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On The Horizon: SEC approves PCAOB standard on auditor’s report

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Contents Current reporting issue    Pension accounting: updated mortality information

FASB requests comments on proposed Taxonomy Implementation Guide SEC approves PCAOB’s new standard on the auditor’s report AICPA    Technical accounting Q&As on the definition of a public business entity issued
   Guidance released on agreed-upon procedures for securitizations
   Audit Risk Alert on general accounting and auditing developments published

CAQ publishes results of survey on investor confidence COSO releases updated Enterprise Risk Management Framework IASB issues October 2017 update




Current reporting issue Pension accounting: updated mortality information In October, the Society of Actuaries (SOA) published an updated mortality improvement scale for pension plans called Scale MP-2017, which updates MP-2016 to incorporate mortality data released by the Social Security Administration through 2013. MP-2017 also incorporates 2014 and preliminary 2015 mortality data from the Centers for Disease Control, Centers for Medicare and Medicaid Services, and the U.S. Census Bureau.
 
The updated improvement scale reflects a slight decline in life expectancy. Based on preliminary estimates, the SOA therefore expects that incorporating the MP-2017 scale, and using a 4 percent discount rate, might reduce a pension plan’s liabilities by 0.7 percent to 1.0 percent, depending on the plan’s specific characteristics.

To measure a defined benefit plan’s costs and obligations under U.S. GAAP, a sponsor must use assumptions that reflect its best estimate of the plan’s future experience. Although sponsors are not required to use SOA information to develop mortality assumptions, many sponsors do. Those sponsors should consider the updated improvement scale when preparing their financial statements.

Plan sponsors should be aware of the requirements to disclose information about changing their approach for measuring components of net periodic benefit cost in the notes to their financial statements and, if applicable, in Management’s Discussion and Analysis.


FASB requests comments on proposed Taxonomy Implementation Guide
The FASB released the proposed Taxonomy Implementation Guide, Retirement Benefits – Phase 2, for public review. The purpose of the proposed guide is to demonstrate modeling of plan asset disclosures related to retirement benefits.

The proposed guide includes
  • An overview of the modeling of retirement benefit elements, specifically for defined benefit plan assets, in connection with phase 2 of the Board’s retirement benefits topical focus project
  • Examples of modeling certain defined benefit plan asset disclosures
Comments are due November 16.


SEC approves PCAOB’s new standard on the auditor’s report On October 23, the SEC approved PCAOB Auditing Standard (AS) 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. The new standard requires auditors to provide new information about the audit that is intended to make the auditor’s report more informative and relevant to investors and other financial users.

SEC Chairman Jay Clayton commented that he supports the PCAOB’s planned Post-Implementation Review (PIR) of the new standard and encouraged the PCAOB to remain open to making any necessary changes to the revised auditing standards stemming from early-stage analysis of any findings from the PIR. Refer to On the Horizon dated June 8, 2017 for further discussion on the requirements of AS 3101.


AICPA Technical accounting Q&As on the definition of a public business entity issued The AICPA has issued several technical accounting questions and answers (Q&As) to address questions about certain terms used in the FASB’s Master Glossary definition of a public business entity. This definition was created when the FASB issued ASU 2013-12, Definition of a Public Business Entity – An Addition to the Master Glossary.

