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.
On May 12, 2011, the FASB issued FASB ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, and IFRS 13, Fair Value Measurement, were issued to achieve the Boards' objective of having a converged definition of fair value and substantially converged measurement and disclosure guidance. The ASU applies to all entities that measure assets, liabilities, or instruments classified in shareholders' equity at fair value or provide fair value disclosures for items not recorded at fair value. While many of the amendments to U.S. GAAP are not expected to significantly affect practice, the ASU clarifies principal market determination, addresses offsetting market or credit risk in fair value measurements and the concept of the valuation premise and highest and best use, extends the prohibition on blockage to all three levels of the fair value hierarchy, and requires additional disclosures.
On May 26, 2011, the SEC staff released the staff paper that explores one possible approach for potentially incorporating IFRS into the financial reporting system for U.S. issuers that would include the FASB's ongoing involvement and draw on the convergence and endorsement approaches that other jurisdictions use to bring IFRS into their financial reporting systems. The paper is a part of the SEC staff's ongoing consideration of incorporating IFRS into the financial reporting system for U.S. issuers under the work plan developed at the direction of the SEC in February 2010.
In the June 14, 2011 joint meeting, the FASB made the tentative decision to continue to allow offsetting of derivatives and related collateral, which affects its joint project with the IASB. If the FASB's tentative decision becomes final, the presentation of derivatives and related collateral in financial statements prepared under IFRS may be different from the presentation in financial statements prepared under U.S. GAAP. The Boards plan to work together to develop disclosures so that financial statement users may reconcile U.S. GAAP and IFRS balance sheets.
The final SEC rule implements, effective August 12, 2011, whistleblower provisions required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule rewards individuals who provide the SEC with high-quality tips that lead to successful enforcement actions while discouraging those individuals from sidestepping their company's internal reporting systems.
FASB ASU 2011-05, Presentation of Comprehensive Income, is intended to increase the prominence of other comprehensive income in financial statements by requiring comprehensive income to be reported in either a single statement or in two consecutive statements. The IASB concurrently issued amendments to existing IFRS guidance to establish converged requirements. The amendments, however, do not change what items are reported in other comprehensive income or the U.S. GAAP requirement to report reclassification of items from other comprehensive income to net income.
On June 21, 2011, the PCAOB issued the PCAOB Concept Release, which describes issues with the current auditor reporting model identified by some stakeholders, lays out potential alternatives for change, and requests input about whether those alternatives might be effective in enhancing the communication value of the auditor's report. The four alternatives presented in the Concept Release are (1) a supplemental Auditor's Discussion and Analysis report, (2) required and expanded use of emphasis paragraphs, (3) auditor assurance on other information outside the financial statements, and (4) clarification of the standard auditor's report.
The alternatives are primarily focused on enhancing communication to investors through improving the content of the auditor's report rather than on changing the fundamental role of the auditor in performing an audit of financial statements. After outreach activities, including a public roundtable in the third quarter, the PCAOB will determine whether changes should be made to the current reporting model.
On June 15, 2011, the SEC proposed amendments to its broker-dealer financial reporting rule aimed at strengthening independent audits and enhancing oversight of broker-dealer custody practices. While the proposed amendments would have the most dramatic effect on broker-dealers that maintain custody of customers' assets, all broker-dealers would be affected to some extent. Also, under new rules recently approved by the PCAOB, auditors of broker-dealers will be subject to a temporary inspection program for their audits, and nonissuer broker-dealers will be charged a portion of the PCAOB's accounting support fee. The SEC must approve these new rules.
In the June13-15, 2011 joint meeting, the FASB and IASB made tentative decisions:
- To revise several aspects of the joint Exposure Draft (ED) about revenue recognition,
- To re-expose the proposed standard with a 120-day comment period to identify unintended consequences that might arise from applying the proposed standard, and
- To revise the transition requirements proposed in the ED to provide optional relief to full retrospective adoption in limited circumstances.
The Boards discussed concerns raised by telecommunications entities, but tentatively decided not to revise the proposed standard in response to those concerns.
Additionally, on June 8, 2011,the FASB tentatively decided:
- To carry forward U.S. GAAP for alternative revenue programs for rate-regulated entities and
- To exempt nonpublic entities from providing certain disclosures that would be required for public entities under the proposed standard.
The Boards directed the staff to draft a revised ED for written ballot and to target issuing the revised ED for comment by the first week in September, 2011 so that the comment period would end before December 31, 2011.
In the July 21, 2011 joint meeting, the FASB and IASB made the tentative decision that the effective date of the proposed revenue recognition standard would be no earlier than annual periods beginning on or after January 1, 2015. The Boards had different views about whether to allow early application of the standards coming out of the highest-priority joint projects, including the proposed revenue recognition standard. The FASB tentatively decided to prohibit early application of the proposed revenue recognition standard and not to provide nonpublic entities incremental transition relief. Also, the IASB tentatively decided to permit first-time IFRS adopters to apply new IFRS early.
In the July 20-21, 2011 joint meeting, the FASB and IASB made the decision on a converged lessor accounting model that would require lessors to recognize a lease receivable and a residual asset in the statement of financial position for all leases, except short-term leases and leases of investment property measured at fair value. The Boards also reached tentative decisions about the proposed treatment of variable lease payments that depend on an index or rate, residual value guarantees, short-term leases, subleases, embedded derivatives, lessee presentation and disclosure requirements, and other matters.
The Boards decided to re-expose their proposed lease accounting standard. They aim to complete their redeliberations during the third quarter of 2011 with a goal of publishing the revised Exposure Draft shortly thereafter. The decision to re-expose the ED means that a final standard likely will not be issued until the second half of 2012.