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.
FASB Issues Guidance to Exclude Certain Investments from Fair Value Hierarchy
On May 1, 2015, the FASB issued ASU No. 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (a Consensus of the FASB Emerging Issues Task Force), which eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at net asset value (NAV) per share (or its equivalent) using the practical expedient in FASB ASC Topic 820, Fair Value Measurement. Reporting entities must provide sufficient information to enable users to reconcile total investments in the fair value hierarchy and total investments measured at fair value in the statement of financial position. Additionally, the scope of current disclosure requirements for investments eligible to be measured at NAV will be limited to investments to which the practical expedient is applied.
ASU 2015-07 is effective for public business entities in fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. It is effective for all other entities in fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The ASU requires retrospective application. Early adoption is permitted for all entities.
Go to Defining Issues 15-20 (PDF) >
FASB Proposes Clarifications to License and Performance Obligation Guidance for Revenue
On May 12, 2015, the FASB issued proposed ASU, Identifying Performance Obligations and Licensing, which would amend FASB ASC Topic 606, Revenue from Contracts with Customers, to clarify the guidance about identifying performance obligations and accounting for licenses of intellectual property.
Identifying Performance Obligations. The proposed ASU would clarify the guidance about identifying and evaluating promised goods or services that are immaterial, and would clarify how to determine whether goods or services are distinct in the context of the contract. The proposed ASU also would provide a policy election that would allow entities to choose to account for shipping and handling services that take place after the customer obtains control over the goods as either a fulfillment cost or as a promised service.
Licenses of Intellectual Property. The proposed ASU would specify when a performance obligation to transfer a license of intellectual property would be satisfied (i.e., over time or at a point in time), and would clarify when an entity may apply the sales- and usage-based royalties exception for contracts that contain licenses of intellectual property and other goods or services. The proposed ASU also would clarify the guidance for contractual restrictions.
The amendments in the proposed ASU would affect ASC Topic 606, which is not yet effective. The effective date and transition requirements for the amendments in this proposed ASU would be the same as the effective date and transition requirements in ASC Topic 606.
Go to Defining Issues 15-21 (PDF) >
Forthcoming Credit Impairment Standard Will Produce Significant Change
Defining Issues 15-22 summarizes KPMG's understanding of the FASB's decisions to date on the recognition and measurement aspects of the new expected credit loss model, which is the centerpiece of the forthcoming standard about credit impairment. The standard, which is expected later this year, will significantly change the way entities recognize credit impairment on financial assets. The Defining Issues also provides KPMG's observations about differences from current U.S. GAAP that may require the most significant changes to processes and internal controls, and highlights some areas of the standard in which further clarifications may be necessary.
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SEC Proposes Rules for Pay-for-Performance
On April 29, 2015, the SEC proposed rules that would require a company to disclose in a clear manner the relationship between the executive compensation that it paid and the company's financial performance. The proposed disclosures would be required in proxy or information statements that require executive compensation disclosures. They would not be required for emerging growth companies, foreign private issuers, and registered investment companies. However, they would apply to smaller reporting companies.
Go to Defining Issues 15-23 (PDF) >
FASB Proposes Changes to Equity Method Accounting
On June 5, 2015, the FASB issued proposed ASU, Simplifying the Equity Method of Accounting, which is intended to simplify equity method accounting by eliminating the requirements for (1) an equity method investor to account for the difference between the cost of an investment and the investor's proportionate share of the net assets of an investee (the basis difference) and (2) an investor to retroactively apply the equity method when an increase in ownership interest in the investee triggers a change from cost to equity method. The proposed ASU is part of the FASB's simplification initiative.
The proposed change to eliminate accounting for the basis difference would be applied on a modified prospective basis. For existing equity method investments, accounting for the basis would cease at the effective date, and remaining basis differences would be treated as part of the basis of the investment. The proposal to eliminate the retroactive application of the equity method would be applied prospectively. The FASB will determine the effective date and whether to permit early adoption after considering stakeholder feedback.
Go to Defining Issues 15-24 (PDF) >
EITF Reaches Two Final Consensuses and Two Consensuses-for-Exposure
On June 18, 2015, the FASB's Emerging Issues Task Force met and discussed five issues and reached Final Consensuses on Issue 15-A, "Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts within Nodal Energy Markets," and Issue 15-C, "Employee Benefit Plan Simplifications." The Task Force also reached Consensuses-for-Exposure on Issue 15-D, "Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships," and Issue 15-E, "Contingent Put and Call Options in Debt Instruments." The Task Force discussed Issue 15-F, "Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments," and will continue discussion of that Issue at a meeting in September.
