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Tax & Accounting Update

Tax & Accounting Update is provided by Thomson Reuters and based on material published on Checkpoint, its online news and research platform. The Update is a quick-reference guide to the most pressing issues coming down the regulatory and administrative pipeline. Visit https://tax.thomsonreuters.com/daily-newsstand/ for further information and daily updates.

Tax News

OECD releases final report on base erosion and profit shifting

On October 5, the Organization for Economic Cooperation and Development (OECD) released its final package of reports from its Base Erosion and Profit Shifting (BEPS) project. The project is a comprehensive set of recommendations for reforming the international tax regime to prevent multinational companies from shifting their profits into low-tax jurisdictions. The first deadline under BEPS is set for December 2017, a date that—according to a Thomson Reuters survey—one-quarter of corporate tax executives are pessimistic they will be able to meet.

SEC News

Financial reporting and audit task force gains permanent status

The SEC has made the Financial Reporting and Audit Task Force a permanent group within the Enforcement Division, and renamed it the Fraud Group. The changes underscore the heightened importance the agency has given to fighting accounting fraud, which contributed to a 40% jump in enforcement actions against financial reporting abuses in the last reported fiscal year. The number of new financial reporting investigations opened increased by about 30%. The group has identified about 250 public companies that are “of interest,” although the Fraud Group's chief, Margaret McGuire, did not offer details about individual investigations that have not been made public.


Clearer guidance expected on revenue recognition for licenses, promises to customers

On October 5, FASB decided to clarify how businesses account for licenses of intellectual property, which has been a persistent source of questions about the board's revenue recognition standard. In addition to several clarifications about identifying separate promises, or performance obligations, in a contract with a customer, FASB wants to draw a sharper distinction between the accounting for revenue from licenses of intellectual property that represent a promise to deliver a good or service over time versus a promise to be satisfied at a point in time.

Income tax disclosure proposal poised for early 2016 release

FASB is planning a proposal for the first quarter of 2016 that would require businesses to provide expanded information in their financial statement notes about the tax implications of their foreign earnings, as well as more details about domestic taxes. The proposal is expected to include requirements that multinational companies provide a breakdown of income taxes associated with foreign earnings versus domestic income and a further breakdown of significant foreign earnings by jurisdiction. In addition to a breakdown of taxes by country, FASB wants more details about tax expense. A company's current tax expense line is made up of several items, including taxes recognized, deferred tax liabilities, and taxes on foreign earnings that were earned and remitted in the reporting period.


Inspection staff sees added risks in mergers

On October 1, the PCAOB said it is concerned that the increase in corporate mergers is adding to the risks that auditors have to contend with. The board believes the heightened pace of mergers increases the likelihood that an audit client could misapply, or the audit firm could misinterpret, the accounting or audit guidance for making fair value measurements of the acquired assets or liabilities assumed, identifying intangible assets, assigning goodwill to reporting units, and making residual payments as part of a deal's contingent consideration. The PCAOB also said that its staff is still uncovering problems with cash flow reporting mistakes and profit shifting by U.S. companies to lower tax jurisdictions.

The OECD released its final package of reports from its BEPS project.


Insurers may get three extra years to adopt financial instruments standard

The IASB agreed to grant relief to insurers applying the board's separate-but-related financial instruments standard. Insurance companies will have the option of waiting until 2021 to adopt the amendments in the financial instruments standard. If they adopt the guidance at the 2018 effective date, they can cut from the income statement the effects of the mismatch caused by the standards' different requirements.


Survey seeks information on costs of preparing financial statements

A GASB survey of state and local governments is seeking information on the work they do to prepare financial statements. GASB said the survey results will help it review the costs and benefits of its basic financial reporting model. The accounting board said it wants the survey responses by December 15. “This survey is primarily focused on the activities directly associated with preparing, auditing, and making government financial reports available to users,” GASB stated in the survey's introduction. The accounting board said information “related to reviewing the accuracy of accounts and closing the funds are an integral part of the year-end process for government preparers as well, but are not the primary focus of this survey.”

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