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 November 14, 2011, the FASB and IASB issued a revised joint Exposure Draft about revenue recognition. The Boards received nearly 1,000 comment letters about the original joint ED issued in June 2010 and, after extensive deliberations, revised various aspects of the proposed standard.
The revisions reflected in the revised ED would eliminate or modify some of the provisions in the original ED that would have created changes in practice from current U.S. GAAP. Nonetheless, significant differences still exist. If the revised ED is finalized in its current form, transaction- or industry-specific accounting guidance generally would be eliminated from U.S. GAAP.
The Boards hope to issue a final standard in the second half of 2012.
On November 16, 2011, the SEC staff issued two reports under its IFRS work plan to evaluate whether IFRS might be incorporated into the financial reporting system for U.S. issuers. One report addressed how consistently some of the largest global companies applied IFRS, and the second report focused on the significant differences between IFRS and U.S. GAAP. The SEC staff’s observations in the reports are not intended to be used to determine whether the staff will recommend that IFRS should be incorporated into the financial reporting system for U.S. issuers.
On November 3, 2011, the FASB issued a proposed ASU, "Principal versus Agent Analysis", that would change the way reporting enterprises evaluate whether to consolidate variable interest entities (VIEs) and non-VIE partnerships and similar entities. The definition of participating rights for entities that are not VIEs also would change and the proposed ASU would end the deferral of the amended guidance about consolidation of VIEs for reporting enterprises with interests in certain investment companies and similar entities. In general, the guidance in the proposed ASU would require fewer entities to be consolidated than under current U.S. GAAP. The Board will determine the effective date and whether early application would be permitted after it considers comments received about the proposed ASU; however, the ASU would be effective for an entity’s interim and annual reporting periods after the effective date.
On November 8, 2011, the FASB issued a proposed ASU that would defer the requirement to present within net income reclassification adjustments of items out of accumulated other comprehensive income. The proposal would not change the other requirements established by FASB ASU No. 2011-05, "Presentation of Comprehensive Income", including eliminating the alternative to present comprehensive income in the statement of equity. The proposed deferral is intended to be temporary until the Board has time to reconsider these changes.
At their October 19 meeting, the FASB and IASB reached tentative decisions about lessor accounting and transition guidance for lessees and lessors. The tentative decisions, if finalized as proposed, would require lessors to account for leases of investment property that is not measured at fair value as operating leases. The Boards’ tentative decisions about transition would permit lessees and lessors to adopt the new lease accounting standard using a full retrospective transition approach.
On October 11, 2011, the PCAOB issued the PCAOB Release, "Improving the Transparency of Audits: Proposed Amendments to PCAOB Auditing Standards and Form 2", which proposes amendments designed to improve the transparency of audits by requiring registered public accounting firms to disclose the name of the engagement partner in the audit report and in their annual report filed with the PCAOB on Form 2. These proposed amendments also would require disclosure in the audit report about other independent public accounting firms and other persons not employed by the auditor that participated in the most recent fiscal year’s audit.
The Financial Accounting Foundation (FAF) issued a proposal to improve the standard-setting process for private companies, which includes establishing a Private Company Standards Improvement Council (PCSIC). The proposal responds to recommendations from the Blue-Ribbon Panel on Standard Setting for Private Companies. Under the FAF proposal, the PCSIC’s first objective would be to work with the FASB to develop specific criteria to determine whether and when exceptions or modifications to U.S. GAAP are appropriate for private companies. Using those criteria, the PCSIC would identify and recommend changes for private companies to U.S. GAAP and projects under active consideration by the FASB. Those recommendations would be subject to the FASB’s due process and FASB ratification.
The FASB resumed deliberations about the disclosure framework project, after having previously put it on hold to focus on its highest-priority convergence projects conducted jointly with the IASB. The objective of the project is to establish a framework that will improve the effectiveness of financial statement disclosures and guide the FASB in developing disclosure requirements on individual standard-setting projects. The FASB would apply the framework to financial statement disclosure requirements that it develops in the future to focus on the most relevant financial information. Although the Board has not yet determined the final form of guidance that it will issue, it is expected to be more similar to a Concepts Statement than an ASU.
In September 2011, the FASB issued ASU No. 2011-09, "Disclosures about an Employer’s Participation in a Multiemployer Plan", which requires additional disclosures about employers’ participation in multiemployer pension plans including information about the plan’s funded status if it is readily available. The ASU is effective for annual periods for fiscal years ending after December 15, 2011 and December 15, 2012 for public and nonpublic entities, respectively. Early application is permitted. An entity is required to apply the ASU retrospectively for all periods presented.
The FASB issued FASB ASU No. 2011-08, "Testing Goodwill for Impairment", which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, it need not perform the two-step impairment test. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted.