Our Financial Reporting Update highlights key developments and issues that are relevant to finance and accounting personnel.

Financial Accounting Standards Board

The Financial Accounting Standards Board (FASB) issued a proposed Accounting Standard Update (ASU) regarding lease discount rate guidance for non-public lessees. Non-public lessees include entities such as private companies, not-for-profits, and employee benefit plans. Under the current lease standard, non-public lessees may elect to discount their leases at a risk-free rate. Lessees that make this election would not need to undergo complex and rigorous calculations to determine an incremental borrowing rate. However, if a non-public lessee makes this election, it must discount all of its leases at this risk-free rate. This proposed guidance would permit non-public lessees to apply the risk-free rate election to individual classes of underlying assets. However, the new guidance would require non-public lessees to use the rate implicit in their leases if it is readily determinable, even if the lessee had elected to use the risk-free rate. The FASB has requested that stakeholders provide comments on this ASU by July 16, 2021.

Securities and Exchange Commission

The Securities and Exchange Commission (SEC) issued its Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions. This agenda outlines planned regulatory actions by administrative agencies. Topics in this agenda include increased disclosures for items such as climate risk and cybersecurity, enhanced transparency around stock buybacks, and new regulations on special purpose acquisition companies (SPACs). 

The SEC recently settled charges with a real estate settlement services company for failing to disclose cybersecurity vulnerabilities. The company became aware of a cybersecurity vulnerability on May 24, 2019, and filed a Form 8-K to the SEC four days later. However, the senior executives who filed the Form 8-K were not fully informed of the risks attached to the cybersecurity vulnerabilities and, therefore, did not adequately disclose these risks. During this investigation, the SEC reminded issuers that all information that could impact investors must be communicated to the appropriate personnel to ensure transparent and accurate disclosures. The company has agreed to pay a $487,616 penalty without admitting or denying the SEC’s findings.

American Institute of Certified Public Accountants

The Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) has issued Statement on Auditing Standards (SAS) No. 144. This SAS offers guidance related to how auditors should assess the use of specialists and pricing information to determine the fair value of financial instruments. It also updates the AICPA’s standards on the use of specialists by both management and auditors. This SAS will apply to audits of periods ending on or after December 15, 2023. For more information on this SAS, check out a brief overview published by the AICPA, found here.

Following the SEC’s request for feedback, the AICPA published a comment letter regarding climate-related environmental, social, and governance (ESG) disclosures. In its comment letter, the AICPA supported the addition of this type of disclosure. The AICPA also emphasized the importance of internal controls over ESG disclosures and stated that certified public accountants would be a critical resource in ensuring the reliability of ESG disclosures. Finally, the AICPA strongly recommended digitizing ESG disclosures using Extensible Business Reporting Language (XBRL).

Save the Date

On July 26-29, the AICPA and the Chartered Institute of Management Accountants (CIMA) will hold a conference for accounting and finance professionals. Attendees can obtain up to 46 continuing professional education (CPE) credits. The conference will be a hybrid of online and in-person attendance at the Aria Resort & Casino in Las Vegas. The linked website has registration information as well as the full conference agenda.