FASB News
Private Companies Back Proposal on Related Party Leases Under Common Control
The Private Company Council (PCC), threw its support behind FASB’s November proposal about related party leases that are controlled by the same parent company, provisions that three FASB members had dissented on. The rules include changes for leasehold improvements, applicable to both private and public companies when reporting under ASC Topic 842, “Leases.” The board is waiting to hear from public companies, since they have already adopted the lease guidance in 2019. In the interim, private companies, which are required to adopt Topic 842 starting this year, want the proposed amendments pushed through regardless of whether public companies do not, according to PCC discussions. “We heard issues at [the AICPA Engage conference] about this being a problem for a lot of the smaller firms, the practitioners, and the preparers,” Jeremy Dillard, partner with SingerLewak LLP, said. “I see that the scope includes all entities—if the board hears feedback from public companies that there are issues or concerns around this, it is not to hold it up; it’s something where I think [both issues being proposed] are helpful for private company stakeholders.”
PCAOB News
Second Proposal to Modernize Rules on Audit Confirmation Process Issued
More than a dozen years after the PCAOB issued a proposed rule on audit confirmations, the board voted unanimously to issue another proposal for comment. Confirmation is a process intended to make sure that the information in the financial statements is accurate by obtaining or verifying information through a source outside the auditee company. The proposal would better reflect today’s business environment and the increasing use of sophisticated technology that was not available when the current standard was written three decades ago. The standard would also strengthen confirmation procedures to better help prevent fraud. The proposal covers five main areas: auditors would need to confirm a company’s cash and cash equivalents held by third parties; the existing requirement would also cover accounts receivable with some differences; negative confirmation would be insufficient; more illustrative examples when alternative procedures can be performed; and more clarity on the role of internal auditors in the confirmation process. “It is so critical to ensure our confirmation standard is fit for purpose in today’s capital markets to ensure investors receive the protection they deserve,” PCAOB Chair Erica Williams said. “And that is why I support strengthening and modernizing our requirements for the auditor’s use of confirmation. I look forward to receiving input from all our stakeholders.”
IASB News
Insurance Accounting Rules Set to Take Effect
The International Accounting Standards Board (IASB) on Dec. 19 published a short video to remind companies that new insurance accounting rules go into effect next year. “Hundreds of insurers around the globe with assets worth trillions of dollars would have implemented this accounting standard,” IASB Chair Andreas Barckow said. “The standard brings insurance contracts accounting up to the same high level as accounting for other contracts,” he said. “It also aligns the accounting for insurance contracts in all jurisdictions using IFRS Accounting Standards.” The board issued International Financial Reporting Standard (IFRS) 17, Insurance Contracts, in May 2017 to replace IFRS 4, Insurance Contracts, which was brought in as an interim standard in 2004. IFRS 17, upon issuance, was initially set to take effect in 2021 but was subsequently amended and deferred to annual periods that begin on or after January 1, 2023. The scope of guidance applies to insurance and reinsurance contracts issued by an insurer; reinsurance contracts held by an insurer; and investment contracts with discretionary participation features (DPF) issued by an insurer, provided the insurer also issues insurance contracts. The IASB has said the standard would benefit investors and insurance companies alike as it requires all insurance contracts to be accounted for in a consistent manner. Insurance obligations will be accounted for using current values, instead of historical cost, and the information will be updated regularly, providing more useful information to users of financial statements. “IFRS 17 provides consistent principles for all aspects of accounting for insurance contracts, it removes existing inconsistencies, and enables investors, analysts, and others to meaningfully compare companies and contracts,” Barckow said.
