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IRS News

CPAs Submit Tweaks to Proposed Donor Advised Fund Regulations.

The AICPA sent a letter to leaders in the IRS Office of Chief Counsel suggesting improvements to proposed regulations on taxable distributions from donor advised funds (DAF), including examples of certain situations that should not count towards the definition of a DAF or donor-advisor. IRC section 4966 provides for excise taxes imposed on taxable distributions made by a DAF’s sponsoring organization and, in some cases, on the individual advisors or donors who recommended the distribution. Examples of such taxable distributions include grants to individuals, grants for noncharitable purposes, and grants that result in more than incidental benefits to donors, advisors, or related parties. IRC section 4966 works in conjunction with other sections of the Tax Code, including IRC section 4958, which addresses excess benefit transactions and can impose additional taxes on transactions that provide undue benefits to disqualified persons associated with the DAF. In November, the IRS issued proposed regulations on the excise taxes under sections 4966 and 4958. Recently, the agency extended the public comment period from January 16 to February 15.

IASB News

IASB to Vote on Whether to Take Further Action on Revenue Accounting.

The International Accounting Standards Board (IASB) held meetings on February 19–22, 2024, to discuss 10 topics, including revenue recognitions rules, which have been under review. The revenue discussion included the post-implementation review (PIR) of International Financial Reporting Standards (IFRS) 15, Revenue from Contracts with Customers, which was developed jointly with FASB, which has a similar review in process. The mostly converged revenue standards replaced industry-specific rules with a principle-based five-step model for reporting earnings—one of the most substantial changes made to accounting rules in decades. IASB members were asked to weigh in on whether to take further action on application matters related to: identifying performance obligations; principal versus agent considerations; and licensing, according to meeting papers, posted on February 9. The topic has generated interest from accountants at multinational companies, including many in the United States, who have said that if further changes are made to the standards, the IASB and FASB should align their efforts so that the rules are not uncoupled in key areas that would matter.

Some Non-GAAP Items to Become Auditable.

The upcoming IASB standard on financial performance information will subject certain types of non-GAAP measures to external auditing—a significant change from current practice, according to a February 5 board webcast. As part of guidance under International Financial Reporting Standard (IFRS) 18, Presentation and Disclosure in the Financial Statements, companies will be required to disclose information about some non-GAAP measures in a single note to the financial statements. Measures such as adjusted operating profit and adjusted profit, for example, are included within the scope. These are called “management-defined performance measures, or MPM,” and the standard will define a subset of them for disclosure, IASB staff member Nick Barlow said. “Users find information about those useful but also find that they are not always transparent, and can be hard to find and can sometimes change from period to period without explanation,” he explained. “Because they will be disclosed in the financial statements, they will also be subject to audit.” Companies’ management typically use non-GAAP measures—a term used internationally, even for IFRS—because they enable them to provide a more complete picture of their business operations. But investors have said that those figures are not standardized and therefore difficult to properly analyze or compare. Critics have said that non-GAAP measures enable companies to paint a rosier picture of their financial performance. IFRS 18 will be issued in April.

Tough Decision Looming on MD&A Project.

At a recent advisory meeting, views were mixed about the International Accounting Standards Board’s (IASB) project on management discussion and analysis (MD&A), known as “management commentary.” Members of the Integrated Reporting and Connectivity Council (IFCC) held views that spanned from “drop the project” to “develop an accounting standard,” according to discussions on January 30, 2024. The latter suggestion would have regulatory implications, according to IASB Chair Andreas Barckow. “The difference to the standards is that it was made a practice statement and the reason for that is not that the board didn’t trust its quality, but it thought that it would potentially run an uphill battle if it produced a standard, a mandatory standard and made that part of the compliance statement that companies must provide if they assert compliance with IFRS standards,” Barckow said. Management Commentary, or MD&A, is a general-purpose financial report that is required in many countries to be provided alongside a company’s financial statements and its sustainability-related disclosures. Management commentary or a similar report typically falls under the remit of local regulators. Decisions have not yet been made by the board on the fate of the project, but it is a key topic for businesses as it constitutes the narrative portion of financial reports.

IASB News

ISSB Publishes Educational Material on Applying SASB Standards to New Sustainability Rules.

The International Sustainability Standards Board (ISSB) on February 19, 2024, published educational material on how to consider industry-specific SASB standards when applying general sustainability disclosure rules that took effect last month. Currently, SASB standards are used by more than 3,000 companies and investors in over 80 jurisdictions around the globe. The board “heard that industry specificity is important for sustainability disclosures,” ISSB member Elizabeth Seeger told a board webcast. “Some of the key reasons are sustainability-related risks and opportunities vary greatly by industry; and investors generally analyze companies and portfolios through an industry lens,” she said. “Focusing on industry-specific topics and metrics is also more likely to yield more comparable information which is critical for investors’ decision-making.” The educational material maps how SASB standards fit into S1, General Requirements for Disclosure of Sustainability-related Financial Information, which took effect on January 1. It includes questions to ask when identifying metrics and developing disclosures. SASB standards are organized by industry, enabling a company to identify sustainability-related disclosure topics and metrics applicable to its business model and operations. Each SASB standard contains, on average, six disclosure topics and 13 metrics.

AICPA News

ASB Decides to Continue Project on Quality Management Attestation Standards.

The AICPA Auditing Standards Board (ASB) in early February decided to move forward with its project on quality management (QM) attestation standards and will vote to issue a final standard during a meeting in May, according to Ahava Goldman, an associate director with the Association of International Certified Professional Accountants. “One respondent was not in agreement with the project as a whole; however, the ASB continues to believe the proposed QM SSAE [Statement on Standards for Attestation Engagements] is in the public interest,” Goldman told Thomson Reuters on February 23, recapping the ASB’s quarterly meeting that was held on February 1/2.This comes as PricewaterhouseCoopers questioned “whether it is necessary for the ASB finalize these proposed changes now in advance of two potentially significant developments.” And a task force had asked whether the ASB should pause or continue with the project. PricewaterhouseCoopers cited international standard-setting efforts underway. The board issued an exposure draft in August 2023 aimed at aligning certain concepts in attestation standards with quality management standards issued in June 2022.

FASB News

Principle Will be Developed for Hedging Components of Commodities.

FASB has agreed to develop a principle for hedging components of commodities that companies purchase—a change that is aimed at improving certain aspects of hedge accounting rules. The guidance is being developed as one among six issues that will be proposed to clarify aspects of hedge accounting rules that have raised questions in the past. Under the current model, for a company to be able to hedge a component of what is being purchased, that component needs to be written down and agreed to, according to the discussions. But the board heard that this is hard to do in cases where commodities are being purchased in the spot market, because that written agreement that includes the commodity index may not always exist, or they exist in certain industries but not in others. As a result, the board voted to move from a model that requires that component that is being hedged to be written down in the contract to a model that follows a principle. The new approach would stipulate that the components that are being hedged need to be clearly and closely related to the purchase and thus would align with the “clearly and closely related” concept that is already in GAAP now. A commodity like copper, for example, is clearly and closely related to copper wire; therefore, even if the copper component is not written down in a contract, the “clearly and closely related” concept can be used, the discussions indicated. This would provide a principle that would enable companies to easily figure out if a component is allowed to be hedged, board members said.