We are pleased to release MaloneBailey's July 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

What's the Crunch?

MB News

  • MaloneBailey client, Ebang International Holdings (EBON), announces listing on Nasdaq Global Selects Market with IPO of $100 million

Featured Podcast

  • SEC Adopts Amendments to Improve Financial Disclosures about Acquisitions and Dispositions of Businesses

COVID-19 Related Updates

  • SEC Staff Q&A: COVID-19 Related FAQs
  • Asset Management – SEC Chairman Addresses SEC’s Asset Management Advisory Committee
  • Financial Stability Oversight – SEC Chairman Addresses Financial Stability Oversight Council
  • SEC Staff Speech, Keynote Address: Securities Enforcement Forum West 2020 by Steven Peikin, Co-Director, Division of Enforcement
  • SEC Staff Speech, Division of Corporation Finance Statement Regarding Requirements for Certain Paper Documents (other than Forms 144) in Light of COVID-19 Concerns
  • SEC Staff Speech, Division of Corporation Finance Statement Regarding Requirements for Form 144 Paper Filings in Light of COVID-19 Concerns

Recent Accounting & Regulatory Updates

Recent FASB & AICPA Updates

  • Auditing Standards – AICPA Adds New Pre-SAS 134 to Auditing Standards
  • Cloud Computing – GASB Issues Statement No. 96 on Cloud Computing and Subscription-Based Information Technology Arrangements

Recent SEC & PCAOB Updates

  • Release No. 33-10781: Temporary Amendments to Regulation Crowdfunding
  • SEC Staff Speech, Emerging Market Investments Entail Significant Disclosure, Financial Reporting and Other Risks; Remedies are Limited by Chairman Jay Clayton
  • PCAOB Inspections – PCAOB Publishes Guide to Reading New Inspection Report 

Auditing Updates

  • Credit Losses – New Edition of AICPA Audit and Accounting Guide on Credit Losses

Tax Updates

  • Affects of Tax Regulation Changes Due to COVID-19

Extra Crunch

  • OTC Markets - Small Cap Compliance Product Now Includes Risk Scoring

About MaloneBailey, LLP

MB News
MaloneBailey client, Ebang International Holdings (EBON), announces listing on Nasdaq Global Selects Market with IPO of $100 million

Summary - MaloneBailey’s client, Ebang International Holdings Inc. (the “Company” or “Ebang”) announced on June 30, 2020 its successful listing on the Nasdaq Global Select Market under symbol “EBON.” The Company’s initial public offering (IPO) is 19,264,337 Class A ordinary shares at US $5.23 per Class A ordinary share for the total offering size of approximately US $100.75 million. The shares began trading on June 26, 2020 and closed on June 30, 2020. MaloneBailey served as the auditor of the Company for its IPO.

For more information about MaloneBailey and its service offering, please visit: http://www.malonebailey.com/Services/ .
Featured Podcast
SEC Adopts Amendments to Improve Financial Disclosures about Acquisitions and Dispositions of Businesses

Summary - In this episode of “Everybody Counts” , Caroline Rosen, Marketing and Communications Manager and Leah Gonzales, Audit Partner, discuss the Securities and Exchange Commission’s (SEC) recent vote to adopt amendments to its rules and forms. This amendment will improve for investors the financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure. Click on the image below to listen to the podcast.

For this podcast and many more, please visit the Resources section of the MaloneBailey website.
COVID-19 Related Updates
SEC Staff Q&A: COVID-19 Related FAQs

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published COVID-19 Related FAQs. These FAQs provide guidance specific to financial reporting guidance related to the COVID-19 pandemic. The FAQ provides guidance on: (1) implementing the SEC’s guidance with the COVID-19 Order modifying exemptions from the reporting and proxy delivery requirements for public companies; and (2) questions related to registration statements on Form S-3.

For more information, click  here .

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Asset Management – SEC Chairman Addresses SEC’s Asset Management Advisory Committee

Summary - SEC Chairman Jay Clayton recently addressed the Asset Management Advisory Committee. Chairman Clayton described the SEC’s efforts in light of COVID-19. Clayton indicated that going forward the SEC “will continue to monitor the effects of our responses to COVID-19 as they evolve, and we will consider modifying, supplementing, and withdrawing relief and guidance as appropriate.” 

For more information, click  here .

