Early Application Permitted for Simpler Rules on Convertible Instruments
On February 9, FASB reminded public companies that simpler, more cost-efficient new accounting rules for reporting convertible instruments can be applied in the first quarter of 2021, as opposed to waiting until the actual effective date next year. If a company does not take up the early adoption option, it will have to wait until the actual the 2022 effective date, according to a board video geared toward investors. The rules were developed in August 2020 after accountants said prior guidance was very complex and caused restatements. FASB issued the changes under Accounting Standards Update (ASU)2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, with a 2022 effective date for large public companies. The standard takes effect in 2024 for small public companies, private companies, and other entities.
Scope Extension to Rent Concession Rules Proposed
The IASB voted to propose extending the scope of COVID-19-related rent concession simplifications into next year, as part of efforts to ease the pain points for companies that make large volumes of lease agreement changes. The board will propose to extend the period to which coronavirus-related rent modification rules can be applied. Specifically, the period for applying the amendments to concessions that reduce rent payments would be extended from June 30, 2021, to June 30, 2022. Board members said considering the ongoing significant effects of the pandemic and support from most investors for an extended scope, the one-year extension would be reasonable. “Clearly the pandemic is still here. We know based on the letters that we’ve received from some preparer groups that extensions are being made in the term of the concessions being provided,” IASB Vice Chair Sue Lloyd said. “So the same conditions that caused us to provide the original relief are still in place—at least in some parts of the world,” she said. “So I support the extension.” The proposal will be issued with a 14-day comment period. A final rule could be issued by the end of March.
Audit Quality Management Standards Proposed
The AICPA’s Auditing Standards Board (ASB) has issued a proposal intended to enhance an accounting firm’s audit quality. It would revise quality control (QC) standards, which deal with an audit firm’s system of employee training and compliance with professional standards and its standards of quality. The ASB believes it will improve the scalability of the standards and promote a quality management system that is tailored to the firm and its engagements. The proposed standards would supersede Statement on Quality Control Standards (SQCS) 10, A Firm’s System of Quality Control, create a new quality management (QM) section in the AICPA Professional Standards, and supersede Statement on Auditing Standards (SAS) 122, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards, AU-C Section 220, and “Quality Control for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards.” The ASB’s standards cover for the audits of private companies. “As the environment in which practitioners offer services becomes more diverse, it’s more important than ever for CPA firms to tailor their quality management processes to their circumstances and maintain and enhance audit quality,” ASB Chair Tracy Harding said in a statement. “Our proposed revisions to the quality management standards offer CPA firms a framework for developing a quality management system that addresses each firm’s practice.” Comments are due by June 11.