US Week in Review Week ending 23 October 2014 The US Week in Review highlights this week’s developments and emerging issues in the financial reporting world and gives you direct access to relevant technical accounting guidance and thought leadership produced by EY. In this issue: What’s new from EY..................... 1 Standard Setter updates.............. 2 Upcoming Thought Center webcasts and podcasts............ 3 What’s new from EY To the Point: Spotlight on transactions with related parties, significant unusual transactions and executives The SEC approved a new PCAOB standard on auditing transactions involving related parties and amendments to existing standards on auditing significant unusual transactions and relationships and transactions with a company’s executives. Our To the Point publication tells you what you need to know about the standards. Technical Line: A closer look at the new revenue recognition standard — retail and consumer products The new revenue recognition standard issued by the FASB and the IASB creates a comprehensive source of revenue guidance for all entities in all industries. Our Technical Line considers certain implications for the retail and consumer products industry and expands on our Technical Line, The new revenue recognition standard — retail and consumer products. It also supplements our Technical Line, A closer look at the new revenue recognition standard, and should be read in conjunction with it. Disclosure effectiveness: What companies can do now Making business and financial disclosures more effective has become a focus of regulators and standard setters around the world. Our publication, Disclosure effectiveness: what companies can do now, explores how companies can implement the SEC staff’s recommendations for reducing repetition, focusing on material information and eliminating outdated information. The publication includes illustrations, leading practices and practical steps to make companies’ year-end disclosures more meaningful. EY AccountingLink | www.ey.com/us/accountinglink Standard Setter updates Financial Accounting Standards Board (FASB) 22 October 2014 joint FASB/IASB videoconference meeting Leases — The FASB and the IASB reaffirmed their proposed definition of a lease and made some changes to how that definition would be applied. See our upcoming To the Point publication. For details, see the FASB’s Tentative Board Decisions. 2 October 2014 FASB meeting Financial instruments: classification and measurement — The FASB decided that this proposal wouldn’t apply to equity method investments. As a result, entities would continue to follow the impairment model for these investments that is prescribed under current US GAAP. The FASB also addressed concerns about the multiple probability thresholds (i.e., more-likely-than-not and significant) in its proposed impairment assessment for certain investments in equity securities that are measured using the practical expedient (i.e., cost, less any impairment, with upward and downward adjustments based on observable price changes) and unanimously decided to eliminate the more-likely-than-not threshold. Accounting for income taxes: intra-entity asset transfers and balance sheet classification of deferred taxes — As part of its simplification initiative, the Board tentatively decided to propose eliminating the exception for the recognition of income taxes on intercompany transactions. Under that exception, the income tax effects of the sale or transfer of assets among members of a consolidated group that remain in the consolidated group are eliminated from earnings. The Board also tentatively decided to propose requiring classification of all deferred tax assets and liabilities as noncurrent. Today’s guidance generally requires deferred tax assets and liabilities to be classified as current or noncurrent based on the classification of the related assets or liabilities. For details, see the FASB’s Tentative Board Decisions. Upcoming meetings 29 October 2014 FASB meeting The Board is scheduled to discuss its projects on Financial instruments: impairment and Simplifying income statement presentation by eliminating the concept of extraordinary items. For details, see the FASB’s calendar. 31 October 2014 FASB/IASB Joint Transition Resource Group for revenue recognition The Transition Resource Group (TRG) will discuss the following implementation issues: (1) licenses, (2) when customer options for additional goods and services represent a material right, (3) determining whether a good or service is distinct within the context of a contract, (4) enforceable rights and contract terminations, and (5) contract assets and liabilities. In announcing the agenda, the Boards provided an update on issues the TRG discussed in July. The Boards have instructed their staffs to research whether improvements could be made to the guidance on the principal-agent assessment in arrangements involving intangible goods and services. On sales- and usage-based royalties on licenses of intellectual property, the Boards will provide an update after the October discussion on licenses. They plan no further action on the other two issues the TRG discussed (i.e., gross versus net revenue for amounts billed to customers and impairment testing of capitalized contract costs). For details, see the FASB website. Education sessions See the FASB’s calendar for upcoming education sessions. No decisions are made at these sessions. 2 | US Week in Review Week ending 23 October 2014 EY AccountingLink | www.ey.com/us/accountinglink Securities and Exchange Commission (SEC) SEC staff updates Financial Reporting Manual The SEC staff in the Division of Corporation Finance updated the Financial Reporting Manual (FRM) to clarify its guidance in a number of areas. The updates include: • Clarifying that probable acquisitions that are less than 50% significant should be considered when evaluating individually insignificant acquisitions for purposes of complying with Rule 3-05 of Regulation S-X in registration statements • Permitting annual reports to comply with the due dates under Rule 3-09 of Regulation S-X when lessee financial statements are required for properties subject to triple net lease arrangements • Allowing a foreign private issuer (FPI) that ceases to be a shell company and loses its FPI status to file or furnish reports with the SEC during the remainder of the fiscal year based on rules applicable to FPIs • Removing guidance on development-stage companies to conform with recent changes in US GAAP SEC approves final rules on credit risk retention for asset-backed securities The SEC voted 3-2 to approve final rules requiring sponsors to retain at least 5% of the credit risk of the assets collateralizing certain asset-backed securities. The rules define a qualified residential mortgage (QRM) and exempt securitizations of QRMs from the risk retention requirements. The rules also do not require any credit risk retention for securitizations of commercial loans, commercial real estate loans and consumer automobile loans that meet certain underwriting standards. Sponsors may choose from a menu of options to comply with the risk retention requirements, including retaining an eligible vertical interest, horizontal residual interest or any combination thereof. The SEC and five other federal agencies jointly issued the rules, which were mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules are effective one year after publication in the Federal Register for residential mortgage-backed securitizations and two years after publication for all other securitizations. Upcoming Thought Center webcasts and podcasts Digital CFO: need to know quarterly webcast series 24 October 2014, 12 p.m. Eastern time Improving disclosure effectiveness 28 October 2014, 12 p.m. Eastern time The new revenue recognition standard: a closer look 11 November 2014, 2 p.m. Eastern time New revenue standard for retail and consumer products 18 November 2014, 11 a.m. Eastern time Information regarding these and other upcoming events can be found on the Thought Center webcasts and podcasts site. EY | Assurance | Tax | Transactions | Advisory © 2014 Ernst & Young LLP. All Rights Reserved. ey.com/us/accountinglink About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. 3 | US Week in Review Week ending 23 October 2014