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 May 23, 2012, the Board of Trustees of the Financial Accounting Foundation (FAF) voted unanimously to establish a new body-the Private Company Council (PCC)-to improve the accounting standard-setting process for private companies. This decision comes after months of deliberations and outreach to a broad range of stakeholders, including preparers, auditors, and users of private company financial statements. The approved plan for the PCC generally follows the proposal released last October by the FAF and addresses key elements of the PCC's responsibilities and operating procedures, including agenda setting, membership terms, frequency of meetings, and the oversight process.
The U.S. standard-setting landscape continues to move toward an unprecedented amount of change. The FASB and the IASB are working on high-priority convergence projects about revenue recognition, leases, financial instruments, and insurance contracts, which are expected to affect the U.S. financial reporting system, and the projected timeline to finalize these projects. Additionally, the FASB's agenda includes a qualitative assessment to determine whether an indefinite-lived intangible asset is impaired, reconsidering the presentation of items reclassified out of other comprehensive income, developing a disclosure framework, and addressing several issues related to accounting by nonpublic entities.
On June 27, 2012, the FASB issued proposed ASU that would significantly increase disclosures about an entity's exposure to liquidity and interest rate risks arising from financial instruments. The liquidity risk disclosures would apply to all entities, while only financial institutions would provide disclosures about interest rate risk. The proposed ASU responds to feedback from financial statement users about the FASB's May 2010 Exposure Draft on the accounting for financial instruments. Users asked for standardized disclosures about the risks that are inherent in a class of financial instruments. The FASB will decide on an effective date after it considers constituents' feedback.
At its July 9, 2012 meeting, the FASB decided to remove the loss contingency disclosure project from its agenda. The FASB had added the project in 2007 in response to financial statement users' concerns about the quality of disclosures about loss contingencies under U.S. GAAP. Since then, the Board issued two Exposure Drafts to propose significantly expanding the disclosure requirements for loss contingencies.
On July 13, 2012, the SEC staff issued to summarize its observations and analyses about the key areas identified for study under its IFRS work plan, and the potential effect of incorporating IFRS into the financial reporting system for U.S. issuers. The final report does not provide conclusions or recommendations for actions by the SEC, and it remains unclear what the SEC’s next steps might be to consider the use of IFRS by domestic issuers or when those steps might take place.
At their July 17, 2012 meeting, the FASB and IASB substantially concluded redeliberations on their respective 2010 Exposure Drafts about accounting for leases, and directed their staff to begin jointly drafting revised EDs. The Boards also discussed remaining matters from their joint redeliberations, including lessee presentation, disclosure, and transition considerations related to leases for which the lessee would recognize a single (generally straight-line) lease expense in its income statement, how a lessor would measure the underlying asset in the event of early termination of a lease that is not accounted for as an operating lease, and whether interim financial reporting standards should be amended to require lease-specific disclosures by lessees or lessors in interim financial statements. The Boards expect to issue the revised EDs for comment near the end of 2012 with a 120-day comment period and hope to issue final standards in 2013.
At their July 16-19, 2012 meeting, the FASB and IASB tentatively decided not to require the onerous test that the Boards proposed in their November 2011 revised joint revenue recognition Exposure Draft but, rather, to retain existing IFRS and U.S. GAAP about onerous contracts. The Boards also tentatively decided to clarify in the forthcoming standard the guidance related to identifying separate performance obligations and determining when performance obligations are satisfied over time. The meeting was the first time the Boards held substantive redeliberations in response to comments and other feedback received about their 2011 joint ED. The Boards plan to continue redeliberations in September to address other aspects of the ED with a goal of completing the redeliberations by the end of 2012 and issuing a final standard in the first half of 2013.
On July 27, 2012, the FASB issued ASU No. 2012-02, "Testing Indefinite-Lived Intangible Assets for Impairment", which permits an entity to make a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. The objective of the ASU is to simplify how an entity tests indefinite-lived intangible assets for impairment and to make the impairment test similar to the recent changes for testing goodwill for impairment.
At the meeting held on August 1, 2012, the FASB decided to explore an alternative to the three-bucket impairment model for financial assets that it has been developing jointly with the IASB. The FASB’s decision is in response to concerns raised by its constituents about whether the three-bucket impairment model is operational, auditable, and understandable. Although the decision may not lead to convergence, the FASB expressed concern that moving forward with the three-bucket impairment model would not adequately address the issues raised. The FASB plans to meet over the next several weeks to explore the alternative impairment approach, which would be based on the concept of expected losses, which reflects all credit risk in the portfolio, but does not use two measurement objectives.