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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

IRS issues final versions of country-by-country report, schedule, and instructions.

The IRS has issued final versions of Form 8975, Country-by-Country Report, and released Schedule A to that form, along with accompanying instructions for completion. Country-by-country (CbC) reporting is generally required by ultimate parent entities of U.S. multinational enterprise groups for tax years beginning on or after June 30, 2016. Schedule A has three parts; the first is used to provide information about the specific tax jurisdiction, the second covers the entity (or entities) in the jurisdiction, and the third is used to provide “any additional information related to the information reported in Part I and II.”

SEC News

Confidential IPO filing expanded to all companies.

The SEC is expanding the confidential initial public offering (IPO) filing provisions of the JOBS Act to all companies. The change, one of the first significant actions under new Chair Jay Clayton, does not require the notice-and-comment period normally needed for rule-making. The IPO filing announcement comes a little more than a week after Clayton decried the falling number of IPOs in recent years. “High-quality companies may choose to go public at a later stage, after much of their early growth has already been achieved,” Clayton said in June 22 remarks before the SEC's Investor Advisory Committee. Clayton also said he and Division of Corporation Finance Director Bill Hinman have directed staff to explore “ways in which we can improve the attractiveness of listing on our public markets, while maintaining important investor protections.”


Private Company Council to debate proposed changes to debt classification guidance.

FASB's Private Company Council (PCC) has criticized a proposal intended to make businesses more clearly distinguish between debts that are due immediately versus those on which they have time to make payments. The proposed changes are expected to make more debts look like they are current, and some private companies fear that the increase in the current debt on their balance sheets will discourage lenders and investors from giving them financing. The board reviewed feedback on the proposal at its June 28 meeting but has not taken formal action.


Effort to redesign income statement raises concern.

The IASB has more work to do before it decides whether to allow new line items in company income statements that proponents say would lend better insight into a business's financial health. The board is considering adding two subtotals to the statement of financial performance—earnings before finance income/expenses and tax (EBIT) and a new, yet-to-be-defined “management performance measure.” But the board's most recent discussion about the effort raised questions about how it should proceed. “As usual, we are very good at creating problems and seeing problems, and finding all sorts of obstacles,” IASB Chairman Hans Hoogervorst said.


Staff brief explains focus of inspections of auditors of broker-dealers for 2017.

On June 29, the PCAOB published a staff inspection brief with details about the inspections of auditors of broker-dealers it plans to carry out in 2017. The board expects to focus on areas where the inspection staff has previously found problems, including auditor independence, engagement quality reviews, and financial reporting issues, including revenue recognition and related-party transactions. “The intent of these staff inspection briefs is to help audit firms, investors, and others better understand how the PCAOB approaches audit firm inspections,” Helen Munter, the audit regulator's director of registration and inspections, said in a statement. The PCAOB plans to inspect 75 accounting firms that audit broker-dealers, covering parts of 115 audits during the 2017 inspection cycle. This includes four firms that audit more than 100 broker-dealers, 16 firms that audit 21 to 100 broker-dealers, and 55 firms that audit 1 to 20 broker-dealers.

Inspections continue to find deficiencies in broker-dealer audits.

The PCAOB continued to find deficiencies in the audits of broker-dealers, according to a preview of the inspections it carried out in 2016. Some auditors still had problems maintaining independence from their broker-dealer clients and did not perform sufficient audit procedures scrutinizing revenue recognition. PCAOB Rule 3520, Auditor Independence, requires registered accounting firms to be independent of their audit client. They also must comply with the SEC's independence criteria established in Rule 2-01 of Regulation S-X. “An auditor is not independent of its client, including its broker or dealer client, if the auditor maintains or prepares the client's accounting records, prepares the client's financial statements that are filed with the SEC, or prepares or originates source data underlying the client's financial statements,” the PCAOB brief said. The PCAOB staff inspected 75 accounting firms, covering parts of 115 audit and attestation engagements for fiscal years that ended during the period from June 30, 2015, through June 30, 2016. In total, 541 accounting firms issued audit reports of 3,958 broker-dealers.

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