults on a New Framework for Management Commentary
Summary - The IASB has published for public comment a proposed comprehensive framework for companies preparing management commentaries aligned with investors’ information needs.
Management commentary, in some countries referred to as management discussion and analysis, is a report that complements a company’s financial statements. The proposed framework represents a major overhaul of IFRS Practice Statement 1 Management Commentary. It builds on innovations in narrative reporting and would enable companies to bring together in one place the information investors need to assess a company’s long-term prospects, such as information about the company’s intangible resources and relationships and about sustainability matters that affect the company.
Management commentary would thus not only explain a company’s financial statements but also give investors insights into factors that affect a company’s ability to create value and generate cash flows, including in the long term. It would be based on information used to manage the business, including financial and non-financial metrics used to monitor performance.
The proposed framework sets out disclosure objectives for information about the company’s business model, strategy, resources and relationships, risks, external environment and financial performance and position. The disclosure objectives are designed to enable companies to identify and provide information that is material to investors, and to enable regulators and auditors to assess compliance with the proposed framework.
IFRS Standards do not require companies to provide management commentary, this is unchanged by the proposed new framework. However, regulators may require companies to provide management commentary in accordance with the proposed framework or companies may choose to do so. The IASB envisages that companies would be able to apply the proposed framework along with national reporting requirements and in conjunction with frameworks that address particular topics, such as sustainability matters.
The deadline for comments on the Exposure Draft Management Commentary is November 23, 2021.
Parallel to the IASB’s consultation on the proposed framework, the IFRS Foundation Trustees are working on proposals for creating a new International Sustainability Standards Board (ISSB). Standards that would be set by the ISSB are one example of requirements that could be used in conjunction with the proposed framework to meet investors’ information needs.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Employee Benefit Plans – New Edition of AICPA Best Practices in Presentation and Disclosure Published
Summary - The AICPA has published a new edition of its Best Practices in Presentation and Disclosure: Employee Benefit Plans. This new edition provides guidance to navigate the multitude of employee benefit plan requirements relating to GAAP disclosure, regulatory reporting, GAAS auditor reporting, and communication of other deficiencies in internal control.
This edition delivers an extensive refresher of the chapters dedicated to illustrative disclosures specific to:
- Defined benefit pension plans;
- Defined contribution retirement plans;
- Health and welfare benefit plans; and
- Other financial statement disclosures that may be applicable to all plans.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Digital Assets – 2021 Edition of AICPA Practice Aid on Accounting for and Auditing of Digital Assets Published
Summary - The AICPA has published the 2021 edition of its Practice Aid, Accounting for and Auditing of Digital Assets. The objective of this practice aid is to develop nonauthoritative guidance on how to account for and audit digital assets under U.S. generally accepted accounting principles and generally accepted auditing standards, respectively. This guidance is intended for financial statement preparers and auditors with a fundamental knowledge of blockchain technology.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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State and Local Governments – New Edition of AICPA Audit and Accounting Guide Published
Summary - The AICPA has published a new edition of its Audit and Accounting Guide, State and Local Governments. This new editions features insights and best practices for some of the more complex areas such as leases, fiduciary activities, pensions, and postemployment benefits other than pensions (OPEB), this authoritative guide provides complete coverage of audit and accounting considerations critical for both preparers and auditors.
Topics covered also include:
- Financial reporting and the financial reporting entity;
- Revenue and expense recognition;
- Capital asset accounting;
The elements of net position;
- Accounting for fair value;
- Municipal securities offerings; and
- Tax abatements.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Auditing Standards Board – Highlights of AICPA Auditing Standard Board’s March 10, 2021 Meeting Published
Summary - The AICPA’s Auditing Standards Board (ASB) has published highlights from its March 10, 2021 meeting. The ASB discussed issues arising from the comment letters received in connection with the Exposure Draft related to the proposed Statement on Auditing Standards (SAS), Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment.
The objective during the meeting was to continue the discussion of the feedback arising from the comment letters received in connection with the Exposure Draft and to obtain the Board’s feedback with respect to select items prior to proposing revisions to address the feedback received. The ASB’s discussion was focused on matters that require the ASB’s strategic direction, and the Task Force’s preliminary views on certain matters raised by responders.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Sustainability Reporting – Study by AICPA, IFAC and CIMA Shows Lack of Standardization in Sustainability Assurance
Summary - The AICPA & CIMA (representing the Association of International Certified Professional Accountants) and the International Federation of Accountants (IFAC) have released the report, Benchmarking Global Practice: The State of Play in Sustainability Assurance (Report). The Report, based on a study done by these organizations, concluded that global practices for sustainability reporting and assurance over that information, including the prevalence of assurance, level of assurance, and standard and practitioner used, varies widely by jurisdiction.
