FASB makes progress on many CECL implementation issues

| 11/27/2018

From the federal financial institution regulators

Agencies propose community bank leverage ratio for qualifying community banking organizations

On Nov. 21, 2018, the Federal Reserve Board (Fed), the Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a notice of proposed rulemaking, “Regulatory Capital Rule: Capital Simplification for Qualifying Community Banking Organizations.” The proposal would simplify regulatory capital requirements for qualifying community banking organizations, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The proposal would provide regulatory relief to qualifying community banking organizations by giving them an option to calculate a simple leverage ratio rather than multiple measures of capital adequacy.
Under the proposal, a bank with less than $10 billion in consolidated assets would be eligible to elect the community bank leverage ratio framework if it meets the 9 percent leverage ratio and holds less than 25 percent of assets in off balance sheet exposures, 5 percent or less in trading assets and liabilities, 25 percent or less in mortgage servicing assets, and 25 percent or less in temporary difference deferred tax assets. A community bank that qualifies and chooses the proposed framework would not be required to calculate the existing risk-based and leverage capital requirements. The bank also would be considered to have met the capital ratio requirements to be well-capitalized for the agencies’ prompt corrective action rules provided it has a community bank leverage ratio greater than 9 percent.
Comments are due 60 days after publication in the Federal Register.

Agencies propose tailored supervisory standards for large banking organizations

Two separate proposals were issued on Oct. 31, 2018, that would revise the framework for supervisory prudential standards and the liquidity and capital framework for large banking organizations. In the first release, the Fed proposed a framework for applying enhanced prudential standards to banking firms with assets of $100 billion or more, as required by Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. According to the release, the framework would more closely match the regulations for large banking organizations with their risk profiles.
For large banking organizations with assets of $100 billion or more, the proposed framework would establish four new categories based on several factors, including asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, off balance sheet exposure, and nonbank assets. Banks placed in the lower risk categories would have reduced compliance requirements compared with those in higher-risk categories, such as less stringent liquidity, risk management, and stress-testing requirements.
In a related separate release, the three federal banking agencies – the Fed, the OCC, and the FDIC – jointly proposed revised standards that would use the same four risk-based categories and apply tailored standards under the regulatory capital rule, the proposed net stable funding ratio rule, and the liquidity coverage ratio rule.
The agencies have provided a chart with the proposed requirements for each category, as well as a list of firms projected to be included in each category.
Comments on the proposals are due Jan. 22, 2019.

Fed introduces new rating system for large financial institutions 

On Nov. 2, 2018, the Fed announced the completion of a new supervisory rating system for large bank holding companies. The new supervisory rating system is designed to align with the core areas most important to supporting a large firm’s safety and soundness. The system applies to all domestic bank holding companies and noninsurance, noncommercial savings and loan holding companies with total assets of $100 billion or more. This represents an increase from the $50 billion threshold in the initial proposal. U.S. intermediate holding companies of foreign banking organizations with total consolidated assets of more than $50 billion also will be subject to the new rating system.
The new rating system assigns ratings for capital planning, liquidity risk management, and governance and controls. Each bank holding company will have ratings assigned for each category rather than a standalone composite rating, and each category must be highly rated for the company to be considered “well-managed.” The final rule is effective Feb. 1, 2019. For bank holding companies with less than $100 billion in total consolidated assets, the Fed will continue to apply its existing rating system.

Agencies propose reduction in reporting requirements for certain small institutions

On Nov. 7, 2018, the Fed, the FDIC, and the OCC jointly proposed a reduction to the call report requirements for insured depository institutions with $5 billion or less in total assets that do not engage in international or complex activities. The proposal would reduce the regulatory reporting burden on these entities and provide that they may file the most streamlined version of the call report, which also would be reduced by approximately 37 percent for the first- and third-quarter reporting.
Comments are due 60 days after publication in the Federal Register.

