Webinar Slides: Current Regulatory Issues Impacting Public Companies


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Original air date:
Dec. 19, 2013

This webcast will cover the latest accounting and reporting issues that affect SEC reporting entities and their auditors. The SEC and PCAOB have been very busy making recommendations in several areas that could significantly impact SEC reporting entities.
Whether you are a member of management, involved in the oversight and governance or the auditor of an SEC reporting entity, you need to know these latest developments coming from the regulators. Join the professionals of Mayer Hoffman McCann’s SEC Consulting Group for a look at what’s hot and what’s not!

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Webinar Slides: Current Regulatory Issues Impacting Public Companies

  1. 1. MHM Executive Education Series: Current Regulatory Issues Impacting Public Companies – What You Need to Know Presented by: Shareholder Rich Howard December 19, 2013
  2. 2. Before We Get Started…  To view this webinar in full screen mode, click on view options in the upper right hand corner.  Click the Support tab for technical assistance.  If you have a question during the presentation, please use the Q&A feature at the bottom of your screen. #MHMwebinar 2
  3. 3. CPE Credit  This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webinar.  External participants will receive their CPE certificate via email immediately following the webinar. #MHMwebinar 3
  4. 4. Disclaimer The information in this Executive Education Series course is a brief summary and may not include all the details relevant to your situation. Please contact your MHM service provider to further discuss the impact on your financial statements. #MHMwebinar 4
  6. 6. Today’s Presenter Rich Howard, CPA Shareholder 949.450.4402 | rhoward@cbiz.com Rich serves as Vice President of the Board of Directors of MHM and is a member of both our Executive Committee and Professional Standards Group. He is also the Regional Attest Practice Leader for the West Region. Rich leads our SEC practice nationwide and is on the Executive Committee of the Global Audit Group for Kreston International, the firm’s international accounting network. #MHMwebinar ‹#› 6
  7. 7. Today’s Agenda 1 Key Overall Themes 2 Perspectives of Keynote Speakers 3 SEC Practice Issues 4 SEC Regulatory Matters 5 PCAOB Activities 6 FASB Activities #MHMwebinar 7
  9. 9. Themes Simplicity Transparency Accountability Integrity Responsibility Sustainability #MHMwebinar 9
  10. 10. Themes  Financial reporting      Audit matters      Continue to focus on transparency and integrity Need for simplification of accounting and disclosures Focus on internal controls over financial reporting (ICFR) Role of global accounting standards Value of audit needs to be improved Primary driver of value seems to be audit quality Measuring audit quality is a future focus Investors want to hear more from auditors Rulemaking activities  Enforcement and fraud identification #MHMwebinar 10
  12. 12. Organizations Represented – Keynote Speakers    David M. Walker - former U.S. Comptroller General AICPA – William E. Balhoff, Chairman, Cindy Fornelli, CAQ SEC      IASB - Hans Hoogervorst, Chairman FASB - Russell G. Golden, Chairman PCAOB    Paul A. Beswick, Chief Accountant Andrew J. Ceresney, Co-Director, Division of Enforcement James R. Doty, Chairman Martin F. Baumann, Chief Auditor COSO - Robert B. Hirth, Jr., Chairman #MHMwebinar 12
  13. 13. David M. Walker – Former US Comptroller General  Focused on financial challenges – US government   Several federal, state and local governments challenged today U.S. financial condition is “worse than advertised”  U.S. is 22% of global economy today vs. 50% in the 1940s  3.2 people working/retired person today vs. 16/1 in the 1940s  Many unfunded government obligations – Social security, pensions, medical  States will likely have to absorb the costs of these unfunded obligations  States have their own financial issues to deal with  The tax system is too complicated – average person can’t understand it  Current situation is “not sustainable” #MHMwebinar 13
  14. 14. David M. Walker – Former US Comptroller General  Suggestions for government:   Tax system in which 90% of taxpayers can prepare their own tax return Focus on fiscal responsibility and sustainability      Inadequate transparency Lack of appropriate accountability when people do not act appropriately Lack of proper incentives to ensure proper behavior Grow the economy faster than the national debt Need more truth and transparency #MHMwebinar 14
