We are pleased to release MaloneBailey's June 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 Uplisting Process to Nasdaq

Recent Accounting & Regulatory Updates



Recent FASB & AICPA Updates

• Exposure Draft - Proposed Accounting Standards Update 2022-001 —Reference Rate Reform (Topic 848) and Derivatives and Hedging (Topic 815): Deferral of the Sunset Date of Topic 848 and Amendments to the Definition of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate 
• Governmental Audit –GAQC Alert No 439 Published
• Fair Value Measurement –FASB Discusses Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions 
• Financial Instruments –FASB Discusses Post-Implementation Review of Topic 326 
• Software Costs –FASB Discusses Accounting for and Disclosure of Software Costs 
• Consolidation –FASB Discusses Comments on Consolidation Reorganization Proposal 
• GAO –GAO Issues Professional Standards Update No. 84 

Recent SEC & PCAOB Updates

• May 03, 2022: Sample Letter to Companies Regarding Disclosures Pertaining to Russia’s Invasion of Ukraine and Related Supply Chain Issues 
• Estimates and Specialists –PCAOB Requests Comment on Impact of Auditing Requirements Related to Estimates and Specialists 

Tax

• Delaware Franchise Tax

Extra Crunch

• OTC Markets Educational Webinars: Helping Companies Navigate Public Markets

About MaloneBailey, LLP

Navigating the Uplisting Process to Nasdaq

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

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. For this podcast and many more, please visit the Resources section of our website.

Exposure Draft - Proposed Accounting Standards Update 2022-001 —Reference Rate Reform (Topic 848) and Derivatives and Hedging (Topic 815): Deferral of the Sunset Date of Topic 848 and Amendments to the Definition of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate



Summary - The FASB issued a proposed Accounting Standards Update (ASU) that would extend the period of time preparers can utilize the reference rate reform relief guidance and expand the Secured Overnight Financing Rate (SOFR)-based interest rates available as benchmark interest rates. Stakeholders are encouraged to review and provide feedback on the proposed ASU by June 6, 2022.

Issue 1: Proposed Sunset Date Deferral

In 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the amendments in the proposed ASU would defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities would no longer be permitted to apply the relief in Topic 848.

Issue 2: Proposed Amendments to the Definition of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate

In 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which added the term Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate (SOFR Swap Rate) to the Master Glossary of the FASB Accounting Standards Codification®. The amendments in ASU No. 2018-16 also permitted a rate that meets the definition of the SOFR Swap Rate to be considered a benchmark interest rate and therefore eligible to be designated as the hedged risk for recognized fixed-rate financial instruments or a forecasted issuance or purchase of fixed-rate financial instruments.

In ASU No. 2018-16, the FASB stated that the definition of the SOFR Swap Rate was specific to the OIS rate based on SOFR and that it would monitor the developments of the forward-looking, term-based version of the SOFR rate (SOFR term) and consider including SOFR term as a benchmark interest rate in the future. Based on the developments of SOFR term in the marketplace, the proposed ASU would amend the definition of the SOFR Swap Rate to include other versions of SOFR, such as SOFR term, as a benchmark interest rate under Topic 815.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Governmental Audit –GAQC Alert No 439 Published

Summary - The AICPA’s Governmental Audit Quality Center (GAQC) has published Alert No. 439. This GAQC Alert discusses a Federal Register technical updated published that announces a compliance examination attestation engagement option for certain recipients of funding from the Coronavirus State and Local Fiscal Recovery Fund (CSLFRF), as well as a reminder from the GAQC to register for an April 21, 2022, GAQC Web event on the CSLFRF program. 

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Fair Value Measurement – FASB Discusses Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on March 23, 2022, and began its redeliberations on the effect of contractual sale restrictions on fair value measurement that was included in the proposed ASU, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The FASB affirmed the proposed scope that the clarifying amendments would apply to all equity securities subject to any contractual sale restriction. 

