More Tweaks Coming to Credit Loss Accounting Rules?
FASB could decide at a future meeting on whether to tweak credit loss accounting rules in areas such as purchased financial assets credit deterioration (PCD) and measurement of trouble debt restructuring (TDR), according to a board–hosted roundtable discussion on May 20. FASB Technical Director Hillary Salo told panelists that staff members will digest “all of the feedback we heard today and come back to the board in the near future to discuss whether the board wants to add a project or projects to the technical agenda based on what we heard.” Salo did not say what those projects would entail, but roundtable panelists flagged PCDs and TDR measurement rules as areas of concern. Some panelists said the board should eliminate the need to recognize a provisional expense when acquired financial assets do not qualify for PCD accounting, referred to as the “double count.” Others cautioned there could be potential consequences from making a change to the current PCD guidance, including operational and transparency issues. A second project the board could add might address the relevance of TDRs as a measure of troubled loans, the discussions revealed. Some panelists said TDR measurements are less relevant for banks given the forward-looking nature of the current expected credit loss (CECL) model. Relevant information would be better conveyed through disclosures, they said. The discussion was not cut and dry, however, as other panelists said TDRs are a valuable measure. According to them, lack of flexibility of the loan designation was a problem, especially as banks try to work with borrowers to modify those loans, the discussions indicated.
Task Force to Draft Consultation Paper Related to ‘Direct Review Engagements’
The AICPA’s Auditing Standards Board (ASB) has directed its Attestation Standards Task Force to study current standards that may interfere with CPAs’ ability to perform “direct review engagements” and draft a consultation paper intended to solicit feedback. This comes as the board is considering revisions to the attestation standards and removal of the prohibition of reviews of prospective financial information; internal control; and compliance with requirements of specified laws, regulations, rules, contracts, or grants. During the meeting, the board discussed, among other things, “the perceived inflexibility of extant standards” and directed the task force to “focus on broad issues related to attestation review engagements, such as relevance, reporting, issues, and practice issues, and in doing so explore further the implications for removing the previously mentioned prohibitions,” according to Ahava Goldman, associate director for audit and attest standards with the Association of International Certified Professional Accountants, on May 20. Goldman noted that the ASB directed the task force to draft a consultation paper to get input from practitioners and others about the extent to which existing attestation standards limit their ability to perform engagements in response to the marketplace needs. The board will also ask the AICPA’s Accounting and Review Services Committee (ARSC) for input.
Webinar for Investors on Supervision of International Audit Firms Announced
The PCAOB will host a webinar on June 10 to better explain to investors about the board’s oversight of registered accounting firms that are located overseas. This comes as the board is in the middle of rulemaking to address the inability to inspect auditors whose Chinese public company clients trade on U.S. stock exchanges. The rule is mandated by the Holding Foreign Companies Accountable (HFCA) Act, enacted in December last year. The SEC, which oversees the PCAOB, is also writing rules related to audit firms’ clients. “We will answer questions about our rulemaking, provide an overview of our cooperation agreements with foreign audit regulators, and discuss how we conduct international inspections,” the PCAOB said. PCAOB Chairman William Duhnke, Director of the Office of International Affairs Liza McAndrew Moberg, and Stakeholder Liaison Erin Dwyer will speak during the webinar. Among other provisions, HFCA requires companies to be delisted if they are not inspected by the PCAOB for three consecutive years.