  15. 15. David M. Walker – Former US Comptroller General  Views for the accounting and audit profession:    Views covered SEC registrants and auditors Role in upholding public interest Gatekeepers of:     Views on PCAOB projects      Financial accuracy Fair communication of financial information Fostering important analysis of financial information Re-visit going concern (one year is too late) Not in favor of firm rotation Supports naming of engagement partner (and wants EQR as well) Supports changes to auditor reports – discuss areas subject to most judgment Believes global standards are “inevitable”   No country is an island U.S. should move sooner rather than later #MHMwebinar 15
  16. 16. AICPA – Chairman’s Comments William E. Balhoff, Chairman     Missed conference due to weather Jack Day (from EY) delivered speech Discussed AICPA focus and initiatives AICPA focus is improving audit quality:       Going concern (watching the FASB) Conflict minerals guidance Developing new audit quality standards Monitoring global debate on audit quality and elements such as auditor rotation Supports use of IFRS voluntarily Asked SEC to make this a priority again #MHMwebinar 16
  17. 17. Cindy Fornelli – Center for Audit Quality, AICPA  Strong profession is critical to success   Indications are that investor confidence is up Confidence in auditors is higher than all others involved in capital markets   Restatements have leveled off    72% confidence in auditors in 2013 versus 67% in 2011 Last three years (2010, 2011 and 2012) – volume is about even The number of issues involved in restatements has declined Initiatives  Measuring audit quality    Embryonic stage now Considering the types of metrics that indicate quality Feed the Pig campaign – 2013 Ad Council award   Won Gold Bell for Creative Excellence Campaign focuses on financial literacy #MHMwebinar 17
  18. 18. Paul A. Beswick – Chief Accountant, SEC  Focused on important policy issues  Monitoring FASB projects    Outreach to investors encouraged – What info is useful and how will it be used? Agenda setting – need to focus outreach on agenda decisions Simplification of accounting standards     Suggested targeted improvements over wholesale revisions Past projects sought to replace the whole model which creates complexity Simplification can help the industry Greater focus on municipal securities market     Improvement needed of information made available to investors Cited specific enforcement cases with different states Found a lack of disclosure in offering documents Related to underfunded pensions and pension obligations #MHMwebinar 18
  19. 19. Paul A. Beswick – Chief Accountant, SEC  Focused on important policy issues (cont)  Greater focus on municipal securities market (cont)   Recent GASB standards are expected to help improve pension disclosures Encouraged governmental F/S preparers and auditors    Consider assumptions used in determining pension obligations Make sure they are reasonable and supported IFRS      Continues to be important to the SEC Put on “hold” to deal with JOBS Act and Dodd-Frank Complex rulemaking needed which was very time-consuming Described the reason for delay as a “bandwidth issue” Hopes SEC will get to the IFRS decision in the near term #MHMwebinar 19
  20. 20. Andrew J. Ceresney – Co-Director, Enforcement, SEC  Enforcement cases   Number of fraud cases brought was lower in 2012 SEC does not believe this means that there is less fraud      SEC has decided to proactively look for fraud   Incentives to commit fraud still exist Methods are still available Internal controls are not always effective Not sure that SOX is the reason for fewer fraud cases either Announced “Financial Reporting and Audit Task Force” (the Task Force) Committed significant resources to:  Creating the Task Force  Greater focus on holding auditors accountable as gatekeepers  Focus on setting reserves and how management and auditors determine them  Focus on revenue recognition, measurement and presentation issues  Focusing on auditor independence #MHMwebinar 20
  21. 21. Andrew J. Ceresney – Co-Director, Enforcement, SEC  Whistleblower program     SEC’s Cooperation Program      Recently paid $14 million to one whistleblower – success story Created under Dodd-Frank as a “game changer” Assists SEC in identifying and streamlining investigations Goes beyond the whistleblower program Encourages self-reporting of issues Penalties are potentially lessened if self-reported More publicity is needed of the benefits of cooperating Fraud cases    SEC always evaluates individual conduct Did people act appropriately? Were they skeptical? Charges individuals first, then companies (case by case) #MHMwebinar 21
