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On The Horizon: SEC proposes amendments to certain Regulation S-K disclosures

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Contents FASB - Highlights from October 11 meeting posted EITF meeting held on October 12 SEC proposes amendments to modernize and simplify certain disclosures required by Regulation S-K IASB amends IFRS 9 and IAS 28 CAQ issues alerts on audit considerations for upcoming audit cycle Anti-Fraud Collaboration publishes case study on fraud


FASB Highlights from October 11 meeting posted All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on October 11 to discuss the working definitions of revenues and expenses developed by the staff, as well as the relationship of those definitions to the existing definitions of gains and losses. The existing definitions of revenues, expenses, gains, and losses are included in Concepts Statement 6, Elements of Financial Statements.

The Board provided the following tentative views on these working definitions:

  • The working definitions should retain the phrase or other activities.
  • It would improve the working definitions to exclude the phrase carrying out.
  • The phrase that constitute the entity’s major or central operations should not be removed from the working definitions at this time.

The Board directed the staff to develop working definitions of gains and losses that will be used in the Board’s further analysis of whether to exclude the phrase that constitute the entity’s major or central operations from the working definitions of revenues and expenses.



EITF meeting held on October 12 At its meeting on October 12, the FASB’s Emerging Issues Task Force (EITF) continued its discussion of Issue 17-A, “Customer’s Accounting for Implementation, Setup, and Other Upfront Costs (Implementation Costs) Incurred in a Cloud Computing Arrangement That Is Considered a Service Contract.” The Task Force tentatively decided that

  •  All hosting arrangements would be within the scope of ASC 350 40, Intangibles – Goodwill and Other: Internal-Use Software, regardless of whether the arrangement contains a software license
  • Not to add additional guidance about how to apply the guidance in ASC 350-40 specifically for cloud computing arrangements

The practical implication of the changes would be that a customer recognizes a right-of-use asset and a corresponding liability measured as the present value of the hosting fees, similar to the new leasing guidance. The implementation costs related to the hosting arrangement would be accounted for in accordance with the guidance in ASC 350-40.

The Task Force asked the staff to perform additional research regarding issues that may arise as a result of this tentative decision, including, but not limited to, how to address renewals, consider variable payments, and determine the appropriate discount rate for measuring the present value of the hosting fees.

The Task Force will continue their discussions at a future meeting.



SEC proposes amendments to modernize and simplify certain disclosures required by Regulation S-K On October 11, the SEC issued a Proposed Rule to modernize and simplify certain disclosure requirements in Regulation S-K and related rules and forms for public companies. The proposed amendments largely implement recommendations contained in a 2016 staff report, “Report on Modernization and Simplification of Regulation S-K,” mandated by the Fixing America’s Surface Transportation Act.

The SEC has over the past several years undertaken a broad review of its disclosure system, including the issuance of several proposing releases and requests for comment on specific aspects of its disclosure requirements. The Commission has indicated they are continuing to consider potential additional changes stemming from these activities.

Among other things, the Proposed Rule includes the following amendments to disclosures in Regulation S-K:

  • Item 102, Description of property, to clarify that, for most industries, a description is required only to the extent that physical properties are material to the registrant
  • Item 303, Management’s discussion and analysis of financial condition and results of operations, to allow for flexibility in the discussion of historical periods by eliminating the requirement to discuss the earliest year when three years of financial statements are included in the filing if certain requirements are met
  • Item 601, Exhibits, to permit registrants to omit or redact certain confidential information from exhibits without submitting an application for confidential treatment

To facilitate investors’ access to information, the Proposed Rule would require registrants to tag all data points on the cover pages of certain periodic and current reports using Inline XBRL, as well as require hyperlinks to information that is incorporated by reference if that information is available on EDGAR. The Proposed Rule would amend the cover pages of Form 10-K, Form 20-F, and Form 40-F to include the trading symbol for each class of securities registered under the Exchange Act and amend the cover pages of Form 10-Q and Form 8-K to include the title, trading symbol, and exchange of each class of registered securities.

Included in the Proposed Rule are amendments to several rules and forms applicable to investment companies and investment advisers to implement consistent rules regarding incorporation by reference and hyperlinking. In particular, the proposal would require investment companies to use HTML format and to include a hyperlink to each exhibit listed in the exhibit index of certain filings, consistent with operating companies.

The comment period ends 60 days after the Proposed Rule is published in the Federal Register.



IASB amends IFRS 9 and IAS 28 The IASB issued amendments to IFRS 9, Financial Instruments, and to IAS 28, Investments in Associates and Joint Ventures, which are intended to assist entities when applying these standards.

The amendments to IFRS 9, Prepayment Features with Negative Compensation, allow entities to subsequently measure certain prepayable financial assets with negative compensation at amortized cost or at fair value through other comprehensive income if a specified condition is met, instead of at fair value through profit or loss.

The amendments to IAS 28, Long-term Interests in Associates and Joint Ventures, clarify that an entity should use the guidance in IFRS 9 to account for long-term interests in an associate or a joint venture that are not accounted for under the equity method.

The IASB has also issued Illustrative Example – Long-term Interests in Associates and Joint Ventures, which demonstrates how an entity should apply the requirements in IFRS 9 and IAS 28 to long-term interests in an associate or a joint venture.

Both of the amendments are effective for fiscal years beginning on or after January 1, 2019, and early application is permitted.

Transition guidance is affected by when an entity applies IFRS 9, which is effective for fiscal years beginning after January 1, 2018, with early adoption permitted.

The Board has also issued the proposed IFRS Taxonomy Update, Prepayment Features with Negative Compensation, because the taxonomy will be updated as a result of the new presentation and disclosure requirements included in the amendments to IFRS 9. Comments on this proposal are due December 11.



CAQ issues alerts on audit considerations for upcoming audit cycle The Center for Audit Quality (CAQ) issued two alerts identifying auditing considerations relevant to the 2017 audit cycle.

CAQ Alert 2017-04, “Select Auditing Considerations for the 2017 Audit Cycle,” discusses judgmental or complex audit areas, including areas identified by the PCAOB through its inspection process. Topics covered include

  • Auditor independence
  • Multinational audits
  • Transitioning to new accounting standards
  • Audit areas potentially affected by economic factors
  • Recurring audit deficiencies
  • Financial reporting
  • Increasing transparency through disclosure of engagement partner and certain other participants in audits – PCAOB Rules 3210 and 3211

CAQ Alert 2017-05, “Select Auditing Considerations for the 2017 Audit Cycle for Brokers and Dealers,” identifies and discusses considerations that may be relevant for audit and attestation engagements of registered brokers and dealers, including areas identified by the PCAOB through its inspection process. Topics covered include

  • Auditor independence
  • Risk of material misstatement due to fraud
  • Revenue recognition
  • Financial statement presentation and disclosure
  • Related-party transactions
  • Auditing information produced by a service organization
  • Supplemental information
  • Examination engagements
  • Engagement quality reviews
  • The Securities Investor Protection Corporation (SIPC) Rule 600



Anti-Fraud Collaboration publishes case study on fraud The Anti-Fraud Collaboration, a collaboration of the Center for Audit Quality (CAQ), Financial Executives International (FEI), The Institute of Internal Auditors (IIA), and the National Association of Corporate Directors (NACD), published its fourth case study, “LDC Cloud Systems Case Study,” in an effort to raise awareness of fraud detection and deterrence. The case study features a fictional public company faced with a bribery allegation and questionable accounting oversight and provides an in-depth exploration of the actions taken by management and the board of directors.



© 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.