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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At their meeting held on January 30, 2013, the FASB and IASB made tentative decisions about the scope of their revenue recognition project, application of the proposed standard to sales of nonfinancial assets that are not an output of a vendor's ordinary activities, application to certain asset management contracts, and accounting for certain repurchase agreements. The Boards also discussed feedback on the proposed disclosure and transition provisions, but made no decisions. This edition also summarizes the interaction of the revenue proposal with the recent proposed ASU on accounting for credit impairment losses on financial assets.
At their meeting held on February 20, 2013, the FASB and IASB reached tentative decisions about their forthcoming revenue recognition standard, specifically, about the effective date, transition approach, and disclosure requirements. This edition of Defining Issues summarizes these tentative decisions and the Boards' tentative decisions to date in the project.
The FASB and IASB project to achieve a converged revenue recognition standard could produce significant changes in how some entities recognize revenue. Those changes could, in turn, affect the calculation of and financial reporting for income taxes. This edition of Defining Issues discusses some of the potential tax implications an entity should consider when evaluating the forthcoming revenue recognition standard.
At its Board Meeting held on March 20, 2013, the FASB reached tentative decisions about its forthcoming revenue recognition standard, specifically about the effective date, transition approach, and disclosure requirements for nonpublic entities. The FASB also revised its tentative decision about the effective date, and will require public entities to apply the new standard for fiscal years, and interim periods within those years, beginning after December 15, 2016, instead of beginning on or after January 1, 2017. At a separate meeting, the IASB tentatively decided to reverse its tentative decision and to permit early adoption for entities that apply IFRS.
On February 5, 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires entities to disclose:
- For items reclassified out of accumulated other comprehensive income (AOCI) and into net income in their entirety, the effect of the reclassification on each affected net income line item; and
- For AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required U.S. GAAP disclosures.
This information may be provided either in the notes or parenthetically on the face of the statement that reports net income as long as all the information is disclosed in a single location. However, an entity is prohibited from providing this information parenthetically on the face of the statement that reports net income if it has items that are not reclassified in their entirety into net income.
For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2012 and interim periods within those years. Therefore, calendar-year public entities will be required to provide the disclosures beginning with their financial statements for the first quarter of 2013. For nonpublic entities, the requirements are effective for annual reporting periods beginning after December 15, 2013 and interim and annual periods thereafter.
On February 7, 2013, the FASB issued ASU No. 2013-03, Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities, which amends the scope of ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, to clarify that the requirement to disclose "the level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1, 2, or 3)" does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed. The ASU was effective on issuance and, therefore, applies to December 31, 2012 financial statements.
On February 14, 2013, the FASB issued a proposed ASU that would change how entities determine the classification and measurement of financial instruments. Under the proposal, an entity would classify and measure financial assets based on both the contractual cash flow characteristics of the assets and the entity's business model for managing the assets, rather than on their legal form (i.e., loans or securities). Financial assets would be included in one of three classification and measurement categories (1) amortized cost, (2) fair value through other comprehensive income, or (3) fair value through net income, while financial liabilities generally would be measured at amortized cost. This edition of Defining Issues describes the FASB's proposed model and compares the significant provisions of the FASB and IASB proposed classification and measurement models.
On March 4, 2013, the NASDAQ Stock Market LLC (Nasdaq) proposed a rule change that would require a company that was listed on the Nasdaq on or before June 30, 2013 to establish an internal audit function by no later than December 31, 2013. A company that listed after June 30, 2013 would be required to establish an internal audit function before it listed.
The March 2013 Quarterly Outlook addresses financial reporting matters for the current quarter including the effect of the American Taxpayer Relief Act of 2012, recently issued accounting standards on the presentation of items reclassified from accumulated other comprehensive income, the scope of the disclosure requirements for offsetting assets with liabilities, recent SEC staff focus areas, and other reminders about issues that affect financial reporting. Quarterly Outlook also summarizes proposed guidance on accounting for repurchase-to-maturity arrangements, standard-setting activities such as the revenue convergence project expected to be finalized this year, recent developments in private company financial reporting, and Emerging Issues Task Force, SEC, PCAOB, and AICPA activities. A Recommended Reading section also offers articles and papers about broader topics and recommendations for Audit Committee members.
On April 2, 2013, the FASB issued a proposed ASU for reporting discontinued operations that would substantially converge the U.S. GAAP definition of discontinued operations with IFRS. The proposed ASU would define discontinued operations at a higher level than under current U.S. GAAP and would eliminate the continuing involvement test. Disclosures also would be required for asset groups disposed of and held for sale that do not qualify as discontinued operations.
On April 15, 2013, the FASB and Private Company Council (PCC) issued an Invitation to Comment: Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies. The proposed decision-making framework is intended to serve as a guide for the FASB and PCC to decide whether there should be exceptions or modifications to U.S. GAAP for private companies.
In April 2013, the FASB issued FASB ASU No. 2013-07, Liquidation Basis of Accounting, to provide guidance to entities about how and when to apply the liquidation basis of accounting. The ASU requires an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent, as defined in the ASU. Applying the liquidation basis of accounting requires an entity to measure its assets at the estimated amount of cash it expects to collect and its liabilities at the amount otherwise prescribed under U.S. GAAP.