This study provides a global picture of the current status of sustainability reporting and related assurance. The study further contextualizes this analysis with data on how and where sustainability-related information is reported, and how this relates to assurance practices.
As the drive toward a global system for sustainability-related reporting continues, investors, regulators and policymakers are turning their attention to the important role of assurance in promoting high-quality reporting. With the growing importance of—and reliance on—sustainability information, low-quality assurance is an emerging investor protection and financial stability risk.
“Companies that publish sustainability information that is subject to assurance by professional accountants have an opportunity to bring trust and reliability to their sustainability information. Engaging a licensed professional accountant who possesses the right combination of professional skills, qualifications, experience and is subject to independence, ethical and monitoring requirements can result in truly meaningful assurance and transparency,” said Susan S. Coffey, CPA, CGMA, CEO of Public Accounting at the Association of International Certified Professional Accountants. “As it stands, only around half of the companies reviewed in this study publish sustainability information that is subject to any assurance.”
In performing the study, IFAC and AICPA-CIMA partnered with Audit Analytics to understand the environmental, social, and governance (ESG) reporting and assurance practices on a global basis by capturing reports containing ESG information in 22 jurisdictions. 100 companies were reviewed from each of the largest six economies, with 50 companies reviewed in the remaining 16 jurisdictions. The study provides a discussion of the full methodology used.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Intangible Assets – FASB Discusses Identifiable Intangible Assets
Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on June 23, 2021, and discussed the FASB staff’s research and analysis on potential changes to the existing goodwill impairment model. Specifically, the discussion involved the unit of account at which goodwill is tested for impairment, the frequency of goodwill impairment testing, and the timing of goodwill impairment assessment. The FASB discussed the changes in the context of its tentative decision to amortize goodwill but made no decisions during the meeting.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Leases – FASB Discusses Leases with Variable Lease Payments
Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on June 30, 2021, and discussed a sweep issue related to the transition and effective date provisions for the forthcoming Accounting Standards Update, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. The FASB decided that entities that have not adopted Topic 842 on or before the issuance date (not effective date) of the forthcoming final Update should follow the transition requirements in paragraph 842-10-65-1.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Agreed-Upon Procedures – AICPA Issues SOP on Agreed-Upon Procedures Related to Rated Exchange Act Asset-Backed Securities Third-Party Due Diligence Services
Summary - The AICPA has released Statement of Position (SOP) 21-1, Performing Agreed-Upon Procedures Related to Rated Exchange Act Asset-Backed Securities Third-Party Due Diligence Services as Defined by SEC Release No. 34-72936, under the authority of the Auditing Standards Board (ASB).
A Note accompanying SOP 21-1 indicates that the ASB’s Asset-Backed Securities Agreed-Upon Procedures Task Force developed the SOP to “provide guidance to practitioners regarding the application of Statements on Standards for Attestation Engagements (SSAEs) to agreed-upon procedures (AUP) attestation engagements related to third-party due diligence services performed in connection with rated asset-backed securities (ABS) issued in accordance with the Securities Exchange Act of 1934, as amended (Exchange Act), as those services are defined in the SEC rules as amended or adopted by SEC Release No. 34-72936, Nationally Recognized Statistical Rating Organizations, and the accompanying text” (the Release).
SOP 21-1 supersedes SOP 17-1, Performing Agreed-Upon Procedures Related to Rated Exchange Act Asset-Backed Securities Third-Party Due Diligence Services as Defined by SEC Release No. 34-72936, when applying SSAE No. 19, Agreed-Upon Procedures Engagements, in an agreed-upon procedures engagement that addresses rated Exchange Act asset-backed securities third-party due diligence services as defined by SEC Release No. 34-72936.
Agreed-Upon Procedures
In December 2019, the ASB issued Statement on Standards for Attestation Engagements No. 19 (SSAE 19), Agreed-Upon Procedures Engagements, which supersedes AT-C Section 215 of the same title in SSAE 18, Attestation Standards: Clarification and Recodification, and provides flexibility to practitioners performing agreed-upon procedures (AUP) engagements. SSAE 19 allows practitioners to perform AUP engagements in more situations than they have historically.