  22. 22. Andrew J. Ceresney – Co-Director, Enforcement, SEC  Financial Reporting and Audit Task Force   Headed by David Woodcock, Director, SEC Fort Worth Office Overall goals:       Develop understanding of financial reporting and audit violations Both current and future violations Determine a model to investigate violations and detect problems sooner Collaborating within and across agencies on efforts to combat fraud Engage other stakeholders (public and academia) in identification of fraud Current focus – looking for areas of abuse     Misuse of non-GAAP financial measures High frequency of off-balance sheet transactions Track record of multiple revisions to financial statements Whether material weaknesses should have been reported   Prior to an actual financial restatement Existence of these items doesn’t automatically mean a violation occurred  #MHMwebinar Evaluated on a case by case basis 22
  23. 23. Hans Hoogervorst – Chairman, IASB  IFRS has become the global set of standards  Use of IFRS around the world    >100 countries (75% of G20) Very few modifications made by individual countries IASB continues progress on achieving goals     Bringing transparency to the world Greater cooperation with national standard-setters Created “Accounting Standards Advisory Forum” (outreach) Cited research project on IFRS adoption    Very few jurisdictions have made modifications to IFRS when adopted Where they did, they were regarded as temporary Discussed IFRS adoption in Canada as proxy for U.S.  Evaluated the cost of conversion - found it pretty insignificant #MHMwebinar 23
  24. 24. Hans Hoogervorst – Chairman, IASB Hans’s view on U.S. adoption The “enlightened self-interest” of U.S. to avoid having the rest of the world on a single, global set of standards — outside U.S. control — will spur adoption of IFRS. #MHMwebinar 24
  25. 25. Russell G. Golden – Chairman, FASB  Future of FASB and upcoming projects  Carefully review the mix of projects to be undertaken   Create balance in setting agenda between     Necessary now that the convergence projects are nearly complete Major, long-term projects Projects that address specific issues of stakeholder concern Significant pre-agenda effort to identify problems or issues Future agenda should cover three broad areas    Foundational projects – e.g, conceptual framework, disclosure framework Recognition, measurement and presentation projects Projects to reduce complexity and promote simplification  #MHMwebinar Simplification means – how can FASB make it easier to understand and to do? 25
  26. 26. Russell G. Golden – Chairman, FASB  Development of new accounting standards    Final stages of developing internal policy on complexity Once adopted, will be used as a guide in developing new standards Plans to create transition resource groups     Intended to focus on education Understand implementation issues before implementation occurs Propose potential amendments to standards Revenue recognition group     Expected to be the first transition resource group Will be formed shortly after the standard is issued Activities will cease sometime in 2016 FASB considers the costs of new standards before adoption   Consideration includes outreach to preparers and auditors This research assists in developing estimates of cost of implementation #MHMwebinar 26
  27. 27. Russell G. Golden – Chairman, FASB  Topics of future consideration  Non-GAAP measures      Why are they being used? Is it different information or a different way of looking at GAAP info? Does it require different systems to produce the info? Should info and systems be subject to attestation? Private company financial reporting  Asked about inconsistency of pursuing a global set of standards and then having separate standards for private companies     FASB believes USA is different than other countries No statutory audit or f/s prep required in USA like other countries Differences between investors in public versus private entities FASB plans to continue working with IASB after convergence #MHMwebinar 27
  28. 28. James R. Doty – Chairman, PCAOB    Discussed recent work of PCAOB Gave insight into reasoning for proposals/standards Discussed capital markets in general       Key element is the flow of information Information is presumed to be reliable Markets can’t operate without trust Importance of the audit in building trust When fraud occurs, there is public outrage Public is unable to determine:   The quality of an audit or auditor Whether the audit was a good audit or not #MHMwebinar 28
  29. 29. James R. Doty – Chairman, PCAOB  PCAOB focusing on value and relevance   Add value to the capital markets by building trust Enhance the value of the auditor and the audit function   Periodic reporting of current issues    Audit risk alerts Compliance reports – EQR and broker/dealers Use of inspection results    Focused on audit quality as the driver of value to the market How do people use the inspection reports? How can they be more valuable to users? Expansion into other non-audit services    Seeing a number of public announcements by audit firms in recent months Very concerned that audit firms are getting back into consulting business Worried that this trend may negatively impact audit quality #MHMwebinar 29