Go to Defining Issues 15-26 (PDF) >
FASB and IASB to Propose Amendments to Principal-Agent Guidance in Revenue Standard
At their June 22, 2015 joint meeting, the FASB and IASB decided to propose amendments to their respective revenue recognition standards to clarify how the principal versus agent guidance should be applied for determining whether revenue should be presented gross (as a principal) or net (as an agent).
FASB Proposes to Simplify Accounting for Share-based Payments
On June 8, 2015, the FASB issued a proposed ASU that is intended to simplify the accounting for share-based payment transactions. The proposal, which is part of the FASB's simplification initiative, did not include an effective date. The FASB will determine the effective date and whether to permit early adoption after considering stakeholder feedback. The comment period ends August 14.
Go to Defining Issues 15-28 (PDF) >
FASB Decides to Change Hedge Accounting
The FASB met on June and decided to change the U.S. GAAP hedge accounting model to broaden its use and decrease operational burdens. The Board decided to permit hedge accounting for certain components of nonfinancial hedged items. For financial instruments, the Board decided to permit hedge accounting for contractually specified variable rates and other hedge strategies. In addition, the FASB also decided on changes to the shortcut method.
Go to Defining Issues 15-29 (PDF) >
FASB Finalizes One-Year Deferral of the Revenue Standard
At its July 9 meeting, the FASB agreed to defer by one year the mandatory effective date of its revenue recognition standard, but will also provide entities the option to adopt it as of the original effective date.
Go to Defining Issues 15-30 (PDF) >
Revenue Transition Resource Group Discusses Nine Issues
The Joint Transition Resource Group for Revenue Recognition met for the fifth time on July 13 and discussed nine issues related to the joint FASB/IASB revenue recognition standard.
Go to Defining Issues 15-31 (PDF) >
SEC Rule Addresses Clawback of Executive Compensation
On July 1, 2015, the SEC proposed rule that directs national securities exchanges and associations to establish listing standards that would require listed companies to develop and implement a policy to recover incentive-based compensation that executive officers were awarded erroneously as a result of a material restatement of their financial statements.
All listed companies would be required to adopt a policy that complies with the rule and disclose the recovery policy as an exhibit to the annual report. In the event of a material accounting restatement, a company must determine and recover the amount of incentive-based compensation for certain executives in excess of what otherwise would have been awarded based on the restated financial statements.
Go to Defining Issues 15-32 (PDF) >
FASB Changes Measurement Principle for Inventory
On July 22, 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which will change the measurement principle for inventory from the lower of cost or market to lower of cost or net realizable value for entities that do not measure inventory using the last-in, first-out or retail inventory method. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory.
The ASU is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those years. It is effective for all other entities for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The ASU requires prospective adoption, and early adoption is permitted.
Go to Defining Issues 15-33 (PDF) >
SEC Seeks Feedback on Audit Committee Reporting
On July 1, 2015, the SEC issued a concept release inviting public comment on possible revisions to audit committee reporting requirements. The concept release does not propose specific disclosure rules but, rather, seeks feedback about 11 new disclosure topics categorized into 3 groups: Audit Committee's Oversight of the Auditor; Audit Committee's Process to Appoint or Retain the Auditor; and Qualifications of the Audit Firm and Certain Engagement Team Members. The outcome of the public comment process can influence whether the SEC adopts more detailed audit committee disclosure rules, issues general guidelines, encourages disclosure to evolve voluntarily, or takes no action.
Go to Defining Issues 15-34 (PDF) >
IFRS in the U.S. – Current Status and Outlook
Defining Issues 15-35 updates readers about the current status and outlook for IFRS in the United States, which has made little progress in recent years in its consideration of incorporating IFRS into the financial reporting regime for domestic companies. Meanwhile, acceptance of IFRS continues to grow around the world. This Defining Issues considers whether the goal is still to have a single set of globally accepted standards that are consistently applied and enforced. It also considers how the United States might contribute to achieving that objective.
Go to Defining Issues 15-35 (PDF) >
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