finance

Tax & Accounting Update – The CPA Journal

Written by IhebQld

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

Crypto, banking reps critical of OECD proposals.

New requirements under the Organization for Economic Co-operation and Development’s (OECD) proposed amendments to its reporting regime and new crypto framework should be more narrowly tailored, according to representatives from the crypto and banking industries. On March 22, the OECD released a public consultation document outlining its global tax transparency agenda to promote the reporting and exchange of information between countries regarding so-called crypto-assets and financial account information. The OECD defines a crypto-asset in its Crypto-Asset Reporting Framework (CARF) as an asset created using cryptographic technology that can be “transferred and held without interacting with traditional financial intermediaries and without any central administrator having full visibility” of the transactions. Under CARF, four types of transactions would be considered relevant and, therefore, reportable:

  • Exchanges between crypto-assets and fiat currencies;
  • Exchanges between one or more crypto-assets;
  • Specified retail payment transactions; and
  • Transfers of crypto-assets.

This is notably distinct from the Financial Action Task Force’s (FATF) definition of a virtual asset, which was characterized as a “digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes.” Lawrence Zlatkin, vice president of tax at popular crypto exchange Coinbase, said that the “overly broad” definition of crypto-asset departs from FATF and potentially includes assets other than for payment and investment. “I don’t know why we should have different rules for FATF and for CARF,” Zlatkin said. “It just creates more complexity for people and persons who have to implement these rules.”

FASB News

Revising income tax disclosure rules won’t be simple.

FASB could approach revisions to income tax disclosure rules through the lens of management, according to a recent panel discussion. “I happen to oversee tax at my company, and this area is unbelievably complicated,” said Brent Woodford, Executive Vice President, Controllership, Finance and Tax, at the Walt Disney Company. “I do think trying to come at this through the eyes of management as well might be a way to think about it,” he said on June 2 at the 40th Annual SEC and Financial Reporting Institute Conference hosted by the University of Southern California’s Leventhal School of Accounting. Woodford cited a huge disconnect between when taxes are paid and when they’re booked–such as audit settlements, prepayments. “Cash versus book is incredibly complicated, it’s hard to even say what is foreign income versus U.S. income,” he said. There has been an OECD [Organisation for Economic Co-operation and Development] project going on for years that is going to change everything, Woodford explained. “Most companies already have to do country-by-country reporting, and that’s gotten its whole regime around that, so this is going to be a really challenging one to make something useful for investors.” The tax project now focuses on providing investors with more information about where a company actually pays taxes, an area investors pressed the board on during its agenda consultation outreach. The effort would provide transparency investors have said they need to better understand jurisdictional risks and a company’s exposure to potential changes in tax legislation or potential opportunities.

Broad public approval for latest proposal to facilitate LIBOR shift.

A recent FASB proposal that aims to accomplish reference rate reform was backed broadly by groups and accounting firms in comment letters received by the board in June, with some urging the board to continue monitoring the issue. In April, the board proposed two amendments to facilitate the shift from the London Interbank Offered Rate (LIBOR), giving most entities two more years—until the end of 2024—to complete modification of their impacted contracts. Other issues may be bubbling up, according to comment letters. “There are reference rates that are not expected to become unrepresentative until closer to this date, which may not give entities with exposure to those rates ample time to facilitate completing their reference rate reform activities,” Dan Gentzel, Managing Director, Global Hedge Accounting Chatham Financial Corp., said in a June 2, 2022, comment letter. “As a result, we believe the board should continue to monitor global reference rate reform activities and consider extending the sunset date further to provide impacted entities with additional time to modify contracts.” Similarly, the financial reporting committee of the Institute of Management Accountants (IMA) encouraged the FASB “to continue to monitor developments in the marketplace related to reference rate reform and to continue facilitating the transition away from interbank offered rates were warranted” in its June 5 letter. All respondents backed the proposal, including the Mortgage Bankers Association (MBA), the national association representing the real estate finance industry.

SEC within rights to tackle climate proposal.

FASB Chair Richard Jones last week defended the SEC’s right to issue a climate proposal, touching lightly on the contentious issue of whether the regulator had overstepped its boundaries in doing so. “The SEC is responsible for many financial reporting and accounting decisions—they’ve done it in the past,” Jones said on June 2 at the 40th Annual SEC and Financial Reporting Institute Conference hosted by the University of Southern California’s Leventhal School of Accounting. “To the extent that the SEC is creating additional footnote disclosure here, I would say that follows a pattern where they have over time required certain disclosures over certain presentation of financial information.” Full cost accounting for oil and gas entities, and the original disclosure rules on effective tax rate reconciliation, for example, are not in U.S. GAAP, and can only be found in SEC standards, Jones said. The SEC proposal, issued late March, would require a domestic or foreign registrant to include certain climate-related disclosures in their registration statement or periodic reports. The proposal has been met with concerns by certain legislators and others that the SEC is overreaching its statutory authority over public companies by requiring them to disclose climate-related financial risks.

PCAOB News

Chair Erica Williams discusses PCAOB priorities.

During a financial reporting conference, PCAOB Chair Erica Williams provided her vision and priorities for the organization, which include robust inspection and enforcement programs to protect investors and a highly ambitious standard-setting agenda to improve audit quality. “I look at enforcement and the interconnection between enforcement and our standard setting as being things that are really intertwined … and I was a litigator by training, and so I deeply care about the importance of a robust enforcement program,” Williams, who became chair in January, said during a pre-recorded fireside chat with PCAOB Inspections Director George Botic at the 40th Annual SEC Financial Reporting Institute Conference hosted by the University of Southern California’s Leventhal School of Accounting on June 2. “From my perspective, our standards are really only as good as our ability and willingness to enforce them. And so, in many ways, for the PCAOB’s oversight ecosystem to function at its best, standard setting, inspections, and enforcement really need to complement each other,” Williams said. “And our enforcement program needs to serve as an important deterrent against noncompliance—both a specific and a general deterrent.”

AICPA News

New audit firm quality management standards published.

The AICPA announced that it has officially released its revised quality management (QM) standards. The standards are as follows:

  • Statement on Quality Management Standards (SQMS) 1, A Firm’s System of Quality Management
  • SQMS 2, Engagement Quality Reviews
  • Statement on Auditing Standards (SAS) 146, Quality Management for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards
  • Statement on Standards for Accounting and Review Services (SSARS) 26, Quality Management for an Engagement Conducted in Accordance With Statements on Standards for Accounting and Review Services

The official release follows a vote by the AICPA’s Auditing Standards Board (ASB) to issue final QM standards during a meeting in May.

SQMS 1 “requires the firm to apply a risk-based approach in designing, implementing, and operating the components of the system of quality management in an interconnected and coordinated manner such that the firm proactively manages the quality of engagements performed by the firm.”

About the author

IhebQld

Leave a Comment