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Financial Instruments – FASB Discusses Post-Implementation Review of Topic 326

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on April 6, 2022, and discussed an agenda request to provide a practical expedient that would allow all entities to not apply the recognition and measurement guidance on troubled debt restructurings within Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors. The FASB decided not to add a project to its technical agenda. 

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Software Costs – FASB Discusses Accounting for and Disclosure of Software Costs

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on April 13, 2022, and discussed the pre-agenda research performed to date, including stakeholder feedback received on software costs in response to the June 2021 Invitation to Comment, Agenda Consultation. The FASB made no technical decisions and provided its staff with direction to continue pre-agenda research. That research will be considered in a future decision-making meeting where the FASB will decide whether to add a project on software costs to its technical agenda.  

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Consolidation –FASB Discusses Comments on Consolidation Reorganization Proposal



Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on April 20, 2022, and discussed feedback received in response to the 2021 Invitation to Comment, Agenda Consultation, on the:

• Current project to reorganize the guidance in Topic 810, Consolidation; and
• Consolidation guidance more broadly.

On the basis of this feedback, the FASB decided to remove the project from its technical agenda. Additionally, the FASB chair added a project, Consolidation for Business Entities, to the FASB research agenda. That research project will explore whether a single consolidation model could be developed for business entities. 

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

GAO –GAO Issues Professional Standards Update No. 84

Summary - The Government Accountability Office (GAO) has published Professional Standards Update (PSU) No. 84 covering standards published from January through March 2022. Specifically, this PSU has two sections:

• Section I identifies select standards and guidance with their respective effective dates. Section I contains standards effective for:
• audits of financial statements for periods ending after December 31, 2021;
• attestation reports dated after December 31, 2021; and
• accounting for reporting periods beginning after October 15, 2020.
• Section II identifies select standards and guidance that were issued from January 2022 through March 2022.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

May 03, 2022: Sample Letter to Companies Regarding Disclosures Pertaining to Russia’s Invasion of Ukraine and Related Supply Chain Issues 

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published a Sample Letter to Companies Regarding Disclosures Pertaining to Russia’s Invasion of Ukraine and Related Supply Chain Issues. The letter indicates that Corp Fin believes that companies should provide detailed disclosure, to the extent material or otherwise required, regarding:

• Direct or indirect exposure to Russia, Belarus, or Ukraine through their operations, employee base, investments in Russia, Belarus, or Ukraine, securities traded in Russia, sanctions against Russian or Belarusian individuals or entities, or legal or regulatory uncertainty associated with operating in or exiting Russia or Belarus;
• Direct or indirect reliance on goods or services sourced in Russia or Ukraine or, in some cases, in countries supportive of Russia;
• Actual or potential disruptions in the company’s supply chain; or
• Business relationships, connections to, or assets in, Russia, Belarus, or Ukraine.

The financial statements may also need to reflect and disclose:

• The impairment of assets;
• Changes in inventory valuation;
• Deferred tax asset valuation allowance;
• Disposal or exiting of a business;
• De-consolidation;
• Changes in exchange rates; and
• Changes in contracts with customers or the ability to collect contract considerations.

In addition, Corp Fin indicates that since Russia’s invasion of Ukraine, many companies have experienced heightened cybersecurity risks, increased or ongoing supply chain challenges, and volatility related to the trading prices of commodities regardless of whether they have operations in Russia, Belarus, or Ukraine that warrant disclosure.



Corp Fin also indicates that companies should also “consider how these matters affect management’s evaluation of disclosure controls and procedures, management’s assessment of the effectiveness of internal control over financial reporting, and the role of the board of directors in risk oversight of any action or inaction related to Russia’s invasion of Ukraine, including consideration of whether to continue or to halt operations or investments in Russia and/or Belarus.”

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Estimates and Specialists –PCAOB Requests Comment on Impact of Auditing Requirements Related to Estimates and Specialists

Summary - The PCAOB has issued the Request for Comment, Post-Implementation Review Interim Analysis of Estimates and Specialists Audit Requirements (Request for Comment). The comment due date is June 10, 2022.