  30. 30. James R. Doty – Chairman, PCAOB  Standard setting process/activities    Includes outreach before issuing proposals Economic analysis is a significant part Re-organizing the auditing standards structure   Related party transactions – often involved in recent frauds        May finalize in 2014 Identifying related parties Identifying unusual transactions Remedy divergence in practice in auditing these areas Evaluating comments now Hope to be effective in 2014 Reporting model Transparency – disclosing name of partner and other firms #MHMwebinar 30
  31. 31. James R. Doty – Chairman, PCAOB  Auditor reporting model     Discussed concerns raised by auditors One concern for auditors is expanded legal exposure Need for legal tort reform prior to changing the reporting model? Mr. Doty addressed some of these concerns      Indicated that legal exposures will always exist Firms and their attorneys will need to manage these legal risks Reliance will need to be placed on judicial system Judges need to determine cases with merit and dismiss those without Mr. Doty expects the ARM project to move forward regardless of whether any legal reforms occur #MHMwebinar 31
  32. 32. Martin F. Baumann – Chief Auditor, PCAOB  Global movement to improve auditors’ report     Biggest issue today in Baumann’s view Investors tell PCAOB they want to hear more from the auditor PCAOB has proposed two new standards as a result Auditor reporting model  Audit report to include     Audit of other information    Critical auditing matters (if none, so state) Certain required communications Tenure of the audit firm Require procedures to be performed Focused on misstatements of fact or inconsistencies within SEC filings Transparency  Require name of signing partner  Name of other firms involved in audit, their locations and the extent used #MHMwebinar 32
  33. 33. Martin F. Baumann – Chief Auditor, PCAOB  Broker/dealers   Rule 17a-5 amended Audits must follow PCAOB standards   Effective years ending on or after 6/1/14 New compliance reports     Must be examined by an auditor Cover internal control, reserves and compliance Exemption provided if no custody of assets Two new attestation standards (also effective 6/1/14)   #MHMwebinar Examination required for brokers holding assets Review required for brokers claiming exemption 33
  34. 34. Martin F. Baumann – Chief Auditor, PCAOB  Areas of significant risk to be addressed        Related party transactions Unusual transactions Transactions with entity executives Involved in recent high profile frauds Expects to adopt standards in early 2014 Expect to be effective for years beginning on or after 12/15/14 Other areas of focus  Going concern reporting     Recent financial crisis highlights need for changes in this area PCAOB considering if management should be required to evaluate Coordination with FASB planned (as instructed by the SAG) Need to address auditor role, time horizon and definition of “substantial doubt” #MHMwebinar 34
  35. 35. Martin F. Baumann – Chief Auditor, PCAOB  Other areas of focus  Audits of internal control over financial reporting    Use of specialists         Significant deficiencies in these audits identified in inspections Encouraged review of Practice Alert 11 issued in October 2013 Re-evaluation of AU 336 and AU 543/AS 10 needed AU 336 – specialists – FV, geologic, gemologists, etc. AU 543 – use of other auditors If expert is employed by the firm – AS 10 applies If expert is outside the firm – AU 336 applies PCAOB looking to standardize the supervision of other auditors Proposal planned for first quarter 2014 Area not a focus  Mandatory audit firm rotation – not on current agenda #MHMwebinar 35
  36. 36. Robert B. Hirth, Jr. – Chairman, COSO   Updated framework issued in May 2013 Encourage use of new framework ASAP  New framework considers changes over last 20 years in      Business Operating environments New framework supersedes old version on 12/14/15 Until transition, must identify which framework is being used Transition steps may include:  Preliminary assessment     Review current controls documentation Identify gaps in documentation Should include an inventory of the 17 principles in new framework Companies should discuss with auditors #MHMwebinar 36
  37. 37. Robert B. Hirth, Jr. – Chairman, COSO  Transition steps may include:  Complete assessment and create action plan    Can be incorporated into the annual review of controls Additional time may be needed to map controls to 17 principles Execute the plan     Should be done as part of normal evaluation of internal controls Additional time for implementation of the new framework May need changes to internal controls as a result of new framework Judgment will be needed to evaluate:    #MHMwebinar Gaps New internal controls implemented Do these represent unreported material weaknesses in prior periods? 37
