FASB Improves Consolidation Guidance for Private Companies
Private companies’ headaches over consolidation accounting have been alleviated with the Financial Accounting Standards Board’s (“FASB”) new Accounting Standards Update (“ASU”). The standard, ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, supersedes the FASB’s 2014 exception that gave private companies the option not to consolidate variable interest entities in common control leasing agreements. The private company exception can now be applied to any qualifying common control agreement. By meeting certain criteria, a private company can make an accounting policy election to forgo applying VIE guidance to legal entities under common control. If a. Read More.
Overnight Index Swap Rate Added to Hedge Accounting Benchmark List
In the latest Accounting Standards Update (“ASU”), the Financial Accounting Standards Board has added the Secured Overnight Financing Rate Overnight Index Swap Rate (“SOFR OIS”) to its list of hedge accounting benchmark interest rates permissible in U.S. GAAP. With ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate Overnight Index Swap Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, the SOFR OIS join the London Interbank Offered Rate swap rate, U.S. Treasury debt interest rates, and the OIS founded on the Fed Funds Effective Rate as benchmark rates allowed for hedge accounting.
SEC Asked to Develop Rule on Environmental, Social and Governance Disclosures
In a petition letter to the Securities and Exchange Commission (“SEC”) earlier this month, 50 investor groups and 17 law school professors requested that the agency require environmental, social, and governance (“ESG”) disclosures from public companies. The letter’s authors, law professors Jill Fisch (University of Pennsylvania) and Cynthia Williams (York University in Canada), wrote that the SEC should develop an extensive framework related to ESG matters that help investors become better informed on companies’ long-term performance and risks. According to Fisch and Williams, recent investment studies prove that a good amount of companies’ ESG disclosures are material. A 2017 study. Read More.
Public Companies Advised to Review Internal Controls for Cybersecurity
An October 16 report from the Securities and Exchange Commission (“SEC”) asks public companies to reassess their internal accounting control systems to safeguard against potential cyber-attacks. The SEC wants issuers to evaluate the degree to which cyber-related threats should be considered when developing and maintaining their internal controls. Issuers are also asked to determine whether their internal controls can provide reasonable assurances in protecting company assets from cyber-related risks. Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 Regarding Certain Cyber-Related Frauds Perpetrated Against Public Companies and Related Internal Accounting Controls Requirements is the result. Read More.
SEC Commissioner Says Agency Lacks Ability to Prohibit Mandatory Arbitration
Speaking last month on whether the Securities and Exchange Commission (“SEC”) should allow public companies to restrict investors’ ability to seek grievances in a courtroom, commissioner Hester Peirce said the agency lacks the authority to ban companies from requiring shareholder disputes be decided via arbitration. Peirce noted that the Federal Arbitration Act prevents the SEC from overturning an arbitration clause that agrees with state law. She believes the matter is the responsibility of state regulators. Peirce also said that if any states allow, companies should have the ability to decide whether arbitration is required. She acknowledged that arbitration could be. Read More.
End of SEC Tax Reform Grace Period Could Increase Disclosures
Last December after the Tax Cuts and Jobs Act (“TCJA”) was signed into law, the Securities and Exchange Commission (“SEC”) issued interpretative guidance that allows companies to use good faith estimates to adapt to the income tax effects. With the guidance expiring soon, the agency is advising businesses to apply the income tax disclosure requirements under U.S. GAAP once the grace period ends. SEC Staff Accounting Bulletin (“SAB”) No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, allows businesses to use reasonable estimates and provisional amounts to calculate the new tax law’s impact. SAB No. 118 also. Read More.