In 2018, the PCAOB adopted, and in 2019, the SEC approved, amendments to PCAOB standards for auditing accounting estimates and fair value measures, as well as amendments to the PCAOB auditing standards for using the work of specialists. These new requirements took effect for audits of fiscal years beginning on or after December 15, 2020. The PCAOB staff is now seeking comments on the initial experiences with and impact of these amendments.

This analysis is an initial interim analysis that will not be a complete evaluation of the effect of the new standards. The PCAOB staff will evaluate comments received and other evidence obtained from the analysis, and will consider whether additional guidance or other steps may be appropriate. The PCAOB expects to produce a report in the fourth quarter of 2022 to communicate findings and provide stakeholders with early insights into the initial impact of the requirements.

Because some of the effects of the new requirements may take several years to fully manifest or stabilize, after a reasonable period of time, the PCAOB will conduct a full post-implementation review. The staff will evaluate the benefits and costs of the new requirements, including the effect of unintended consequences.

All comments should refer to: Interim Analysis No. 2022-001, Estimates and Specialists Audit Requirements, on the subject or reference line and should be submitted no later than June 10, 2022. Please note that staff will post comments to the PCAOB website.



The Request for Comment also details additional information on the PCAOB’s interim analysis and specific questions for consideration. The PCAOB also encourages commenters to provide data, evidence, and/or specific examples in support of their comments. More information about the PCAOB’s post-implementation review program is also available on the PCAOB website. 

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Delaware Franchise Tax

When business owners are ready to incorporate their business, they will need to select a state of incorporation. It is not necessary to incorporate in the state where the business physically resides. Instead, business owners can form their company anywhere. Thanks to its friendly business laws, most of the Fortune 500 companies and lots of public companies have chosen to incorporate in Delaware. Private companies, partnerships and LLCs like the low annual franchise tax cost in Delaware. However, for public companies, including SPACs, the Delaware franchise tax could be surprisingly high. In this article, we take a closer look at the Delaware franchise tax.

LLC/Partnership Tax Information

All actively Delaware Limited Liability Companies, Limited Partnerships, and General Partnerships are required to pay an annual tax of $300.00. The annual taxes are due on or before June 1^st.

Corporate Tax Information

All active Domestic Corporation Annual Reports and Franchise Taxes are due on or before March 1st and are required to be filed online. There are two methods to calculate the franchise tax, authorized shares method and assumed par value method. A corporation pays tax based on the lower results between these two methods.

The minimum tax is $175.00 for authorized shares method and $400.00 for using assumed par value capital method. The maximum tax is $200,000.00 for both methods, but large corporate filers are subject to a $250,000.00 maximum tax limit.

Authorized Shares Method Calculation

This method calculates the franchise tax solely based on the number of authorized shares and disregards the number of issued shares. If they have no par value of corporations’ stock, the authorized shares method will always result in the lesser tax.

For example, a corporation with 15,000 shares needs to pay $335.00; for a SPAC, which typically authorizes 11,000,000 shares, the franchise tax would hit the maximum tax of $200,000.

If a corporation does not need to issue millions of shares, it might be better to just authorize what it needs to attract investors.

Assumed Par Value Capital Method Calculation

This method takes into consideration several factors: number of authorized shares, number of issued shares and year-end gross assets.

Pay Estimated Taxes in Quarterly Installments

Usually, taxpayers owing $5,000 or more will be required to pay estimated taxes in quarterly installments:

• June 1^st: 40% of the prior year total tax
• September 1^st: 20% of the prior year total tax
• December 1^st: 20% of the prior year total tax
• March 1^st in the flowing year: the remaining tax along with the annual franchise tax report

More information on Delaware franchise tax can be found on the website of State of Delaware.

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

OTC Markets Educational Webinars: Helping Companies Navigate Public Markets

Summary - OTC Markets offers a variety of educational webinars with the goal of "helping companies navigate public markets."

The webinars provide a range of important topics, including series that cover policy & regulation, optimizing visibility, advisor insights and community banks.

To access the educational webinars, please visit the OTC Markets website by clicking here.