  39. 39. Trends from SEC Consultations  Office of the Chief Accountant - Accounting      Overall consultations are down Pre-filing consultations are down 40% Most significantly in the area of business combinations Same top 4 customers in 2013 vs. 2012 Largest volume is from Corp Fin (and have increased)     Business combinations – push down and definition of business Loan losses and impairments VIEs Fair value #MHMwebinar 39
  40. 40. Trends from OCA — Professional Practice  Brian Croteau, Deputy Chief Accountant, discussed  Auditor independence     Obviously important to auditors Audit committees and management have as much (or more) at stake Should be shared responsibility (auditor, A/C and management) Shared recent experience where independence was violated      #MHMwebinar Company needed to hire another auditor and get re-audited Case involved the provision of non-attest services Auditor did not identify an issue A/C allowed the services to be provided and should not have Affiliates of company need to be identified and evaluated timely 40
  41. 41. Trends from OCA - Professional Practice  Brian Croteau, Deputy Chief Accountant (cont)  Enforcement matter       Highlighted recent case against JP Morgan Case involved a quarterly filing Disclosure controls were stated to be effective Later it was determined that was incorrect Encouraged companies to read this case and consider if something like that could happen at their company Internal control disclosures  Observation that it is unusual for management to have identified a material weakness in controls in the absence of an error #MHMwebinar 41
  42. 42. MD&A — Panel of Experts        Management discussion and analysis (MD&A) was the #1 SEC comment in 2012 MD&A was again a topic of interest in 2013 Panel discussed a variety of tips for preparers Issue of duplication and disclosure overload raised MD&A is not supposed to be repetitive Intended to provide insight and transparency Brian Lane, Partner, Gibson Dunn & Crutcher  Provided a variety of suggestion and tips for MD&A #MHMwebinar 42
  43. 43. MD&A Issues  Issues with MD&A       Too simple Doesn’t contain analysis Recites what is already obvious from the financials Should answer the question “why?” Discuss the future (trends and expectations) Example: Sales increased due to higher volume      Need more granularity Discuss new information (not repetitive of what was included in f/s) Answer the “why?” – why is volume higher? What product lines contributed to growth and how much for each? Discussion of the future expectations as well SEC recommends using key metrics (different from non-GAAP) #MHMwebinar 43
  44. 44. MD&A Suggestions  Suggestions included     If you list more than one reason why something occurred or changed, you must quantify each reason (required) Write MD&A to cover all three years together rather than a comparison by year Company’s disclosure committee should be the basis for writing MD&A Utilize an Overview section at the beginning     Write it from the perspective of assuming a person just came out of a coma for the last several years. What do they need to know? Any important metric to management should be discussed in MD&A Drive MD&A to discuss where you are profitable and where you are not profitable and why Always important to discuss why things are happening #MHMwebinar 44
  45. 45. Technical Accounting Topics       Deferred taxes Pensions and Other Post-retirement Employee Benefits (OPEB) Business combinations Goodwill Segments Stock-based compensation #MHMwebinar 45
  46. 46. Technical Accounting Topics  Deferred Taxes  Tax rate reconciliation      Unclear labeling of items or incomplete disclosure Aggregation issues Inconsistent with other disclosures Corrections of errors shown as changes in estimate incorrectly OPEB   Accounting policy issues Expected return on assets      Disclose choice of FV or calculated value (how determined) How is calculated value determined, if chosen Basis for assumption – narrative of approach, extent based on historical returns, any adjustments and why Sensitivity analysis – effect of changes, other alternatives If assumptions changed, explain why #MHMwebinar 46
  47. 47. Technical Accounting Topics  OPEB (cont)  Unusual or unexpected relationships    Business Combinations    Discuss in MD&A Need to relate to P&L and cash flow statement Is it a purchase of assets versus a business? Measurement period adjustment or correction of error? Goodwill   Considering impairment indicators Disclosures in period of charge #MHMwebinar 47
  48. 48. Technical Accounting Topics  Goodwill (cont)  FRM 9510 disclosures  For each segment at risk of failing step 1, consider disclosing       Percentage by which FV > CV at date of test Amount of goodwill allocated to unit Methods and key assumptions used and how determined Degree of uncertainty with key assumptions used Potential events that could affect key assumptions Examples of poor disclosure (examples created by SEC)    Generic, vague and overly broad statements “Fair value exceeds book value by $12 million.” “We did not record an impairment of goodwill in the past year, and the amount of our excess for each of our reporting units increased from last year.” #MHMwebinar 48
