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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FASB Decides on Accounting for Equity Investments and Disclosures for Core Deposits

At its July 30 meeting, the FASB decided that changes in the fair value of investments in equity securities would not be reported through other comprehensive income and that public business entities would be required to disclose their core deposit liability balance and the historical weighted-average life of the core deposit liability balance disaggregated by significant types of core deposit accounts.

Defining Issues 14-35 (PDF) >

New Revenue Recognition Standard: Potential Tax Implications

Changes in the timing or amount of revenue recognized by some entities under the new revenue recognition standard issued in May 2014 by the FASB and the IASB may affect the calculation of and financial reporting for income taxes and other types of taxes.

Changes in financial reporting for revenue may affect taxes by:

  • Accelerating taxable income because tax accounting methods changed;
  • Creating or changing existing temporary differences in accounting for income taxes for financial reporting purposes;
  • Requiring revisions to transfer pricing strategies and documentation;
  • Requiring updated policies, systems, processes, and controls related to income tax accounting and financial accounting; and
  • Changing sales or excise taxes because revenue may be recharacterized between product and service revenue.

Defining Issues 14-36 (PDF) >

FASB Redeliberates Impairment of Debt Securities and Measurement of Credit Losses

At its August 13 meeting, the FASB continued redeliberations on its proposed standard on financial instrument impairment and discussed (1) whether the lifetime expected credit loss model would apply to debt securities and (2) the measurement of expected credit losses. The FASB tentatively decided that debt securities classified as available-for-sale will continue to apply an other-than-temporary impairment (OTTI) model and, therefore, would be excluded from the scope of the expected credit loss model. Targeted amendments to the current OTTI model will be made to address concerns about the timely recognition of credit losses.

Defining Issues 14-37 (PDF) >

FASB Considers Impairment for Equity Investments, Disclosures for Embedded Derivatives

At its August 20 meeting, the FASB continued redeliberations on its proposed financial instruments classification and measurement standard and addressed the impairment of investments in equity securities not measured at fair value with changes in fair value recognized in net income. The Board affirmed that entities would use a one-step impairment model to assess equity investments measured at cost minus impairment, adjusted for observable price changes.

The Board also addressed enhancements to disclosures about hybrid financial instruments that contain bifurcated embedded derivatives and decided to expose this issue for public comment either as a separate project or as part of an existing project.

Defining Issues 14-38 (PDF) >

FASB Proposes Guidance for Customer’s Accounting for Cloud Computing Services

At its August 20 meeting, the FASB issued a proposed ASU Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement to provide guidance about whether a customer has acquired a software license, services, or both.

Defining Issues 14-39 (PDF) >

FASB Issues Going Concern Standard

In August 2014, the FASB issued a new going concern standard, which describes how an entity should assess its ability to meet obligations and sets disclosure requirements for how this information should be disclosed in the financial statements. The standard provides accounting guidance that will be used with existing auditing standards. The new standard applies to all entities for the first annual period ending after December 15, 2016, and interim periods thereafter.

Defining Issues 14-40 (PDF) >

SEC Adopts Regulation AB II

In August, 2014, the SEC unanimously voted to adopt the much anticipated asset-backed securities (ABS) final rules and the amendment for Regulation AB. The final rules respond to the financial crisis and addressed regulatory concerns about the structured finance product marketplace, and are intended to restore investor confidence by enhancing the disclosure, reporting, and offering process for ABS.

Defining Issues 14-41 (PDF) >

SEC Staff Provides Relief for Retrospective Revenue Adopters

On September 11, the SEC staff stated that it will not object if registrants that apply the new revenue recognition standard retrospectively apply the standard to only the periods covered by the financial statements. Under Regulation S-K, registrants are required to disclose at least five years of selected financial data to highlight significant trends in financial condition and the results of operations. While SEC staff guidance indicates that it generally expects all periods presented in selected financial data to be presented on a consistent basis with the financial statements, the SEC staff would not object if registrants elect to apply the new standard to only the periods covered by the financial statements, as long as they clearly disclose that the financial data for the earlier years was not retrospectively adjusted.

Defining Issues 14-43 (PDF) >

EITF Reaches 2 Final Consensuses, 2 Consensuses-for-Exposure

At its September 18 meeting, the FASB’s Emerging Issues Task Force discussed four issues and reached final Consensuses on Issue 12-F, Recognition of New Accounting Basis (Pushdown) in Certain Circumstances, and 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 Equity. The Task Force also reached Consensuses-for-Exposure on Issue 14-A, Effects of Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions, and Issue 14-B, Fair Value Hierarchy Levels of Certain Investments Measured at Net Asset Value.

Defining Issues 14-44 (PDF) >

FASB Issues Two More Simplification Exposure Drafts

On October 14, the FASB issued two proposed ASUs as part of its initiative to reduce unnecessary complexity in GAAP. Debt issuance cost would be presented in the balance sheet as a direct deduction from the debt liability, consistent with the accounting treatment of debt discounts. Also, a practical expedient would be provided to employers with fiscal year-ends that do not fall on a month-end to permit them to measure defined benefit obligation and plan assets using the month-end closest to the entity’s fiscal year-end.

Defining Issues 14-45 (PDF) >

FASB and IASB Enter Home Stretch in Redeliberations on Lease Accounting - but on Different Tracks

The FASB and IASB’s redeliberations during July and October 2014 about the proposals in their 2013 Exposure Drafts on lease accounting. The Boards jointly discussed sale-leaseback transactions, the definition of a lease, and lessor disclosures. The FASB also met separately in August to discuss sale-leaseback transactions and aspects of the proposals that apply to U.S. GAAP only, including leveraged leases, nonpublic lessee discount rates, and related party leasing transactions. As has been the case in each joint meeting since March 2014, while the Boards reached converged decisions in the reconsideration of some of their proposals, there were key areas on which they do not agree.

Defining Issues 14-46 (PDF) >

FASB to Propose Changes to Accounting for Income Taxes for Intercompany Transfers and the Presentation of Deferred Taxes

At its October 22 meeting, the FASB decided to propose changes to accounting for income taxes to require recognition of the income tax consequences of intercompany asset transfers and to classify all deferred tax assets and liabilities as noncurrent in a classified statement of financial position. The Board expects to issue a proposed ASU in early 2015.

Defining Issues 14-47 (PDF) >

Actuaries Issue New Mortality Data That May Affect Retirement Benefit Obligations

In October 2014, the Society of Actuaries (SOA) released updated mortality tables and the mortality improvement scale. The updated mortality data reflect increasing life expectancies in the United States. Companies should consider the SOA’s new mortality data for U.S.-based defined benefit pension and other postretirement benefit plans when making their mortality assumptions for year-end 2014 financial reporting.

Defining Issues 14-48 (PDF) >

Defining Issues 14-42 (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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