Same Expense Disclosures to Be Required for Single and Multiple Segment Companies
FASB continues to build a proposal for segment disclosures, as the board discussed follow-on issues related to a principle that gets at expense details CEOs and other chief decision-makers typically see. The board decided to specify that all segment disclosure requirements within the standard should be applied consistently by single and multiple reportable segment entities, including the principle and the current segment disclosures. This is a change for some single reportable segment entities that may have thought segment reporting rules do not have to be applied consistently by single and multiple reportable segment entities, according to the board discussions. The proposal would provide implementation guidance about which profit measure should be applied—for example, an internal measure used by the chief operating decision-maker (CODM) to manage the business. Not having the requirements would indicate that multiple segment entities would then provide more information by line of business than single segment entities, which would not be useful, FASB Vice Chair James Kroeker said. “It would also put tremendous pressure on entities that are close to the margin of ‘do I have one segment or two’ if they’re not particularly interested in providing more disaggregated information to make conclusions that they are single segment reporting entities, therefore not requiring them to apply the expense principles— and I think that’s an undesirable outcome,” he said. “So for all of those reasons I do believe single segment reporting entities should be subject to the expense principle, and I think that a part of that we should just amend the segment reporting guidance to say that those entities also report all other information that would be required for anyone else reporting segment information.”
New Audit Standards on Risk Assessment Issued
The AICPA’s Auditing Standards Board (ASB) issued revised audit standards that enhance the requirements and guidance on identifying and assessing risks of material misstatement. Specifically, the new guidance addresses a company’s system of internal control and information technology. Statement on Auditing Standards (SAS) 145, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, supersedes SAS 122, as amended, AU-C Section 315 of the same title, and amends various AU-C sections in the AICPA Professional Standards. The new standard becomes effective for audits of financial statements for periods ending on or after December 15, 2023. “The auditor’s risk assessment drives almost every part of the audit. As a result, the evaluation of risks sits at the core of audit quality,” AICPA Chief Auditor Jennifer Burns said in a statement. “SAS 145 supports the performance of quality audits by providing additional clarity and guidance in identifying and evaluating risks of material misstatement, while considering the evolving nature of business.”
Europe Suggests Balance for New Agenda
The IASB should prioritize maintaining and improving existing IFRS standards, including their understandability, as well as tackle financial reporting issues that are rapidly evolving, according to the European Commission’s main accounting advisory body’s October 11 letter to the board. Specifically, the European Financial Reporting Advisory Group (EFRAG) suggested that the IASB prioritize finalizing the projects in its active work plan and conducting on a timely basis the post-implementation reviews (PIR) of IFRS 9, Financial Instruments, IFRS 15, Revenue from Contracts with Customers, IFRS 16, Leases, and, towards the end of the 2022–2026 period, IFRS 17, Insurance Contracts. A PIR is the board’s process to determine whether a major new accounting standard worked as intended; that is, if it provides useful information to investors at a low cost to companies. The letter was sent in response to the IASB’s Request for Information (RFI), “Third Agenda Consultation,” which was issued in March to solicit public feedback about its 20022–2026 agenda. The comment deadline was September 27.