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.
The SEC staff communicated the responsibilities of registrants' management when using third-party pricing vendors for estimating the fair value of investment securities. The Defining Issues summarizes the SEC staff's communications about its expectations and its areas of focus, and provides examples of activities and controls that KPMG LLP observed management teams use in practice to satisfy their responsibilities.
The FASB added to its agenda a research project in which it will explore when an entity that consists of nonfinancial assets should be accounted for as in-substance assets.
The FASB ratified its Emerging Issues Task Force consensus that the investor should apply the current U.S. GAAP accounting guidance on real estate sales to determine whether to derecognize the real estate when the nonrecourse debt is in default and the real estate may be transferred to the lender to satisfy the debt. The FASB issued ASU No. 2011-10, "Derecognition of in Substance Real Estate-a Scope Clarification (a consensus of the FASB's Emerging Issues Task Force)", which addresses the investor's accounting for derecognition of in-substance real estate but does not address the lender's accounting.
At the annual AICPA National Conference on Current SEC and PCAOB Developments on December 5-7, representatives of the SEC, PCAOB, FASB, IASB, CAQ, and AICPA discussed the most critical accounting and reporting issues affecting SEC registrants and auditors, including:
- Using IFRS in the United States;
- Management and auditor responsibilities related to using pricing services to measure fair value;
- Audit quality and the role of the audit committee;
- Observations and recommendations for preparers related to providing transparent disclosures;
- The SEC's filing review process;
- Reporting observations identified during reviews of registrants' filings; and
Priorities of accounting and auditing standard-setters.
On December 16, 2011, the FASB and the IASB issued new accounting standards that are intended to enhance disclosures about offsetting financial assets and liabilities. The new disclosures will enable financial statement users to compare balance sheets prepared under U.S. GAAP with those prepared under IFRS, which are prepared using different offsetting models. The disclosures will be limited to financial instruments (and derivatives) subject to enforceable master netting arrangements or similar agreements and will be effective for annual and interim periods beginning on or after January 1, 2013. An entity will provide the disclosures retrospectively for all periods presented.
In their Joint Meeting held in December 2011, the FASB and IASB tentatively decided their impairment model for financial assets. The model calls for a "three-bucket approach" to impairment that would reflect the general pattern of deterioration in the credit quality of financial assets. The Boards addressed the objective and measurement of the allowance in Bucket 1, the transfer principle for moving financial assets out of Bucket 1, two pervasive issues affecting the three-bucket impairment model, and applying the model to loans and debt securities.
On December 19, 2011, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued for public comment an updated "Internal Control - Integrated Framework". The original Framework, which was issued in 1992, has proved to be one of the most widely accepted frameworks for designing and evaluating systems of internal control. The COSO Board decided to update the Framework to reflect changes in the business and regulatory environments and increased stakeholder involvement in organizations that occurred during the 20 years since the original Framework was issued. COSO is expected to release the final Framework in the fall of 2012.
On December 23, 2011, the FASB issued ASU No.2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05", which defers the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income. The ASU does not change the other requirements of FASB ASU No. 2011-05, "Presentation of Comprehensive Income", including eliminating the alternative to present comprehensive income in the statement of equity. The deferral is intended to be temporary until the Board reconsiders the operational concerns and needs of financial statement users. The Board has not yet established a timetable for its reconsideration.
On December 20, 2011, the PCAOB issued PCAOB Release that re-proposed for comment an auditing standard, "Communications with Audit Committees". Similar to the original proposal issued in March 2010, the revised proposal would establish requirements intended to enhance the relevance and quality of the communications between the auditor and the audit committee. The re-proposed standard and related amendments would be effective for audits of fiscal years beginning on or after December 15, 2012, subject to SEC approval.
On January 6, 2012, the SEC's Division of Corporation Finance issued disclosure guidance in response to uncertainty about registrants' direct and indirect exposures to European sovereign debt. The guidance recommends that registrants separately disclose both direct and indirect exposures, by country, on a gross and net basis, with further disaggregation by type of exposure (sovereign or non-sovereign) and financial statement category.
The Financial Accounting Foundation's (FAF) issued a first formal post-implementation review report, which addressed FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) (codified in FASB ASC Topic 740, "Income Taxes"). The report states that FIN 48 generally achieved its objective of increasing the relevance and comparability in reporting information about income tax uncertainties.
On November 14, 2011, the FASB and the IASB issued a revised FASB/IASB joint Exposure Draft about revenue recognition (2011 ED). The Boards received nearly 1,000 comment letters on the original joint ED, and after extensive deliberations revised various aspects of that proposal. The 2011 ED would eliminate or modify aspects of the original ED that would have created changes in practice from U.S. GAAP. Nonetheless, significant differences still exist. If the 2011 ED is finalized in its current form, transaction- or industry-specific revenue recognition guidance generally would be eliminated from U.S. GAAP.
In connection with the 2011 ED, on January 4, 2012, the FASB issued an ED of the proposed consequential amendments to the FASB Accounting Standards Codification. The Boards hope to issue a final standard in the second half of 2012.
On January 25, 2012, the FASB issued FASB Proposed ASU "Testing Indefinite-lived Intangible Assets for Impairment" that would permit an entity to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired and, therefore, whether it is necessary to perform the quantitative impairment test. The proposed change, which would apply to public and nonpublic entities, would be effective for annual and interim impairment tests performed for fiscal years beginning after June 15, 2012. Early adoption would be permitted.
The comment period on the Financial Accounting Foundation's (FAF) proposal to establish a Private Company Standards Improvement Council (PCSIC) ended. The most significant difference between the recommendations of the Blue-Ribbon Panel on Standard Setting for Private Companies and the FAF proposal is that although the PCSIC would have standard-setting responsibility under the proposal, it would not be autonomous. The PCSIC would need to work within the FASB's due process structure to determine whether to recommend exceptions or modifications to U.S. GAAP for private companies. Under the FAF proposal, recommendations of the PCSIC would become part of U.S. GAAP only if the FASB ratifies the recommendations.
While some respondents supported the FAF's proposal, others preferred having an autonomous standard-setting body. Others did not support the FAF proposal because they do not believe that there should be exceptions to U.S. GAAP for private companies.
The FAF will hold public roundtables to listen to the views and concerns of its constituents including users, preparers, and auditors of private company financial statements.