April 2022: Latest SEC, FASB & Tax Updates

We are pleased to release MaloneBailey's April 2022 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

Navigating the Upgrading Process Between OTC Market Tiers

Recent Accounting & Regulatory Updates

Recent FASB & AICPA Updates

Codification Improvements –FASB Discusses Codification Improvements
FASB Agenda –SEC Acting Chief Accountant Discusses FASB Agenda
Life and Health Insurance Entities –New Edition of AICPA Audit and Accounting Guide Published
Governmental Audit –GAQC 437 Published

Recent SEC & PCAOB Updates

Release No. 34-94212: The Commission’s Whistleblower Program Rules
Release No. 34-94196: Shortening the Securities Transaction Settlement Cycle
Release No. 33-11030: Modernization of Beneficial Ownership Reporting
Release No. 34-94313 : Short Position and Short Activity Reporting by Institutional Investment Managers
SEC Staff Views: Staff Report on Nationally Recognized Statistical Rating Organizations

Tax

General Business Tax Credit Compliance

Extra Crunch

On the Air: Accounting Today Podcasts

About MaloneBailey, LLP

Featured Podcast

Navigating the Upgrading Process Between OTC Market Tiers

Summary - In this episode of Everybody Counts, Caroline Rosen, Marketing and Communications Manager, speaks with Jason Paltrowitz from the OTC Markets who shares his insightful perspectives on the upgrading process, criteria and how to navigate common challenges. This podcast is one of a three-part series with podcasts that also cover uplisting to Nasdaq and NYSE.

For these podcasts and many more, please visit the Resources section of the MaloneBailey website.

Simply click on the image below to listen to the podcast.

Recent FASB & AICPA Updates

Codification Improvements –FASB Discusses Codification Improvements

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on February 2, 2022, and began redeliberations in response to comment letters received on the proposed Accounting Standards Update (ASU), Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The FASB also discussed the benefits and costs of the proposed amendments and whether to proceed to drafting a final ASU for vote by written ballot.

The FASB affirmed its decision to require that a public business entity disclose current-period gross writeoffs, but not gross recoveries, by year of origination within the vintage disclosures required by ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB affirmed its decision to require a prospective transition approach and to allow early adoption. The FASB decided that the amendments will be effective for fiscal years beginning after December 15, 2022.

For more information, click here.

FASB Agenda –SEC Acting Chief Accountant Discusses FASB Agenda

Summary - SEC Acting Chief Accountant Paul Munter issued a Statement on the FASB’s Agenda Consultation: Engagement with Investors and Other Stakeholders Vital to Development of High Quality Accounting Standards. Munter indicates that it “is critically important that the FASB, and the Trustees of the Financial Accounting Foundation (the “FAF”) in its important oversight role over the FASB, continue to improve processes for obtaining and considering investor and other stakeholder feedback, and for clearly communicating with those stakeholders regarding how that feedback has impacted the standard-setting process. On behalf of Commission staff in OCA, in this statement, we highlight below why engagement with investors and other stakeholders is vital to the FASB’s ability to develop high quality accounting and financial reporting standards, and we provide observations on the FASB’s standard-setting process, its agenda consultation, and the related ITC feedback from investors and other stakeholders.”

Munter discusses the importance of investors and other stakeholders to the standard-setting process. Also included in the statement is observations of the FASB’s agenda consultation. Munter indicated that in the FASB’s “decisions to add projects to its agenda or make changes to its standards, the FASB should clearly make the case for change, whether through a preliminary yet robust analysis of the need for a project or through an explanation of its consideration of the expected costs and benefits of a change. In the FASB’s consideration of what would provide decision-useful information to investors, and in making the case for change, it should consider costs to both preparers and users, including the costs to users from not making needed improvements to accounting and disclosure requirements.”

For more information, click here.

Life and Health Insurance Entities –New Edition of AICPA Audit and Accounting Guide Published

Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Life and Health Entities. This guide was developed by the former Insurance Companies Committee and the Life Insurance Audit Guide Task Force to assist practitioners in performing and reporting on their audit engagements, and to assist management in the preparation of their financial statements in conformity with U.S. generally accepted accounting principles (GAAP) and statutory accounting practices.