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Financial Stability Oversight – SEC Chairman Addresses Financial Stability Oversight Council

Summary - SEC Chairman Jay Clayton recently addressed the Financial Stability Oversight Council indicating that the “continued orderly operation of our funding markets and other capital markets has been and will continue to be an essential factor in driving an effective national health and safety response to COVID-19. Consumers, the thousands of firms and entrepreneurs that are working to fight and respond to COVID 19—not to mention the state and local governments, hospital systems, transportation and public services that are critical to the response—all depend on continued access to financial services and markets.”

Clayton discussed the SEC primary responsibilities in the areas of market function, market monitoring, and corporate or other issuer disclosure. 

For more information, click here .

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
SEC Staff Speech, Keynote Address: Securities Enforcement Forum West 2020 by Steven Peikin, Co-Director, Division of Enforcement

Summary - Steven Peikin, Co-Director of the SEC’s Division of Enforcement, recently discussed the SEC’s enforcement during COVID-19. Peikin indicates that the Division of Enforcement “have focused significant time and resources on responding to COVID-related matters. In organizing our response, we have looked to the experiences had, and the lessons learned, by our predecessors in other periods of emergency and serious market disruption, including the September 11 attacks and the 2007-08 global financial crisis.”

Topics discussed by Peikin included: (a) COVID-19 enforcement matters; and (b) ongoing non-COVID-19 work. Peikin expects there to be more trading suspensions related to COVID-19 and more fraud cases related to potential COVID-19 investment scams.

For more information, click here .

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
SEC Staff Speech, Division of Corporation Finance Statement Regarding Requirements for Certain Paper Documents (other than Forms 144) in Light of COVID-19 Concerns

Summary - The staff of the Division of Corporation Finance (Corp Fin) has published guidance for certain paper documents in light of COVID-19. Corp Fin indicates that it is aware of logistical difficulties submitting certain forms (other than Forms 144) in paper given the spread of COVID-19. Corp Fin has previously issued guidance on Forms 144.

This staff statement is temporary and covers those who submit the following forms for the period from and including April 23, 2020 to June 30, 2020:

  • Annual reports to security holders furnished by foreign private issuers on Form 6-K pursuant to Rule 101(b)(1) of Regulation S-T;
  • Forms 11-K pursuant to Rule 101(b)(3) of Regulation S-T;
  • Periodic reports and distribution reports filed by certain international development banks pursuant to Rule 101(b)(5) of Regulation S-T;
  • Reports or other documents furnished by foreign private issuers on Form 6–K pursuant to Rule 101(b)(6) of Regulation S-T; and
  • Unabridged foreign language documents and English translations of a foreign government’s or its political subdivision’s latest annual budget pursuant to Rules 306(b) and (c) of Regulation S-T.

Corp Fin will not recommend enforcement action to the SEC “if the above documents are submitted via email in lieu of mailing or delivering the paper document to the SEC if the filer attaches a complete document, including any required exhibits, as PDF attachments to an email sent to CorporationFinancePaperForms@SEC.gov.”

If the filer is unable to provide a manual signature on a document submitted by email, the staff will not recommend enforcement action to the SEC if the filer provides a typed form of signature in lieu of the manual signature and:

  • The signatory retains a manually signed signature page or other document authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the email submission and provides such document, as promptly as practicable, upon request by the Division or other SEC staff;
  • Such document indicates the date and time when the signature was executed; and
  • The filer establishes and maintains policies and procedures governing this process.

Filers may continue to submit these documents to the SEC mailroom. There may, however, be delays in the processing of such documents.

For more information, click here .

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
SEC Staff Speech, Division of Corporation Finance Statement Regarding Requirements for Form 144 Paper Filings in Light of COVID-19 Concerns

Summary - The staff of the SEC’s Division of Corporation Finance (Corp Fin) has indicated that it “is aware of logistical difficulties of submitting Forms 144 in paper given the spread of coronavirus disease 2019 (COVID-19). In light of ongoing health and safety concerns related to COVID-19, the staff is providing the following statement to those affected by COVID-19 regarding Forms 144. This staff statement is temporary and covers those who submit Forms 144 for the period from and including April 10, 2020 to June 30, 2020.”

