On the Horizon -- FASB ratifies EITF decisions

Contents FASB ratifies EITF decisions at June 29 meeting      Consensus on Issue 15-F
     Consensus-for-exposure on Issue 16-B

SEC proposes amendments to smaller reporting company definition
Dodd-Frank Wall Street Reform and Consumer Protection Act      SEC issues final rule requiring resource extraction issuers to disclose payments

PCAOB issues guidance on Form AP
CAQ develops tool for audit committee to assess non-GAAP measures

IOSCO and CPMI publish guidance on cyber resilience

FASB ratifies EITF decisions at June 29 meeting 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 met on June 29 to consider whether to ratify one consensus and one consensus-for-exposure reached at the June 10 EITF meeting. The Board’s tentative decisions are summarized below.

See the June 16 On the Horizon for a summary of the EITF issues discussed below.

Consensus on Issue 15-F The Board ratified the Task Force’s final consensus on the eight sub-issues within the scope of Issue 15-F, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments.” This issue is intended to address areas where diversity in practice exists with respect to classifying cash receipts and payments within the statement of cash flows.

Consensus-for-exposure on Issue 16-B The Board also ratified the Task Force’s consensus-for-exposure on Issue 16-B, “Employee Benefit Plan Master Trust Reporting,” which is intended to improve and make consistent financial reporting for employee benefit plan master trust reporting.

SEC proposes amendments to smaller reporting company definition On June 27, the SEC proposed amendments to the definition of “smaller reporting company” (SRC). An SRC may elect to comply with certain scaled financial and non-financial disclosures.

The proposed amendments would increase the financial thresholds as follows:

  • Registrants with public float of less than $250 million or annual revenues of less than $100 million when public float is zero would qualify as an SRC, compared to the current thresholds of $75 million in public float and $50 million in annual revenues
  • Once a registrant fails to qualify as an SRC, it would remain unqualified until its public float is less than $200 million or its annual revenues are less than $80 million when public float is zero, compared to the current thresholds of $50 million in public float and $40 million in annual revenues

The proposed amendments would also eliminate the provision in the accelerated filer and large accelerated filer definitions that excludes registrants that are SRCs. As a result, a registrant could qualify as an SRC and may also be an accelerated filer. As such, the registrant would be eligible to use the scaled disclosures available to SRCs; however, it would still be subject to the accelerated filer deadlines for periodic reports and would be required to comply with Sarbanes-Oxley Act Section 404(b), the auditor attestation requirement for a registrant’s internal control over financial reporting.

The proposed amendments are part of the SEC’s disclosure effectiveness initiative.

The SEC is requesting comments on certain items, including whether (1) the public float and revenue thresholds should be raised or adjusted for inflation, (2) public float or revenue is an appropriate basis in the definition of an SRC, (3) the calculation of public float should be modified, and (4) the SEC should revisit the thresholds on a periodic basis.

The comment period ends August 30.

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 issues final rule requiring resource extraction issuers to disclose payments On June 27, the SEC adopted the Final Rule, Disclosure of Payments by Resource Extraction Issuers, requiring resource extraction issuers that engage in the commercial development of oil, natural gas, or minerals and are required to file an annual report under the Securities Exchange Act of 1934 to disclose certain payments made to the U.S. federal government and to foreign governments.

The provisions of the final rule are mostly consistent with those of the proposed rule with certain exceptions, including the following:

  • The final rule allows for two exemptions for transitional relief or delayed reporting in certain circumstances:

    • Issuers are not required to report payment information for an acquired company that was not previously subject to such reporting requirements, until the filing of Form SD for the first fiscal year following the acquisition
    • Issuers are allowed a one-year delay in reporting payments for exploratory activities

  • Resource extraction issuers are required to comply with the final rule and form starting for fiscal years ending on or after September 30, 2018.

    For more information on the proposed rule, please refer to the December 17, 2015 On the Horizon.

    PCAOB issues guidance on Form AP The Public Company Accounting Oversight Board (PCAOB) issued staff guidance for firms filing the new Form AP disclosing the names of engagement partners and other firms participating in public company audits.

    The PCAOB established a new webpage with additional guidance, including general instructions for Form AP, a sample form that can be downloaded for reference, and contact information for submitting questions.

    The PCAOB staff intends to hold conference calls later in 2016 for firms to address implementation matters. Firms will also have an opportunity to conduct test runs submitting Form APs using the web form and XML.

    CAQ develops tool for audit committee to assess non-GAAP measures The Center for Audit Quality (CAQ) developed a new tool, “Questions on Non-GAAP Measures: A Tool for Audit Committees,” to aid audit committees in their assessment of management’s presentation of performance metrics that are outside the audited financial statements and do not conform to Generally Accepted Accounting Principles (GAAP).

    The tool provides an overview of current regulations regarding the use of non-GAAP information and includes the SEC’s updated Compliance and Disclosure Interpretations on the use of non-GAAP measurements included in SEC filings and communications with investors. The tool includes questions for the audit committee to consider in reviewing their company’s specific presentations and are grouped into the following categories: (i) transparency (including consideration of the purpose, prominence, and labeling of non-GAAP information); (ii) consistency; and, (iii) comparability.

    IOSCO and CPMI publish guidance on cyber resilience The International Organization of Securities Commissions (IOSCO) and the Committee on Payments and Market Infrastructures (CPMI) published their final report, “Guidance on cyber resilience for financial market infrastructures,” providing guidance on cyber security for use by the financial industry.

    The report’s primary goals are to

    • Add momentum to the industry’s ongoing efforts to enhance financial market infrastructures’ (FMIs’) ability to preempt cyber attacks, respond rapidly and effectively to attacks when they happen, and achieve faster and safer target recovery objectives if the attacks are successful
    • Ensure that industry efforts to build resilience are similar from one country to another

    The report provides regulatory authorities with a set of guidelines to support consistent and effective oversight and supervision of FMIs.

    © 2016 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.