This edition of the guide has been revised by AICPA staff to include certain changes necessary due to the issuance of authoritative guidance since the guide was originally issued and other revisions as deemed appropriate. Relevant guidance issued through October 1, 2021, has been considered in the development of this edition of the guide. However, this guide does not include all audit, accounting, reporting, and other requirements applicable to an entity or a particular engagement. This guide is intended to be used in conjunction with all applicable sources of relevant guidance.

Relevant guidance that is issued and effective for entities with fiscal years ending on or before October 1, 2021, is incorporated directly in the text of this guide. Authoritative guidance issued but not yet effective as of October 1, 2021, but becoming effective on or before December 31, 2021, is also presented directly in the text of the guide, but shaded gray and accompanied by a footnote indicating the effective date of the new guidance. The distinct presentation of this content is intended to aid the reader in differentiating content that may not be effective for the reader’s purposes (as part of the guide’s dual guidance treatment of applicable new guidance).

For more information, click here.

Governmental Audit –GAQC 437 Published

Summary - The AICPA’s Governmental Audit Quality Center (GAQC) has published Alert No. 437. This GAQC Alert discusses the following:

A GAQC practice aid related to the Provider Relief Fund (PRF) program, HHS Audit Requirements for For-Profit Entities with Awards for the Provider Relief Fund Program and Other HHS Programs;
A GAQC practice aid related to the PRF program, Audit Scope Considerations for Provider Relief Fund General and Targeted Distributions in Parent-Subsidiary Relationships;
A GAQC checklist tool, Tips for Auditors Taking on Single Audits; and
A GAQC checklist tool, Tips for Organizations Subject to Single Audit Requirements.

For more information, click here.

Recent SEC & Regulatory Updates

Release No. 34-94212: The Commission’s Whistleblower Program Rules

Summary - The SEC has proposed for public comment two amendments to the rules governing its whistleblower program. The first proposed amendment concerns award claims for related actions that would be otherwise covered by an alternative whistleblower program. The second affirms the SEC's authority to consider the dollar amount of a potential award for the limited purpose of increasing an award but not to lower an award.

Specifically, the SEC indicates that the proposed amendment to Rule 21F-3 would allow the SEC to pay whistleblower awards for certain actions brought by other entities, including designated federal agencies, in cases where those awards might otherwise be paid under the other entity's whistleblower program. The proposed amendments also would affirm the SEC's authority under Rule 21F-6 to consider the dollar amount of a potential award for the limited purpose of increasing the award amount, and it would eliminate the agency’s authority to consider the dollar amount of a potential award for the purpose of decreasing an award.

The public comment period will remain open for 60 days following publication of the proposed release on the SEC's website or 30 days following publication of the proposed release in the Federal Register, whichever period is longer.

For more information, click here.

Release No. 34-94196: Shortening the Securities Transaction Settlement Cycle

Summary - The SEC has issued for public comment proposed rule changes to reduce risks in the clearance and settlement of securities, including by shortening the standard settlement cycle for most broker-dealer transactions in securities from two business days after the trade date (T+2) to one business day after the trade date (T+1). The proposed changes are designed to reduce the credit, market, and liquidity risks in securities transactions faced by market participants and U.S. investors.

In addition to shortening the standard settlement cycle, the proposal includes rules directed at broker-dealers and registered investment advisers to shorten the process of confirming and affirming the trade information necessary to prepare a transaction for settlement so that it can be completed by the end of the trade date. Further, the proposal includes a new requirement to facilitate straight-through processing, which would apply to certain types of clearing agencies that provide central matching services. Central matching service providers help facilitate the processing of institutional trades between broker-dealers and their institutional customers. The proposed rule would require new policies and procedures directed to straight-through processing and require an annual report on progress with the process.

With the goal of shortening the settlement cycle further, the proposal solicits comments on challenges associated with and potential paths to achieving a same-day settlement cycle.

