New Accounting Rules for Disclosing Government Incentives
On November 17, FASB issued a new accounting standard to create consistency in the way companies disclose certain types of government incentives received to relocate. The guidance comes at a time when investors have been clamoring for more detailed information around the government incentives businesses get —some to the tune of billions of dollars—in tax breaks. And given the increase in government assistance related to the COVID-19 pandemic, the number of companies that have adopted accounting policies on government assistance has increased. The disclosures will provide reporting information that would help investors to understand the terms and conditions, contingencies and longevity of government assistance agreements, the risks associated with those agreements, and how the agreements would affect financial results. For example, companies would disclose forgivable loans from the government or a receipt of cash or other assets, but based on the accounting method they used to record the transaction. “The new ASU responds to requests from investors and other capital allocators by adding disclosures that will provide transparent and comparable information about certain types of government assistance that entities receive,” FASB Chair Richard Jones said in a statement.
Proposed Tax Rule in BBB House Bill Would Push FASB Beyond Mission
A recently proposed draft of the Build Back Better (BBB) bill, floated to the House of Representatives includes a corporate minimum tax rule that is based on book income that would push FASB’s mission beyond what it is assigned to do, Chair Richard Jones told the board’s trustees. The bill would require companies with profits of more than $100 billion or more to pay a 15% minimum corporate tax based on their financial statement income, i.e. book income, as opposed to what the IRS says they have to report, a change from what is currently required. “Using financial accounting and reporting to set tax revenue has certain public policy aspects to it,” Jones said on November 16, 2021, at a meeting of the Financial Accounting Foundation (FAF). “And that could certainly—you could see situations where that could bring added pressure to decisions that are primarily designed around providing the best information for individuals for investors to make investment decisions to instead be focused on raising revenue and, or incentivizing certain activity through tax incentives.”
Acting Chair Denies Claims that Audit Inspections Were Scaled Back During Pandemic
The PCAOB did not scale back audit inspections during the COVID-19 pandemic. For the 2020 inspection cycle, “we noted fewer findings in the majority of the larger annually inspected firms. And while we saw some improvements at the smaller firms that we inspect every three years, deficiencies continue to remain high for smaller firms,” PCAOB Acting Chairperson Duane DesParte said during the Corporate Financial Reporting Insights (CFRI) Virtual Conference hosted by the Financial Executives International (FEI) on November 9. “I do want to underscore that we did do our inspections remotely in 2020 for the most part. But I do want to emphasize that we did not in any way scale back the scopes or the rigor of our inspections. I have seen some speculation in the press on that,” he said. “I just want to clarify that we performed our inspections as we typically do. In certain areas, we expanded our focus, for instance, in our reviews of how the firms were responding in their quality control systems due to the pandemic.” In 2020, the PCAOB inspected 153 audit firms—114 U.S. and 39 foreign—reviewing portions of 617—510 U.S. and 107 foreign—audits that generally had fiscal years that ended during 2019 and the first half of 2020.