Flashline 7-19-2012

							                                            Flashline
                                            A weekly update on financial reporting

                                            PwC
No. 2012-28
July 19, 2012
                                            In brief: Lease accounting redeliberations come to an end, but
                                            alternative views are on the horizon
This edition highlights the                 At their July 17 joint meeting, the FASB and IASB completed their redeliberations of the
latest from:                                leases project and instructed their staff to begin drafting the revised exposure draft. The
PwC .................................. 1    boards expect to issue the revised exposure draft by the end of November 2012 with a
SEC ................................... 2   120-day comment period. The difficulties encountered during the 18-month-long
FASB ................................ 2     redeliberation process were highlighted when the board members were asked whether
EITF ................................. 3    they planned to present an alternative view to the revised proposals. Some members of
IFRIC................................ 3     each board indicated that they may present alternative views. This In brief article
AICPA............................... 4      highlights some of their concerns.
ASB ................................... 4
IFAC ................................. 5    In brief: FASB announces intent to further discuss key aspects
Basel Committee ............. 5             of proposed impairment model for financial assets
                                            On July 18, the FASB and IASB met to discuss the financial instruments project. At the
                                            conclusion of the meeting, the FASB announced its intent to continue discussions about
                                            several key aspects of the impairment model, as well as consider the results of recent
                                            outreach efforts, prior to moving forward with an exposure draft. The exposure draft is
                                            currently expected to be released in the fourth quarter of 2012. This In brief article
                                            highlights why the FASB plans to continue discussions and what it plans to do next.

                                            Practical tip: Changes in percentage-of-completion contract
                                            estimates — disclosure requirements and considerations
                                            Companies entering into long-term construction contracts, especially in the aerospace &
                                            defense and engineering & construction industries, frequently apply the percentage-of-
                                            completion method of accounting under the contract accounting guidance. To apply this
                                            method of accounting, a company must have the ability to make reasonably dependable
                                            estimates of contract revenues and costs, and the extent of progress toward completion.

                                            Estimating is an essential part of contract accounting and revisions to those estimates are
                                            necessary as work progresses. ASC 250, Accounting for Changes and Error Corrections,
                                            requires certain disclosures in a company's financial statement footnotes when the effect
                                            of revising an estimate is material. The frequency of SEC comments on this topic,
                                            predominantly to registrants in the aerospace & defense and engineering & construction
                                            industries, continues to increase. This Practical tip highlights the U.S. GAAP disclosure
                                            requirements and considerations relating to changes in contract estimates when using
                                            the percentage-of-completion method of accounting.


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Securities and Exchange Committee (SEC)
SEC staff releases final report on its IFRS Work Plan
On July 13, the Staff of the SEC's Office of the Chief Accountant published its final report
(the "Staff report") on its Work Plan intended to aid the SEC in evaluating the
implications of incorporating IFRS into the US financial reporting system. The Staff
report does not include a final policy decision as to whether IFRS should be incorporated
into the US financial reporting system, or how such incorporation should occur. The
Work Plan was not intended to provide an answer to the threshold question of whether a
transition to IFRS is in the best interests of US capital markets and US investors. Instead,
it is an important step in the SEC's decision-making process.

Note: PwC has published an In brief article that provides an overview of the Final Report.

Also see: Response of the Trustees of the IFRS Foundation for the Foundation’s reaction
to the report.

SEC issues compliance guide on listing standards for
compensation committees and compensation advisers
The SEC has published a small entity compliance guide that summarizes and explains the
SEC's new rule that directs national securities exchanges to adopt listing standards for
public company boards of directors and compensation advisers. The new rule, required
by the Dodd-Frank Act, requires exchange listing standards to address: (1) the
independence of the members on a compensation committee, (2) the committee’s
authority to retain compensation advisers, (3) the committee’s consideration of the
independence of any compensation advisers, and (4) the committee’s responsibility for
the appointment, compensation, and oversight of the work of any compensation adviser.
Once an exchange’s new listing standards are in effect, a listed company must meet the
standards in order for its shares to continue trading on that exchange.



Financial Accounting Standards Board (FASB)
FASB seeks input on ways to improve disclosure effectiveness
On July 12, the FASB issued an Invitation to Comment on developing an overarching
framework to use in establishing requirements for disclosures in the notes to the
financial statements. The FASB issued the Invitation to Comment as a first step in its
outreach to solicit input on ways to improve financial statement disclosure effectiveness.

The FASB added the disclosure framework project to its agenda to address concerns
raised by stakeholders about the relevance and volume of information in the notes to the
financial statements. Although reducing the volume of disclosures is not the primary
objective of the project, the board believes the focus on communicating the information
that is most important to financial statement users could result in reduced volume.

Note: PwC has published an In brief article that highlights the topics addressed in the
Invitation to Comment and the board's next steps on the project.




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FASB meetings and project updates
Meeting summary: The FASB and IASB held joint board meetings on July 16-19. The
boards discussed their projects on (1) investment companies, (2) leases, (3) accounting
for financial instruments: classification and measurement and impairment, and (4)
revenue recognition. For a summary of the meetings, visit the FASB's website.

Next open board meeting: The FASB’s next board meeting is scheduled for July 25.
The boards plan to discuss their projects on Insurance contracts. See the FASB’s website
for more information on the meetings.

