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Proposed ASUs on derivatives and hedging issued

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FASB issues two proposed ASUs for derivatives and hedging
     Effect of derivative contract novations on existing hedging relationships
     Contingent put and call options in debt instruments
Highlights of August 5 FASB meeting posted
     Investment company disclosures
     Simplifying the accounting for measurement-period adjustments
Dodd-Frank Wall Street Reform and Consumer Protection Act
     SEC approves Final Rule for pay ratio disclosure
     Registration rules for security-based swap dealers and participants adopted
AICPA
     ASEC updates audit data standards
CAQ issues highlights from June SEC Regulations Committee meeting
International Federation of Accountants
     IAASB issues exposure draft on reporting on summary financial information
Comment letter issued




FASB issues two proposed ASUs for derivatives and hedging

All decisions reached at Board meetings are tentative and may be changed at future meetings. Decisions are included in an Exposure Draft only after a formal written ballot. Decisions reflected in Exposure Drafts are often changed in redeliberations by the Board based on information received in comment letters, at public roundtable discussions, and from other sources. Board decisions become final after a formal written ballot to issue a final Accounting Standards Update.

The Board recently issued two proposed ASUs related to derivatives and hedging that would codify the consensuses-for-exposure reached by the EITF at its June meeting. The proposed ASUs are discussed below.

Comments for both proposals are due October 5.

Effect of derivative contract novations on existing hedging relationships

The Board issued a proposed ASU, Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships – a consensus of the FASB Emerging Issues Task Force, to clarify that a novation of a derivative designated in a hedging relationship would not, in and of itself, require a reporting entity to dedesignate the hedging relationship, provided that all other hedge accounting criteria are still met. The novation of a derivative occurs when one counterparty to a derivative contract is replaced with a new counterparty.

An entity would apply the amendments in the proposed ASU prospectively to all existing and new hedge accounting relationships in which a novation of a derivative occurs after the effective date of the proposed guidance. The effective date will be determined at a later date.

Contingent put and call options in debt instruments

The Board also issued a proposed ASU, Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments – a consensus of the FASB Emerging Issues Task Force, which clarifies the requirements for assessing whether contingent exercise provisions associated with a put or call option are clearly and closely related to their debt hosts. Under the proposal, entities would assess an embedded put or call option solely using the four-step decision sequence outlined in ASC 815-15-25-42, Derivatives and Hedging: Embedded Derivatives.

Entities would apply the proposed guidance on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year, and interim periods within that fiscal year, for which the proposed amendments become effective. The effective date will be determined at a later date.




Highlights of August 5 FASB meeting posted

At its meeting on August 5, the FASB discussed feedback received through comment letters on two proposed ASUs, which are discussed below.

Investment company disclosures

The Board decided to remove the proposed ASU, Financial Services – Investment Companies: Disclosures about Investments in Other Investment Companies, from its agenda after concluding that the benefits of the information resulting from the proposed disclosures would not justify the costs.

However, as part of its Technical Corrections and Improvements project, the Board decided to clarify that the requirement to disclose investments held by investee funds applies only to nonregulated investment companies.

Simplifying the accounting for measurement-period adjustments

After discussing feedback on the proposed ASU, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments, the Board directed the staff to draft a final ASU, affirming its proposed changes to the guidance on business combinations.

Under the new guidance, an entity would be required to

  • Recognize adjustments to provisional amounts identified during the measurement period in the reporting period it determines the adjustment amount
  • Record the results of any changes to the provisional amounts (for example, changes in depreciation, amortization, or other income effects) in the same period’s financial statements, calculated as if it had completed the accounting at the acquisition date
  • Disclose the effect of the changes on current-period earnings, by line item, that would have been recognized in a previous period if the adjustment to provisional amounts had been recognized as of the acquisition date
  • Apply the changes prospectively to adjustments to provisional amounts identified after the effective date that occur within the measurement period

The changes will be effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. The amendments will be effective for all other entities for annual periods beginning after December 15, 2016 and for interim periods within annual periods beginning after December 15, 2017. Early adoption will be permitted in any interim and annual financial statements that have not yet been made available for issuance.



Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) mandates numerous studies and regulatory rule changes. Initiatives that impact financial reporting are described in the Weekly Update as information becomes available.

SEC approves Final Rule for pay ratio disclosure

On August 5, the SEC approved the Final Rule, Pay Ratio Disclosure, to amend existing employee compensation rules, pursuant to Section 953(b) of the Dodd-Frank Act. The requirements of the Final Rule are largely consistent with those included in the September 2013 proposed rule.

