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.
At their February 28-29 meeting, the FASB and IASB were unable to agree on the proposed amortization method lessees would be required to apply to right-of-use (ROU) assets after initial recognition. While no final decisions were made at the meeting, the Boards' disagreement about lessee accounting also may ultimately affect their ability to reach converged proposals on lessor accounting. This edition of Defining Issues compares the alternative ROU amortization methods now under consideration with the method the Boards had previously tentatively agreed on.
On February 28, 2012, the PCAOB issued a proposed auditing standard to improve the auditor's evaluation of a company's identification, accounting, and disclosure of its relationships and transactions with related parties. The PCAOB also proposed amendments to its auditing standards designed to enhance the auditor's identification and evaluation of a company's accounting and disclosure of its significant unusual transactions and to improve the auditor's understanding of a company's financial relationships and transactions with its executive officers.
The FASB chairman decided to add a project to the FASB's agenda that will re-examine the definition of a nonpublic entity used in making distinctions for standard setting. The project will assist with existing standards that distinguish between public and nonpublic entities and in future standard setting when considering whether modifications to public company U.S. GAAP should be made for nonpublic entities.
On February 28, 2012, the PCAOB proposed amendments to its rules and forms so that they, along with the related auditing and professional practice standards, would apply to auditors of all brokers and dealers registered with the SEC, including non-issuer brokers and dealers. The proposed amendments are being made under the Dodd-Frank Wall Street Reform and Consumer Protection Act. One of the proposed amendments would require auditors to report to the PCAOB changes in their auditing relationships with any issuer that fails to report this information to the SEC.
KPMG IFRG commented on the joint FASB/IASB Revised Exposure Draft, Revenue from Contracts with Customers, which would develop a single model for revenue recognition across different types of transactions and industries.
On March 20, 2012, the FASB issued its response to the Financial Accounting Foundation's (FAF) Post-Implementation Review (PIR) Report about FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) (codified in FASB ASC Topic 740, Income Taxes). The FASB concluded that it was not necessary to review or reconsider FIN 48 as a result of the PIR.
In its response, the FASB noted that the PIR findings affirmed the overall effectiveness of FIN 48. In particular, stakeholder feedback indicated that FIN 48 resulted in more consistent recognition and measurement of uncertain tax positions and more relevant reported information about income tax uncertainties. Most preparers said that they did not incur significant incremental implementation and continuing compliance costs. The FASB also stated that it welcomes the PIR recommendations for improving the standard-setting process, including suggestions that the FASB involve investors earlier in the process, more completely describe the Board's cost-benefit analysis, and elaborate on how the Board applies its criteria for re-exposing decisions reached in re-deliberations.
The Jumpstart Our Business Startups Act intends to encourage public capital raising in the United States by companies with less than $1 billion in revenue. The Act will, among other things (1) create a new category of public equity issuers called emerging growth companies that will be exempt from some SEC reporting requirements for up to five years, (2) amend SEC Regulation A to increase the limit for registration exemption for offerings to $50 million from $5 million, (3) raise the 1934 Act registration threshold for companies with at least $10 million in total assets from 500 to 2,000 shareholders, and (4) facilitate crowdfunding under which nonreporting issuers may raise up to $1 million within a 12-month period with a defined maximum amount to be received from an individual investor depending on the individual investor's income and net worth.
The law firms Latham & Watkins, Davis Polk, and Cleary Gottlieb prepared additional information and analyses about the Act, including the Act's relaxation of SEC offering solicitation and communications rules.
The proposed FASB ASU, Principal versus Agent Analysis, would change the way in which a reporting enterprise evaluates whether it should consolidate variable interest entities (VIEs), non-VIE partnerships, and similar entities. The proposed ASU would clarify whether a decision maker is using its power to direct specified activities of another entity as a principal or an agent. It also would change the definition of participating rights for entities that are not VIEs and would end the deferral of the amended guidance about consolidation of VIEs for reporting enterprises with interests in certain investment companies and similar entities. Although redeliberations have not yet begun, the FASB plans to issue a final ASU in the second half of 2012.
KPMG published a white paper, A Disputed Proposal: An Overview of the Financial Industry's Response to the Volcker Rule. The Volcker Rule, which is Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, would prohibit U.S. banks from:
- Proprietary trading, with allowances for certain activities including market-making, underwriting, and the hedging and trading of government securities; and
- Investing in or sponsoring hedge funds and private equity funds.
A Disputed Proposal provides a synopsis of some of the key issues and themes that emerged following a detailed examination of the formal responses to the proposal from a wide range of investment banks, industry associations, and other interested parties.
The staff of the SEC's Division of Corporation Finance posted to the SEC Web site Q&As about how the Jumpstart Our Business Startups (JOBS) Act affects SEC filing and reporting. The guidance addresses general application questions under Title I of the JOBS Act, which defines and allows scaled disclosure for emerging growth companies (EGCs).
The JOBS Act allows an EGC to scale down its financial statement presentation and disclosures required under Regulation S-K in a 1933 Act registration statement for an initial public offering of common equity securities. The Q&As address how to determine whether a domestic or foreign private issuer qualifies or ceases to qualify as an EGC, financial statement requirements, compliance with new and revised accounting standards, and other registration and ongoing reporting questions.
On April 5, 2012, the FASB and IASB issued a report, IASB-FASB Update Report to the FSB Plenary on Accounting Convergence, that describes their progress on joint convergence projects, and describes steps and timelines for completing the remaining major projects from the 2008 updated Memorandum of Understanding (MoU). The Boards hope to complete in 2013 major MoU projects about leases, revenue recognition, financial instruments, and insurance contracts. The Group of 20 (G-20) finance ministers and central bank governors evaluated the progress made by the FASB and IASB to issue a single set of high quality, international accounting standards and reiterated the importance of the Boards meeting their revised target of mid-2013 for issuing final standards about key issues.