New guidance clarifies timing for release of cumulative translation adjustments
The FASB has issued Accounting Standards Update (ASU) 2013-05, Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity – a consensus of the FASB Emerging Issues Task Force, to resolve diversity in practice about the timing of an entity's release of cumulative translation adjustments from accumulated other comprehensive income into net income.
For more information about the new guidance, refer to the summary of the EITF's consensus in the January 22, 2013 On the Horizon.
March 6 meeting focuses on insurance contracts
All decisions reached at Board meetings are tentative and may be changed at future meetings. Decisions are included in an Exposure Draft only after a formal written ballot. Decisions reflected in Exposure Drafts are often changed in redeliberations by the Board based on information received in comment letters, at public roundtable discussions, and from other sources. Board decisions become final after a formal written ballot to issue a final Accounting Standards Update.
On March 6, the FASB resumed its ongoing discussion of insurance contracts, focusing on the following topics.
Changes in estimated interest crediting and accretion rates
The Board tentatively confirmed its previous decision not to require insurers to disaggregate contractual cash flows into those affected, and those unaffected, by returns from assets when determining discount rates that reflect characteristics of the contract's cash flows. The discount rates should reflect the degree to which estimated cash flows, subject to insurer discretion, are affected by asset returns.
The Board also reached tentative decisions on accounting for changes in an insurer's expectations of the crediting rate used to measure the insurance contracts liability.
Fair value option
Board members tentatively agreed to eliminate the fair value option election in FASB Accounting Standards Codification® (ASC) 825, Financial Instruments, for the following items:
- Guarantees and other contingencies within the scope of ASC 460, Guarantees
- Contingencies under ASC 450, Contingencies
- Rights and obligations under an insurance contract
- Obligations under a warranty that are either subject to the guidance in ASC 944, Financial Services – Insurance, or accounted for under the proposed insurance contracts guidance
- Rights under a warranty that will be accounted for under the proposed revenue recognition guidance
- Written loan commitments
- Firm commitments that would not otherwise be recognized at inception involving only financial instruments
Board responds to post-implementation review of segment reporting standard
Following the January release of the Financial Accounting Foundation's (FAF's) post-implementation review of Statement 131, Disclosures about Segments of an Enterprise and Related Information (now codified in ASC 280, Segment Reporting), the FASB has announced that it will meet with constituents and the SEC staff to determine whether additional guidance is needed to improve certain operational aspects of the current guidance.
See the January 22, 2013 On the Horizon for more information about the FAF's post-implementation review report.
SEC
Risk Alert addresses Custody Rule compliance issues
This Risk Alert was prepared by the staff of the Office of Compliance Inspections and Examinations in consultation with other SEC staff, including the Division of Trading and Markets and the Division of Corporation Finance. It is not legal advice and does not necessarily reflect the views of the Commission or other SEC staff members.
The SEC's Office of Compliance Inspections and Examinations recently published a National Exam Program Risk Alert, Significant Deficiencies Involving Advisor Custody and Safety of Client Assets, summarizing custody deficiencies identified through the SEC's National Examination Program (NEP) targeting investment advisers. The alert is intended to assist investment advisers in complying with the Custody Rule (Rule 206(4)-2 under the 1940 Investment Advisers Act), following the NEP staff's finding that approximately one-third of recent investment adviser examinations with significant deficiencies included custody-related issues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.