FFIEC launches redesigned BSA/AML website

The Federal Financial Institutions Examination Council (FFIEC) launched its redesigned Bank Secrecy Act/Anti-Money Laundering (BSA/AML) InfoBase website on Oct. 18, 2018. The site shares examination procedure information with financial institutions, examiners, the public, and other stakeholders. The recent improvements include enhanced site navigation, searching capabilities, and mobile capabilities as well as the opportunity for users to download various sections of the FFIEC BSA/AML exam manual.

FFIEC issues alert on OFAC cyberrelated actions

On Nov. 5, 2018, FFIEC members jointly released a statement to alert financial institutions to actions taken by the U.S. Department of the Treasury’s Office of Foreign Asset Control (OFAC) under their Cyber-Related Sanctions Program, which began in 2015. The statement highlights the possible impact sanctions might have on a financial institution’s risk-management program as well as issues the institution should examine concerning the effect of sanctions on its operations. This includes the risks to the financial institution’s operations and implications of the continued use of services or products provided by a sanctioned entity.

OFAC has issued sanctions against entities since the program’s beginning. These entities are responsible for, are complicit in, or have participated in malicious cyber enabled activities, and they have provided technological and material support to cyber actors targeting U.S. organizations. When OFAC issues sanctions, the designated person’s property and interests are blocked, and the U.S. person is not allowed to participate in transactions with the sanctioned entity.

For additional information on compliance expectations and resources on operational risk management, financial institutions can refer to the FFIEC’s Information Technology Examination Handbook or to OFAC resources.

Federal banking agencies release updated FAQs on appraisal regulations

The OCC, the Fed, and the FDIC jointly issued on Oct. 16, 2018, an updated set of FAQs in response to questions raised regarding the agencies’ appraisal regulations and guidance. These FAQs, which supersede the FAQs issued in 2005, do not introduce new policy or guidance but assemble previously communicated policy and interpretations.
The FAQs address a range of topics, including appraisal and evaluation requirements, examples that qualify for appraisal exemptions, and appraisal independence.

Agencies and FinCEN issue statement on sharing resources for BSA compliance

On Oct. 3, 2018, the Fed, the FDIC, OCC, the National Credit Union Administration, and the Financial Crimes Enforcement Network (FinCEN) issued a joint statement addressing situations where credit unions and banks might enter into collaborative arrangements in order to share resources to better manage their BSA/AML obligations. The statement explains how such arrangements are better suited for community-focused institutions that have less complex operations and lower risk profiles for terrorist financing or money laundering. It also says that sharing BSA/AML resources better protects institutions and can reduce costs.
According to the agencies, banks and credit unions may benefit from using shared resources to manage certain BSA/AML obligations more efficiently and effectively; however, financial institutions should approach the formation of collaborative arrangements as they do other business decisions: with due diligence and consideration of any risks and benefits.

FDIC expands offerings of cybersecurity resources

The FDIC, on Oct. 19, 2018, announced in Financial Institution Letter 63-2018 the addition of two new vignettes for the Cyber Challenge. The Cyber Challenge resource, originally released in 2014, features exercises that encourage discussions about operations risk issues and the likely impact of IT disruptions on common bank functions.
The exercises are created to provide information about an institution’s state of preparedness and to help identify opportunities to strengthen resilience to operational risk. The expanded Cyber Challenge is an optional resource consisting of nine scenarios that are presented through related challenge questions, video vignettes, reference materials, and an instructional guide.

From the Financial Accounting Standards Board (FASB)

FASB issues ASU on CECL effective date for non-PBEs and removes operating lease receivables from CECL

On Nov. 15, 2018, the FASB issued Accounting Standards Update (ASU) 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” in order to align the annual and interim implementation dates for nonpublic business entities (non-PBEs) and clarify the scope of the current expected credit loss (CECL) standard for operating leases as follows:
  • Effective date for non-PBEs: With this helpful clarification, non-PBEs will now adopt CECL in fiscal years beginning after Dec. 15, 2021, and interim periods within. For calendar year-ends, CECL will be effective for the first quarter of 2022. This change in the effective date eliminates the complexity for regulatory reports of non-PBE financial institutions to file three call reports using the incurred loss model during 2021 and then reverse nine months of incurred loss accounting and record 12 months of CECL in the fourth quarter of 2021.
  • Operating leases: Impairment of operating lease receivables is in the scope of Accounting Standards Codification (ASC) Topic No. 842, “Leases,” and not within the scope of CECL.

