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Improvement to supplier finance program disclosure rule is credit positive, Moody’s says.
FASB’s recent decision to make changes to the disclosure of supplier finance program obligations, also known as reverse factoring, “is a much-needed improvement, as there is currently a lack of explicit guidance,” Moody’s Investors Service noted in an accounting spotlight. This comes as credit rating agencies like Moody’s, as well as other analysts and investors, have asked FASB to increase the disclosure of qualitative and quantitative information about supplier finance programs. The Big Four CPA firms also requested the board tackle aspects of the accounting and disclosure of the programs. FASB first issued an exposure draft in December 2021, and on July 20, 2022, decided to adopt revisions to existing rules. The updated standard, which requires companies to disclose specified “key terms,” will be issued in the fall. Companies that use reverse factoring must start to disclose the extra information, including payment terms, starting from January 1, 2023. “The expediency of this standard’s effective date is credit positive and a significant win for investors currently struggling to use existing financial statements to understand if supplier finance programs present liquidity risks,” according to Moody’s Sector Comment published on July 25, 2022. It was written by David Gonzales, vice president–senior accounting analyst, who is a member of the FASB’s Financial Accounting Standards Advisory Council, and Alastair Drake, senior vice president–senior accounting analyst.
Report showcases efforts to engage investor community.
FASB has published its latest investor report, the second in a year, in order to showcase its stringent efforts to get standards-setting input from the nation’s capital allocators. The report is a step by the board to assuage concerns raised by those investors who said that the FASB had not sufficiently taken investors’ interest to heart in prior years when developing U.S. GAAP. “If there’s one message we hope to convey through this year’s report, it’s that the FASB is engaging with investors in all stages of our due process and we are actively listening and responding to their feedback,” Chair Richard Jones and Technical Director Hillary Salo said jointly in the report. “Investor input was a key driver as we developed our Invitation to Comment, “Agenda Consultation,” which provided stakeholders an important opportunity to weigh in on the FASB’s future direction.” A key mission of FASB is to develop high-quality financial reporting standards that investors find useful in making investment decisions, and therefore the board has been quick to address any criticism from that demographic. In response to investors, the following seven topics were added or refined on either its technical or research agenda: disaggregation of financial reporting information; statement of cash flows; environmental, social, and governance (ESG) related transactions or disclosures; intangible assets; financial key performance indicators (KPIs) or non-GAAP metrics; digital assets; and income tax disclosures. The report comes about two weeks after the board wrapped up discussions to develop a new five-year technical agenda to cover 2022–2026.
2022 Guide for Government Auditing Standards and Single Audits published.
The AICPA on July 28 announced the publication of the 2022 edition of its Audit and Accounting Guide for Government Auditing Standards and Single Audits (AAG-GAS). The AICPA said the guide explains CPAs’ responsibilities when auditing financial statements following governmental auditing standards (GAS). It also describes auditors’ responsibilities when performing a single audit or program-specific audit under the Single Audit Act and the Uniform Guidance. It is “an indispensable resource for auditors performing single audits and management of nonfederal entities that receive federal awards,” according to the standards setter. In particular, the AICPA said that the 2022 edition will help CPAs better understand the complexities of GAS and identify professional requirements when performing a Uniform Guidance compliance audit. The latest edition provides illustrative auditors’ reports for both GAS audits and the compliance audit under the Uniform Guidance so that CPAs can properly report on a single audit.
PCAOB to consider adding audit quality indicator project to agenda.
Following requests by it investor advisors, the PCAOB is considering picking back up an old project that was shelved several years ago due to resistance from audit firms (and, to a lesser extent, audit committees). The project in question is the development of audit quality indicators (AQI) as part of a broader effort to improve audit quality. “Many of our stakeholders, as you know, have indicated that audit quality indicator is of great interest to them, and we are looking into options for adding a standard-setting project or research project related to AQIs to our agenda, and I hope to provide an update very soon,” PCAOB Chair Erica Williams said at a July 28 event commemorating the 20th anniversary of the Sarbanes-Oxley Act of 2002. Over the years, members of the board’s Investor Advisory Group had pressed the PCAOB to move ahead with the stalled project. Now, with new leadership at the board, AQIs might become a reality.