The FASB is evaluating whether the effective date of the new standard should be delayed due to potential implementation complications and concerns expressed by registrants. For public companies, the new revenue recognition standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018, with retrospective application. Russell Golden, FASB Chairman, discussed the feedback received from the transaction resource group and it has become apparent that due to the higher level of subjectivity involved by management in the revenue recognition process, such as for contracts with variable consideration, there are three concerns in particular that may require additional guidance: 1) licenses of intellectual property, 2) determining performance obligations and 3) gross vs. net revenue presentation.
There were a number of topics discussed regarding financial reporting, as the panel reviewed the current status of the initiatives taken to simplify, reduce or eliminate the disclosure requirements under Regulations S-K, S-X and Form 8-K, with the intention to provide more meaningful and efficient information to users. It has been recommended for the present time that registrants focus on reducing repetitive disclosures by cross referencing such information, and focusing on financial statement and MD&A disclosures that are relevant and material to the users. It was emphasized that a registrant’s significant changes to a prior disclosure will not alone be the reason for SEC questioning, and should not deter a registrant from making the appropriate update. The SEC staff indicated that particular attention should be placed on improving MD&A disclosures relating to tax expense, significant events impacting rate reconciliations, valuation allowances, and unrecognized tax benefits.
James Schnurr, SEC Chief Accountant, also discussed the possibility allowing registrants to voluntarily supplement International Financial Reporting Standards ("IFRS") financial information and/or financial statements with the current filings under US GAAP. This is currently being reviewed by the SEC and is considered the “fourth alternative”. The alternatives already under consideration are 1) adopting IFRS outright, 2) providing filers the option to file IFRS financial statements and 3) the “condorsement approach” which would make IFRS part of US GAAP.
Internal Control Over Financial Reporting
There has been concern regarding management’s ability to identify and evaluate control deficiencies and properly report all material weaknesses. This topic was discussed by Brian Croteau, SEC Deputy Chief Accountant, and commented that the lack of a material misstatement does not mean that a material weakness is not present. He commented that it is rare for a filing to include a material weakness without a material misstatement present, which is an indication that internal controls and identified deficiencies may not be evaluated properly.
During 2013, the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") released an updated version of the Internal Control – Integrated Framework which was an update from the original 1992 Framework. The effective date for registrants to complete the transition to the new framework was December 15, 2014, and registrants are required to disclose in their 2014 annual filings the framework they are using. The SEC is not expected to issue comments if a registrant continues to use the 1992 Framework in its 2014 filings. However, it is strongly encouraged that registrants do complete their conversion as soon as possible to avoid future questioning.
Brian Croteau expressed concern that auditors and audit committees need to closely monitor non-audit services to ensure that this does not result in the impairment of independence. This potential “scope creep” can be apparent when reviewing the registered accounting firms audit and non-audit fee disclosures that are included in the Annual Report Form 10-K.
There were a variety of other issues discussed such as PCAOB inspection results, potential auditing standard updates and interpretations of certain sections of current US GAAP. For further details regarding the topics discussed at the most recent conference, please refer to the following publications.
Remarks on the 2014 AICPA Conference on Current SEC and PCAOB Developments
James Schnurr, SEC Chief Accountant, Office of the Chief Accountant
Julie A. Erhardt, SEC Deputy Chief Accountant, Office of the Chief Accountant
Brian T. Croteau, SEC Deputy Chief Accountant, Office of the Chief Accountant
Dan Murdock, SEC Deputy Chief Accountant, Office of the Chief Accountant
Kevin M. Stout, SEC Senior Associate Chief Accountant, Office of the Chief Accountant
Carlton E. Tartar, SEC Associate Chief Accountant, Office of the Chief Accountant
Hillary H. Salo, SEC Professional Accounting Fellow, Office of the Chief Accountant
T. Kirk Crews, SEC Professional Accounting Fellow, Office of the Chief Accountant
Steve Mack, SEC Professional Accounting Fellow, Office of the Chief Accountant
Christopher F. Rogers, SEC Professional Accounting Fellow, Office of the Chief Accountant
Russell G. Golden, Chairman, Financial Accounting Standards Board
Ian Mackintosh, Vice-Chairman of the IASB
James R. Doty, PCAOB Chairman
Jay D. Hanson, PCAOB Board Member
Helen A. Munter, PCAOB Director, Division of Registration and Inspections
Cindy Fornelli Executive Director Center for Audit Quality
Tommye E. Barie, CPA, Chair of the Board of Directors, AICPA