FASB and TRG for Credit Losses hold separate meetings on CECL implementation issues

November was a busy month for addressing CECL implementation issues. The Transition Resource Group (TRG) for Credit Losses met on Nov. 1, 2018, to discuss the implementation issues. The TRG’s memos and meeting agendas are available on its meetings page. On Nov. 7, 2018, the board met to discuss the TRG’s recommendations. The FASB directed the staff to draft an exposure draft that incorporates these tentative decisions from the Nov. 7 meeting as well as those from prior board meetings covering CECL implementation issues held on Aug. 29, 2018, and Sept. 5, 2018. On Nov. 19, 2018, the FASB issued a proposed ASU, “Codification Improvements – Financial Instruments,” for a 30-day comment period. The next topic is a recap of the proposed ASU, which addresses other financial instrument areas besides CECL.
In addition to the proposed ASU, the FASB also addressed two other CECL implementation matters:
  • Vintage disclosures: Gross write-offs and gross recoveries. At its Nov. 7, 2018, meeting, the board decided to clarify that gross recoveries and gross write-offs should be presented by vintage year and by class of financing receivable within the credit quality information vintage disclosure described in paragraph 326-20-50-6. This question was posed in response to the illustrative disclosure in example 15 in the ASU. The board decided to issue a separate proposed ASU with a 60-day comment period. 
  • Election of the fair value option at transition. At its Nov. 14, 2018, meeting, the board decided to permit entities, upon adoption of Topic 326, to irrevocably elect the fair value option for financial assets within the scope of Subtopic 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Cost,” that are eligible for the fair value option in Subtopic 825-10, “Financial Instruments – Overall,” on an instrument-by-instrument basis. The board decided not to allow entities to discontinue fair value measurements for financial assets measured at fair value and apply the guidance in Subtopic 326-20. However, the board will include a question to understand situations where entities would prefer to discontinue use of the fair value option. The board directed the staff to draft a proposed ASU for a 30-day comment period. 

FASB issues proposed ASU for changes to ASU 2016-13, ASU 2016-01, and ASU 2017-12

