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Bridging the GAAP – July 2024

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

June 26, 2024 Meeting

The Board completed redeliberations on the proposed Accounting Standards Update, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. Among other final decisions, the FASB decided the new disclosures will be required in both interim and annual financials (with the exception of certain policy disclosures) and will be required on a prospective basis, with optional retrospective application. The new standard will only apply to public business entities and will be effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.

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

July 17, 2024 Meeting

The Board discussed feedback received on the proposed Accounting Standards Update, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. Among other final decisions, The Board affirmed its decisions to require that:

• The assessment of the form and amount of consideration in the inducement offer should be performed as of the offer acceptance date.
• For convertible debt instruments that have been exchanged or modified (without being deemed substantially different in accordance within the guidance in Subtopic 470-50, Debt—Modifications and Extinguishments) in the one year preceding the offer acceptance date, the conversion privileges provided in the debt terms that existed one year before the offer acceptance date (rather than the conversion privileges provided in the terms of the debt instrument) should be used for the induced conversion assessment.

The Board affirmed its decision to permit either prospective or retrospective application of the amendments with related transition disclosures. The Board decided that the amendments will be effective for fiscal years (including interim periods within fiscal years) beginning after December 15, 2025, for all entities, with early adoption permitted. The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.

The Board added a project to its technical agenda to clarify the guidance in Topic 805, Business Combinations, and Topic 810, Consolidation, on whether the primary beneficiary should always be the accounting acquirer of a variable interest entity (VIE) that meets the definition of a business. The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot. The Board also decided on a 45-day comment period for the proposed Update.

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

AICPA Updates

American Institute of CPAs

The AICPA’s Financial Reporting Executive Committee has released for comment drafts of two updated chapters from its Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (sometimes referred to as the “cheap stock guide”). While the guide is not authoritative, the revisions to chapter 8, Inferring Value from Transactions in a Private Company’s Securities, and chapter 9, Selected Accounting and Disclosure Matters, reflect what the AICPA’s Equity Securities Task Force views as best practices. Although the updated chapters may not be finalized until 2025, the content in the guide is interpretive guidance relative to existing authoritative literature and will not have a definitive effective date. Private companies should consider the draft updated guidance in the guide when valuing equity securities issued as compensation.

Comments are due by September 20, 2024. Additional updates to the guide will be released in the future

ISSB Standard Setter Updates

International Sustainability Standards Board

ISSB Plans to Harmonize Sustainability Disclosure Landscape

On June 24, Emmanuel Faber, ISSB Chair, spoke about the ISSB’s new two-year work plan. Faber highlighted the organization’s plans to further harmonize and consolidate the disclosure landscape, specifically on transition plans, in response to market demand. Additional plans include:

• A memorandum of understanding (MoU) between the Greenhouse Gas Protocol (GHG Protocol) and the IFRS Foundation to guide future work and collaboration between the GHG Protocol and ISSB.
  The MoU aims to have the ISSB actively engaged in updates and decisions made in relation to the GHG Protocol Corporate Standard. This includes the appointment of a representative of the ISSB as an observer on the GHG Protocol Independent Standards Board.
• A partnership with the Global Reporting Initiative (GRI) to jointly identify and align common disclosures on an entity’s impacts, risks, and opportunities to meet the needs of both investors and a broader range of stakeholders.

The ISSB also plans to continue working with and considering recommendations from other organizations, such as the Taskforce on Nature-related Financial Disclosures (TNFD).

SEC Regulatory Updates

Securities Exchange Commission

Corp Fin Issues New Statement and C&DIs on Cybersecurity

On June 20, SEC Division of Corporation Finance (Corp Fin) Director Erik Gerding issued a statement regarding the SEC’s July 2023 cybersecurity disclosure rule. The July 2023 rule requires disclosure of certain information about material cyber incidents in Item 1.05 (Material Cybersecurity Incidents) of Form 8-K. However, a company may elect to voluntarily disclose a cyber incident it has determined was not material or an incident for which it has not yet made a materiality determination.

The June statement reminds registrants that nothing in the new cyber disclosure rules prohibits the registrant from providing information to other parties about material cyber incidents beyond what is disclosed in Item 1.05 Form 8-K (Material Cybersecurity Incidents). However, registrants should consider the requirements of Regulation FD in connection with any such disclosures to private parties.

This statement follows a May Corp Fin statement that had encouraged companies voluntarily disclosing cyber incidents to make the disclosures under Item 8.01 (Other Events) of Form 8-K instead of Item 1.05. Then, if a company later concludes that the incident is material, it must file an Item 1.05 Form 8-K within four business days of that materiality determination. The May statement also reminded companies of the factors to consider in the materiality assessment.

In addition, on June 24, Corp Fin issued five new Compliance and Disclosure Interpretations (C&DIs) related to evaluating the materiality and Form 8-K reporting requirements of ransomware-related cybersecurity incidents.

Other Regulatory Matters

ESMA Publishes Guidance to Support Sustainability Reporting

On July 5, the European Securities and Markets Authority (ESMA), financial markets regulator and supervisor of the European Union, published a report and a public statement on the first application of the European Sustainability Reporting Standards (ESRS). These documents are intended to support consistent application and supervision of the EU’s Corporate Sustainability Reporting Directive (CSRD).

The documents highlight key areas relevant to companies preparing to issue their first CSRD reports, including the establishment of governance arrangements and internal controls, designing and conducting materiality assessments, and creating connectivity between financial and sustainability information. ESMA also stressed the importance of preparing data collection and management systems to meet the CSRD’s requirements.

Rikki Williams

Senior Director | CPA

Rikki is a Senior Director at Centri Business Consulting. He has more than 16 years of public and private accounting experience. View Rikki Williams's Full Bio