Corp Fin indicates that it will not recommend enforcement action to the SEC if Forms 144 filed in paper under Rules 101(b)(4) or 101(c)(6) of Regulation S-T are submitted via email in lieu of mailing or delivering the paper form to the SEC if the filer or submitter attaches a complete Form 144 as a PDF attachment to an email sent to PaperForms144@SEC.gov.

If the filer or submitter is unable to provide a manual signature on the Form 144 submitted by email, Corp Fin will not recommend enforcement action to the SEC if the filer or submitter provides a typed form of signature in lieu of the manual signature and:

  • The signatory retains a manually signed signature page or other document authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the electronic submission and provides such document, as promptly as practicable, upon request by Corp Fin;
  • Such document indicates the date and time when the signature was executed; and
  • The filer or submitter (with the exception of natural persons) establishes and maintains policies and procedures governing this process.

Filers and submitters may continue to submit Forms 144 to the SEC mailroom. There may, however, be delays in the processing of such documents.

For more information, click here .

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Recent FASB & AICPA Updates
Auditing Standards – AICPA Adds New Pre-SAS 134 to Auditing Standards

Summary - The AICPA’s Auditing Standards Board (ASB) has added to the AICPA Professional Standards a new section, Pre-SAS No. 134 U.S.Auditing Standards — AICPA (Clarified) [AU-C]. The ASB added this new section to assist auditors and firms that do not implement SAS Nos. 134-140 before December 15, 2021.

SAS 134

The ASB adopted SAS 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, in May 2019. Since that time, it has adopted several additional related auditing standards, SAS Nos. 135-140. SAS Nos. 134-140 also included amendments to other SASs, including Nos. 122–133, as amended.

As adopted, SAS Nos. 134, 136, 137, 139, and 140 and the amendments made by them had effective dates for audits of financial statements for periods ending on or after December 15, 2020. Further, SAS 134, 136-137 and 139-140 as issued did not permit early implementation.

To assist practitioners in compliance given the issues involved in the COVID-19 pandemic, the ASB adopted SAS No. 141, Amendment to the Effective Dates of SAS Nos. 134-140. SAS-141 provides a one-year deferral of the effective dates of the recently issued auditing standards due to the COVID-19 pandemic. SAS Nos. 134 through 140 and the amendments made to other standards are now effective for periods ending on or after December 15, 2021.

Pre-SAS No. 134

Not all auditors and firms plan to implement SAS Nos. 134-140 before December 15, 2021, and the ASB has released Pre-SAS No. 134 to assist them. New section Pre-SAS No. 134 includes SAS Nos. 122–133 and remains effective through 2021. Auditors and firms should follow these provisions when they have not implemented SAS Nos. 134–140.

Because the new section retains currently effective guidance, each AU-C section in it is designated with a “B” suffix (for example, “AU-C section 200B”) to denote content that does not reflect the codification of SAS Nos. 134–140 or the amendments to other SASs made by SAS Nos. 134–140.

We have updated the following AU-C sections for this new “B” suffix:

  • Section 260B: The Auditor’s Communication with Those Charged with Governance
  • Section 585B: Consideration of Omitted Procedures After the Report Release Date
  • Section 600B: Special Considerations - Audits of Group Financial Statements (Including the Work of Component Auditors)
  • Section 800B: Special Considerations - Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks
  • Section 805B: Special Considerations - Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement
  • Section 806B: Reporting on Compliance with Aspects of Contractual Agreements or Regulatory Requirements in Connection with Audited Financial Statements
  • Section 810B: Engagements to Report on Summary Financial Statements
  • Section 905B: Alert That Restricts the Use of the Auditor’s Written Communication
  • Section 910B: Financial Statements Prepared in Accordance with a Financial Reporting Framework Generally Accepted in Another Country
  • Section 920B: Letters for Underwriters and Certain Other Requesting Parties
  • Section 930B: Interim Financial Information

For more information, click here .

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Cloud Computing – GASB Issues Statement No. 96 on Cloud Computing and Subscription-Based Information Technology Arrangements

Summary - The GASB has issued Statement No. 96, Subscription-Based Information Technology Arrangements. Statement 96 providesnew accounting and financial reporting guidance for subscription-based information technology arrangements (SBITAs), which have become increasingly common among state and local governments in recent years.