On Nov. 19, 2018, the FASB issued a proposed ASU, “Codification Improvements – Financial Instruments,” for a 30-day comment period. The 107-page proposal includes changes to three existing ASUs as follows:
Proposed changes to ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (11 proposed changes):
  • Topic 1: Proposed changes resulting from the June 11, 2018 Credit Losses TRG meeting
    • Issue 1A: Accrued interest
      • Measure the allowance on accrued interest receivable (AIR) balances separately from other components of the amortized cost basis and net investments in leases.
      • Make an accounting policy election to present AIR and the related allowance from the associated financial assets and net investments in leases on the balance sheet. If the AIR and related allowance are not presented as a separate line item on the balance sheet, an entity would disclose the AIR and related allowance for credit losses and where the balance is presented.
      • Elect a practical expedient to separately disclose the total amount of AIR included in the amortized cost basis as a single balance for certain disclosure requirements.
      • Make an accounting policy election to write off AIR by either reversing interest income or adjusting the allowance for credit losses.
      • Make an accounting policy election not to measure an allowance on AIR if an entity writes off the uncollectible accrued interest receivable balance in a timely manner.
    • Issue 1B: Transfers between classifications or categories for loans and debt securities
      • Reverse any allowance for credit losses or valuation allowance previously measured on a loan or debt security, transfer the loan or debt security to the new classification or category, and apply the applicable measurement guidance in accordance with the new classification or category.
    • Issue 1C: Recoveries
      • Clarify that an entity should include recoveries when estimating the allowance.
      • Clarify that recoverable amounts included in the allowance should not exceed the aggregate of amounts previously written off and expected to be written off. For collateral-dependent financial assets, clarify that an allowance that is added to the amortized cost basis should not exceed amounts previously written off.
  • Topic 2: Proposed changes identified by stakeholders
    • Issue 2A: Conforming amendment to Subtopic 310-40, “Receivables – Troubled Debt Restructurings by Creditors” – proposed change to correct a cross-reference such that an entity is required to use the fair value of collateral when foreclosure is probable. 
    • Issue 2B: Conforming amendment to Subtopic 323-10, “Investments – Equity Method and Joint Ventures (Topic 323)” – proposed reference to Subtopic 323-10 for subsequent accounting when the investor has other investments, such as loans and debt securities, in the equity method investee. 
    • Issue 2C: Clarification that reinsurance recoverables are within the scope of Subtopic 326-20 – clarify the board’s intent to include all reinsurance recoverables in the scope.
    • Issue 2D: Projections of interest-rate environments for variable-rate financial instruments – clarify the board’s intent to provide flexibility by removing the prohibition of using projections of future interest-rate environments when using a discounted cash flow method to measure expected credit losses on variable-rate financial instruments. An entity should use the same projections or expectations of future interest-rate environments both in estimating expected cash flows and in determining the effective interest rate used to discount those expected cash flows.
    • Issue 2E: Consideration of prepayments in determining the effective interest reate (EIR) – permit an accounting policy election to adjust the EIR used to discount expected future cash flows for expected prepayments to appropriately isolate credit risk in determining the allowance.
    • Issue 2F: Consideration of estimated costs to sell when foreclosure Is probable – specifically require that an entity consider the estimated costs to sell if it intends to sell, rather than operate, the collateral when foreclosure is probable.
  • Topic 5: Proposed changes resulting from the Nov. 1, 2018, Credit Losses TRG meeting
    • Issue 5A: Vintage disclosures – line-of-credit arrangements converted to term loans – proposed to present the amortized cost basis of line-of-credit arrangements that are converted to term loans within each credit quality indicator in the origination year that corresponds with the period in which the most recent credit decision after original credit decision was made. If a line is converted to term without an additional credit decision or because of a troubled debt restructuring, it will be presented in a separate column as proposed in example 15.
    • Issue 5B: Contractual extensions and renewals – clarify that an entity should consider extension or renewal options (excluding those that are accounted for as derivatives in accordance with Topic 815) that are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the entity.
Proposed changes to ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (4 proposed changes)
  • Issue 4A: Scope clarifications for Subtopics 320-10, “Investments – Debt Securities – Overall,” and 321-10, “Investments – Equity Securities – Overall” – clarify board intent to exclude health and welfare plans accounted for under Topic 965, “Health and Welfare Benefit Plans,” from the scope of Subtopics 320-10 and 321-10. 
  • Issue 4B: Held-to-maturity debt securities fair value disclosures – clarify the board’s intent to remove the disclosure of the fair value of held-to-maturity debt securities measured at amortized cost basis for non-PBEs.
  • Issue 4C: Applicability of Topic 820, “Fair Value Measurement,” to the measurement alternative – require an entity to remeasure an equity security without readily determinable fair value at fair value when an orderly transaction is identified for an identical or similar investment of the same issuer in accordance with Topic 820, using fair value as of the date the observable transaction occurred. Applicable disclosure requirements in ASC 320 should be followed for a nonrecurring fair value.
  • Issue 4D: Remeasurement of equity securities at historical exchange rates – clarify that the only equity securities required to follow paragraph 830-10-45-18 and remeasure at historical exchange rates are those equity securities without readily determinable fair values accounted for under the measurement alternative.
Proposed changes to ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (8 proposed changes)
  • Issue 3A: Partial-term fair value hedges of interest-rate risk 
    • Clarify that an entity may designate and measure the change in fair value of a hedged item attributable to both interest-rate risk and foreign exchange risk in a partial-term fair value hedge. The proposal also clarifies that one or more separately designated partial-term fair value hedging relationships of a single financial instrument can be outstanding at the same time.
  • Issue 3B: Amortization of fair value hedge basis adjustments
    • Clarify that an entity may, but is not required to, begin to amortize a fair value hedge basis adjustment before the fair value hedging relationship is discontinued. If an entity elects to amortize the basis adjustment during an outstanding partial-term hedge, that basis adjustment should be fully amortized on or before the hedged item’s assumed maturity date in accordance with paragraph 815-25-35-13B.
  • Issue 3C: Disclosure of fair value hedge basis adjustments
    • Clarify that available-for-sale debt securities should be disclosed at their amortized cost and that fair value hedge basis adjustments related to foreign exchange risk should be excluded from the disclosures required by paragraph 815-10-50-4EE.
  • Issue 3D: Consideration of the hedged contractually specified interest rate under the hypothetical derivative method
    • Clarify that an entity should consider the contractually specified interest rate being hedged when applying the hypothetical derivative method.
  • Issue 3E: Scope for not-for-profit entities
    • Clarify that a not-for-profit entity that does not separately report earnings may not elect the amortization approach for amounts excluded from the assessment of effectiveness for fair value hedging relationships. Also update the cross-references in paragraph 815-10-15-1 to further clarify the scope of Topic 815 for entities that do not report earnings separately.
  • Issue 3F: Hedge accounting provisions applicable to certain private companies and not-for-profit entities
      Clarify that a private company that is not a financial institution as described in paragraph 942-320-50-1 should document the analysis supporting a last-of-layer hedge designation concurrently with hedge inception. Also clarify that not-for-profit entities (except for not-for-profit entities that have issued, or are a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market) should be provided with the same subsequent quarterly hedge effectiveness assessment timing relief provided to certain private companies in paragraph 815-20-25-142.
  • Issue 3G: Application of a first-payments-received cash flow hedging technique to overall cash flows on a group of variable interest payments
    • Clarify that application of the first-payments-received cash flow hedging technique to overall cash flows on a group of variable interest payments continues to be permitted.
  • Issue 3H: Update 2017-12 transition guidance
    • Provide clarification about the three transition requirements in ASU 2017-12:
      1. Clarify that when an entity modifies a fair value hedge to measuring the hedged item using the benchmark rate component of the contractual coupon, the hedging relationship can be rebalanced, but new hedged items and hedging instruments cannot be added to the hedge.
      2. Clarify that an entity may transition from a quantitative method of hedge effectiveness assessment to a method comparing critical terms without dedesignating an existing relationship.
      3. Clarify that debt securities reclassified from held-to-maturity (HTM) to available-for-sale following paragraph 815-20-65-3(e)(7) would not call into question an entity’s assertion to hold to maturity those securities that continue to be classified as HTM, are not required to be designated in a last-of-layer hedge relationship, and may be sold after reclassification.
Comments are due by Dec. 19, 2018. 

