Advances Made on Proposal on the Concept of Measurement
FASB has made progress on the concept of measurement—a chapter being developed in the conceptual framework that will determine the amount companies would record in financial reports for items that bring economic benefit. FASB Concepts Statement (CON) 8, Conceptual Framework for Financial Reporting, is an in-house guide the board uses to determine the way items like assets, liabilities, revenues, and expenses get recorded in financial statements—and how. The board is developing a proposal for public comment on “Chapter 6, Measurement.” If this chapter is finalized, the conceptual framework will finally be complete. Deliberations focused on underlying concepts that will be used as a foundational tool, one being that an asset should not be reported at more than what is recoverable, and a liability should not be recorded at less than what is settleable. If this premise is not met, “it is more difficult for users to assess the entity’s future net cash flows, the resources of the entity, and the claims against the entity,” a staff member said. Thus, “the staff believes that this concept ultimately makes financial information more relevant and allows resource providers to better use the information to make predictions about their own future returns.” Discussions will continue at a future board meeting.
Companies Exempted from Accounting for Deferred Taxes that Stem from Global Tax Reform
On May 23, the International Accounting Standards Board (IASB) published an amendment to a key income tax accounting standard that enables companies to avoid the reporting complexity that arises from implementing global tax reform laws. The board amended International Accounting Standard (IAS) 12, Income Taxes, to introduce a temporary and mandatory exemption to the accounting for deferred taxes arising from the implementation of Pillar Two model rules that were published by the Organization for Economic Co-operation and Development (OECD) in December 2021. Pillar Two model rules—also referred to as the “Anti Global Base Erosion” or “GloBE” rules—introduce international tax reform that subject large multinational companies to a minimum 15% tax rate on profits in all countries. More than 135 countries and jurisdictions representing more than 90% of global gross domestic product (GDP) have agreed to the Pillar Two model rules. Under the accounting exemption, companies won’t recognize deferred tax assets and liabilities related to Pillar Two model rules, but they must provide specific disclosures so that investors can understand their exposure. The exemption is in place for an unspecified period, the IASB said. The rules are effective immediately, and disclosures must be provided for annual reporting periods beginning on or after Jan. 1, 2023. Companies are exempt from providing the disclosures during interim periods within 2023.
Panel to Propose Changes to Definitions of Public Entities
The AICPA’s Professional Ethics Executive Committee (PEEC) decided to issue an exposure draft on a proposed new definition of publicly traded entity (PTE) and a revised definition of public interest entity (PIE) during a meeting on May 9. One of the AICPA’s goals is to converge with international standards. And the International Auditing and Assurance Standards Board (IAASB) last year proposed revisions to its International Standard on Auditing (ISA) after its sister organization, the International Ethics Standards Board for Accountants (IESBA) revised its International Code of Ethics for Professional Accountants related to listed and public interest entities in April 2022. The IESBA expanded the definition of PIEs by broadening the list of PIE categories:
- a publicly traded entity;
- an entity that takes deposits from the public;
- an entity that provides insurance to the public; or
- an entity specified as such by law, regulation, or professional standard to promote the public interest and enhance the public’s confidence in the entity’s financial statements.
IESBA’s new category of PTE replaces the category of listed entity.