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Bridging the GAAP: June 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

New Chapter of Conceptual Framework Issued

The FASB issued a new chapter (Chapter 2) of its Concepts Statement No. 8, Conceptual Framework for Financial Reporting, that describes a reporting entity.

June 15, 2023, EITF Meeting

The Emerging Issues Task Force (EITF) held an educational meeting on Induced conversions of convertible debt instruments (Issue 23-A) to provide background and obtain initial feedback on potential approaches. No decisions were made. The EITF identified areas that require additional FASB staff research, including:

• Further vetting of the potential approaches proposed by the FASB staff to determine (1) how these approaches would impact earnings-per-share calculations and (2) when instruments would not be in the scope of induced conversion accounting under these approaches;
• The types of contingencies that may be included in a convertible debt instrument that is not currently convertible; and
• Whether convertible debt under the substantial premium model should be within the scope of the induced conversion guidance.

June 22-23, 2023, Private Company Council Meeting

Members of the Private Company Council (PCC) and the FASB discussed the FASB’s projects on:

1. Scope application of profits interests awards: Compensation–Stock Compensation (Topic 718);
2. Improvements to income tax disclosures;
3. Disclosure improvements in response to the SEC’s release on disclosure update and simplification;
4. Accounting for and disclosure of software costs, and
5. The FASB’s research projects on accounting for government grants the definition of a derivative.

The members also discussed stock compensation disclosures and implementation issues related to the leases and credit losses standards.

Upcoming FASB Meetings

The FASB is tentatively scheduled to meet as follows:

For more information, see the FASB’s calendar.

PCAOB Standard Setter Updates

Public Company Accounting Oversight Board

On June 6, 2023, the PCAOB issued for public comment a proposal amending auditing standards related to the auditor’s responsibility for considering a company’s noncompliance with laws and regulations, including fraud. The proposal would strengthen auditor requirements to identify, evaluate, and communicate possible or actual noncompliance with laws and regulations. Comments are due by August 7, 2023.

The PCAOB issued a staff report on observations related to public company audits involving crypto assets primarily from 2021 and 2022 inspections. The report states the inspections identified common audit deficiencies related to crypto assets, in the auditor’s procedures for (1) fraud and significant unusual transactions, (2) ownership of crypto assets, (3) relevance and reliability of information used as audit evidence, (4) revenue recognition in crypto asset transfers, and (5) arrangements with mining pool operators.

IASB Standard Setter Updates

International Accounting Standards Board

Proposed Amendments to Two Pillar Rules

The IASB released its Exposure Draft, International Tax Reform – Pillar Two Model Rules – Proposed Amendments to the IFRS for SMEs Standard, in response to stakeholders concerns about the implications for income tax accounting resulting from jurisdictions implementing the Pillar Two model rules within a short period of time. In particular, stakeholders said it was unclear how to apply IAS 12 Income Taxes when accounting for deferred taxes related to the rules; and they also said that there was an urgent need for clarity because of the imminent implementation of the rules in some jurisdictions. The IASB expects the proposed amendments to provide timely relief for affected SMEs and avoid diverse interpretations of Section 29 of the IFRS for SMEs Standard developing in practice.

Comments are due by July 17, 2023.

Post-Implementation Review of IFRS 9

The IASB has published a Request for Information as part of the post‑implementation review of the impairment requirements of IFRS 9, Financial Instruments. The IASB will review IFRS 9 in its entirety, including the related requirements in IFRS  7, Financial Instruments: Disclosures.

Comments are due by September 27, 2023.

June IFRIC Update

The IFRIC Update summarizes the issues discussed at the IFRS Interpretations Committee’s June 2023 meeting.

IFAC/IAASB Standard Setter Updates

International Federation of Accountants/International Auditing and Assurance Standards Board

Amendments to Conceptual Framework

The updated Conceptual Framework: Chapter 5, Elements in Financial Statements, revises the definitions of an asset and a liability and adds new guidance on the transfer of resources, unit of account, and binding arrangements that are equally unperformed.

The updated Conceptual Framework: Chapter 7, Measurement of Assets and Liabilities in Financial Statements, streamlines the measurement principles by eliminating unused measurement bases and enhancing focus on those that are commonly used. It also introduces current operational value as a current value measurement basis for assets held for their operational capacity. The International Public Sector Accounting Standards Board started using the updated Chapter 7 of the Conceptual Framework immediately after approval.

IPSASB Standard Setter Updates

International Public Sector Accounting Standards Board

The IPSASB issued several new standards:

• IPSAS 45, Property, Plant and Equipment, replaces IPSAS 17 by adding current operational value as a measurement basis in the updated current value model for assets within its scope, identifying the characteristics of heritage and infrastructure assets, and adding new guidance on how these important types of public sector assets should be recognized and measured. IPSAS 45 has an effective date of January 1, 2025. Earlier application is permitted for entities that apply IPSAS 43, IPSAS 44, and IPSAS 46 at or before the date of initial application of this standard.
• IPSAS 46, Measurement, provides new guidance in a single standard addressing how commonly used measurement bases should be applied in practice. IPSAS 46 has an effective date of January 1, 2025. Earlier application is permitted.

• IPSAS 47, Revenue, is a single source for revenue accounting guidance in the public sector, which presents two accounting models based on the existence of a binding arrangement. This new standard provides focused guidance to help entities apply the principles to account for public sector revenue transactions. IPSAS 47 has an effective date of January 1, 2026. Earlier application is permitted.
• IPSAS 48, Transfer Expenses, provides accounting guidance for transfer expenses, which account for a significant portion of expenditures for many public sector entities. IPSAS 48 has an effective date of January 1, 2026. Earlier application is permitted for entities that apply IPSAS 47 at or before the date of initial application of this standard.

SEC Regulatory Updates

Security and Exchange Commission

Updates to C&DIs for Insider Trading Plans

On May 25, 2023, the SEC’s Division of Corporation Finance issued three new compliance and disclosure interpretations (C&DIs) relating to insider trading plans, including clarifications to the implementation timing for new quarterly and annual disclosures in Item 408 of Regulation S-K.

Calendar year-end companies that are not smaller reporting companies will be required to provide the quarterly disclosures beginning with their June 30, 2023, Form 10-Q and each quarter thereafter (including for the fourth quarter in the December 31, 2023, Form 10-K). Annual disclosures will be required for these companies beginning with the December 31, 2024, Form 10-K.

Approved Listing Standards for Clawback Policies

The SEC approved listing standards proposed by the New York Stock Exchange (NYSE) and Nasdaq that require listed companies to recover or “clawback” incentive-based compensation erroneously received by current and former executive officers in the event of a required accounting restatement. The NYSE and Nasdaq were required to establish these listing standards under the SEC’s clawback rules adopted in October 2022. The standards will be effective on October 2, 2023, and registrants listed on those exchanges will be required to adopt compliant clawback policies by December 1, 2023.

European Commission Regulatory Updates

On June 9, the European Commission published a revised draft of the European Sustainability Reporting Standards (ESRS) for public consultation. The 12 draft ESRS specify the new sustainability reporting requirements based on the European Union’s Corporate Sustainability Reporting Directive (CSRD), covering an extensive range of sustainability topics (environment, social, and governance). The revised drafts contain significant changes compared to the prior November 2022 versions. Comments are due by July 7, 2023. Following the public consultation, the European Commission is expected to adopt these standards in July.

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