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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In their joint meeting held on October 30,2013, the FASB and IASB reached tentative decisions about collectibility, constraint on variable consideration, and licenses. In a separate meeting, the FASB discussed its due process procedures and directed its staff to draft the final standard, which is expected to be issued in the first quarter of 2014.
On October 23, 2013, the SEC proposed rules for selling securities through crowdfunding. The proposal, which does not limit the types of securities that may be sold or prescribe a method for valuing the securities, includes a framework that would regulate the funding portals and the brokers that issuers of securities would be required to use to facilitate their crowdfunding offerings.
Selling securities through crowdfunding would allow startups and small businesses to legally raise capital from non-accredited investors and would alleviate some of the regulatory burden that a company faces when it raises capital by selling its securities.
The AICPA issued an accounting and valuation guide (Practice Aid) on goodwill impairment testing for preparers, auditors, and valuation professionals. The Practice Aid includes detailed examples of goodwill impairment tests and addresses common practice issues.
On November 7, 2013, the FASB proposed FASB ASU, Elimination of Certain Financial Reporting Requirements, which would eliminate the distinction between development stage entities and other reporting entities under U.S. GAAP, and would eliminate differential accounting requirements for development stage entities.
The FASB added to its agenda a project to consider changing the accounting for goodwill for public companies, and endorsed two recommendations from the Private Company Council (PCC) about the accounting for goodwill and a simplified hedge accounting approach. The PCC’s proposal about goodwill would allow private companies to amortize goodwill and test for impairment only when a trigger event occurs. A second PCC proposal would allow a private company to use a simplified hedge accounting approach for certain receive-variable, pay-fixed interest rate swaps.
The annual Financial Executives International financial reporting issues conference held on November 18-19, 2013 primarily focused on FASB and IASB joint projects, developments at the SEC and PCAOB, and other accounting and financial reporting topics. Panelists at the conference represented those organizations, industry, and accounting firms, and responded to questions from an audience that included financial statement preparers, users, and auditors.
The PCAOB proposed amendments that are designed to improve the transparency of audits. The proposed amendments, which the PCAOB re-issued for public comment, would require the auditor to communicate in the auditor’s report (1) the name of the engagement partner and (2) certain information about other independent public accounting firms and other persons not employed by the auditor that participated in the audit. The PCAOB has not yet proposed an effective date for the proposed amendments.
Convergence with IFRS does not seem probable on impairment and classification and measurement based on the FASB’s latest tentative decisions. The FASB tentatively decided to continue to pursue the lifetime expected credit loss model for impairment. For classification and measurement, the FASB decided to no longer pursue the solely principal and interest model for assessing the contractual cash flows of financial assets, and to retain the current bifurcation requirements for hybrid financial assets.
In January 2014, the AICPA issued an accounting and valuation guide (Practice Aid) about assets acquired to be used in research and development (R&D) activities. The Practice Aid is intended for preparers, auditors, and valuation professionals and includes detailed discussion about initial recognition of in-process R&D at the time of a business combination or asset acquisition, subsequent accounting, and valuation methodologies, and includes a comprehensive example.
In its meeting on January 29, 2014, the FASB decided not to continue to pursue the business model assessment on classification and measurement. The Board also decided not to pursue an approach that focuses on the business activities that an entity uses in acquiring and managing the financial assets.
The IASB issued general hedge accounting standard, which aligns hedge accounting under IFRS more closely with risk management, and will result in more hedging strategies that are used for risk management qualifying for hedge accounting. The new standard does not fundamentally change the three types of hedging relationships or the requirement to measure and recognize ineffectiveness. However, assessing the effectiveness of a hedging relationship under IFRS will require more judgment than under the previous standard, and applying the new guidance in some areas remains complex.
On December 23, 2013, the FASB and Private Company Council issued new guidance for private companies including the Private Company Decision-Making Framework (the Framework) and a new definition of a public business entity. Standard setters will use that definition to identify entities that should be excluded from the Framework and to determine the scope of new accounting standards that provide exceptions or alternatives to U.S. GAAP for private companies.