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Bridging the GAAP: August 2023

Centri’s Bridging the GAAP newsletter highlights this month’s news, developments, and emerging issues in the accounting and financial reporting world.

FASB Standard Setter Updates

Financial Accounting Standards Board

July 26, 2023 Meeting

The FASB discussed comment letter feedback and issues for deliberations on the proposed Accounting Standards Update (ASU), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, and voted to issue a final standard related to segment disclosures. While the new standard will not change the definition or aggregation of operating segments, it will add required disclosures of significant expenses for each reportable segment, as well as certain other disclosures to help investors understand how the chief operating decision maker evaluates segment expenses and operating results. The new standard will also allow disclosure of multiple measures of segment profitability, if those measures are used to allocate resources and assess performance. The Board decided the amendments will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Board also decided that early adoption is permitted.

For more information, see the FASB’s Tentative Board Decisions.

FASB Proposes Enhanced Disclosure of Income Statement Expenses

The FASB issued a proposal that would require public entities to include additional disclosure of specified categories underlying the income statement expense captions presented on the face of the income statement, including employee compensation, depreciation, amortization, and costs related to inventory and manufacturing activities.

The amendments would be applied prospectively. Comments are due by October 30, 2023.

FASB Issues ASU to Incorporate SEC Guidance on Safeguarding Crypto Assets

The FASB issued ASU 2023-04 which adds various SEC paragraphs to the Codification to reflect guidance included in Staff Accounting Bulletin 121 on safeguarding crypto assets. The standard does not provide any new guidance so there is no transition or effective date associated with it.

IASB Standard Setter Updates

International Accounting Standards Board

IASB Issues Amendments to IAS 21 to Address Instances of Lack of Currency Exchangeability

The IASB issued amendments to IAS 21, The Effects of Changes in Foreign Exchange Rates, to provide accounting requirements when a foreign currency cannot be exchanged into another currency. The requirements include applying a consistent method in determining whether a currency is exchangeable and if so, an appropriate exchange rate. It also provides related disclosures.

The amendments are effective for years beginning on or after January 1, 2025 with early application permitted.

Comparison of Climate-Related Disclosures

The IFRS Foundation published a comparison of the requirements in IFRS S2 Climate-related Disclosures and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. The requirements in IFRS S2 issued by the International Sustainability Standards Board (ISSB) integrate, and are consistent with, the four core recommendations and 11 recommended disclosures published by TCFD. Areas where IFRS S2 differs from the TCFD recommendations reflect differences between IFRS S2 and the TCFD’s guidance, not the TCFD’s core recommendations or recommended disclosures.

IFAC/IAASB Standard Setter Updates

International Federation of Accountants/International Auditing and Assurance Standards Board

The International Ethics Standards Board for Accountants (IESBA) released its 2022 Annual Report, Reinforcing Ethics and the Public Interest in a Rapidly Evolving World. The report looks back at 2022 through the viewpoint of the international ethics standard-setting board, complete with detailed reports on the IESBA’s projects alongside reflective remarks from its leaders. The report showcases a board in transition, completing long-running projects aimed at further strengthening the IESBA’s International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code), addressing the ethical implications of rapid technological advances, and moving fast to develop the necessary ethics and independence standards for sustainability reporting and assurance, always working to serve the public interest.

SEC Regulatory Updates

Security and Exchange Commission

Effective Date Set for Reporting Material Cybersecurity Incidents Under New SEC Rules

The SEC finalized rules on cybersecurity disclosures in late July. In early August, the rules were posted to the Federal Register, which fixes the effective date for reporting material cybersecurity incidents on Form 8-K or Form 6-K as December 18, 2023.

SEC Proposes Internet Adviser Registration Reforms

The SEC proposed amending the internet adviser exemption from the prohibition on SEC registration for smaller investment advisers by:

• Requiring an investment adviser relying on the exemption to have at all times an operational interactive website through which the adviser provides investment advisory services on an ongoing basis to more than one client; and
• Eliminating the current rule’s de minimis exception for non-internet clients, thus requiring that the adviser give advice to all of its clients exclusively through an operational interactive website.

Comments are due 60 days after publication in the Federal Register.

SEC Proposes Rules to Address Certain Conflicts of Interest with Broker-Dealers and Investment Advisers

The SEC proposed new rules and amendments to address conflicts of interest in the use of predictive data analytics by broker-dealers and investment advisers (collectively, firms) in investor interactions. The proposal would primarily require:

• Firms to eliminate or neutralize conflicts of interest associated with their use of covered technologies in investor interactions; and
• Firms that have any investor interaction using covered technology to have written policies and procedures reasonably designed to prevent violations of (in the case of investment advisers) or achieve compliance with (in the case of broker-dealers) the proposed rules.

Comments are due 60 days after publication in the Federal Register.

EC Regulatory Updates

European Commission

The EC adopted the first set of European Sustainability Reporting Standards (ESRS) for use by all companies subject to the European Union’s Corporate Sustainability Reporting Directive (CSRD). The final version of the first set of ESRS is generally consistent with the version proposed by the EC in June 2023. The CSRD is an EU legislative act finalized in January 2023 that includes a mandate to report sustainability information under a reporting framework provided by the ESRS.

Rikki Williams

Director of Quality | CPA

Rikki is the Director of Quality at Centri Business Consulting. He has more than 16 years of public and private accounting experience. He joined Centri in November 2020 and leads the firm’s quality and concurrence review...