Main Street Lending Program (MSLP)
Fed continues to update FAQs
The Fed updated the MSLP frequently asked questions document on Oct. 30, 2020, to provide additional guidance on the program as well as other topics. The Fed added questions and answers addressing regulatory treatment.
On Oct. 30, 2020, the Fed also updated its Main Street for Nonprofit Organizations frequently asked questions.
From the Financial Accounting Standards Board (FASB)
FASB issues codification improvements
The FASB issued Accounting Standards Update (ASU) 2020-10, “Codification Improvements,” on Oct. 29, 2020. This ASU results from the FASB’s perpetual project to make updates for technical corrections, clarifications, wording and structure simplifications, and other minor improvements. The amendments in this ASU affect a wide range of codification topics and are separated into two sections: B and C.
The Section B amendments improve codification consistency by ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements or on the face of the financial statements appears in the applicable disclosure section as well as the other presentation matters sections, reducing the chance that the requirement would be missed. These amendments are not expected to change current practice.
The amendments in Section C clarify guidance for more consistent application. Section C addresses retirement benefits (Topic 715), interim reporting (Topic 270), receivables (Topic 310), guarantees (Topic 460), income taxes (Topic 470), and imputation of interest (Topic 835), among other topics.
The amendments are effective for annual periods beginning after Dec. 15, 2020, for public business entities (PBEs). For all other entities, the amendments are effective for annual periods beginning after Dec. 15, 2021, and interim periods within annual periods beginning after Dec. 15, 2022. Early application is permitted, and the amendments should be applied retrospectively.
FASB issues update to reflect SEC guarantor financial disclosures
The FASB issued ASU 2020-09, “Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762,” which amends and supersedes various Securities and Exchange Commission (SEC) paragraphs to reflect SEC Release No. 33-10762. That release amends the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. These changes are intended to both improve the quality of disclosure and increase the likelihood that issuers will conduct debt offerings on a registered basis.
FASB clarifies guidance for nonrefundable fees and other costs related to receivables
The FASB issued, on Oct. 15, 2020, ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs,” to clarify that for each reporting period an entity should reevaluate whether a callable debt security is within the scope of Accounting Standards Codification paragraph 310-20-35-33. If the security is within the scope, any premium should be amortized to the earliest call date rather than maturity.
For PBEs, the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2020, and early application is not permitted. For all other entities, the amendments are effective for fiscal years beginning after Dec. 15, 2021, and interim periods within fiscal years beginning after Dec. 15, 2022, and early application is permitted after Dec. 15, 2020.
The amendments in ASU 2020-08 are to be applied on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities, and they do not change the effective dates for ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.”
FASB proposes to clarify scope of reference rate reform guidance
The FASB issued, on Oct. 29, 2020, a proposed ASU, “Reference Rate Reform (Topic 848): Scope Refinement,” that would clarify the scope of ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides temporary, optional expedients and exceptions for applying GAAP to certain contract modifications and hedging relationships that reference the London Interbank Offered Rate or another reference rate expected to be discontinued.
The proposed ASU addresses questions about whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued but that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform, commonly referred to as the “discounting transition.”
The proposed amendments would clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to contracts that are affected by the discounting transition.
Comments were due Nov. 13, 2020.
FASB proposes clarifications to the issuer’s accounting for certain modifications of freestanding equity-classified forwards and options
On Oct. 26, 2020, the FASB issued a proposed ASU, “Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Forwards and Options (a Consensus of the Emerging Issues Task Force).” The proposed ASU would clarify an issuer’s accounting for certain modifications or exchanges of freestanding equity-classified forwards and options, such as warrants, that remain equity classified after modification. It addresses how an issuer would measure and recognize the effects of these transactions. The proposed ASU provides a principles-based framework to determine whether an issuer would recognize the modification or exchange as an adjustment to equity or an expense.
Comments are due Dec. 28, 2020.
FASB proposes three targeted improvements to the leases standard
On Oct. 20, 2020, the FASB issued a proposed ASU, “Leases (Topic 842): Targeted Improvements,” intended to improve three areas of the leases guidance.