  49. 49. Technical Accounting Topics  Segments   Aggregation of operating segments Stock-based Compensation  Critical accounting estimates in IPOs (FRM 9520.2)   Description of methods and assumptions Tabular presentation of details of instruments      Granted Exercise price FV of stock FV of instruments granted in prior 12 months Description of factors that contributed to changes in FV #MHMwebinar 49
  50. 50. Reporting Topics      Non-GAAP financial measures Metrics Regulations S-X Rule 3-10 Internal control over financial reporting Standard setting #MHMwebinar 50
  51. 51. Reporting Topics  Non-GAAP financial measures  Issues surround     Labeling and description of the measures Terminology Context Need to discuss why the non-GAAP measure is important to management, not just that it is #MHMwebinar 51
  52. 52. Reporting Topics  Metrics  Disclosure deficiencies     Definition of metric and how calculated Any limitations Balance (talk about it in all relevant sections of filing) Disclosures (cont) How the metric impacts revenues and results of operations   Trends indicated by the metric should be discussed   Example – metric is number of users, new visitors, devices sold, etc. Break it down by geography, region vs. worldwide, etc. High volume of SEC comments in this area #MHMwebinar 52
  53. 53. Other Topics  China-based issuers  Rick factor disclosure of   Substantially all operations are concentrated in China Holding company relies on contractual agreements with VIE       Discuss relevant terms of conditions of contractual arrangement Uncertain legality Potential for conflict of interest Limited legal protections available to registrant Limited legal protections available to investors Cash transfer and exchange restrictions #MHMwebinar 53
  54. 54. Other Topics  China-based issuers (cont)  VIE footnote disclosures needed  Nature and extent of involvement Quantitative – financial position, performance, and cash flow  Qualitative – extent of assets in VIE (light or heavy)   Cash restrictions  MD&A disclosure of cash inside and outside China  Inside and outside VIE, if applicable Repatriation taxes  Restrictions or fees paid to PRC to move cash out of China  Restrictions or fees paid to move cash into China  #MHMwebinar 54
  55. 55. Industry Specific Issues Information technologies and services Retail Real estate Oil and gas Utilities #MHMwebinar 55
  56. 56. Industry Specific Issues  Information technologies and services  High tech example (online game companies)       Free game play but selling goods to play the game Known as “virtual goods” Game developer usually concludes they are the primary obligor Platform hosts the game – you sign up with them Gross/net determination is necessary for the game developer Retail  Disclosures needed   How online channels affect operations of company? High growth rates of sales or presence may be discussed, but need context    #MHMwebinar Quantify results - total revenues of online channel vs. total, etc. Discuss why channels are important Need to provide investors with a sense of the materiality of online channels to the overall company 56
  57. 57. Themes from SEC     Improvements to disclosure Policy disclosure needed when optionality exists Known trends and uncertainties Inter-relatedness of issues/disclosures    “Connect the dots” for the user Context and balance Emphasize material matters (make sure it is clear)   Scale back immaterial disclosures Ok to remove disclosure if no longer material   Even if the subject of a prior SEC comment Use precise and defined language from GAAP  Avoids confusion and multiple interpretations #MHMwebinar 57
  59. 59. SEC Rulemaking Activities  Dodd-Frank and JOBS Act  July 2013      September 2013   Final rules on elimination of ban on general solicitation and general advertising Rule 506 and Rule 144A offerings Related bad actor disqualification rules Regulation D proposals Pay ratio proposal October 2013   Crowdfunding proposal Comments accepted until February 2014 #MHMwebinar 59
  60. 60. SEC Rulemaking Activities  Crowdfunding proposal   Exempt offerings up to $1 million/year Investors are limited in amount invested   Based on annual income or net worth of investor Offerings have certain requirements    > $500,000 – need an audit (does not need to follow PCAOB standards) Between $100,000 - $500,000 – review is required < $100,000 – only certification from the CEO required #MHMwebinar 60