Statement 96 is based on the standards established in Statement 87, Leases. Statement 96. It:

  • Defines a SBITA as a contract that conveys control of the right to use a SBITA vendor’s IT software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.
  • Requires governments with SBITAs to recognize a right-to-use subscription asset, an intangible asset, and a corresponding subscription liability (with an exception for short-term SBITAs, those with a maximum possible term of 12 months).
  • Provides guidance related to outlays other than subscription payments, including implementation costs, and requirements for note disclosures related to a SBITA.

Although existing GASB literature addresses computer software that is internally developed or commercially purchased through perpetual licensing agreements, stakeholders have raised questions regarding cloud computing and other subscription-based forms of software applications and data storage. The new guidance should remedy existing inconsistencies in accounting and financial reporting for SBITAs.

The Statement is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. Early application is encouraged. In order to give state and local governments and other stakeholders additional time to deal with circumstances arising from the COVID-19 pandemic, this date is one year later than what the GASB proposed in the Exposure Draft. 

For more information, click here .

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Recent SEC & PCAOB Updates
Release No. 33-10781: Temporary Amendments to Regulation Crowdfunding

Summary - The SEC announced that it is providing temporary, conditional relief for established smaller companies affected by COVID-19 that may look to meet their urgent funding needs through a Regulation Crowdfunding offering. According to the SEC, these actions will expedite the offering process for eligible companies by providing relief from certain rules with respect to the timing of a company's offering and the financial statements required. To take advantage of the temporary rules, a company must meet enhanced eligibility requirements and provide clear, prominent disclosure to investors about its reliance on the relief. The temporary rules are intended to expedite the offering process for smaller, previously established companies directly or indirectly affected by COVID-19 that are seeking to meet their funding needs through the offer and sale of securities pursuant to Regulation Crowdfunding.
 
The temporary rules provide flexibility for issuers that meet certain eligibility criteria to assess interest in a Regulation Crowdfunding offering prior to preparation of full offering materials, and then once launched, to close such an offering and have access to funds sooner than would be possible in the absence of the temporary relief. The temporary rules also provide an exemption from certain financial statement review requirements for issuers offering more than $107,000 but not more than $250,000 in securities in reliance on Regulation Crowdfunding within a 12-month period.
 
The relief will apply to offerings launched between the effective date of the temporary rules (publication in the Federal Register) and August 31, 2020.

For more information, click here .

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
SEC Staff Speech, Emerging Market Investments Entail Significant Disclosure, Financial Reporting and Other Risks; Remedies are Limited by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton issued a statement along with the head of the PCAOB and other SEC staff members discussing the regulatory risks associated with emerging market investments. Clayton and the others cautioned that their “ability to promote and enforce these standards in emerging markets is limited and is significantly dependent on the actions of local authorities which, in turn, are constrained by national policy considerations in those countries. As a result, in many emerging markets, including China, there is substantially greater risk that disclosures will be incomplete or misleading and, in the event of investor harm, substantially less access to recourse, in comparison to U.S. domestic companies.”

For more information, click here .

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
PCAOB Inspections – PCAOB Publishes Guide to Reading New Inspection Report

Summary - The PCAOB issued the 2018 inspection reports for the six largest U.S. audit firms in a new, redesigned format. The new format marks the first time the PCAOB has substantially changed its reports since it first issued a report more than fifteen years ago.

The PCAOB’s new inspection report format:

  • Streamlines the report’s content to enhance readability;
  • Utilizes new charts and graphs to make the information more digestible and accessible for users;
  • Reduces the amount of technical and boilerplate language; and
  • Includes new information not previously communicated in inspection reports to enhance transparency, which is one of the PCAOB’s strategic goals.

To further detail the key changes to the report and assist stakeholders in reading it, the PCAOB has issued a Guide to Reading the PCAOB’s New Inspection Report. This guide also solicits public feedback on our new report format. 

For more information, click here .

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Auditing Updates
Credit Losses – New Edition of AICPA Audit and Accounting Guide on Credit Losses

Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Credit Losses. This new edition has been developed by the AICPA Current Expected Credit Losses 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 accordance with U.S. generally accepted accounting principles (GAAP).

Specifically, this guide is intended to help entities and auditors prepare for changes related to credit loss as a result of FASB Accounting Standards Update (ASU) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent ASUs amending FASB Accounting Standards Codification (ASC) 326, Financial Instruments—Credit Losses. 

For more information, click  here .

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
Tax Updates
Affects of Tax Regulation Changes Due to COVID-19
Authored by Tabitha Ford, Tax Senior, MaloneBailey, LLP.

