Bridging the GAAP: May 2023

Centri’s Bridging the GAAP newsletter highlights this month’s news, developments, and emerging issues in the accounting and financial reporting world.

FASB Standard Setter Updates

Financial Accounting Standards Board

Improvement of Induced Conversion Guidance

On April 26, 2023, the FASB discussed a request whether certain convertible debt instruments settled using terms that differ from the stated contractual conversion provisions should be accounted for as induced conversion or extinguishment. The Board decided to add a project to the Emerging Issues Task Force (EITF) agenda to improve the relevance of the existing induced conversion guidance in Subtopic 470-20. The project scope will focus on the applicability of the induced conversion guidance to the early settlement of convertible debt instruments.

For more information, see the FASB’s Tentative Board Decisions.

Proposed Example on Scoping Profits Interest Awards

The FASB proposed by adding an illustrative example that includes four fact patterns to demonstrate how an entity would apply the scope guidance in ASC 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance with ASC 718. The fact patterns in the proposed illustrative example focus on the scope conditions in ASC 718-10-15-3. The proposed illustrative example is intended to reduce (1) complexity in determining whether a profits interest award is subject to the guidance in Topic 718 and (2) existing diversity in practice.

Comments are due by July 10, 2023.

May 17, 2023 Meeting

The Board directed the staff to draft an Accounting Standards Update to incorporate several SEC disclosure requirements, with minor revisions, into US GAAP in response to a request from the SEC. The new guidance will require entities that are not currently subject to SEC disclosure requirements to make certain additional disclosures that they did not have to previously make on a prospective basis. The US GAAP requirements will not be effective until the SEC removes them from Regulation S-K and Regulation S-X, which requires future rulemaking.

The Board also discussed its projects on (1) Conceptual framework: recognition and derecognition and (2) Conceptual framework: measurement.

For more information, see the FASB’s Tentative Board Decisions.

Upcoming FASB Meetings

The FASB is tentatively scheduled to meet as follows:

2023	Tentatively Scheduled Meetings
June 6	Financial Accounting Standards Advisory Council Meeting
June 7	FASB Board Meeting
June 7	Liaison Meeting with the Financial Executives International Committee on Corporate Reporting
June 14	FASB Board Meeting
June 15	Emerging Issues Task Force Meeting
June 21	FASB Board Meeting
June 22-23	Meeting of the Private Company Council
June 28	FASB Board Meeting

For more information, see the FASB’s calendar.

IASB Standard Setter Updates

International Accounting Standards Board

IFRIC Update Addendum

An addendum to the March 2023 IFRIC Update has been released to include the finalized agenda decision on Definition of a Lease – Substitution Rights (IFRS 16, Leases).

Amendments to IAS 12 for Pillar Two Deferred Taxes

On May 23, the IASB issued amendments to IAS 12, Income Taxes, to provide temporary relief from accounting for deferred taxes arising from the Pillar Two model rules published by the Organization for Economic Co-operation and Development (OECD). New targeted disclosure requirements for companies affected by the Pillar Two model rules are also introduced in the amendments. The disclosures are effective for years beginning on or after January 1, 2023.

Improvement of Induced Conversion Guidance

On May 25, the IASB issued amendments to IAS 7, Statement of Cash Flows, and IFRS 7, Financial Instruments: Disclosures, to require additional disclosures about the impacts that supplier finance arrangements have on a company’s liabilities, cash flows, and liquidity risk. The amendments are effective for years beginning on or after January 1, 2024.

IFAC / IAASB Standard Setter Updates

International Federation of Accountants / International Auditing and Assurance Standards Board

The IAASB issued proposed revisions to its current standard on going concern, International Standard on Auditing 570 (Revised), Going Concern. The proposed revisions aim to:

• Promote consistent practice and behavior and facilitate effective responses to identified risks of material misstatement related to going concern;
• Strengthen the auditor’s evaluation of management’s assessment of going concern, including reinforcing the importance, throughout the audit, of the appropriate exercise of professional skepticism; and
• Enhance transparency with respect to the auditor’s responsibilities and work related to going concern where appropriate, including strengthening communications and reporting requirements.

Comments are due by August 24, 2023.

