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

Securities and Exchange Commission

The Securities and Exchange Commission (SEC) suspended trading activity for 15 companies that allegedly used social media to artificially inflate their stock prices. The SEC stated that this suspension is part of an overreaching endeavor to protect investors from exploitation during the current state of market volatility.

The SEC announced the institution of a task force that will focus on climate and environmental, social, and governance (ESG) disclosures and compliance issues, the Climate and ESG Task Force in the Division of Enforcement. In particular, the task force will examine material gaps or misstatements in issuers’ disclosure of climate risks. This task force will also investigate whistleblower complaints related to ESG matters.

Financial Accounting Standards Board

The Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) met to deliberate Issue No. 19-B “Revenue Recognition – Contract Modifications of Licenses of Intellectual Property” and Issue No. 19-C “Issuer’s Accounting for Certain Modifications of Freestanding Equity-Classified Forwards and Options.” The EITF determined that Issue No. 19-B should be referred back to the Board for consideration. For Issue No. 19-C, the EITF agreed to limit the scope of the amendments to freestanding equity-classified written call options that will remain equity classified after the modification. Additionally, the EITF decided to affirm the issue’s recognition framework, measurement approach, allocation approach, clarifying changes, and disclosure requirements.

The Financial Accounting Standards Board (FASB) announced that the SEC has approved the 2021 GAAP Financial Reporting Taxonomy and the 2021 SEC Reporting Taxonomy. These taxonomies discuss accounting standards updates, SEC final rules, and other recommended improvements. Additionally, the FASB finalized the 2021 DQC Rules Taxonomy. This taxonomy discusses Extensible Business Reporting Language (XBRL) validation rules for regulator use.

The Financial Accounting Standards Advisory Council (FASAC) met to discuss investments in nonfinancial assets and the FASB agenda consultation process. The FASAC found that investments in nonfinancial assets are generally insignificant for the majority of companies. Therefore, the FASAC recommended that the Board consider increasing transparency in disclosures for these types of investments but stated that improvements in this area are not a priority. The FASAC also concluded that the Board should increase efforts to reach out to all stakeholders during its agenda prioritization process. In particular, it advised that the Board reach out to both preparers and investors during pre-agenda research and use surveys to increase the number and diversity of stakeholders participating in the agenda process.

American Institute of Certified Public Accountants

The American Institute of Certified Public Accountants (AICPA) has proposed a new auditing standard to improve communication between past auditors and potential new auditors. The exposure draft, titled Inquiries of the Predecessor Auditor Regarding Fraud and Noncompliance with Laws and Regulations (NOCLAR), would amend SAS No. 122 section 210 Terms of Engagement. The proposed statement would require potential auditors to discuss NOCLAR situations, such as noncompliance with tax or pension laws, with their predecessors. The AICPA has stated that this standard can help potential auditors assess whether to accept an engagement. Parties can submit feedback on this proposed standard to the AICPA’s Accounting Standards Board (ASB) until June 30, 2021.

Save the Date

On April 6, the FASB will hold a free webcast titled In Focus: 2021 GAAP and SEC Reporting Taxonomy Improvements and SEC Update. Participants in the live broadcast are eligible for up to 1.8 hours of continuing professional education credit. The webcast will be held from 1:00-2:30 P.M. EDT and the link to register can be found here.