The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

Release No. 33-11030: Modernization of Beneficial Ownership Reporting

Summary - The SEC has issued for public comment rule amendments governing beneficial ownership reporting under Exchange Act Sections 13(d) and 13(g). The proposed amendments would update those rules to provide more timely information to meet the needs of today's financial markets. The proposed amendments to Regulation 13D-G would:

Accelerate the filing deadlines for Schedules 13D beneficial ownership reports from 10 days to five days and require that amendments be filed within one business day; generally accelerate the filing deadlines for Schedule 13G beneficial ownership reports (which differ based on the type of filer);
Expand the application of Regulation 13D-G to certain derivative securities;
Clarify the circumstances under which two or more persons have formed a "group" that would be subject to beneficial ownership reporting obligations;
Provide new exemptions to permit certain persons to communicate and consult with one another, jointly engage issuers, and execute certain transactions without being subject to regulation as a "group;" and;
Require that Schedules 13D and 13G be filed using a structured, machine-readable data language.

The public comment period will remain open for 60 days following publication of the proposing release on the SEC's website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

Release No. 34-94313 : Short Position and Short Activity Reporting by Institutional Investment Managers

Summary - The SEC has proposed changes that would provide greater transparency to investors and regulators by increasing the public availability of short sale related data. New Exchange Act Rule 13f-2 and the corresponding Form SHO would “require certain institutional investment managers to report short sale related information to the SEC on a monthly basis. The Commission then would make aggregate data about large short positions, including daily short sale activity data, available to the public for each individual security.”

Specifically, Rule 13f-2 would require institutional investment managers exercising investment discretion over short positions meeting specified thresholds to report on the Proposed Form SHO information relating to end-of-the-month short positions and certain daily activity affecting such short positions. The SEC would aggregate the resulting data by security, thereby maintaining the confidentiality of the reporting managers, and publicly disseminate the data to all investors. This new data would supplement the short sale data that is currently publicly available from FINRA and stock exchanges.

The SEC has also proposed a new provision of Regulation SHO, Rule 205, which would establish a new “buy to cover” order marking requirement for broker-dealers. Regulation SHO, which is the SEC’s primary short selling regulation, requires broker-dealers to identify each sale order that it effects as either “long,” “short,” or “short-exempt,” but it does not currently have a corresponding requirement for purchase orders. Proposed Rule 205 would require a broker-dealer to mark a purchase order as “buy to cover” if the purchaser has any short position in the same security at the time the purchase order is entered. This information will be especially useful to the Commission in reconstructing significant market events and identifying potentially abusive trading practices including short squeezes.

Relatedly, the SEC proposed to amend the national market system plan governing the consolidated audit trail (CAT). The amendment would require CAT reporting firms to report “buy to cover” information to CAT. The proposed amendments also include a provision that would require each CAT reporting firm to indicate where it is asserting use of the bona fide market making exception under Regulation SHO.

In light of Proposed Rule 13f-2, the SEC voted to reopen the comment period for Proposed Exchange Act Rule 10c-1. Rule 10c-1 was proposed by the SEC on November 18, 2021, to increase the transparency and efficiency of the securities lending market by requiring any person that loans a security on behalf of itself or another person to report the material terms of those securities lending transactions and related information to a registered national securities association. The initial comment period for proposed Rule 10c-1 ended on January 7, 2022.

For more information, click here.

SEC Staff Views: Staff Report on Nationally Recognized Statistical Rating Organizations

Summary - The SEC issued its annual Staff Report on Nationally Recognized Statistical Rating Organizations, providing a summary of the SEC staff’s examinations of Nationally Recognized Statistical Rating Organizations (NRSROs) and discussing the state of competition, transparency, and conflicts of interest among NRSROs.

The combined report includes a variety of substantive and organizational changes to provide greater transparency about NRSROs and their credit ratings businesses, and the market more broadly. The report highlights the risk-based approach of OCR's examination program. As described in the report, in addition to the eight statutorily mandated review areas, OCR staff examined the NRSROs’:

Consideration of ESG factors and products;
COVID-19 related risk areas;
Activities related to collateralized loan obligations, commercial real estate, and consumer asset-backed securities;
Adherence to policies, procedures, and methodologies with respect to rating low-investment grade corporate securities; and
Controls, policies, and procedures for ratings of municipal securities.

For more information, click here.

SEC Staff Speeches: Statement on the FASB’s Agenda Consultation: Engagement with Investors and Other Stakeholders Vital to Development of High Quality Accounting Standards by Paul Munter, Acting Chief Accountant

For more information, click here.

