Auditing & Accounting Update

Auditing & Accounting Update

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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SEC Discusses Conflict Minerals Rule and Court Ruling

The SEC Division of Corporation Finance released a statement that provides guidance about the SEC staff's expectations for companies that must comply with the Conflict Minerals Rule. Despite the U.S. Court of Appeals ruling in April 2014 that a portion of the Rule violated the First Amendment, companies will still need to comply with most of the disclosure requirements in the Rule. However, an independent private sector audit is required only if a company voluntarily elects to describe its products as DRC conflict free in its Conflict Minerals Report.

Defining Issues 14-22 (PDF) >

FASB Continues Discussions on Classification and Measurement of Financial Instruments

In the FASB meeting on May 14, 2014, the Board continued redeliberations on its proposed standard about financial instrument classification and measurement, and discussed equity investments, the valuation allowance on deferred tax assets related to debt securities classified as available-for-sale, and other issues.

Defining Issues 14-23 (PDF) >

Revenue from Contracts with Customers

On May 28, 2014, the FASB and IASB issued their joint revenue recognition standard. The core principle of the standard is that an "entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." The standard provides a five-step model and application guidance to determine when and how revenue is recognized:

Step 1: Identify the contract with a customer;

Step 2: Identify performance obligations in the contract;

Step 3: Determine the transaction price;

Step 4: Allocate the transaction price to performance obligations; and

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The standard will replace most existing revenue recognition guidance in U.S. GAAP and IFRS.

Defining Issues 14-25 (PDF) >

FASB Makes Decisions on Presentation and Disclosures for Financial Instruments

In the FASB meeting on June 4, 2014, the FASB continued redeliberations about its proposed standard on financial instrument classification and measurement. Specifically, the Board discussed presentation and disclosure requirements for financial instruments.

Defining Issues 14-26 (PDF) >

EITF Reaches Two Final Consensuses

In the meeting on June 12, 2014, the FASB's Emerging Issues Task Force discussed three issues and reached a final Consensus on Issue 13-F, Accounting for the Effect of a Federal Housing Administration Guarantee, and Issue 12-G, Measuring the Financial Assets and Financial Liabilities of a Consolidated Collateralized Financing Entity.

The EITF also discussed Issue 13-G, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity.

Defining Issues 14-27 (PDF) >

Financial Instruments: Changes to Financial Assets Impairment, Classification and Measurement

In the FASB meeting on June 11, 2014, the FASB reached tentative decisions about the cost basis of loans transferred to the held-for-sale classification, certain debt securities identified for sale, and certain beneficial interests in securitized financial assets. The FASB also addressed disclosures at that meeting, and decided on the fair value measurement disclosure requirements for financial assets measured at amortized cost and equity investments that do not have readily determinable fair values.

Defining Issues 14-28 (PDF) >

FASB and IASB Continue Discussions on Lease Accounting

The FASB and IASB continued redeliberations during the second quarter of 2014 about their 2013 Exposure Drafts on lease accounting. The Boards discussed the definition of a lease, initial direct costs, the discount rate, variable lease payments, arrangements with lease and non-lease components, contract combinations, lease modifications, subleases, and lessee balance sheet and cash flow presentation. While they agreed on many aspects of lease accounting, the Boards disagreed about when lessees would reassess variable lease payments and how a sublessor would determine the classification of a sublease.

Defining Issues 14-29 (PDF) >

FASB Removes Cumulative Financial Reporting for Development Stage Entities

In June 2014, the FASB issued ASU No. 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, which eliminates the cumulative financial reporting requirement for both public and private development stage entities (DSEs). The ASU removes the definition of a DSE from the glossary of the FASB Accounting Standards Codification® thereby eliminating all references to DSEs and the resulting disclosures in financial statements about the cumulative amounts of income, cash flows, and shareholder's equity.

The ASU also expands the disclosure requirements in FASB ASC Topic 275, Risks and Uncertainties, about an entity's activities where planned operations have not commenced, and removes requirements that are specific to a DSE in evaluating whether an entity is a variable interest entity. There is an option for early adoption of ASU 2014-10 for financial statements not yet issued.

Defining Issues 14-30 (PDF) >

FASB ASU 2014-10 >

FASB Changes Accounting for Repos-to-maturity and Repurchase Financings

In June 2014, the FASB issued ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, which changes the accounting for repurchase-to-maturity transactions (repos-to-maturity) and enhances the required disclosures for repurchase agreements and other similar transactions (repos). Repos-to-maturity and the repurchase financings will be accounted for as secured borrowings. In addition, the standard requires new disclosures for repos.

Defining Issues 14-31 (PDF) >

FASB Issues Two Exposure Drafts for Simplification Initiative

On July 15, 2014, the FASB issued two Exposure Drafts as part of its initiative to reduce unnecessary complexity in GAAP. The proposed ASU about inventory measurement would change the measurement principle from lower of cost or market to the lower of cost and net realizable value. The proposed ASU about income statement presentation would eliminate the concept of extraordinary items from U.S. GAAP.

Defining Issues 14-32 (PDF) >

Revenue Transition Resource Group Holds First Meeting

The FASB and IASB's Joint Transition Resource Group for Revenue Recognition (TRG) met for the first time on July 18, 2014, and discussed four issues related to the new revenue recognition standard:

  • Gross versus net revenue for sale of goods and services in a virtual environment;
  • Gross versus net revenue for amounts billed to customers;
  • Application of the sales-based and usage-based royalties exception for contracts containing licenses of intellectual property and other goods or services; and
  • Impairment testing of capitalized contract costs.

TRG members offered a range of perspectives on the issues discussed but were not asked to vote or conclude on specific views or fact patterns.

At a future meeting, the FASB and IASB will consider whether the issues discussed require standard setting or further discussion. The Boards stated that standard setting should be expected in only limited circumstances.

Defining Issues 14-33 (PDF) >

FASB Agrees to Issue New Consolidation Guidance

At its July 16 meeting, the FASB voted to issue a new consolidation standard that would change the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (VIE), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The Board decided to exclude from the U.S. GAAP consolidation requirements money market funds that are required to comply with Rule 2a-7 of the Investment Company Act of 1940 or that operate under requirements similar to those in Rule 2a-7.

This edition of Defining Issues summarizes KPMG's current understanding of the Board's decisions, which is subject to change depending on the specific amendments to theFASB Accounting Standards Codification® in the final standard.

Defining Issues 14-34 (PDF) >


For more information, please contact:

Michael Maekawa | 213-955-8331 |

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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