Board votes to issue accounting rule changes for leases under common control.
FASB voted by a 4-to-3 margin to issue a narrow standard to amend accounting rules for related-party leases that are under common control, including provisions for leasehold improvements that will be applicable to public companies. The rules will be issued by the end of March, according to the discussions. The changes will take effect for fiscal years beginning after December 15, 2023, with earlier application permitted. Transition guidance will be provided. The standard will amend ASC Topic 842, “Leases,” to introduce a practical expedient that will allow private companies to elect, on an arrangement-by-arrangement basis, whether to use the written terms and conditions of a common control arrangement to confirm that a lease exists and, if so, the accounting classification for that lease. The guidance will make it clear that if no written terms exist (i.e., it is a verbal arrangement), a company cannot apply the practical expedient and will need to continue to evaluate the legally enforceable terms and conditions per ASC Topic 842. Topic 842 requires companies to report the full magnitude of their long-term lease obligations on the balance sheet. The standard is currently under FASB’s post-implementation review (PIR), a process to determine whether a standard is working as intended. Public companies had to apply the guidance in 2019; private companies had to do so starting in 2022, but many are in the process of doing so now. The proposal received 29 comment letters, a majority of which supported the practical expedient, but views were split on leasehold improvements. No public companies submitted comments, FASB staff said.
Auditing Standards Board finalizes proposed group audits standard.
The AICPA’s Auditing Standards Board (ASB) voted to finalize its proposal on group audits during a video meeting held on January 30/31. The board finalized—with some changes—“Proposed Statement on Auditing Standards (SAS), Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to-Auditors),” which was issued in March 2022. The AICPA is preparing to issue SAS 149, which will supersede SAS 122, according to Ahava Goldman, an associate director with the Association of International Certified Professional Accountants. “The most significant change introduced by SAS 149 is that it provides a risk-based approach to planning and performing a group audit,” noted Goldman, who is the staff liaison for the ASB. According to a January 2023 draft, the “determination is based on the group auditor’s understanding of the group and its environment, and other factors such as the ability to perform audit procedures centrally, the presence of shared service centers, or the existence of common information systems and controls.” In particular, the draft standard notes that the determination of significant risks allows auditors to pay more attention on those risks that are close to the upper end of the spectrum of inherent risk.
Task force studying scaling opportunities for audits of less complex companies.
A task force of the AICPA’s Auditing Standards Board (ASB) has been studying what standard-setters in some European countries have been doing in terms of audit rules for less complex entities (LCE). The task force has been comparing proposed and issued standards from Germany, the Nordic Federation, and France to U.S. GAAS. The work comes as there is an international effort currently underway to develop audit standards for LCEs in response to demands for less burdensome requirements tailored for smaller companies. In particular, the task force has been working to identify whether U.S. GAAS can identify opportunities to scale ASB audit standards, according to Ahava Goldman, an associate director with the Association of International Certified Professional Accountants. The task force and a working group benchmarked proposed or issued standards of the following: Germany’s proposed standards for audits of small entities; the proposed Nordic Federation standard; and France’s standard for small enterprise.
Accounting relief rule for OECD tax legislation to be issued before the end of May.
The IASB plans to issue an amendment to income tax accounting rules before the end of May in order to address international tax legislation that countries might enact, according to Accounting Standards Advisory Forum (ASAF) discussions on February 10. Last month, the IASB proposed Exposure Draft 2023-1, “International Tax Reform—Pillar Two Model Rules Proposed amendments to IAS 12,” to amend income tax accounting rules after hearing of financial reporting issues that could arise from the Pillar Two model rules that were issued by the Organisation for Economic Co-operation and Development (OECD). Pillar Two model rules set out a template for a minimum corporate tax of 15% to be levied on multinational companies in each jurisdiction in which a company operates. Although most countries have not yet enacted the legislation, some have started the process of doing so. If finalized, the proposal would amend International Accounting Standard (IAS) 12, Income Taxes, to introduce a temporary exception from applying IAS 12 to recognize and disclose deferred taxes. The amendments would also apply to qualified domestic minimum top-up taxes, a type of tax that would be introduced together with implementation of the Pillar Two model.