Embark’s Post

Transcript

You're listening to am Now, an Accounting Matters podcast. I'm Adam Olsen, and I'm Matt Visser. This week we're bringing you updates from the FASB, the IASB, several key sustainability matters, and something SEC registrants may need to keep in mind in light of recent events. Starting us off, the FASB recently completed its conceptual framework, a decades long project in the making that they have finally been able to draw to a close. In doing so, a chapter six was added to FASB Concept statement #8 this new and final chapter. Focuses on measuring assets and liabilities recognized in financial statements. More specifically, it describes the Entry Price system and the exit Price system, which they deem as the most relevant and representationally faithful measurement systems, as well as factors to consider when choosing a measurement system. A copy of the new chapter is live on the FASB's website for your late summer reading list. Sounds riveting, but staying with the FASB and an issue we previously covered on the AM Now podcast, the FASB did make tentative decisions around an ETF issued. Centered on induced conversions of convertible debt instruments, Vasby staff were directed to draft a proposed accounting standard update with a 90 day comment period. And last week the Board reconvened on the matter to review stakeholder feedback received on the proposed ASU. And in so, they've affirmed their decisions. To start, In order to apply induced conversion accounting, the inducement offer must preserve the form and amount of consideration issuable pursuant to the original conversion privileges. The Board will also clarify. That determining whether the form and amount of consideration is preserved should be performed as of the offer acceptance date. Additionally, if there has been no substantial modification of the convertible debt in the year leading up to the offer acceptance date, the entity should use the terms of the convertible debt as they were a year ago to determine if induced conversion accounting can be applied. Finally, the Board affirmed that induced conversion accounting can be used for all convertible debt instruments with the substantive conversion feature at issuance, regardless of their. Aren't convertibility, for instance, debt instruments contingent on an event are within the guidances scope if the conversion feature is substantive when issued? Yeah. And these amendments can be applied prospectively or retrospectively and will be effective for fiscal years beginning after December 15th, 2025 for all entities. Early adoption will be permitted as long as the entity has also adopted ASU 2020 Dash 06. Vasby staff will begin drafting a final ASU shortly and rounding out our FASB. News this week, the Board made a tentative decision on another ETF issue, determining the acquirer and the acquisition of a VIE. Rather than simply concluding that the primary beneficiary should always be the accounting acquirer of a vibe that meets the definition of a business, the Board agreed with the ITF that an entity should apply existing guidance when identifying the acquirer. Specifically, this means paragraphs 805105512 through 5515. Yeah, and as a reminder, this guidance is used when an acquirer cannot be identified. They solely on the outstanding voting interests. Some of the factors outlined here include consideration of the relative voting rights, the size of any single minority voting interest, composition of the board or other governing body, composition of the executive management team, terms of the exchange of the equity instruments, and even the size of the combining entities. The FASB did not provide a hierarchy to explain how to assess these various factors effectively, concluding that no single criterion is more significant than any other. Therefore, the determination of the accounting acquirer will require the exercise of professional judgment based on the evaluation of all of those factors in the aggregate. These amendments should be applied prospectively and early adoption is permitted. Vasby staff will begin drafting a proposed ASU with a 45 day comment period and switching to the international counterpart of the FASB, the IASB, as part of their regular maintenance issue targeted improvements to IFRS standards. Volume eleven of its annual improvements includes. Changes to the standards covering first time adoption of IFRS financial instruments, consolidated financial statements and statement of cash flows. These changes are primarily meant to clarify wording, make minor corrections and simplify and remove any inconsistencies. These amendments are effective for annual periods beginning on or after January 1st of 2026 and again early adoption here is permitted. Up next, we have a series of sustainability reporting updates to touch on. One interesting anecdote we recently saw comes from the. Center for Audit Quality, which recently published a report on the state of ESG reporting among and P 500 companies for 2022. In their report, the CAQ found that ESG reporting remains prevalent for companies, with 98% of companies disclosing some level of information, further adding weight to the significance of this information for stakeholders and investors. 70% of these companies also obtain some degree of voluntary assurance over their metrics, while greenhouse gas emissions has historically been the metric. Many companies subjected to voluntary assurance. The report also found that other metrics are being included in the scope of that work. The report also identified other findings related to different standards and frameworks used. In regards to standards, the report found that US auditors follow AICPA standards, while non-us auditors allowed IASB standards. This inconsistency and standards can raise questions about the reliability and comparability of ESG information across different companies, particularly when non public accounting firms. Are used as assurance providers as application of all of the requirements of those assurance standards may not be met. In other sustainability news here domestically, California Governor Gavin Newsom recently proposed delaying the implementation of California Senate Bills 253 and 261 by two years from 2026 to 2028. As you might recall from earlier episodes, Senate Bill 253 mandates large companies with annual revenues over $1 billion doing business in California to publicly disclose their greenhouse gas emissions. Which are categorized into three scopes. Senate Bill 261 requires companies with annual revenues over 500 million to issue reports on their climate related financial risks and the measures they are adopting to mitigate these risks. Aligned with the requirements of the TCF. D and the California climate bills were signed into law in October of 2023, leaving implementation of the laws as next steps. However, lawmakers and the California Air Resource Board have not been able to finalize the details making the implementation. Headlines challenging to be met, according to the Governor's office. The authors of the bill, however, do not agree with the proposed delay and intend to challenge the Governor's proposal. We will monitor this closely as more developments come. In the meantime, we encourage impacted companies to continue to focus on their compliance road map. Our last piece of news comes in the wake of the recent crowd strike server outage impacting numerous companies across the globe. The server related outages last week could have significant implications for public companies subject to the SEC's new cyber security. Disclosure rules. For example, the situation does raise questions about whether these incidents constitute cyber security incidents under Item 105 and Form 8K. According to the new cybersecurity disclosure rules, while crowd strikes defective update, which impacted customers using certain Microsoft operating systems, was not due to malicious activity, it did cause significant operational disruptions. The SEC's definition of a cybersecurity incident includes any unauthorized occurrence that jeopardizes the confidentiality. Integrity or availability of information systems, even if accidental. This broad definition implies that accidental technology outages could be reportable if they materially disrupt operations, and as a result, public companies affected by this incident should begin to evaluate whether disclosure and filings may be necessary in light of these circumstances. This includes assessing compliance with policies to determine if the impact is material and if any reporting is needed, conducting risk assessments and gap analysis. To identify any system deficiencies, including those involving third parties and disaster recovery practices, updating potentially risk factors and disclosures about system downtime and 3rd party reliance. Considering discussing the material impact as well of the update and management's discussion and analysis section of their filings and evaluating the implications for internal and disclosure controls and procedures. And that rounds us out for this Week 4 deeper dive into what's trending and accounting finance. And sustainability reporting, Check out our other podcast on the Accounting Matters feed on your preferred listening platform. Again, I'm Adam Olsen and I'm Matt Visser from your friends at Embark. Thanks for listening to AM Now.