In this section, we provide brief updates on regulatory developments in auditing and accounting that may impact Japanese companies in the United States. Further discussion of the issues can be found in KPMG's Department of Professional Practice's Defining Issues.
Please contact Hideo Takada (404-222-3316；email@example.com) or Shin Kusanagi (404-222-7611；firstname.lastname@example.org) in the Atlanta office, or Michael Maekawa (213-955-8331; email@example.com) in the Los Angeles office, with questions.
In the Board Meeting on January 25, 2011, the FASB tentatively decided not to require certain financial assets to be measured at fair value on the balance sheet. The decision represents a significant departure from the proposed standard on financial instruments issued in May 2010 that would have required all financial assets to be measured at fair value. The shift was made after the Board considered feedback from constituents that included over 2,800 comment letters. The decision is subject to change until the FASB issues a final financial instruments standard, which is expected later this year.
In January 2011, the Blue Ribbon Panel issued a report to the Financial Accounting Foundation Board of Trustees that recommended creating a separate standard setter to establish U.S. GAAP for private companies. The panel recommended that accounting standards for private companies should be based on existing U.S. GAAP but include certain exceptions and modifications for private companies.
With the FASB Discussion Paper, Invitation to Comment—Selected Issues about Hedge Accounting issued on February 9, 2011, the FASB requested feedback about the IASB’s Exposure Draft on hedge accounting issued on December 9, 2010. In May 2010, the FASB issued a proposed ASU about accounting for financial instruments, which included hedge accounting. That proposal would resolve major hedge accounting practice issues, but would do so within the current hedge accounting model. The IASB’s Exposure Draft about hedge accounting proposes fundamental changes to its current hedge accounting model and attempts to align hedge accounting with entities’ risk management objectives. The IASB’s proposed revisions would result in hedge accounting guidance that would be significantly different from the FASB’s proposed hedge accounting guidance.
In the FASB and IASB’s joint meetings held in March 2011, the Boards tentatively decided to revise some of the more significant proposals in their joint Exposure Draft on accounting for leases issued in August 2010. The recent tentative decisions address sale-leaseback transactions, arrangements with lease and non-lease components, initial measurement, lease incentives, short-term leases, and scope of the proposed standard. As part of the tentative decisions on initial measurement, the Boards reached tentative decisions about lease inception date versus lease commencement date, discount rate, purchase options, and lessee involvement in assets under construction. The Boards plan to continue redeliberations on these and other aspects of the ED.
In the FASB and IASB’s April 12-13 joint meeting, the Boards tentatively agreed to exclude most non-index or rate-based contingent rental payments from measurement of the lessee’s lease liability and lessor’s lease receivable. The Boards also tentatively agreed on the definition of a lease and how lessees would determine and apply lease classification for expense recognition purposes. These tentative decisions apply to both lessees and lessors, and would reduce the lessee’s lease liability and lessor’s lease receivable compared with the Boards’ joint Exposure Draft on leases and their previous tentative decisions.
During a podcast interview on April 14, the FASB and IASB Chairmen announced the Boards’ plan to extend the target date for completing the highest-priority major projects (financial instruments, revenue recognition, leases, and insurance contracts) from the original target of June 2011 into the second half of 2011.
On April 20, 2011, the SEC announced that it would sponsor a roundtable on July 7, 2011 to discuss the benefits and challenges in potentially incorporating IFRS into the financial reporting system for U.S. issuers. The roundtable will consist of three panels focusing on investors, smaller issuers, and regulators. The roundtable is part of the SEC staff’s ongoing efforts as described in the Work Plan to consider whether, and if so, how and when, to incorporate IFRS into the financial reporting system for U.S. issuers.
In the FASB and IASB’s March 21-23 and April 11-14 joint meetings, the FASB and IASB tentatively decided to revise several aspects of the joint Exposure Draft about revenue recognition. These tentative decisions address the time value of money; accounting for a customer’s credit risk including changes in estimates related to credit risk; licenses and rights to use intangible assets; and determining the transaction price including uncertain consideration. The Boards continue to redeliberate other aspects of the ED and could change these tentative decisions before issuing a final standard. The Chairmen of the Boards recently announced that they would extend for a few months their target date for completing their four highest-priority joint convergence projects, including revenue recognition, which they originally planned to complete by June 30, 2011.
On April 22, 2011, the FASB issued a proposed FASB ASU Testing Goodwill for Impairment that would permit an entity to make a qualitative assessment of whether it is more likely than not that its reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. The proposed change, which would apply to public and nonpublic entities, would be effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2011. Early adoption would be permitted.
On April 21, the FASB and IASB issued Progress Report on IASB-FASB Convergence Work, which describes the Boards’ plans for completing the highest-priority major projects. This progress report outlines how the Boards intend to complete their technical discussions on major projects, including plans for consulting with stakeholders on revenue recognition, leases, financial instruments, and insurance contracts.
The progress report does not address what next steps, if any, might be taken on the remaining projects included in the Memorandum of Understanding (MoU) and other convergence projects that are not included among the priority projects. The IASB is expected to issue a consultation document on its post-MoU agenda in the summer of 2011. Consideration of that input along with a potential decision by the SEC about incorporating IFRS into the financial reporting system for U.S. issuers could significantly affect the Boards’ post-2011 convergence strategy.