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Bridging the GAAP: January & February 2024

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

January 31, 2024 Meeting

The Board discussed feedback received and began redeliberations on the proposed Accounting Standards Update, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The Board affirmed its proposals that would require entities to:

• Disclose the disaggregation of relevant expense captions;
• Integrate certain existing disclosures with income statement mapping requirements into the same tabular format disclosure as the disaggregation of relevant expense captions;
• Qualitatively describe the nature of other expenses in a relevant expense caption that are not required to be quantitatively disaggregated; and
• Disclose an amount for total selling expenses, as defined by the entity.

The Board also affirmed its proposal that the disclosures should apply only to public business entities. The Board directed the staff to explore the feasibility of a potential scope exception for public business entities that are nonissuers.

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

February 7, 2024 Meeting

The Board discussed comment letter feedback on proposed amendments related to one issue in the 2019 proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Codification Improvements to Hedge Accounting, related to contractually specified components in cash flow hedges of nonfinancial forecasted transactions.

The Board decided to amend the guidance used to identify risk components eligible to be designated as the hedged risk in a cash flow hedge of a forecasted nonfinancial transaction.

The Board decided not to affirm the proposed addition of paragraph 815-20-25-15B in the 2019 proposed Update. Instead, the Board decided to amend paragraph 815-20-25-15(e) to indicate that entities are not precluded from hedging a variable risk component in a forward contract accounted for as a derivative if the associated forecasted transaction is probable of occurring.

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

IFRS Standard Setter Updates

IFRS Foundation

New Resource on Emissions Reporting Using GRI and ISSB Standards

To help address the question of interoperability for companies complying with multiple sustainability reporting regimes, the IFRS Foundation analyzed the greenhouse gas emissions reporting requirements in the standards of the Global Reporting Initiative (GRI) and International Sustainability Standards Board (ISSB). 

SEC Regulatory Updates

Securities and Exchange Commission (SEC)

New SEC SPAC Reporting Rules

The SEC adopted new and amended rules requiring new disclosures when a special purpose acquisition company (SPAC) conducts an initial public offering (IPO) and when it combines with a private operating company in what is known as a de-SPAC transaction, among other related changes. The adopted rules require a SPAC to disclose the role of its sponsor, conflicts of interest, dilution and whether its board determined that the de-SPAC transaction is advisable and in the best interests of the SPAC and its shareholders. The rules align financial statement requirements in de-SPAC transactions with those of traditional IPOs and require a redetermination of smaller reporting company status after a de-SPAC transaction. SPAC targets are deemed co-registrants, subjecting them to liability for untrue material statements or material omissions. The rules expand disclosures about future performance projections in SEC filings and amend the definition of a “blank check company” to make the safe harbor from liability for forward-looking statements unavailable to SPACs. The SEC also provided guidance, but did not amend existing rules, related to assessing when a SPAC may meet the definition of an investment company and on statutory underwriter status in connection with a de-SPAC transaction.

The final rules are effective 125 days after publication in the Federal Register except for the structured data requirements (i.e., tagging the information disclosed as required under new subpart 1600 of Regulation S-K in Inline XBRL) which are effective 490 days after publication.

SEC Adopts Rules to Include Certain Significant Market Participants as “Dealers” or “Government Securities Dealers”

The SEC adopted two rules that require market participants who engage in certain dealer roles, in particular those who take on significant liquidity-providing roles in the markets, to register with the SEC, become members of a self-regulatory organization (SRO), and comply with federal securities laws and regulatory obligations.

The final rules further define the phrase “as a part of a regular business” in Sections 3(a)(5) and 3(a)(44) of the Securities Exchange Act of 1934 to identify certain activities that would cause persons engaging in such activities to be “dealers” or “government securities dealers” and be subject to the registration requirements of Sections 15 and 15C of the Act, respectively, in connection with certain liquidity-providing roles.

Under the final rules, any person that engages in activities as described in the rules is a “dealer” or “government securities dealer” and, absent an exception or exemption, required to: register with the Commission under Section 15(a) or Section 15C, as applicable; become a member of an SRO; and comply with federal securities laws and regulatory obligations and applicable SRO and Treasury rules and requirements.

The final rules will become effective 60 days after publication of the adopting release in the Federal Register. The compliance date for the final rules will be one year after the effective date of the final rules.

SEC Adopts Amendments to Enhance Private Fund Reporting

The SEC adopted amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds, including those that also are registered with the Commodity Futures Trading Commission (CFTC) as commodity pool operators or commodity trading advisers. The amendments, which the CFTC concurrently adopted, are designed to enhance the ability of the Financial Stability Oversight Council (FSOC) to monitor and assess systemic risk and to bolster the SEC’s oversight of private fund advisers and the agency’s investor protection efforts. The SEC and CFTC also agreed to a memorandum of understanding related to the sharing of Form PF data.

The amendments will become effective one year after publication in the Federal Register. The compliance date for the amendments is the same as the effective date.

EC Regulatory Updates

European Commission

Proposal to Delay Issuance of ESRS Sector and Non-EU Standards

On January 24, the European Parliament announced that its members agreed with the European Commission’s proposal to delay the deadline for the adoption of certain sector-specific and non-EU European Sustainability Reporting Standards (ESRS) by two years until June 2026. However, the members suggested that the European Commission issue eight sector-specific standards as they are ready, which may be in advance of the new deadline. The proposal will have to be approved through the ordinary legislative procedure.

If approved, this proposal would only delay when the additional standards will be issued. It does not impact the timing of when companies are required to file their initial Corporate Sustainability Reporting Directive (CSRD) reporting using the currently available sector agnostic ESRS that became law in December 2023. The first filers will still be required to report in 2025 on 2024 information.

Rikki Williams

Senior Director | CPA

Rikki is a Senior Director at Centri Business Consulting. He has more than 16 years of public and private accounting experience. View Rikki Williams's Full Bio