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Project to amend definition of “materiality” for U.S. GAAP dropped.
FASB has ended work on its controversial proposal to give businesses more flexibility in determining the information to include in their financial statement footnotes. The board wanted to redefine “materiality” as it applied to U.S. GAAP, but Wall Street investors criticized the proposed change because they feared it would mean that much of the information they find useful would no longer be made public. “To me, this is good example of when something is not broken, don’t try to fix it,” FASB Vice Chairman James Kroeker said.
United Kingdom mulls fate of IFRS in Brexit’s wake.
Despite the United Kingdom’s plan to formally leave the European Union, it should not abandon international accounting standards, the Institute of Chartered Accountants of England and Wales (ICAEW) said in a September 29 report. “We suggest that, at a time when the IASB’s standards are increasingly regarded as the benchmark for reporting by listed companies around the world, a move away from IFRS would risk making the United Kingdom a less attractive market for investors,” the report says. “We conclude that, as a major global financial center, the United Kingdom should continue to adhere to internationally accepted standards.” An IASB spokesperson declined to comment on the report.
Investor advisory group wants accounting firms to submit audited financial statements.
The PCAOB’s Investor Advisory Group (IAG) has recommended that registered accounting firms provide audited financial statements to the board for review. In particular, panel members have been concerned about the dominance of the Big Four and the related question of whether they have grown so large that the failure of one could disrupt U.S. financial markets. “If you combine the fifth to eighth largest firms in the U.S., the combined firm would not even be close in terms of revenue or size to the smallest of the Big Four,” said PCAOB member Steven Harris, who chairs the IAG. “In America, we believe nobody’s too big to fail. But having said that, what would be the impact if one of these firms did go under, and how concerned should we be?”
Comment letters back proposal strengthening auditors’ scrutiny of accounting estimates.
Comment letters by banking regulators and investors support the PCAOB’s June 2017 proposal to increase auditors’ responsibilities for scrutinizing accounting estimates. Release 2017-002, Proposed Auditing Standard—Auditing Accounting Estimates, Including Fair Value Measurements and Proposed Amendments to PCAOB Auditing Standards, calls on auditors to apply greater professional skepticism and pay more attention to potential management bias when auditing accounting estimates. The proposed standard has specific requirements to address certain aspects of auditing the fair value of financial instruments, including the use of information from third-party pricing sources. It also focuses on estimates with greater risk of error. “We believe proposed Auditing Standard (AS) 2501 on auditing estimates … will improve the quality and the consistency of audits in this important area, reinforce the need for auditors to apply professional skepticism, and enhance market discipline,” wrote the chief accountants of the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) in a joint comment letter. “High-quality external audits play an important role in ensuring the reliability of institutions’ financial information and contribute to financial stability.”
Proposal calls for clarity on equity interests in legally separate entities.
On November 9, GASB proposed clarifying how a government entity reports its holdings in an entity to generate income, such as when a public hospital acquires a rehabilitation center but keeps it legally separate from the hospital. The proposal calls for the holdings to be assessed to consider whether they meet the definition of investments and should be measured using the equity method. GASB said it believes the proposal would fix inconsistencies in practice and provide “essential information” related to presentation of majority equity interests in legally separate organizations. Comments on the plan are due by January 19, 2018.