Proposed Concepts for Presenting Financial Statement Items Finalized
On December 9, FASB voted 6 to 1 to finalize its August 2016 proposal on concepts for presenting information about items that have been recognized in a financial statement, part of an internal guide the board uses to develop accounting standards. The decision followed final re-deliberations on issues that comment letter respondents flagged on Proposed Statement of Financial Reporting Concepts.2016-300, Concepts Statement No. 8—Conceptual Framework for Financial Reporting—Chapter 7, Presentation, which discusses information that should be considered when determining how recognized items should be displayed in financial statements. The proposal first describes the information provided by the financial statements and then addresses how the display of information in the financial statements best meets the objective of financial reporting, according to a FASB summary. Board member Christine Botosan, who dissented on finalizing the guidance, said the proposal lacked principles related to structure, and included a statement that there is no conceptual basis for other comprehensive income (OCI). That statement about OCI implies there is also no conceptual basis for net income which “I think is a symptom of a problem with our definition of comprehensive income itself.”
Early Research on Profits Interest Signals Tough Road Ahead
Companies typically use various complex option pricing methods to value profits interest, a popular type of equity compensation that is not defined in the Accounting Standards Codification, according to research by a working panel convened by the FASB’s Private Company Council (PCC). Profits interest are often valued using either a Black-Scholes model, a lattice model, or a Monte Carlo simulation, a FASB staff member said during the PCC’s December 3 meeting. Accountants have said that the complexity of evaluating agreements associated with the awards makes accounting for profits interest difficult. Lack of authoritative guidance also adds to the challenges.
Guide Illustrates Pending Revisions to Independence Rules
The PCAOB has issued a guide that illustrates recent changes to its auditor independence standards and rules. The guide contains marked text illustrations of the amendments in Release 2020-003, Amendments to PCAOB Interim Independence Standards and PCAOB Rules to Align with Amendments to Rule 2-01 of Regulation S-X, published on November 19. This was to adopt changes to its auditor independence rules so that they better align with the SEC’s recent revisions to Rule 2-01, Qualifications of Accountants, in Regulation S-X. “As a reference tool for the amendments, the staff of the Office of the Chief Auditor has prepared a comparison document that shows changes from the existing standards and rules, with added text underscored and deleted text stricken through,” the PCAOB said. The SEC has 45 days to act after publishing the board’s rule for public comment. As of December 11, the SEC has received two comment letters, including one from the Council of Institutional Investors (CII).