This 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) has issued an Accounting Standards Update (ASU) regarding hedge accounting to better reflect organization’s risk management strategies. In 2017, the FASB introduced the last-of-layer hedging method that allowed companies to fair value hedge assets “by using the last dollar amount within that portfolio of ‘prepayable’ assets as the hedged item.” The change introduced by the FASB now allows for companies to use “multiple hedged layers of a single closed portfolio” as well as the ability to include non-prepayable assets. This hedging method has been renamed the portfolio layer method. The full ASU report can be read here.

Securities and Exchange Commission

The Securities and Exchange Commission (SEC) proposed two new rules that will change compliance standards for market participants. Major market participants, especially liquidity providers such as principal trading firms, are to be designated as a “dealer” or “government securities dealer.” These designations require the registration with the SEC, becoming members of a self-regulatory organization (SRO), and compliance with all federal securities laws and regulatory obligations. The period for public comment will be available for 60 days once this rule is published to or 30 days once published to the Federal Register, whichever period is longer.

The SEC voted on a proposal that would change the way credit rating agencies are described in Rules 101 and 102 of Regulation M. The proposed change would remove references of credit rating agencies from said rules. Rules 101 and 102 prohibit artificially influencing the market regarding an offered security. The rationale behind this proposal is described as the following: “Today’s proposal, if adopted, thus would fulfill Congress’s mandate to remove all such references to credit rating agencies from our rules.” The referenced mandate from congress is in reference to Section 939A of the Dodd-Frank Act of 2010 where congress ordered federal agencies “to remove any reference to or requirement of reliance on credit ratings’ from our rules and to substitute an appropriate standard for credit-worthiness.”

The SEC has proposed that special purpose acquisition companies (SPACs) be held under stricter disclosure rules. Under this proposal, SPACs should now give their shareholders disclosure documents 20 days before any vote on acquiring a target company. The SEC also wants SPACs to use less “overly optimistic language or over-promising future results” when pitching to potential investors. The SEC also wants auditors and underwriters to be more thorough when examining for fraud and any potential discrepancies in the disclosure statements. The full SEC proposal can be read here.

American Institute of Certified Public Accountants

The American Institute of Certified Public Accountants (AICPA) is backing a letter sent by the U.S. Senate to the Internal Revenue Service (IRS). This letter is requesting clarification on notice suspensions. Questions range from why some notices remain unsuspended and whether additional notices will be suspended. More specific questions include: why the IRS hasn’t suspended notice CP2000 (Notice of Underreported Income), will there be an implantation delay of schedule k-2/k-3, and if the IRS has decided to grant penalty relief offered in 2020 and 2021. The AICPA has supported this letter and urges IRS Commissioner Charles Rettig to respond to all questions.

Public Company Accounting Oversight Board

The Public Company Accounting Oversight Board (PCAOB) has named Omid Harraf, the new Chief of Staff. PCAOB Chair, Erica Y. Williams, announced the news effective immediately on March 7th.  As Chief of Staff, Harraf will advise the Chair on all PCAOB matters as well as help with the overall management of the organization. Prior to this position, Harraf worked as Deputy Chief Counsel and Senior Special Counsel for legal policy for the SEC. More information regarding Mr. Harraf and the Chief of Staff position can be found here.