FASB updates permissible U.S. benchmark interest rates for hedge accounting

On Oct. 25, 2018, the FASB issued ASU 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes,” to expand the number of benchmark interest rates that can be used in accounting hedge designations. The ASU adds the OIS rate based on SOFR as a U.S. benchmark interest rate to facilitate the transition from the London Interbank Offered Rate (Libor) to SOFR and provides sufficient lead time to prepare for changes to interest-rate risk hedging strategies for both risk management and hedge accounting purposes. 
Existing benchmarks under Topic 815 include U.S. Treasury, the Libor swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. The OIS rate based on SOFR is the fifth U.S. benchmark rate. Similar to the Fed Funds OIS rate, which is a swap rate based on the underlying overnight Fed Funds Effective Rate, the OIS rate based on SOFR will be a swap rate based on the underlying overnight SOFR rate.
Including the OIS based on SOFR as a benchmark interest rate will help institutions transition away from Libor by providing an alternative rate.
For entities that have not adopted ASU 2017-12, this standard, ASU 2018-16, will be effective concurrent with ASU 2017-12, which for PBEs is for fiscal years beginning after Dec. 15, 2018, and interim periods within. For non-PBEs, it is effective for fiscal years beginning after Dec. 15, 2019, and interim periods beginning after Dec. 15, 2020.
If ASU 2017-12 was early adopted, then ASU 2018-16 can be early adopted, including in an interim period. If ASU 2017-12 has been adopted, these are the effective dates for ASU 2018-16:
  • For PBEs, fiscal years beginning after Dec. 15, 2018, and interim periods within 
  • For non-PBEs, fiscal years beginning after Dec. 15, 2019, and interim periods within