Project updates: The FASB has updated the following project summaries:

    Disclosure Framework

    Accounting for Financial Instruments: Liquidity and Interest Rate Disclosures



Emerging Issues Task Force (EITF)
Final minutes of the June 21 EITF meeting
The FASB staff has published the final minutes of the June 21, 2012 EITF meeting. At the
meeting, the Task Force discussed three issues. It reached consensuses-for-exposure on
two issues: (1) Issue 12-B, "Not-for-Profit Entities: Contributed Services from an
Affiliate," and (2) Issue 12-D, "Accounting for Joint and Several Liability for Which the
Total Amount of the Obligation is Fixed." Further discussion at a future meeting is
expected on the third issue — Issue 11-A, "Parent's Accounting for the Cumulative
Translation Adjustment (CTA) upon the Sale or Transfer of a Group of Assets within a
Consolidated Foreign Entity That Meets the Definition of a Business."

Note: See the June 2012 edition of PwC’s EITF observer for a synopsis of the discussions
and decisions reached at the EITF's meeting.



IFRS Interpretations Committee (IFRIC)
IFRIC Update — July 2012
The July 2012 edition of IFRIC Update provides a summary of the IFRS Interpretations
Committee's July 10 meeting. The meeting included discussion of the following current
agenda items:

    IFRS 10, Consolidated Financial Statements, IAS 28 Investments in Associates and
    Joint Ventures — Accounting for the loss of control of a group of assets or a subsidiary
    between an investor and its associate or joint venture

    IAS 19, Employee Benefits — Accounting for contribution-based promises —
    Reconsideration of Draft Interpretation D9, Employee Benefit Plans with a
    Promised Return on Contributions or Notional Contributions

The Interpretations Committee also decided not to add to its agenda issues pertaining to:
(1) IAS 1, Presentation of Financial Statements, and IAS 12, Income Taxes —
Presentation of payments on non-income taxes, (2) IAS 12, Income Taxes — Accounting
for market value uplifts on assets that are to be introduced by a new income tax regime,

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(3) IAS 18, Revenue, IAS 37, Provisions, Contingent Liabilities and Contingent Assets,
and IAS 39, Financial Instruments: Recognition and Measurement — Regulatory assets
and liabilities, and (4) IAS 39, Financial Instruments: Recognition and Measurement —
Scope of paragraph AG5.

Other topics discussed included: (1) IFRS 3, Business Combinations — Continuing
employment and (2) IAS 7, Statement of Cash Flows — Examples illustrating the
classification of cash flows. The Interpretations Committee also reviewed issues
previously referred to the IASB.



American Institute of Certified Public
Accountants (AICPA)
CAQ publishes highlights of May 2012 International Practices
Task Force joint meeting with SEC staff
The AICPA’s Center for Audit Quality (CAQ) has published highlights of the May 22,
2012, International Practices Task Force (IPTF) joint meeting with the SEC staff. Topics
discussed at the meeting included:

    Restatement disclosures in initial public offering registration statements that include
    financial statements prepared in accordance with IFRS

    Parent company financial information prepared under home country GAAP

    Monitoring inflation in certain countries

    SEC Staff matters

AICPA seeks comments on proposed audit data standard
The AICPA’s Assurance Services Executive Committee (ASEC) has published an exposure
draft titled Audit Data Standard. ASEC believes that audit data standards would
contribute to the efficiency and effectiveness of the audit process. The proposed
standards set forth leading practices that well-designed accounting and financial
reporting systems are capable of adhering to. These first standards address the general
ledger and accounts receivable subledger. Other audit data standards will be developed
in the future.

Comments on the exposure draft are requested by September 17.



Auditing Standards Board (ASB)
ASB issues updated guidance re: clarified SASs
The ASB has published updated guidance to assist auditors and members in practice to
understand and apply the clarified SASs:

    Clarity Project Questions and Answers
    Answers to the most commonly asked questions regarding the status and ultimate
    product of the AICPA Auditing Standards Board's Clarity Project.



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    Effective Dates for AU-C Sections
    With the Clarity Project AU-C sections becoming effective soon. This document
    provides effective dates for all AU-C sections, and highlights those individual sections
    which are not effective December 15, 2012.

    Extant AU Sections Mapped to Clarity SASs
    This chart illustrates the mapping between the extant Auditing Standards and the
    Clarified Statements on Auditing Standards.



International Federation of Accountants (IFAC)
IFAC eNews — July 2012
This issue of IFAC eNews highlights the release of:

    2012 Handbook of International Quality Control, Auditing, Review, Other Assurance,
    and Related Services Pronouncements

    2012 Handbook of the Code of Ethics for Professional Accountants



Basel Committee on Banking Supervision (BIS)
Basel Committee issues guidance on internal audit function in
banks
The Basel Committee on Banking Supervision published its final document titled The
internal audit function in banks. This supervisory guidance is built around 20 principles
that seek to promote a strong internal audit function within banks. Drawing on lessons
learned from the financial crisis, the principles revise and update the Committee's
supervisory guidance issued in 2001, also taking account of developments in supervisory
practices and in banking organizations. For that purpose, the guidance addresses
supervisory expectations for the internal audit function and the supervisory assessment
of that function. It also encourages bank internal auditors to comply with national and
international professional standards on internal auditing. Finally, it promotes due
consideration of prudential issues by internal auditors. An annex to the consultative
document details responsibilities of a bank's audit committee.




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                                      Edited by:
                                      Brad Mescher
                                      Director
                                      Phone: 1-973-236-7261
                                      Email: brad.mescher@us.pwc.com




Flashline is a weekly alert highlighting current financial-reporting developments (including accounting, auditing and regulatory matters) and is
produced by the National Professional Services Group of PwC. It is for general information purposes only, and should not be used as a substitute for
consultation with professional advisors. To access additional content on financial reporting issues, register for CFOdirect Network
(www.cfodirect.pwc.com), PwC’s online resource for financial executives.

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