The AICPA has included the following 16 Q&As under Technical Inquiry Service (TIS) Section 7100, Definition of a Public Business Entity:
  • TIS 7100.01, “Use of the Term ‘Security’ in the Definition of a Public Business Entity”
  • TIS 7100.02, “Types of Securities Included in the Definition of a Public Business Entity”
  • TIS 7100.03, “Use of the Term ‘Over-the-Counter Market’ in the Definition of a Public Business Entity”
  • TIS 7100.04, “Use of the Term ‘Conduit Bond Obligor’ in the Definition of a Public Business Entity”
  • TIS 7100.05, “FINRA TRACE and MSRB EMMA Data and a Public Business Entity”
  • TIS 7100.06, “Use of the Phrase ‘Contractual Restriction on Transfer’ and a Public Business Entity”
  • TIS 7100.07, “Use of the Terms ‘Prepare,’ ‘Publicly Available,’ ‘Financial Statements,’ and ‘Periodic Basis’ in the Definition of a Public Business Entity”
  • TIS 7100.08, “Application of the Definition of a Public Business Entity When Entities are Organized in Tiered Organizational Structures (Parent, Consolidated Subsidiaries, Nonconsolidated Entities, Guarantors, Equity Method Investees)”
  • TIS 7100.09, “Financial Statements or Financial Information Filed With the SEC and Considerations for Effective Dates and the Definition of a Public Business Entity”
  • TIS 7100.10, “Accounting Standards Update Effective Dates and the Definition of a Public Business Entity”
  • TIS 7100.11, “Evaluating the Definition of Public Business Entity for Financial Institutions Subject to Section 36 of the Federal Deposit Insurance Act and Part 363 of the FDIC Rules and Regulations”
  • TIS 7100.12, “Mutual Depository Institutions and the Definition of a Public Business Entity”
  • TIS 7100.13, “Brokered Certificates of Deposit and the Definition of a Public Business Entity”
  • TIS 7100.14, “Private Resales (Rule 144 and Rule 144A) and the Definition of a Public Business Entity”
  • TIS 7100.15, “Insurance Companies and the Definition of a Public Business Entity”
  • TIS 7100.16, “Brokers, Dealers, and Futures Commission Merchants and the Definition of a Public Business Entity”

Guidance released on agreed-upon procedures for securitizations The AICPA released Statement of Position (SOP) 17-1, Performing Agreed-Upon Procedures Related to Rated Exchange Act Asset-Backed Securities Third-Party Due Diligence Services as Defined by SEC Release No. 34-72936, to provide guidance for performing agreed-upon procedure engagements related to asset-backed securities issued in accordance with the Securities Exchange Act of 1934, as amended, that are considered covered services under SOP 17-1.

SOP 17-1 supersedes Interpretation 1 (AT-C Section 9215), “Third-Party Due Diligence Services Related to Asset-Backed Securitizations: SEC Release No. 34-72936,” of AT-C Section 215, Agreed-Upon Procedures Engagements. It is effective for engagements that include covered services accepted after December 31, 2017.

Early implementation is permitted.

Audit Risk Alert on general accounting and auditing developments published The AICPA published Audit Risk Alert, General Accounting and Auditing Developments – 2017/18. This alert provides an overview of regulatory activities, economic and industry developments and trends, technical and professional developments, and future or emerging issues to monitor.


CAQ publishes results of survey on investor confidence The Center for Audit Quality (CAQ) issued the results of its survey on investor confidence, “The CAQ’s 11th Annual Main Street Investor Survey.” The survey, which measures investor confidence in the U.S. and global capital markets and audited financial information, found that
  • 85 percent of investors express confidence in the U.S. capital markets.
  • 83 percent of investors have confidence in investing in U.S. publicly traded companies.
  • 78 percent of investors are confident in the audited financial information of publicly held companies.
  • 54 percent of investors express confidence in markets outside of the U.S.
  • Investors have a high degree of confidence in the ability of external auditors (84 percent), audit committees (82 percent), and stock exchanges (82) to fulfill their investor protection roles.


COSO releases updated Enterprise Risk Management Framework The Committee of Sponsoring Organizations of the Treadway Commission (COSO) released its updated Enterprise Risk Management (ERM) Framework, Enterprise Risk Management – Integrating With Strategy and Performance. This ERM framework is designed to help organizations improve their approach to managing risk and, at the same time, to create, preserve, and realize value. It also highlights the importance of ERM in strategic planning.

Additional information on the updated ERM Framework, including an Executive Summary, an FAQ, and a slide presentation, is available on the COSO website.


IASB issues October 2017 update All decisions reached at IASB meetings are tentative and may be changed or modified at future meetings. Board decisions become final only after completion of a formal ballot to issue a new Standard or Interpretation or to publish an Exposure Draft.

The IASB has issued the October 2017 Update summarizing the tentative decisions reached by the Board during its October public meeting. The Board discussed the following topics:
  • Goodwill and impairment
  • IFRS implementation issues
  • Rate-regulated activities
  • IFRS taxonomy update
  • Definition of a business
  • Business combination under common control
  • Conceptual framework


© 2017 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.