FASB issues improvements to variable interest entity (VIE) model for related parties

On Oct. 31, 2018, the FASB issued ASU 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities,” that aims to improve VIE guidance for related party matters that have arisen related to the consolidation guidance in ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.”
The guidance supersedes the private company accounting alternative for common control leasing arrangements provided by ASU 2014-07, “Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements,” and expands it to all qualifying common control arrangements. Private entities can elect not to apply VIE consolidation guidance to any arrangement with legal entities that are under common control if neither the parent nor the legal entity is a public business entity (PBE). The accounting policy election must be applied to all current and future legal entities under common control consistently, and other consolidation guidance including the voting interest entity guidance remains applicable. When a private company makes the policy election, it must provide detailed disclosures about involvement with, and exposure to, the legal entity under common control.
In addition, the ASU revises the analysis for determining whether a decision-making fee paid by a VIE is a variable interest such that indirect interests in a VIE held through related parties in common control arrangements would be considered on a proportional basis (thus eliminating the requirement to consider such indirect interests as the equivalent of a direct interest). This revision is consistent with the analysis for determining whether a reporting entity in a related party group is the primary beneficiary of a VIE by including indirect interests on a proportional basis (pursuant to amendments in ASU 2016-17).
These amendments are expected to result in more decision-makers not consolidating VIEs.

For organizations that are not private companies, the amendments are effective for fiscal years beginning after Dec. 15, 2019, and interim periods within. The amendments are effective for a private company for fiscal years beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021. Early adoption is permitted, and retrospective application to the earliest period presented is required.

From the Securities and Exchange Commission (SEC)

Commissioner discusses improved information for investors

On Oct. 23, 2018, Commissioner Kara M. Stein delivered a speech, “Improving Information for Investors in the Digital Age,” to the Council of Institutional Investors 2018 Fall Conference. She covered the following financial reporting-related topics:
  • A historical perspective on the SEC’s mission
  • The transformation of digital technology
  • Recent requests for more disclosure
  • Increased voluntary disclosure of non-GAAP measures and key performance indicators and the lack of uniformity
  • The role of the public company auditor including Stein’s recommendations for change

SEC launches website for innovation and technology engagement

The SEC on Oct. 18, 2018, launched its Strategic Hub for Innovation and Financial Technology (FinHub), which will serve as a resource for issues such as distributed ledger technology (including digital assets), automated investment advice, digital marketplace financing, and artificial intelligence and machine learning.
In its press release, the SEC outlined five FinHub activities:
  • “Provide a portal for industry and the public to engage directly with SEC staff on innovative ideas and technological developments; 
  • “Publicize information regarding the SEC's activities and initiatives involving [financial technology] on the FinHub page; 
  • “Engage with the public through publications and events, including a FinTech Forum focusing on distributed ledger technology and digital assets planned for 2019;
  • “Act as a platform and clearinghouse for SEC staff to acquire and disseminate information and FinTech-related knowledge within the agency; and
  • “Serve as a liaison to other domestic and international regulators regarding emerging technologies in financial, regulatory, and supervisory systems.”
SEC Chairman Jay Clayton said, “The FinHub provides a central point of focus for our efforts to monitor and engage on innovations in the securities markets that hold promise, but which also require a flexible, prompt regulatory response to execute our mission.”

SEC releases investigative report on cyberthreats

On Oct. 16, 2018, the SEC released an investigative report with a recommendation: “public companies should consider cyber threats when implementing internal accounting controls.” The report analyzes the SEC Enforcement Division's investigations of nine public companies that experienced financial losses as a result of cyberfraud. It emphasizes the need to consider cyberthreats as part of a public company’s obligation to maintain internal accounting controls.