  61. 61. SEC Rulemaking Activities  Pay ratio proposal   Controversial topic Would require companies to disclose     Issues that have arisen    Median annual total compensation for all employees Annual total compensation for the CEO Ratio of those two amounts Can foreign employees and part-time personnel be excluded from calculation? Proposal says “no” Would not apply to   Emerging Growth Companies (EGC) Foreign Private Issuers (FPI) #MHMwebinar 61
  62. 62. SEC Rulemaking Activities  Future rulemaking from Dodd-Frank and JOBS Act   Executive compensation Section 108 of JOBS Act requires study of Regulation S-K     Determine how Regulation S-K can be modernized Simplified to reduce costs and other burdens for registrants Study will be the starting point for discussion of possible changes Study is expected to be completed soon #MHMwebinar 62
  64. 64. PCAOB Activities  Audit Quality Indicators         PCAOB working on an initiative to define quality Intended to give users a method to compare and evaluate firms Disclosure of partner name would also help with comparison Maybe 15 indicators could provide a balanced view No single indicator would be determinative Need context to understand the indicator as well Goal would be to provide valuable information to users PCAOB has created a new department to focus on this issue  Headed by Greg Jonas, Director of Research and Analysis #MHMwebinar 64
  65. 65. PCAOB Activities  Concept release under development     Covering Quality Control processes of registered firms Inspections indicate deficiencies in firm QC processes Help firms develop strong QC processes Provide an opportunity to address issues found in inspection #MHMwebinar 65
  67. 67. Joint Projects with IASB  Revenue recognition    Nearly finished Now a single interpretation based on principle Key decisions that were necessary     Next steps    Constraining the amount recognized Collectability of sales price Licenses Issuance in early 2014 Effective date of Jan 1, 2017 Joint transition group    Educate 10-15 specialists (auditors, preparers, regulators, users, etc.) Members to be announced after issuance #MHMwebinar 67
  68. 68. Joint Projects with IASB  Leasing    Type A lease – equipment (interest method) Type B lease – real estate (straight line) Feedback from users      45 meeting held (250 people) Support adding leases to the balance sheet Differences exist between equipment and real estate leases Current disclosures are insufficient Feedback from preparers   Mixed views Complexity    #MHMwebinar Separating lease and non-lease components How does it affect the financial statements? If it doesn’t change much, why do it? 68
  69. 69. Joint Projects with IASB  Financial Instruments  Feedback      Very complicated approach Just swapping one complexity for another FASB plans to reconsider the complexity issue Still some differences in the FASB versus IASB proposals Next steps    Most preferred the converged standard Redeliberations began in Sept. 2013 Finish redeliberations in 2014 and issue a standard #MHMwebinar 69
  70. 70. FASB Projects  Going concern       Management makes a determination Includes disclosures and plans Concern expressed over “more likely than not” criteria Doing more outreach (not enough comment letters) Consolidations Repurchases    Issue surrounding what is “substantially the same” What disclosures are needed? Wrap up in early 2014 #MHMwebinar 70
  71. 71. FASB Projects  Private Company Council   FASB endorsed two proposals so far Goodwill       Goodwill amortization Simplified impairment test In balloting stage now FASB plans to consider for public companies Hedge accounting Why discuss PCC issues with public companies?    FASB plans to consider why there is a need for differences In some cases, they may choose to apply to public companies Especially if the issues relate to complexity #MHMwebinar 71
  73. 73. Themes Simplicity Transparency Accountability Integrity Responsibility Sustainability #MHMwebinar 73
  74. 74. Themes  Financial reporting      Audit matters      Continue to focus on transparency and integrity Need for simplification of accounting and disclosures Focus on internal controls over financial reporting (ICFR) Role of global accounting standards Value of audit needs to be improved Primary driver of value seems to be audit quality Measuring audit quality is a future focus Investors want to hear more from auditors Rulemaking activities  Enforcement and fraud identification #MHMwebinar 74
  75. 75. Questions? #MHMwebinar ‹#› 75
  76. 76. If You Enjoyed This Webinar…  Join us for these EES courses:    1/14/14: Fourth Quarter Accounting and Financial Reporting Issues Update 2014 EES courses in development! Related publications:  MHM Messenger 17-13: Audit Reports for Public Companies PCAOB Proposes Major Changes #MHMwebinar 76
  77. 77. Connect with Mayer Hoffman McCann linkedin.com/company/ mayer-hoffman-mccann-p.c. @mhm_pc youtube.com/ mayerhoffmanmccann slideshare.net/mhmpc gplus.to/mhmpc facebook.com/mhmpc blog.mhmcpa.com #MHMwebinar 77