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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/checkpoint-news/ for further information and daily updates.

Tax News

Taxpayers' settlement with tax advisors didn't affect IRS's obligation to pay refund.

A district court has rejected the IRS's argument that it is not obligated to refund a taxpayer penalty that was issued in error. The taxpayers, Mr. and Mrs. Ervin, were mistakenly advised by their tax advisor to pay a misstatement penalty and brought an action against that advisor. The couple was successfully awarded damages by a jury and sought a refund of the payment from the IRS. The IRS argued that because the Ervins had already received a jury verdict in their favor, they were not entitled to a refund of the penalty payments from IRS. That argument was not successful.

SEC News

Silicon Valley veteran tapped to run corporation finance division.

On May 9, the SEC named William Hinman as the chief of its Corporation Finance Division. The market regulator credited Hinman, who recently retired as a partner in the Palo Alto, California office of Simpson Thacher & Bartlett LLP, for his work advising clients in securities offerings in the technology, e-commerce, healthcare, and biopharmaceutical markets. “Bill is widely recognized for his judgment and expertise in the area of corporate finance,” SEC Chairman Jay Clayton said in a statement.

FASB News

Conceptual framework to update definitions for fundamentals of accounting.

FASB plans to update its chapter on the fundamental elements of financial statements as part of its revisions to its Conceptual Framework. The accounting board wants to produce a framework that will help it write more consistent accounting standards. Critics, including FASB members themselves, often say the accounting board makes standard-setting decisions on a case-by-case basis, which leads to inconsistent, even contradictory, requirements in U.S. GAAP for similar transactions. FASB wants to finish revising the framework but understands the difficulty it faces before the effort is complete, as some financial professionals see it as an ivory tower endeavor. “We need to figure out a way to get more engagement in this project because it is so critically important and can have so many long-term implications on standard-setting,” FASB member Christine Botosan said.

IASB News

After two decades, standard on insurance accounting released.

The IASB has published its much-anticipated overhaul for insurance accounting, ushering in a major change to how insurers report the risks they take and the promises they make to their customers. Two decades in the making, IFRS 17, Insurance Contracts, calls for fundamental changes to an industry whose balance sheets are considered impenetrable to all but the most specialized analysts. The standard goes into effect in 2021, but insurers—an estimated 450 companies with $13 trillion in assets—can adopt the provisions ahead of time. “You're going to have consistent accounting for an industry historically seen as difficult to understand, difficult to compare, and difficult to set up against other investment opportunities,” said IASB member Darrel Scott.

Investors left off of insurance transition resource group.

The IASB has said that its advisory panel for the planned standard to overhaul insurance accounting will not include investors or analysts. Instead, the group, to be called the Transition Resource Group, will be made up of auditors and representatives from insurance companies. The goal is for the group to handle questions about putting the new standard into practice. Regulators will be at meetings of the group as observers, and the IASB plans a “separate stream of outreach” to investors and analysts, a spokesperson said.

PCAOB News

Advances in technology present opportunities and challenges for auditors.

During a recent conference, PCAOB member Steven Harris said that advances in technology are facilitating audit work, but auditors must be careful about using technology. He emphasized that technological tools do not substitute for an auditor's knowledge, skepticism, and judgment. Accounting firms have been spending from $3 billion to $5 billion per year on technology, according to a recent report cited by the AICPA, allowing major accounting firms to enhance audits by automating time-consuming manual and rote tasks. But Harris said the effect of technology on the future of the audit is yet to be determined. “As powerful as these tools are, or are expected to become, they nonetheless are not substitutes for the auditor's knowledge, judgment, and exercise of professional skepticism,” Harris said at the PCAOB-American Accounting Association (AAA) Annual Meeting in Washington, D.C., on April 20.

 
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