SEC announces new strategic plan

The SEC announced its new strategic plan on Oct. 11, 2018. It features three goals:
  • “Focus on the long-term interests of our Main Street investors. … Initiatives under this goal will include modernizing disclosure and expanding investor choice.”
  • “Recognize significant developments and trends in our evolving capital markets and adjust our efforts to ensure we are effectively allocating our resources. … by analyzing market developments, evaluating existing rules and procedures, understanding the continually changing cyber-landscape and ensuring the appropriate resources are dedicated to each area.”
  • “Elevate the SEC’s performance by enhancing our analytical capabilities and human capital development. The SEC will invest in data and technology.”

From the Public Company Accounting Oversight Board (PCAOB)

PCAOB to host SAG meeting Nov. 29

The PCAOB announced its agenda for the Standing Advisory Group (SAG) meeting to be held on Nov. 29, 2018. The group will discuss the governance and leadership in firm quality control systems as well as communications about PCAOB standards.
The meeting will be held in Washington, D.C., and streamed live on the PCAOB website. It is open to the public with the exception of the afternoon breakout sessions.

Board members deliver speeches

Recently, board members including PCAOB Chairman William D. Duhnke have been speaking about the new board and its new strategic initiatives. The following speeches have been delivered:

PCAOB announces new directors

On Nov. 12, 2018, the PCAOB announced that Torrie Miller Matous was named director of the newly formed Office of External Affairs. The new office combines certain existing offices and will include new liaison staff for the investor and business communities to assist the board in achieving the transparency and accessibility goals outlined in its draft strategic plan. Prior to joining the PCAOB, Matous served as chief of staff for U.S. Rep. Martha Roby.
The PCAOB announced Nov. 1, 2018, that George Botic was named the director of the Division of Registration and Inspections. Botic has been the acting director of the division since May and will lead the PCAOB’s efforts related to registration and inspection of domestic and foreign accounting firms that audit public companies or broker-dealers.
Also on Nov. 1, 2018, the board announced that Liza McAndrew Moberg was named director of the Office of International Affairs. She has been the acting director since May and “will lead the PCAOB's efforts to advance cross-border engagement with others involved in investor protection efforts and to implement and maintain cooperative agreements that facilitate the PCAOB’s oversight activities outside of the U.S.”

From the American Institute of CPAs (AICPA)

AICPA’s FinREC releases draft on CECL implementation issue

The AICPA’s Financial Reporting Executive Committee (FinREC) issued a CECL implementation issue draft for comment on Oct. 30, 2018. Once final, the draft will be included in the AICPA’s “Depository and Lending Institutions: Banks and Savings Institutions, Credit Unions, Finance Companies, and Mortgage Companies – Audit and Accounting Guide.”
The draft, “Issue #6: Reasonable and Supportable Forecast – Developing the Period and Use of Historical Information,” covers FinREC’s views on two issues: an entity’s considerations to determine its reasonable and supportable forecast period, and how an entity would determine the historical loss information (that is, long-term average versus other methods) it will revert to once it is beyond a period in which it can make or obtain reasonable and supportable forecasts of future conditions that affect expected credit losses.
Comments on the draft are due Dec. 31, 2018. 

From the Center for Audit Quality (CAQ)

CAQ releases audit committee transparency barometer report

On Nov. 1, 2018, the CAQ and Audit Analytics jointly issued their fifth annual report, “2018 Audit Committee Transparency Barometer.” The report shows an increase from 2014 (the first year these barometer reports were issued) in the percent of public company audit committees disclosing the following in proxy statements:
  • Considerations in appointing the audit firm
  • Length of audit firm engagement
  • Criteria considered when evaluating the audit firm
  • That the audit committee is involved in audit partner selection
  • That the evaluation of the external auditor is at least an annual event
The report also presents examples of public company disclosures to illustrate best practices.

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