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Newly issued FASB accounting rule offers simpler way to report federal and state tax credit investments.
Accounting guidance that was specifically developed for reporting low-income housing tax credit (LIHTC) investments has been expanded to include more federal and state tax credit investment programs. FASB has published a narrowly drawn accounting standard that enables other tax credit programs beyond LIHTC investments to qualify for using the proportional amortization method, a simple model that allows the initial cost of the investment to be spread out in proportion to the tax credits and other tax benefits allocated to an investor. Prior to the change, only LIHTC investments could use the proportional method, requiring investments that earn income tax credits and other income tax benefit through other tax programs to instead use the equity method, which accountants say is complex and does not fairly represent the economic characteristics or profitability of such investments. The rule, which was issued as Accounting Standards Update (ASU) 2023-02, Investments—Equity Method and Joint Ventures (Topic 323), responds to feedback FASB received that the change will provide, as the board said, “investors and other allocators of capital with a better understanding of the returns from investments that are made primarily for the purpose of receiving income tax credits and other income tax benefits.” The change comes at a time when more entities that are starting to make tax equity investments to meet environmental, social and governance (ESG)-related objectives and, for certain regulated entities, to meet their Community Reinvestment Act goals.
Practice aid on crypto accounting updated.
A working group of the AICPA that developed a practice aid related to crypto accounting and auditing has once again updated its response to a question about how entities should account for crypto lending and borrowing arrangements. The latest revision was made in February, and the AICPA issued the updated guide on March 23. The working group first published questions and answers to crypto lending and borrowing in January 2022, and has updated it several times since. The guide was revised in January 2023 following a position taken by the SEC’s Office of the Chief Accountant (OCA) during a conference hosted by the AICPA in December 2022. The SEC staff’s views came amid a series of crypto implosions and scandals last year. Q&A 25 gives a simple example of a lender lending 100 units of crypto asset ABC for a term of six months to a borrower. The borrower will pay a fee in total of six units of ABC for borrowing ABC during the six-month loan period, paying one unit of ABC each month in arrears during the term; the working group notes that this is regarded as an interest payment. At the end of the six months, the borrower is required to deliver 100 units of ABC back to the lender.
Board exploring how climate risk should be reflected in general purpose financial statements.
The International Accounting Standards Board (IASB) said it would explore how general-purpose financial statements can better communicate information about climate-related risks, efforts that differ from the disclosure rules the International Sustainability Standards Board (ISSB) has developed. The IASB’s project will be narrowly scoped to ensure research addresses the root issues, which are not yet clear, according to the IASB’s March 20 discussions. The climate-risk topic landed on the IASB’s radar due to feedback from its Third Agenda Consultation, according to a staff paper. This feedback indicated that there may be: 1) inconsistent application of IFRS accounting standards to climate-related risks; and 2) insufficient information disclosed about climate-related risks in the financial statements. Requests from users of financial statements on this topic came to the IASB prior to the November 2021 establishment of the ISSB, which plans to issue S2, “Climate-related Disclosures,” by June this year. The IASB expects its work will deal with issues that are outside of the scope of ISSB’s S2 disclosure rules, the discussions revealed.
IASB amendment to income tax accounting rules will address global tax legislation.
On April 11, the IASB voted to issue accounting and disclosure amendments to income tax rules to address international tax legislation that countries might enact. The amendments will introduce “a temporary exception to the accounting for deferred taxes arising from the jurisdictional implementation of the global tax rules,” and “targeted disclosure requirements for affected companies to help users of the financial statements better understand a company’s exposure to Pillar Two income taxes arising from that legislation, particularly before its effective date.” “We thank our stakeholders for having provided us with valuable feedback in a very short timeframe,” chair Andreas Barckow said in a statement after the meeting. The guidance will take effect immediately upon issuance in May. Specifically, the temporary exception will take effect immediately upon issuance and retrospectively in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. In addition, companies will need to apply the disclosure requirements for annual reporting periods beginning on or after January 1, 2023 (excluding interim periods). The board said that the provisions will ensure “that affected companies apply IAS 12 consistently and that investors are given better information before and after any jurisdictional Pillar Two legislation comes into effect.”