Tax Updates

General Business Tax Credit Compliance

For most business owners, General Business Tax Credit (GBTC) offers great benefits by reducing their tax liabilities dollar by dollar. However, GBTC, comprised of over 30 individual business tax credits, is one of the least understood credits available to business owners. In this article, we highlight some the most frequently used credits under GBTC that may be helpful to your business.

Work Opportunity Credit

Employers may take a work opportunity credit for wages paid to employee who is certified as a member of ten targeted groups and begin work before January 1, 2026. The targeted groups for this credit are listed on the IRS website.

The amount of credit is calculated as 40% of up to $6,000 of wages paid to, or incurred on behalf of, an individual who:

Is in their first year of employment
Performs at least 400 hours of services of the employer

Therefore, the maximum tax credit is $2,500 per person. There is also a 25% rate applies to wages for individuals who works fewer than 400 hours but over 120 hours.

Paid Family and Medical Leave Credit

This credit is available for employers who provide paid leave to qualifying employees under Family and Medical Leave Act between in tax year 2018 through 2025.

The credit is equal to the applicable percentage of the amount of wages paid to qualifying employees while on family and medical leave. The applicable percentage is 12.5% increased by 0.25 percentage points for each percentage point by which the rate of payment exceeds 50%, up to a maximum applicable percentage of 25%.

Note that if the paid leave is made by state or local government or is required by state or local laws, it will not be included in qualified wages.

Research Credit

The research credit is calculated on Form 6765, Credit for Increasing Research Activities under section 280C. The eligibility of Research Tax Credit is much broader than we think. Companies and organizations that develop new or improved products, formulas, software, techniques, inventions, processes, etc. qualify for the Research Tax Credit.

The research credit is generally allowed for expenses paid or incurred for qualified research, which means:

The research for which expenses may be treated as section 174 expenses.
This research must be undertaken for discovering information that is technological in nature, and its application must be intended for use in developing a new or improved business component of the taxpayer.
In addition, substantially all of the activities of the research must be elements of a process of experimentation relating to a new or improved function, performance, reliability, or quality.
All of the research activities must be applied separately with respect to each business component of the taxpayer.

Small Business Health Care Tax Credit

The Affordable Care Act provides credit for qualifying small employers that provide insured health coverage to their employees. To be eligible, the employer must meet the following criteria:

The employer has less than 25 full-time equivalent employees, calculated by adding up the total employee service hours and divide that amount by 2080
The average salary is less than $50,000 per year
The employer contribution is at least 50% of full-time employees’ premium cost
The employer offers coverage to all full-time employees and the coverage is purchased through

Small Business Health Options Program (SHOP) Marketplace.

Although taxpayers cannot use GBTC when the credits exceed tax liabilities in a tax period, the IRS allows the taxpayer to carry the unused credits back one year and forward 20 years until exhausted. More information on GBTC can be found on the IRS website.

Sick and Family Leave Credits

Under the American Rescue Plan Act of 2021 (the "ARP"), employers with fewer than 500 employees ("Eligible Employers") for qualified sick and family leave wages ("qualified leave wages") paid with respect to leave taken by employees beginning on April 1, 2021, through September 30, 2021, as well as the equivalent credits available for certain self-employed individuals. Employees may receive up to ten days of paid sick leave and up to 12 weeks of paid family leave.

This credit is different from the above-mentioned Paid Family and Medical Leave Credit.

To be able to claim the credit, the Eligible Employer pays the employee qualified family leave wages in an amount equal to at least 2/3 the employee's regular rate of pay (as determined under section 7(e) of the FLSA), multiplied by the number of hours the employee otherwise would have been scheduled to work, not to exceed $200 per day and $12,000 in the aggregate for leave taken by employees beginning on April 1, 2021, through September 30, 2021.

If you have any additional question, please feel free to contact Nicole Zhao, Tax Partner, at nzhao@malonebailey.com.

Extra Crunch

On the Air:

Accounting Today Podcasts

Summary - Accounting Today offers a library of podcasts covering important topics in the accounting community. These podcasts cover in-depth discussions on the latest accounting issues between some of the industry's top leaders.

Podcasts in Accounting Today's library cover a wide range of issues including both technical and non-technical issues. Recordings are released weekly and offer a great resource to those trying to keep up with what's going on in the industry.

For more information, please click here.

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