The amendments in the proposed ASU target the following areas:
- For lessors, it would amend lease classification requirements for leases in which the lease payments are predominantly variable by requiring lessors to classify and account for those leases as operating leases.
- For lessees, it would provide the option to remeasure lease liabilities for changes in a reference index or a rate affecting future lease payments at the date that those changes take effect.
- For both lessees and lessors, it would provide that when a separate lease component within a contract is terminated and the economics of the remaining lease components remain substantially the same as before the partial termination of that contract, a lessee or lessor would not apply modification accounting to the remaining lease components.
Comments are due Dec. 4, 2020.
Securities and Exchange Commission (SEC) need to know
SEC improves exempt offering framework
The SEC voted, on Nov. 2, 2020, to amend its rules to address gaps and complexities in the exempt offering framework. The amendments are designed to promote capital formation and expand investment opportunities while preserving or improving investor protections as well as increasing access to capital for issuers.
In general, the amendments:
- Establish – in one broadly applicable rule – the ability of issuers to move from one exemption to another
- Expand the offering limits for Regulation A, Regulation Crowdfunding, and Rule 504 offerings, and adjust certain individual investment limits
- Provide specific rules governing certain offering communications, including permitting some “test-the-waters” and “demo day” activities
- Standardize certain disclosure and eligibility requirements and bad actor disqualification provisions
The final rules are effective 60 days after publication in the Federal Register, except for certain rules and the amendments to the introductory paragraph in the “Optional Question and Answer Format for an Offering Statement” section of Form C, which are effective from the earlier of the date of publication in the Federal Register or March 1, 2021, until March 1, 2023.
SEC’s Division of Enforcement issues 2020 annual report
The SEC’s Division of Enforcement published its 2020 annual report on Nov. 2, 2020, providing a comprehensive view of its accomplishments over the past year, including significant actions, areas of strategic change, and enforcement efforts related to COVID-19.
According to the report, during fiscal year 2020, the division took positive steps to prevent potential fraud related to the COVID-19 pandemic and pursue actions against those who attempted to capitalize on it. At the same time, it maintained focus on the vast number of existing and new enforcement issues not related to COVID-19. Additionally, the report describes the division’s strategic changes to improve its operations specifically related to the whistleblower program and the pace of investigations.
The hundreds of enforcement actions brought during 2020 addressed a wide range of issues such as issuer disclosure and accounting violations, foreign bribery, investment advisory issues, securities offerings, market manipulation, insider trading, and broker-dealer misconduct.
Corp Fin provides transitional guidance on Regulation S-K Items 101, 103, and 105
The SEC’s Division of Corporation Finance (Corp Fin) issued, on Nov. 5, 2020, “Transitional FAQs Regarding Amended Regulation S-K Items 101, 103, and 105,” addressing guidance on the disclosure requirements and related rules adopted in the “Modernization of Regulation S-K Items 101, 103, and 105” final rule (Securities Act Release No. 33-10825). The amendments to modernize the description of business (item 101), legal proceedings (item 103), and risk factor disclosures (item 105) are effective Nov. 9, 2020. Corp Fin’s guidance answers three questions and provides views on transition to these new rules. Corp Fin also released, on Nov. 6, 2020, a Small Entity Compliance Guide that summarizes and explains the final rule requirements.
Statistical disclosures for banking registrants final rule becomes effective
The final rule “Update of Statistical Disclosures for Bank and Savings and Loan Registrants” became effective Nov. 16, 2020, and applies to years ended on or after Dec. 15, 2021. Early compliance will be permitted provided the final rule is applied in its entirety from the date of early compliance. This final rule modernizes statistical disclosures of banking registrants currently provided in Industry Guide 3, “Statistical Disclosure by Bank Holding Companies.” The final rule rescinds Guide 3 and relocates required disclosures to new Subpart 1400 of Regulation S-K.
SEC announces departure of Corp Fin director
On Oct. 27, 2020, the SEC announced that William Hinman, director of Corp Fin, plans to leave the SEC later this year. Since joining Corp Fin in May 2017, Hinman has led and directed a number of significant initiatives including modernizing the offering process and enhancing investor protections, improving disclosures to investors while reducing unnecessary compliance cost, providing guidance on emerging issues, and modernizing and updating the proxy process. Upon Hinman’s departure, Shelley Parratt, current deputy director of Corp Fin, will serve as the division’s acting director.