ISSB Standard Setter Updates

International Sustainability Standards Board

On May 4, 2023, the International Sustainability Standards Board (ISSB) published its Request for Information, Consultation on Agenda Priorities, seeking input into the Board’s priorities for 2024 through 2026.The ISSB is seeking to obtain input on the prioritization of four proposed research projects:

• Biodiversity, ecosystems, and ecosystem services
• Human capital
• Human rights
• Integration in reporting, including the interrelation between financial and sustainability performance

The Request for Information is open for comment until September 1, 2023.

On May 11, 2023, the ISSB published an exposure draft on its proposed methodology for amending the non-climate-related SASB Standards metrics to enhance their international applicability. The exposure draft also proposes updates to the SASB Taxonomy to align with the amendments to the SASB Standards. The ISSB plans to issue targeted amendments to the SASB Standards and the SASB Standards Taxonomy to facilitate the implementation and application of IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information.

Comments on the exposure draft are due by August 9, 2023.

SEC Regulatory Updates

Security and Exchange Commission

Amended Rules on Share Repurchase Disclosures

The SEC adopted amendments to require additional detail regarding the structure of an issuer’s repurchase program and its share repurchases, require the filing of daily quantitative repurchase data either quarterly or semiannually, and eliminate the requirement to file monthly repurchase data in an issuer’s periodic reports.

Issuers are also required to indicate whether certain officers and directors traded shares within the four (4) business days of the announcement of a repurchase plan. These disclosures must be filed quarterly as an exhibit to Forms 10-Q and 10-K for issuers that file on domestic forms, on Form N-CSR semi-annually for listed closed-end funds. and on a new quarterly Form F-SR for foreign private issuers (FPIs).

The amendments further expand existing narrative disclosure requirements in Regulation S-K, Form 20-F and Form N-CSR to discuss share repurchase objectives, criteria used to determine the amount of the repurchase, and any policies and procedures related to the trading of securities by officers and directors during a repurchase program. Issuers are also required to include quarterly disclosure in periodic reports on Forms 10-Q and 10-K about an issuer’s adoption and termination of Rule 10b5-1 trading arrangements.

The final rule becomes effective 60 days after publication in the Federal Register. Reporting entities will then have additional time to comply with the expanded disclosure and filing requirements. Compliance dates will depend on the type of entity:

• Domestic corporate issuers and FPIs filing on domestic forms will be required to comply beginning with the filing that covers the first full fiscal quarter that begins on or after October 1, 2023. For example, a calendar year-end entity with a fourth quarter beginning on October 1, 2023 would be required to comply beginning with its December 31, 2023 Form 10-K (covering activity in that fourth quarter), and in Form 10-Q filings thereafter.
• FPIs filing on FPI forms will be required to comply by filing a new quarterly Form F-SR related to the first full fiscal quarter that begins on or after April 1, 2024. Narrative disclosures related to filed Form F-SRs will be required in the following Form 20-F. For example, a calendar year-end FPI with a fiscal quarter beginning on April 1, 2024 will be required to file a Form F-SR for the quarter ended June 30, 2024 that will be due within 45 days of the fiscal quarter end. Narrative disclosures covering Form F-SRs filed during 2024 will be required beginning with the Form 20-F for the year-ended December 31, 2024.
• Listed closed-end funds will be required to comply starting with the Form N-CSR that covers the first six-month period that begins on or after January 1, 2024.

Amendments to Private Funding Reporting

The SEC adopted amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds to require event reporting upon the occurrence of key events. The amendments will require more frequent and more detailed disclosures to help the Financial Stability Oversight Council monitor systemic risks and help the SEC oversee private fund advisers and protect investors.

The amendments require reporting of certain events indicating significant stress at a fund that could harm investors or signal risk in the broader financial system in the following manner:

• Large hedge fund advisers are required to file a current report as soon as practicable but no later than 72 hours after the occurrence of reportable events such as extraordinary investment losses, significant margin and default events, and large withdrawals and redemptions.
• Private equity fund advisers are required to file an event report within 60 days of each fiscal quarter end after the occurrence of reportable events such as the execution of an adviser-led secondary transaction or the removal of a fund’s general partner.
• Large private equity fund advisers are required to file an annual report after the implementation of general or limited partner clawbacks.

The amendments also require large private equity advisers to report more information regarding the activities of private equity funds, certain of their portfolio companies and creditors involved in financing transactions.

The amendments will be effective six (6) months after publication in the Federal Register for current and quarterly event reporting and one (1) year after publication in the Federal Register for the other requirements.