Tax & Accounting Update is provided by Thomson Reuters and based on material published on Checkpoint, its online news and research platform. The Update is a quick-reference guide to the most pressing issues coming down the regulatory and administrative pipeline. Visit https://tax.thomsonreuters.com/checkpoint-news/ for further information and daily updates.
IRS taking steps to increase operations.
On the IRS website, the IRS Commissioner has explained that the IRS anticipates bringing more people back into its campuses and offices to do work that cannot be performed remotely. The first phase, which began June 1, will include employees with nonportable work in Kentucky, Texas, and Utah. In addition, over the next several weeks, the IRS will continue to ask employees whose work is not portable to return to their posts of duty. Business unit leaders are evaluating their needs and will make decisions about how many employees are needed in each location to clear out the backlog of work and safely resume operations.
Financial Accounting Foundation spending $11.6 million to modernize technology, systems.
The Financial Accounting Foundation (FAF) said its work to replace the obsolete technology used to produce and distribute FASB and GASB accounting rules should be completed by next year. The organization had to set a $11.6 million budget to establish new publishing and distribution systems for the FAF, FASB, and GASB, according to its recent annual report, published on May 26. The work is being done under the FAF’s Content, Vision, and Enablement (CV&E) initiative, launched by the organization one year ago to restructure the standards-setting boards’ websites, restructure content, and upgrade their fulfilment and distribution system. “The new system will provide our standard setters with the tools they need [to] better serve all of our stakeholders. All aspects of our content publishing platform are undergoing this revitalization,” FAF Chief Operating Officer Mary Crotty said in an email. “We are moving forward with this project, though at this time, we have chosen to slow down the transition due to the current worldwide pandemic.”
IFRS Interpretations Committee to discuss supply chain financing, other topics.
At press time, the IFRS Interpretations Committee has yet to determine its next steps about disclosure and presentation reporting issues arising from supply chain financing arrangements—a process that enables buyers and sellers to minimize risk across a supply chain. Committee discussions on supply chain financing started in April following a company’s request to clarify a matter related to the presentation and disclosure of reverse factoring arrangements, according to a board handout published on June 5. The panel has been studying how an entity presents its obligations with regard to reverse factoring arrangements, and what to disclose in its financial statements. Separately, the International Financial Reporting Interpretations Committee (IFRIC) will discuss feedback it received on its published tentative agenda decision in response to a submission on International Accounting Standard (IAS) 12, Income Taxes.
Revisions to management commentary would provide more focused risk disclosures.
IASB Chairman Hans Hoogervost said the board’s revisions to its management commentary guide would require senior finance executives to better articulate the risks that can disrupt a company’s business model. The board decided to require companies to disclose the following in relation to risk: the risk that it could disrupt its business model; management’s strategy for sustaining and developing that model; or resources and relationships. In relation to the environment, a company would disclose: how the environment in which it operates affects its business model; management’s strategy for sustaining and developing that model; resources and relationships; or risks. That level of focused disclosure would better enable investors and creditors to assess the magnitude and likelihood of future disruption to the company’s ability to create value and generate cash flows, and zero in on how effectively the company’s management identifies and manages risks, the board said. The disclosures would also enable investors and creditors to assess how factors and trends in the external environment affect the company, and how effectively management monitors and responds to such factors and trends.
Cities, states get clarifying rules for cloud computing, subscription-based IT arrangements.
The GASB issued new accounting rules on June 5 to clarify how to report cloud computing and other subscription-based forms of software arrangements, the use of which by state and local governments has skyrocketed. Governmental entities have been shifting from traditional information technology (IT) based on a purchasing and perpetual licensing model to cloud computing and similar arrangements. The new rules will bring more uniformity to financial reporting in that area, the statement explains. The standard takes effect for fiscal years beginning after June 15, 2022, one year later than the board originally proposed. The extension was provided in order to give state and local governments more time to deal with circumstances arising from the COVID-19 pandemic, the board said. Early application is encouraged.
Broad support to build on international approach to revise quality control standards.
The PCAOB has received broad support to build upon a proposed approach taken by an international standard-setter to update the board’s audit quality control (QC) standards. A firm’s QC deals with its system of employee training and compliance with professional standards and its standards of quality. The board believes that strong QC is important to audit quality. In the past several years, the board has been researching the standards to determine if they need to be updated as the inspections staff has continued to find deficiencies in audit engagements as well as problems in firms’ QC systems in certain areas. Currently, the PCAOB uses the AICPA’s QC standards, which were issued in 1997 before the board existed. The audit environment has changed dramatically since then, especially with advances in technology. “There is no need to reinvent the wheel; the existing International Auditing and Assurance Standards Board’s [IAASB] standards, when complete, will represent a good starting point for the PCAOB that can be tailored to fit the specific needs of the U.S. market,” wrote Marcie Frost, CEO of California Public Employees’ Retirement System (CalPERS). “Many accounting firms are multinational organizations using worldwide auditing practices and are already familiar with the IAASB standards which will ease the transition.”
PCAOB staff guide puts greater focus on cryptoasset transactions.
Some auditors of public companies should pay closer attention to the identification and assessment of the risks of material misstatement related to cryptoassets, the PCAOB staff said in a summary of observations. Auditors should also put a greater focus on planning and performing an appropriate audit of the virtual assets, which include Bitcoin. During inspections of some smaller company audits, PCAOB staff has also found that some transactions that involve cryptoassets were material to the financial statements, according to “Spotlight on Audits Involving Cryptoassets–Information for Auditors and Audit Committees,” published on May 26. The PCAOB said that the document highlights what auditors should consider when they scrutinize companies that hold or have transactions in cryptoassets. The board emphasized that “Spotlight” is not staff guidance; it highlights trends or other information that is relevant for auditors. The staff guide noted that some companies earn a fee or “reward” for validating new blocks on a blockchain, buy goods and services in exchange for virtual assets, exchange one cryptoasset for another, or sell cryptoas-sets for a fiat currency. Cryptoasset transactions may also include providing trading services to third parties or acting as an intermediary.