From the Public Company Accounting Oversight Board (PCAOB)
PCAOB posts audit committee resource on new estimates and specialists requirements
On Nov. 12, 2020, the PCAOB released a new resource, “Audit Committee Resource: New PCAOB Requirements Regarding Auditing Estimates and Use of Specialists,” to help audit committees increase their understanding of the new requirements, which are effective for audits of financial statements for fiscal years ending on or after Dec. 15, 2020. This resource provides the basics of the new requirements, important takeaways for audit committees, and questions to consider asking auditors.
PCAOB releases report on initial impact of critical audit matter requirements
The PCAOB, on Oct. 29, 2020, issued an interim analysis report and two accompanying white papers related to the initial impact of critical audit matter (CAM) requirements.
The interim analysis report provides insights and the perspectives of the PCAOB on the initial impact of CAM requirements on the primary audit process stakeholders. Findings highlighted in the report include:
- Significant investments were made by audit firms to support initial implementation of CAM requirements.
- Investor awareness of CAMs communicated in the auditor’s report continues to develop; however, some investors already find the CAMs information helpful.
- Evidence of significant unintended consequences from auditors’ implementation of CAM requirements for audits of large accelerated filers in the initial year has not been identified.
The PCAOB staff white paper titled “Stakeholder Outreach on the Initial Implementation of CAM Requirements” presents results from surveys of engagement partners and audit firms, structured interviews with audit committee chairs and financial statement preparers, an investor survey, and a public request for comment.
The PCAOB staff white paper titled “Econometric Analysis on the Initial Implementation of CAM Requirements” is based on analysis of data gathered from a number of sources, including the PCAOB’s inspection program and third parties.
PCAOB releases preview of 2019 inspection observations
The PCAOB issued, on Oct. 8, 2020, a publication, “Spotlight: Staff Update and Preview of 2019 Inspection Observations,” that provides observations from the 2019 inspections of audits of issuers prior to issuance of the inspection reports, which audit committees might find useful when engaging with their auditors. The report highlights an update on PCAOB inspection transformation activities, observations on good practices, activities of the target team focusing on current audit risks and emerging topics, recurring observed deficiencies, the effect of technology, and audit committee communications. While recurring deficiencies are similar to those in prior years, one area identified for improvement is accounting estimates, specifically related to allowance for loans loss.
From the American Institute of Certified Public Accountants (AICPA)
AICPA updates digital assets practice aid
To address the quickly evolving ecosystem of digital assets, the AICPA released, on Oct. 8, 2020, an updated practice aid, “Accounting for and Auditing of Digital Assets,” adding 13 new questions and answers to the aid originally issued in December 2019.
The practice aid provides nonauthoritative guidance for financial statement preparers and auditors on accounting and auditing under GAAP and generally accepted auditing standards for digital assets, which are defined broadly as “digital records that are made using cryptography for verification and security purposes, on a distributed ledger.”
The new questions and answers address the following areas:
- Meeting the definition of an investment company when engaging in digital asset activities
- Accounting by an investment company for digital assets it holds as an investment
- Recognition, measurement, and presentation of digital assets specific to broker-dealers
- Considerations for crypto assets that require fair value measurement
- Accounting for stablecoin holdings
From the Center for Audit Quality (CAQ)
CAQ releases “2020 Audit Committee Transparency Barometer” report
On Oct. 13, 2020, the CAQ and Audit Analytics issued the “2020 Audit Committee Transparency Barometer,” which tracks S&P 1500 proxy disclosures to evaluate transparency regarding audit committee oversight of the external auditor and other important financial reporting topics.
This edition reports positive trends in audit firm evaluation and supervision and in disclosures of risk oversight in cybersecurity, COVID-19, and discussion of CAMs. However, disclosures related to auditor compensation and explanations for changes in fees paid to the external auditor have remained stagnant and provide opportunity for improvement. The publication also provides disclosure examples.