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IRS clarifies safe harbor for inadvertent violation of normalization rules.
The IRS has clarified the use of the phrase “in a manner that totally reverses the effect” in the requirements for a utility to qualify for a safe harbor for inadvertent violations of the normalization rules. In September 2017, the IRS published Revenue Procedure 2017-47, which set out a safe harbor concerning inadvertent or unintentional uses of a practice or procedure that is inconsistent with Internal Revenue Code (IRC) sections 50(d)(2) and 168(i)(9), which require the use of the normalization rules. Taxpayers expressed concern that the phrase “totally reverses the effect” could be read to require retroactive ratemaking in order to take advantage of the safe harbor. According to the clarification, the utility is not required to take any actions to reverse the prior financial effects of the inadvertent violation; it only needs to change the improper practice on a prospective basis.
Easier transition method for lease standard moves forward.
On March 7, FASB agreed by a 6-1 majority to give businesses and other organizations an easier method for making the transition to the accounting board’s new lease standard. Instead of having to present two prior years of comparative results when they adopt the standard, entities have the option of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings. FASB member Harold Schroeder dissented without comment; he had previously said that permitting entities to avoid “retrospective adoption” of a new standard would be a disservice to investors, who need clear comparisons of past results to understand a company’s financial position.
Fair value disclosure rules scaled back.
On March 7, FASB published an update to U.S. GAAP to improve the information businesses disclose about the estimates and assumptions used to determine the fair values of assets and liabilities. A 6-1 majority of the board said the final amendments will be based on FASB’s 2015 proposed Accounting Standards Update (ASU) 2015-350, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. The accounting board believes the amendments will reduce costs for businesses while satisfying the needs of investors and analysts.
Proposed implementation guide criticized over disclosure rule.
A proposed implementation guide from GASB has prompted criticism from several groups that question how the board expects state and local governments to follow its disclosure guidance for tax abatements. According to GASB, its implementation guidance was intended to help governments determine when the forgiveness of property taxes should be classified as a tax abatement, but critics say that if the proposed implementation guidance is finalized, many abatements will escape disclosure. In particular, the guide suggests that certain tax increment financing deals, subsidies that are often used to fund public infrastructure, would be exempt from GASB Statement 77, Tax Abatement Disclosures. “We hope the GASB will revisit its original intent in issuing Statement 77: to bring out of the shadows previously undisclosed costs that have a significant impact on many governments’ fiscal health,” wrote one Washington policy group. “The GASB should close confusing loopholes rather than open new ones that would move us away from the goal of accessible, comprehensive reporting.”
ASB issues guidance for PCAOB’s revised audit reporting requirements.
On March 2, the AICPA’s Auditing Standards Board (ASB) issued Auditing Interpretation 4, Forming an Opinion and Reporting on Financial Statements: Auditing Interpretations of AU-C Section 700, to help auditors comply with GAAS following the PCAOB’s adoption of a standard that significantly revised the content and format of the auditor’s report. The standard requires that audit reports include the phrase “whether due to error or fraud” in describing the auditor’s responsibility to ensure that the financial statements are accurate, as well as a statement that the auditor is required to be independent. The standard is the most significant revision in decades to the regulatory requirements for audit reports. “Although Auditing Interpretation No. 4 has been determined to be consistent with GAAS, the interpretation should not be construed to be an interpretation of PCAOB standards,” the AICPA guidance notes. “Moreover, Auditing Interpretation No. 4 has not been approved or acted upon by the PCAOB.”