Examination of Complex Liabilities, Equity Accounting to Begin
At its February 13 board meeting, FASB plans to take action on a significant project to improve how to determine the accounting for items with the characteristics of both liabilities and equity. The board is focusing on accounting for convertible instruments with embedded conversion features and determining whether instruments are indexed to an entity’s own stock. From the tone of FASB’s discussion in January, the road for the board will not be easy. In the course of the debate, several differing opinions emerged about how to simplify and improve the accounting standard, particularly on whether to require new disclosures about convertible instruments such as bonds and preferred shares to include fair value information. “Providing fair value disclosures is one mechanism for putting some bumpers on the structuring opportunities, because you can see the impact of all of that as it’s captured,” FASB member Christine Botosan said. But several other board members did not express the same support. “I’m having a hard time believing that a decision on a buy, sell, hold report is ever driven off of this issue,” FASB member Marsha Hunt said.
Insurance, LIBOR Fallout to Headline Meeting
According to materials released in advance of the IASB’s February 7 meeting, the board expects to wrap up lingering questions about IFRS 17, Insurance Contracts, in March. This puts the board on track to release for public comment a package of tweaks to the far-reaching standard “around the end” of the first half of 2019. For the February meeting, the board plans to consider whether to change parts of IFRS 17 for loans that transfer significant insurance risk, such as mortgages with death waiver contracts—policies where a customer’s outstanding mortgage balance is waived if he dies. Businesses raised concerns to the IASB that even though these loans contain a portion of insurance risk, they must be accounted for entirely as insurance under the new standard. They want to keep using IFRS 9, Financial Instruments, to account for these loans.
ASB Moves Closer to Proposing Revisions to Audit Evidence Standard
The AICPA’s Auditing Standards Board (ASB) will consider issuing a proposed revision of the audit evidence standard during a telephone meeting scheduled for March. The board wants to revise the standard to address emerging audit issues, such as the increased use of technology and data analytics. The board originally planned to consider approving an exposure draft during its regular quarterly meeting on January 14–17 in La Jolla, California. “We had hoped to get this voted [in January, but] the board said we want one more turnaround,” said Ahava Goldman, associate director for audit and attest standards with the Association of International Certified Professional Accountants, a joint venture between the AICPA and the Chartered Institute of Management Accountants. The ASB decided that the standard should provide a framework and application materials to assist auditors in evaluating whether high-quality audit evidence has been obtained by looking at several variables and factors, including relevance and sources of evidence, rather than continuing with the current model, which focuses on procedures.