The Final Rule amends existing employee compensation disclosures and requires additional disclosures within any filing that requires executive compensation information, such as a registrant’s annual report, a proxy or information statement, or a registration statement. The additional disclosures required under the Final Rule include

  • The median of the annual total compensation of all employees of the registrant, excluding the chief executive officer
  • The annual total compensation of the registrant’s chief executive offer
  • The ratio of these two amounts

The Final Rule provides for flexibility in determining the methodology for calculating the median annual total compensation of all employees. Also, registrants may identify the median employee once every three years, versus every year as originally proposed, and may calculate that individual employee’s annual total compensation each year.

The Final Rule does not apply to emerging growth companies, smaller reporting companies, registered investment companies, or foreign private issuers.

Registrants will be required to comply with the Final Rule beginning with their first fiscal year commencing on or after January 1, 2017.

Registration rules for security-based swap dealers and participants adopted

On the same day, the SEC adopted the Final Rule, Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, mandated by Title VII of the Dodd-Frank Act, to implement processes and forms for security-based swap dealers and major security-based swap participants to register with the SEC. The Final Rule also requires certain senior officer certifications.

The Final Rule will become effective 60 days after publication in the Federal Register.




AICPA

ASEC updates audit data standards

The Emerging Assurance Technologies Task Force of the AICPA’s Assurance Services Executive Committee (ASEC) published updated standardized audit data standards.

The updated July 2015 standards include

  • Base Standard, with formatting information, updated to include a new tax table and a Boolean data type
  • General Ledger Standard, with an updated data relationship table and field information
  • Order to Cash Subledger Standard to supersede the current August 2013 Accounts Receivable Subledger Standard
  • Procure to Pay Subledger Standard

Standards for additional subledgers relating to industry sectors and business processes are expected to be published by ASEC.

Audit data standards are voluntary and nonauthoritative.




CAQ issues highlights from June SEC Regulations Committee meeting

The Center for Audit Quality (CAQ) SEC Regulations Committee meets periodically with the SEC staff to discuss emerging financial reporting issues relating to SEC rules and regulations. The highlights summarize matters discussed at the meetings and do not represent official positions of the AICPA or the CAQ, nor are they authoritative positions or interpretations issued by the SEC or its staff.

The CAQ recently issued highlights of the joint meeting on June 18 between its SEC Regulations Committee and the SEC staff. Discussions at the meeting included the following topics:

  • The SEC staff’s views regarding a registrant’s need to seek a written accommodation from the Division of Corporation Finance in relation to the method of filing individual periodic reports that were required but not made
  • Confirmation that significance tests under Regulation S-X, Rule 3-09, need to be reperformed in connection with a subsequent Form 10-K when the historical financial statements have been revised to reflect either a retrospective change in accounting principle or a discontinued operation
  • Confirmation that pro forma reserve and “standardized measure of oil and gas” (SMOG) disclosures are expected to be included in pro formas associated with a significant acquisition of an oil and gas business, regardless of whether the transaction is a roll-up
  • Discussion that there is no specified date for a registrant to use when determining whether an acquiree meets the definition of a foreign business under Regulation S-X, Rule 1-02(l). Rather, registrants should use the date that makes the most sense based on their specific facts and circumstances.



International Federation of Accountants

IAASB issues exposure draft on reporting on summary financial information

As a result of its new and revised Auditor Reporting Standards, the International Auditing and Assurance Standards Board (IAASB) issued an exposure draft proposing changes to International Standard on Auditing (ISA) 810, Engagements to Report on Summary Financial Statements.

The revisions include

  • Amendments to address material uncertainty related to going concern and a material misstatement of other information
  • A new requirement to include a reference to the communication of key audit matters in the auditor’s report or audited financial statements
  • Requirements to align the layout of illustrative auditor’s reports consistent with those in ISA 700, Forming an Opinion and Reporting on Financial Statements

The effective date of ISA 810 (Revised) will align with the effective date of the revised Auditor Reporting Standards, which will be effective for the audits of financial statements for periods ending on or after December 15, 2016.

Comments are due by November 2, 2015.




Comment letter issued

On August 4, the firm issued a comment letter in response to the FASB’s proposed ASU, Investments – Equity Method and Joint Ventures: Simplifying the Equity Method of Accounting.




© 2015 Grant Thornton LLP, U.S. member firm of Grant Thornton International Ltd. All rights reserved. This Grant Thornton LLP On the Horizon provides information and comments on current accounting and SEC reporting issues and developments. It is not a comprehensive analysis of the subject matter covered and is not intended to provide accounting or other advice or guidance with respect to the matters addressed in this publication. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this publication. For additional information on topics covered in this publication, contact a Grant Thornton client-service partner.