This Financial Reporting Update highlights key developments and issues that are relevant to Finance and Accounting Professionals.
Financial Accounting Standards Board
On September 7th, the Financial Accounting Standards Board (FASB) Not-for-Profit (NFP) Advisory Committee held its semiannual meeting.
Within this meeting, they discussed “recent observations from the implementation of Topic 842 including transition methods elected, practical expedients utilized, systems and software for tracking and accounting for leases, areas of the guidance for which there were frequent discussions between practitioners and their clients, implementation costs, and expected recurring costs.”
The committee also spoke about how the current expected credit losses model is being applied to Community Development Financial Institutions (CDFIs). These institutions are currently providing loans at a lower rate than that of the market and are seeking “additional resources on how to apply the guidance.”
Securities and Exchange Commission
On September 20th, The Securities and Exchange Commission issued a press release speaking on amendments to the Investment Company Act “‘Names Rule’, which addresses fund names that are likely to mislead investors about a fund’s investments and risks.”
These new amendments expand upon the existing rules by requiring that funds with names that suggest a focus on a particular investment type or characteristics are held to an 80 percent investment policy. These amendments also require that a fund must “review its portfolio assets treatment under its 80 percent investment policy at least quarterly and will include specific time frames – generally 90 days – for getting back into compliance if a fund departs from its 80 percent investment policy.”
Additionally, “the amendments will become effective 60 days after publication in the Federal Register. Fund groups with net assets of $1 billion or more will have 24 months to comply with the amendments, and fund groups with net assets of less than $1 billion will have 30 months to comply.”
Association of International Certified Professional Accountants
On September 15, the Association of International Certified Professional Accountants (AICPA) published a summary of proposed changes that were announced by the International Accounting Standards Board (IASB). The changes, as stated in the summary, “includes clarifications, simplifications, corrections, or changes to improve consistency in:
- IFRS 1, First-time Adoption of International Financial Reporting Standards;
- IFRS 7, Financial Instruments: Disclosures and its accompanying Guidance on implementing IFRS 7;
- IFRS 9, Financial Instruments;
- IFRS 10, Consolidated Financial Statements; and
- IAS 7, Statement of Cash Flows.”
The comment period for these proposed changes ends on December 11th. Once they receive comments the IASB will consider them when making their final decision on the proposed changes.
Public Company Accounting Oversight Board
On September 19th, the Public Company Accounting Oversight Board (PCAOB) released a proposal to the public asking for comments on their proposed amendments to PCAOB Rule 3502. This rule is also known as “Responsibility Not to Knowingly or Recklessly Contribute to Violations.”
While the rule has been in place since 2005, it currently “only allows auditors to be held liable for firms’ violations when they ‘recklessly’ contribute to those violations.” This makes it difficult for the PCAOB to hold individuals accountable when they directly contribute to a firm’s violation unless there is proof that they acted “recklessly.”
If the rule is changed it will switch the “…liability standard from recklessness to negligence, aligning it with the same standard of reasonable care auditors are already required to exercise anytime they are executing their professional duties.”