Summary – In an effort to mitigate the negative impact that COVID-19 has had on affected Americans, Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The majority of the tax relief is offered mainly through the deferment of taxes, as well as relaxing some of the limitations placed on businesses from the Tax Cuts and Jobs Act (TCJA). The most significant of these changes are summarized below and are attributable to net operating losses, 163(J) business interest expenses and AMT credits.

Net Operating Losses (NOL)

Just recently, the Tax Cuts and Jobs Act (TCJA) eliminated the carryback of NOL’s for tax years beginnin g in 2018, allowing only an indefinite carryforward. The CARES act is reversing this limitation with the following changes:

  • Allowing corporations and individuals a 5-year carryback for tax years 2018-2020. Corporations and individuals can amend their returns all the way back to 2013 in order to receive any potential refunds.
  • Foreign income subject to transition tax (section 965) that normally would have been included as income during the 5-year carryback period can be disregarded. 
  • For taxable years beginning before Jan 1., 2018 and ending after Dec. 31, 2017, the carryback period can be waived, reduced or the election to waive the carryback period can be revoked. 
  • NOL arising before 1/1/2021 can be fully utilized without the 80% taxable income limitation.
  • For passthrough entities and sole proprietors, the CARES Act eliminates the $250,000 (per non-corporate taxpayer) business loss limitation.

163(J) Business Interest Expense Limitations

Current law, also enacted by the TCJA, limits business interest expenses for entities subject to section 163(J) up to 30% of adjusted taxable income. The Act increased this limitation to 50% for taxable years 2019 and 2020 with a special allocation election required for partnerships for 2019. For tax year 2020, the taxpayer may also elect to use the adjusted taxable income from 2019 to calculate this limitation. Additionally, the taxpayer may also elect out of deducting the 50% excess business interest expense for taxable years beginning in 2020 without limitation.

Alternative Minimum Tax (AMT) Credit Refund

Prior to the Act, AMT was eliminated for corporations beginning in 2017, though refundable portions of any unused tax credits were allowed to be claimed through 2021, after a 50% limitation is applied on any excess minimum tax in 2018 through 2020, before it is fully refundable in 2021. The Act is essentially allowing the refundable credit to be fully claimed in 2019, as well as allowing the corporation to elect to claim the refundable credits in 2018.

If you have questions or need assistance with any IRS tax relief options mentioned above, please feel free to contact our Senior Tax Manager, Nicole Zhao . 
 
For more information on tax relief, click here .
Extra Crunch
OTC Markets - Small Cap Compliance Product Now Includes Risk Scoring

Summary - OTC Markets Group Inc. (OTCQX: OTCM), operator of financial markets for 10,000 U.S. and global securities, today announced the addition of 'Risk Scoring' to its Small Cap Listed Compliance Product. This latest enhancement provides broker-dealers and compliance and risk management teams with a quantitative metric to compare over 2,300 sub $500 million market cap U.S. exchange-listed securities.

Individual securities are assigned a total risk score based on 13 factors which provide a comprehensive view of the risk profile. Key risk factors include: promotion, hot sector status, penny stock status, shell status (current and past), price, market cap and trading volatility. The latest data set provides a more in-depth, analytical compliance snapshot to better evaluate small cap securities listed on the NYSE, NYSE American and Nasdaq.

"The ability to quickly assess and compare risk factors for individual small cap listed securities provides broker-dealers, risk management and compliance professionals with enhanced benchmarking and insight into this segment of the market," said Matthew Fuchs, Executive Vice President of Market Data and Strategy at OTC Markets Group. "Providing subscribers with efficient, comprehensive, real-time analytics tools continues to be our focus."

Risk Score Algorithm data also includes elements related to:

  • Name Changes
  • Reverse Splits
  • Price and Volume Change
  • Shares /Authorized Shares Outstanding

Delivered in pipe-delimited format, twice daily at 5:00 am (ET) and 7:00 pm (ET), the file is licensed at an enterprise level designed for broker-dealers, AML, compliance and risk management professionals looking to more effectively right-size small cap listed equity compliance.

For more information, please click here .
About MaloneBailey, LLP
Should you be interested in a complimentary estimate for audit, consulting and tax services, please contact Caroline Rosen at crosen@malonebailey.com or 713.343.4286.
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