FASB News
Codification Updated to Streamline Disclosures, Various Rules
FASB has issued an update to the U.S. GAAP codification to streamline the disclosure section and tweak various subsections so that they are applied consistently. Companies that have applied the amended guidance inconsistently could be impacted; therefore, transition guidance is included, according to a key portion of the document. The provisions were issued under Accounting Standards Update (ASU) 2020-10, Codification Improvements, to place all disclosure guidance in the appropriate disclosure section. The amendments were made because of guidance that allows companies the option to disclose information either on the face of financial statements or as a disclosure. The ASU codifies the disclosure option so that it appears in both Section 45, Other Presentation Matters, and Section 50, Disclosure. Though the codification amendments do not change U.S. GAAP, and therefore not expected to result in a significant change in practice, some companies may have applied the guidance being amended in an inconsistent manner, the board said. “The inconsistent application of the guidance may result in some entities changing their current accounting practices and financial statement reporting. Therefore, the Board is providing transition guidance for all the amendments in this Update,” the update states.
Joint Talks Held on Proposed Conceptual Framework
On October 26–27, FASB held virtual discussions with the Accounting Standards Board of Japan (ASBJ) on various topics, including a proposal to revise the elements chapter of the conceptual framework. In July, the board issued Proposed Statement of Financial Reporting Concepts 2020-500, Concepts Statement No. 8, Conceptual Framework for Financial Reporting Chapter 4: Elements of Financial Statements, with a comment deadline that ends November 13. Concepts chapters are important tools used by standard-setters to develop or amend accounting rules. The definitions of elements of financial statements proposed would help the board determine the content of financial statements. The proposal defines 10 elements of financial statements: assets, liabilities, equity (net assets), revenues, expenses, gains, losses, investments by owners, distributions to owners, and comprehensive income, to be applied in developing standards for both businesses and not-for-profit organizations. The boards also discussed their responses to the COVID-19 pandemic, the accounting for goodwill, and the equity method of accounting. “Our exchange of ideas on goodwill accounting, the equity method of accounting, and the conceptual framework yielded new insights on these issues, as well as valuable input on our post-implementation review of standards on leases, credit losses, and revenue recognition,” FASB Chair Richard Jones said in a statement. “Our dialogues are especially critical at a time when both boards seek to help stakeholders successfully address pandemic-related financial reporting challenges.”
PCAOB News
Interim Analysis of Critical Audit Matters Finds No Significant Unintended Consequences
The PCAOB’s critical audit matter (CAM) requirement seems to be paying off for investors. According to an interim analysis about the impact of the requirements, some investors find CAMs to be beneficial. And this analysis found no evidence of significant unintended consequences, although audit firms spent a fair amount of time and resources for initial implementation to add CAMs—or insight about their work—in audit reports of large public companies’ financial statements. Those are some of the findings of the staff’s review of CAMs and are described in Release 2020-002, “Interim Analysis Report: Evidence on the Initial Impact of Critical Audit Matter Requirements,” published on October 29. “This interim analysis represents our first step in analyzing the CAM requirements,” the PCAOB said. “Through our post-implementation review program, we will continue to review the CAM requirements, including by considering all relevant costs and benefits attributable to them following a reasonable period of implementation.” The standard became effective for audits of large accelerated filers last year. For smaller companies, it is effective for fiscal years ending on or after December 15, 2020. (Large accelerated filers, according to the SEC rules, are companies with public floats of more than $700 million.)
