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IRS adds five new issues to LB&I’s audit strategy.
The IRS’s Large Business and International Division (LB&I) has announced the approval of five additional compliance campaigns. The announcement is a continuation of a process that began in January 2017, when the IRS announced a new audit strategy for the division known as “campaigns.” The strategy essentially shifts the division toward issue-based examinations based on compliance issues that LB&I determines present greater levels of compliance risk, thereby improving the selection of tax returns. The five issues include: phase two of the individual foreign tax credit, offshore service providers, FATCA filing accuracy, 1120-F delinquent returns, and the work opportunity tax credit.
Government assistance, income tax disclosures up for debate.
FASB has resumed discussions on its long-running project to make companies disclose tax breaks and other incentives they receive from government bodies. The board had not discussed the plan, released in November 2015 as proposed Accounting Standards Update (ASU) 2015-340, Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance, since April, when it struggled to lay out requirements that would provide important information to investors without bogging down financial statements with extraneous details. States and municipalities use the agreements to offer incentives to companies to move their offices to a particular location or hire more employees at one of the company’s sites. Some agreements include low-interest loans.
FASB to debate car lender concerns on credit loss standard.
At its November 14 meeting, FASB will consider the concerns that underwriters of auto loans to customers with poor credit have raised about part of the board’s credit loss standard. These lenders told FASB in May and June that they were worried about how to make the transition to the standard; most expect to measure new loans at fair value, but retain existing loans on their books at amortized cost. The lenders are concerned that the different valuation methods will make their financial statements confusing for investors. “This obviously would create a situation where you have fair value on the new book that you’ve elected but you would have amortized cost on the old book,” said FASB assistant director of technical activities Shayne Kuhaneck on November 1. “The agenda request is to be able to, at transition, have one-time transition relief to elect the fair value option for all of the old book so you have comparability.”
Small Business Advisory Committee to discuss goodwill, leases.
FASB plans to discuss its project on improving accounting for goodwill with its Small Business Advisory Committee (SBAC). Goodwill accounting has long been a source of frustration, and ASU 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill, crafted by FASB’s Private Company Council (PCC), allows private companies to amortize goodwill on a straight-line basis over a maximum of 10 years. Private companies that elect to amortize goodwill must test for impairment under certain circumstances rather than annually, as required of public companies. In addition, the impairment test can be performed either at the entity level or at the reporting unit level. The board also wants to hear how companies are preparing for FASB’s much-watched lease accounting standard, which goes into effect for public companies in less than two months.
More bankers push regulators to delay credit losses standard.
The American Bankers Association and 50 state bank associations appealed to the Financial Stability Oversight Council (FSOC) to delay the implementation of FASB’s credit loss accounting standard, as they believe the standard would curb lending in a tight economy. The request follows other pleas from bank trade groups to pressure FASB and regulators to make changes to the standard or hold off on requiring banks to follow it. The bankers told Treasury Secretary Steven Mnuchin it was “imperative” that regulators study the economic and public policy implications of the new accounting standard, including how it could affect the stability of the banking sector, before banks must begin complying with it in 2020. The Treasury Department did not respond by press time to an inquiry seeking comment. FASB repeated the same statement it issued when the Bank Policy Institute sent its similar request to FSOC, saying the board will “continue to work with these organizations to ensure a smooth and effective implementation of the standard, and stand ready to answer any questions as they arise.” The SEC declined to comment.
Delay of insurance standard’s effective date unlikely.
The IASB’s members have little interest in agreeing to the requests from global insurance companies to change key pieces and delay the effective date of the board’s insurance accounting standard. Many insurance companies have expressed frustration with the complexity of the new standard and the costs to comply with it, but the accounting board has met with many investors who believe that the new guidance is important and should be implemented on schedule. “The prospect of further changes and delays will only be met with further dismay from investors,” said IASB member Nick Anderson, who said board members met with more than 500 investors and securities analysts in the course of developing the standard, and most embrace the transparency and consistency in financial reporting the amended guidance offers. “They have waited long enough,” he concluded. IASB Chairman Hans Hoogervorst said he considered the questions about IFRS 17 with “a heavy heart.” “I would really hope that we could get this standard in function before the next financial crisis, and I really don’t mean that flippantly,” Hoogervorst said.
ASB agrees to align final standard with PCAOB guidance.
The AICPA’s Auditing Standards Board (ASB) has unanimously agreed to issue a final omnibus standard that will align its guidance with the PCAOB standards issued after the AICPA completed its Clarity Project in 2012. The board believes the amended guidance will improve the quality of private company audits. The ASB also made progress on its effort to converge its standards with the guidance issued by the International Auditing and Assurance Standards Board (IAASB) on the auditor reporting model, and it plans to vote for a final standard at its January 2019 meeting. The effective date is expected to be no earlier than for audits of financial statements for periods ending on or after December 15, 2020.
Hamm reminds auditors to follow established audit rules despite advances in technology.
PCAOB member Kathleen Hamm reminded public company auditors of their obligations to follow established rules and standards despite the many advances in technology that have been making financial statement audits more efficient. “It is important to remind ourselves that the advent of emerging technologies does not change the fundamental financial reporting framework,” Hamm said in a speech at the World Continuous Auditing and Reporting Symposium in Newark, N.J., on November 2. “If an emerging technology is being used to meet financial reporting or internal control requirements established by the federal securities laws, then auditors need to understand the design and implementation of that technology. And at the risk of stating the obvious: for audits of public companies and broker-dealers, PCAOB standards still apply.” Moreover, Hamm said that—as it stands today—the PCAOB’s audit standards do not appear to inappropriately impede the use of innovative technologies such as blockchain. “Our current standards also appear flexible enough, for now, not to hamper audit technology as it evolves,” she said.
Baumann withdraws from IAASB chair position.
Former PCAOB chief auditor Martin Baumann has decided not to assume the position of chair of the International Auditing and Assurance Standards Board (IAASB) for personal reasons, the international board announced on October 26. On September 14, the IAASB had appointed Baumann to become chair for a three-year term, beginning in January 2019. “I am disappointed that unforeseen personal circumstances will prevent me from taking on this important role,” Baumann said in a statement. “I remain impressed with the public interest work that the IAASB has already achieved and continue to see remarkable opportunities for the future.” The IAASB said the interim nominating committee, which was formed by the monitoring group in February, will again search for a chair for the 2019–2021 term. The monitoring group is an international panel of financial regulators that oversee the International Federation of Accountants (IFAC), the IAASB’s parent organization.
Bricker stresses importance of intangible asset standard for cryptocurrencies.
SEC Chief Accountant Wesley Bricker says companies that use digital currencies should be prepared to account for them as intangible assets according to U.S. GAAP. “Cryptocurrency is under GAAP an intangible asset; we have a comprehensive framework,” Bricker said during a brief interview with reporters on November 7. ASC Topic 350, “Intangible Assets,” should also be applied to digital assets that are treated as securities for the purposes of securities regulation. The standard would also apply to transactions that are not considered material and thus do not appear in financial statements prepared for SEC filing. “If there’s a contract to deliver an asset sometime in the future,” he said, “that might be a forward contract accounted for as a derivative.”