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) published an Accounting Standards Update (ASU) to increase comparability in accounting for revenue contracts with customers obtained through a business combination. Previously, entities recognized contract assets and liabilities at their fair value on the acquisition date. This ASU directs entities to use Accounting Standards Codification (ASC) 606 to quantify contract assets and liabilities during the combination. This ASU will help provide clarity and consistency to accounting for business combinations.
The FASB has released a proposed ASU to amend interim financial reporting disclosure requirements. There are three main proposed changes. First, the ASU would require disclosure for significant events that can materially affect an entity. Second, it would explain which alternatives for presentation and disclosure of interim financial statements would comply with Generally Accepted Accounting Principles (GAAP). Third, it would begin the process of combining requirements for interim reporting into one ASC. The comment period for this proposed ASU is open until January 31, 2022.
The FASB published an ASU that will simplify lessee discount rate guidance for non-public business entities. Under this ASU, lessees may use the risk-free election by underlying asset class rather than applying it at the entity-wide level. However, if the entity can determine the rate implicit in a lease, the entity may not elect to use the risk-free rate for that individual lease.
The FASB issued an ASU that will require entities to provide additional disclosures related to government grants. This ASU directs entities to disclose information about the grant and how the entity accounts for it, the financial statement line items impacted by the grant, and the grant’s terms and conditions. The ASU will not apply to not-for-profits or employee benefit plans.
Securities and Exchange Commission
The Securities and Exchange Commission (SEC) approved the Public Company Accounting Oversight Board (PCAOB) rule titled “Board Determinations Under the Holding Foreign Companies Accountable Act.” This act sets forth the PCAOB’s methodology to determine if it is unable to evaluate an audit firm in a foreign jurisdiction due to the authority of that jurisdiction. The SEC has stated that this act will help safeguard U.S. investors by ensuring that foreign audit companies follow the same rules as U.S. audit firms.
The SEC has released a summary of its 2021 enforcement results. Over the past fiscal year, the SEC has filed 697 enforcement actions, awarded over $564 million to whistleblowers, and obtained judgments of roughly $3.8 billion. According to the SEC, notable areas for new enforcement actions were cryptocurrency and Special Purpose Acquisition Company (SPAC) matters.
American Institute of Certified Public Accountants
The American Institute of Certified Public Accountants (AICPA) has commented negatively on Congress’ consideration of a corporate profits minimum tax. This tax would require companies to pay a minimum tax of 15% of adjusted financial statement income. The AICPA has stated that basing a tax on adjusted financial statement income rather than on taxable income would shift power away from Congress to industry regulators since financial statement income significantly differs from taxable income. The AICPA concluded that “Public policy taxation goals should not have a role in influencing accounting standards or the resulting financial reporting. Independence and objectivity of accounting standards are the backbone of our capital markets system.”