SSAE 19 is effective for agreed-upon procedures reports dated on or after July 15, 2021, with early implementation permitted.
Application of SOP 21-1
Practitioners frequently perform agreed-upon procedures engagements in relation to securitization transactions. These transactions, referred to as ABS, “are structured financings in which the cash flows and related risks (for example, credit, prepayment, and liquidity risk) of a pool of financial assets are redistributed by the issuance of new securities backed by the same financial asset or pool of financial assets.”
The SEC, in 2014, issued the Release relating to AUP engagements constituting third-party due diligence services. The effective date for these AUP engagements was June 15, 2015.
SOP 21-1 applies when a practitioner accepts an engagement to perform covered services in accordance with the AICPA’s attestation standards. For purposes of SOP 21-1, “covered services” include: procedures performed by the practitioner that are considered to be third-party due diligence services in accordance with the release. For example, comparing the information on a data file with the information contained in the hard-copy documents in a loan file is an activity that falls within the definition of due diligence services in the release.”
SOP 21-1 sets forth the requirements for included AUP engagements as well as reporting considerations. It also provides sample guidance, including an Illustrative Covered Services Report and an Illustrative Form ABS Due Diligence-15E.
Effective Date
The requirements of SOP 21-1 are effective for AUP reports dated on or after July 15, 2021, the same effective date as SSAE 19. Early implementation is permitted.
For more information, click here.
© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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Tax Information for Homeowners
Written by Chuqiao Peng, Tax Senior, MaloneBailey, LLP
The first half of 2021 has given rise to a real estate market boom and it continues on its upward trend. Below is a recap of tax information for homeowners that might prove helpful if you currently own a house or are considering buying or selling one.
Nondeductible payments:
- Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage and title insurance
- Wages paid for domestic help
- Depreciation
- Cost of utilities
- Forfeited deposits, down payments, or earnest money, etc.
Deductible costs of owning a home:
- State and local real estate taxes
- Interest that qualifies as home mortgage interest and mortgage insurance premiums.
Deductible Mortgage Interest
To be deductible, the interest you pay must be on a loan secured by your main home or second home, regardless of how the loan is labeled.
Prepaid Interest. If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year.
Late payment charge on mortgage payment. You can deduct as home mortgage interest a late payment charge if it wasn't for a specific service in connection with your mortgage loan.
Mortgage prepayment penalty. If you pay off your home mortgage early, you may have to pay a penalty. You can deduct that penalty as home mortgage interest, provided the penalty isn't for a specific service performed or cost incurred in connection with your mortgage loan.
Points. Usually, you can deduct the full amount of points in the year you purchase your own home. Such deduction, however, might be limited under certain circumstances. If you are not eligible to deduct the full amount of point in the year paid, they would be treated as prepaid interest and must be deducted over the life (term) of the mortgage.
Mortgage Insurance Premiums
You may be able to take an itemized deduction on Schedule A (Form 1040), line 8d, for premiums you pay or accrue during the tax year for qualified mortgage insurance in connection with home acquisition debt on your qualified home, defined as your main home or second home.
If you would like additional information, please click here or contact our, Nicole Zhao, Tax Partner.
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A Few Minutes with FINRA
Summary - FINRA provides a useful resource called, A Few Minutes with FINRA, which are brief video segments led by senior FINRA staff that cover timely regulatory topics.
The resource also provides FINRA's response to comments from firms on specific areas of concern. Topics include credit for extraordinary cooperation, 529 plane share class initiative, cybersecurity, small firm advisory committee and much more.
For all video clips and more information, click here.
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MaloneBailey Announces New Partner,
Joe Longoria
We are delighted to announce that Joe Longoria, CPA, MBA has joined the firm as an Audit Partner.
In his new role, Longoria will oversee audit engagements for companies that are public from a variety of industry lines. Joe brings over two decades of combined accounting, executive leadership and management expertise with a strong focus in healthcare, retail, construction, logistics, manufacturing, food services, solar and energy. Joe also has a significant amount of experience with complex companies growing through acquisitions.
“Joe is joining the firm at a time of unprecedented growth. We respect what Joe brings to the table and believe his experience and leadership will continue to enhance our growth,” stated George Qin, Audit Partner.
For more information, please click here.
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