FASB News
Accounting Chiefs Weigh in on Consolidation Rules, Single Model Debate
A recent conference of top accountants explored the challenges of consolidation accounting, including the complexities of variable interest entities (VIE) and whether FASB should overhaul the system to require a single consolidation model. At the AICPA & CIMA’s Conference on Current SEC & PCAOB Developments on December 10, Brandon Coleman, Chief Accountant at Deloitte, described the VIE analysis as one of the most challenging tasks for accountants, arising from scoping issues and analyzing its equity. Coleman pressed the case for a single consolidation model, citing the example of joint ventures, where similar economic entities can lead to different accounting conclusions based on equity sufficiency. “If you have similar economic fact patterns, you should not get different accounting conclusions,” he emphasized. Robert Maholtra, Chief Accountant at KPMG, argued however that although a simpler consolidation model would be ideal, revamping the current system might not be the best path forward. He cautioned that the complexity of the model should be balanced against the satisfaction with current results and the potential costs of simplification, considering that it might not yield significantly better outcomes. “What I’m not sure is whether or not we’re going to be any better at coming up with a model than we were over the last 20 years if we spent another 20 years doing this,” Maholtra said. “So I think there’s a question of ‘case for change’ here.” FASB currently has “consolidation for business entities” on its research agenda, which means that the board is studying the topic at a deeper level, but has not determined whether to take up a rulemaking project.
Governance News
Multinationals Warned to Disclose Pillar II Exposure Despite Lack of Specific Requirements
Multinational companies applying the Organization for Economic Co-operation and Development’s (OECD) Pillar II tax framework should be prepared to disclose the potential significance of their exposure, even if the impact is not immediately material, accounting practitioners warned at a recent financial reporting conference. At the AICPA & CIMA’s Conference on Current SEC and PCAOB Developments on December 11, Jennifer Spang from PwC LLP and Angela Storm from KPMG LLP said that companies should disclose potential material effects of Pillar II to meet securities laws and regulatory expectations. “The securities laws and the SEC staff do have expectations about companies’ responsibilities of potential exposure,” said Storm, a partner at KPMG. “Even if it’s not material today, can you reasonably conclude that it’s going to have a material effect in the future? And if so, that needs to be in your disclosure documents … the fact that you can’t make a precise estimate doesn’t mean don’t disclose anything but they expect those disclosures to develop over time.” Pillar II, also known as the “GloBE” (Global Anti-Base Erosion Model Rules), was released in a final report by the OECD on December 14, 2020. The OECD’s framework aims to establish a minimum global tax rate of 15% for multinational companies with revenues of € 750 million or more. The effective date for implementing Pillar II varies by country, as each jurisdiction needs to adopt and implement the rules into their domestic legislation. The new global minimum tax rules, a key component of Pillar II, started to take shape in 2024, with a phased implementation set to conclude by the end of 2025.
SEC News
SEC Chief Accountant Munter Emphasizes ‘Public’ Aspect of CPA.
In a year-end speech, SEC Chief Accountant Paul Munter urged accounting professionals to always keep in mind the “public” part of Certified Public Accountant (CPA). He said that the most meaningful part of his accounting career has been the opportunity to serve the public not only because of his current government role but also because of the public interest part of being a CPA, whether as an auditor, tax accountant, preparer, or other accounting professional. Accountants serve as important gatekeepers to instill confidence in capital markets and protect investors, he said. The value of an accountant’s work depends on credibility and trustworthiness. “Unfortunately, across the globe, we have observed high-profile cases of unethical behavior by accountants that were not limited to just one firm, one issuer, or one jurisdiction,” Munter said at the AICPA & CIMA Conference on Current SEC and PCAOB Developments on December 9 in Washington. While he did not provide recent examples, there have been exam cheating or tax services scandals by Big Four affiliates. And as he has emphasized before, Munter again called on audit firms and companies to set a proper tone at the top. “For audit firms and issuers, a strong culture and tone at the top that prioritizes doing the right thing above all else empowers all accountants, regardless of their role or level of experience, to exercise professional skepticism and, where appropriate, to challenge management,” he said. “In many cases, fraud is eventually uncovered by an accountant who exercises professional skepticism, refuses to stop asking questions, and doesn’t succumb to pressure, but these behaviors are also key to elevating financial reporting and audit quality.”
