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.
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On August 16, 2012, the FASB issued proposed ASU that would require entities to present (1) separately for each component of other comprehensive income, current period reclassifications and the remaining portion of current period other comprehensive income; and (2) tabular information about items that are reclassified out of each component of accumulated other comprehensive income.
The PCAOB adopted Auditing Standard No. 16, Communications with Audit Committees, and related amendments to PCAOB standards. The new standard establishes requirements intended to enhance the relevance, timeliness, and quality of the communications between the auditor and the audit committee for the annual audit and interim period reviews.
The new standard and related amendments are effective for audits of fiscal years beginning on or after December 15, 2012, subject to SEC approval.
At its Board meeting on August 22, 2012, the FASB made key decisions about its alternative impairment model for financial assets. While the FASB decided to retain some key concepts of the three-bucket impairment model that it was developing jointly with the IASB, it decided to base its alternative impairment model on a single measurement objective of estimating expected credit losses. The FASB’s decisions are intended to address concerns raised by U.S. constituents about whether the three-bucket impairment model is operational, auditable, and understandable.
The SEC issued a final rule, to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act, which would require resource extraction issuers to disclose payments made to the U.S. federal government or foreign governments for the commercial development of oil, natural gas, or minerals.
The SEC issued a final rule, to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act, which may require issuers to make new disclosures if they include certain minerals in their products.
On September 7, the IASB issued a review draft (RD) of its hedge accounting model to propose a principles-based standard that aligns hedge accounting more closely with risk management. The IASB intends for the RD to address significant criticisms that current hedge accounting guidance is complex, inconsistent, and has other significant weaknesses. The RD likely would expand the ability to use hedge accounting. An entity would be required to use significant judgment to implement the RD’s proposals and likely would need to make changes to its information systems and business processes.
At its meeting on September 11, 2012, the FASB’s Emerging Issues Task Force reached final Consensuses about three issues: (1) classification of sales of donated securities in the statement of cash flows by not-for-profit entities, (2) subsequent accounting for an indemnification asset recognized in a government-assisted acquisition of a financial institution, and (3) consideration of information that arises after the balance sheet date in the impairment analysis of unamortized film costs. The EITF also reached Consensuses-for-Exposure about (1) a parent company’s accounting for the cumulative translation adjustment upon a sale within a foreign entity or a sale of an investment in a foreign entity and (2) accounting for the difference between the fair value of the assets and the liabilities of a consolidated collateralized financing entity.
The September 2012 Quarterly Outlook addresses financial reporting matters for the current quarter; for example, the optional qualitative assessment for the indefinite-lived intangible asset impairment test, business considerations following the Supreme Court’s ruling on health care reform, the SEC’s Jumpstart Our Business Startups (JOBS) Act, and other reminders including Euro zone uncertainty and its effect on financial reporting. The Upcoming Financial Reporting Matters section discusses derecognition of in-substance real estate and disclosures about offsetting assets and liabilities. The Looking Ahead—Ongoing Standard-Setting and Other Activities section previews standard-setting activities that are underway, including U.S. GAAP and IFRS convergence projects, FASB activities including the proposed FASB ASU about accumulated other comprehensive income, recent developments in private company financial reporting, and Emerging Issues Task Force activities. Quarterly Outlook also reports on SEC activities related to IFRS and Dodd-Frank Act developments, and PCAOB concept releases and proposed auditing standard amendments about the auditor reporting model, auditor independence, audit transparency, communications with audit committees, and other PCAOB proposals. The Recommended Reading section offers articles and papers about wider topics.
At their meeting on September 20, 2012, the FASB and IASB clarified their previous tentative decisions about accounting for sale-leaseback transactions, and reached additional tentative decisions about remaining issues related to the proposed dual model approach for lessee and lessor accounting, including decisions related to impairment of the lessee’s right-of-use (ROU) asset under the single lease expense (SLE) model, the pattern of total lease expense recognition under the SLE model, timing for the lease classification test, and whether the lease classification test for subleases should be based on the head lessee’s ROU asset or the asset being leased. The Boards also discussed with their staff the timeline for issuing revised lease accounting exposure drafts (EDs). The staff indicated that the revised EDs likely would not be ready for issuance until the first quarter of 2013, and that redeliberations of the revised EDs likely would not begin until the second half of 2013.
The FASB also met separately on September 25 to discuss issues specific to nonpublic entities (NPEs) and reached additional tentative decisions about the discount rate to be used by NPE lessees in applying the proposed leases model, disclosures by NPE lessees, and accounting for leases between related parties.
The staff of the SEC’s Division of Corporation Finance posted to the SEC Web site additional 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 new Q&As address test the waters communications with certain investors and the confidential submission process in connection with an exchange offering or merger, general financial statement disclosure requirements for EGCs in registration statements and periodic reports, and determining EGC status.
At their meeting on October 16, 2012, the FASB and IASB made tentative decisions in their project on revenue recognition related to contract manufacturers, measure of progress, and contract modifications. This edition of Defining Issues summarizes these tentative decisions and other discussions, and the remaining topics scheduled for redeliberation. A podcast summary of this Defining Issues also is available.
At its Board meeting on October 31, 2012, the FASB decided to limit the scope of FASB ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities, to derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending agreements that are subject to master netting arrangements or similar agreements. The FASB’s decision responded to implementation issues raised by stakeholders about the scope of that ASU. Consistent with the effective date of ASU 2011-11, an entity would apply the proposed amendments retrospectively for annual periods beginning on or after January 1, 2013 (and interim periods within those annual periods).
On November 1, 2012, the AICPA issued an Exposure Draft that proposes another comprehensive basis of accounting (OCBOA) for small- and medium-sized entities (SMEs) that do not need to issue U.S. GAAP financial statements. Unlike the FASB and Private Company Council’s private company initiative to consider whether modifications or exceptions to U.S. GAAP should be available for private companies that issue U.S. GAAP financial statements, the financial reporting framework for SMEs would be a self-contained, special-purpose framework that would not affect U.S. GAAP.
The AICPA’s proposed OCBOA framework for SMEs draws on traditional methods of accounting and on accrual income tax accounting. The ED contains 32 chapters covering the overall guidance within the framework, financial statement presentation and disclosure, requirements or policy elections within the framework for specific areas and matters frequently encountered by SMEs, and transition guidance.