Financial Reporting Update: November 2023

by | Dec 8, 2023 | Complex Accounting and Risk Management

This Financial Reporting Update highlights key developments and issues that are relevant to Finance and Accounting Professionals.

 

Financial Accounting Standards Board

On November 27th, The Financial Accounting Standards Board (FASB) issued a Accounting Standards Update (ASU). According to the FASB Chair Richard R. Jones, these changes “will improve financial reporting by providing additional information about a public company’s significant segment expenses and more timely and detailed segment information reporting throughout the fiscal period.” The six key changes are listed below.

  1. Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss.
  2. Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss.
  3. Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by FASB Accounting Standards Codification® Topic 280, Segment Reporting, in interim periods.
  4. Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements.
  5. Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.
  6. Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in Topic 280.

These accounting standard updates affect all public entities that must report segment information under Topic 280. Public companies that follow topic 280 must begin to report their segment information annually starting after December 15th, 2023.

Securities and Exchange Commission

On November 27th, The Securities and Exchange Commission issued a press release related to their adoption of the Securities Act Rule 192. This rule was put into place to implement, “Section 27B of the Securities Act of 1933 which was a provision that was added by Section 621 of the Dodd-Frank Act.” This new rule is intended to block the sale of asset-backed securities (ASB) that, “are tainted by material conflicts of interest.” More specifically, “It prohibits a securitization participant, for a specified period, of time from engaging, directly or indirectly, in any transaction that would involve or result in any material conflict of interest between the securitization participant and an investor in the relevant ABS. Under new Rule 192, such transactions would be “conflicted transactions.”

Per the new Rule 192, a securitization participant cannot engage in any transaction that would benefit from a decline in the value of the ABS they are involved in. This includes selling the ABS short, buying a credit derivative that pays off if the ABS defaults, or any other transaction that has a similar economic effect, except for those that only hedge against changes in interest rates or currency exchange rates.

This new rule will go into effect sixty days after it is published within the Federal Register and full compliance is required for any asset backed security sale that occurs within eighteen months after the publication within the Federal Register.

Public Company Accounting Oversight Board

On November 1st,  The Public Company Accounting Oversight Board (PCAOB) published a news release summarizing the actions they have taken in 2023 as well as the actions they plan to take in 2024. They adopted two standards this year related to, “Other Auditors and Confirmation”, which had previously been stalled since 2010. The board also proposed four other standards. These standards are expected to be finalized in 2024. With all these changes on the horizon it’s important for firms to keep up with the accounting rules and standards as they are updated.

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