FASB Issues Positions On Loan Terms, Intangibles; More

The Financial Accounting Standards Board has issued staff positions and a proposed staff position that offer guidance on loan terms that may trigger a concentration of credit risk, investment contracts, and the amortization of intangible assets.

In its staff position titled “Terms of Loan Products That May Give Rise to a Concentration of Credit Risk,” FASB reminds companies to analyze contractual features of loan products that may create increased risk of nonpayment or realization.

Such features might include terms that permit deferral of principal payment or payments that are smaller than interest accruals, a high loan-to-value ratio, and multiple loans on the same collateral that create a high loan-to-value ratio. FASB’s staff advises companies to determine whether such terms create a “concentration of credit risk” that would trigger requirements of Statement No. 107, Disclosures about Fair Value of Financial Instruments.

In a second staff position, FASB clarifies the criteria companies must meet if they intend to value an investment contract at contract value (which is the principal balance plus accrued interest) instead of fair value. The guidance also clarifies some finer points of financial statement presentation and disclosure of the fully benefit-responsive investment contracts.

Finally, FASB has proposed some new guidance on how companies should amortize certain renewable intangible assets, such as intangibles that contain legal, regulatory or contractual provisions that enable renewal or extension of the asset’s life. The staff position seeks to revise Statement No. 142, Goodwill and Other Intangible Assets, to address concerns that the useful life of a renewable intangible asset often is shorter than the period of cash flows used to determine the asset’s fair value.

Separately, FASB is looking for any users of U.S. Generally Accepted Accounting Principles for any non-government entities to participate in a five- to 10-minute survey to help guide its efforts to codify existing GAAP literature. In addition to organizing GAAP into a comprehensive, codified system, FASB wants to release an electronic research system that will support access to the codification. Survey results will help guide the creation of that research system.

The related staff positions and survey are available in the box above, right.

SEC Seeks Comment On Weakness Remediation Standard

The Securities and Exchange Commission is seeking comment on a standard adopted by the Public Company Accounting Oversight Board in July that describes how auditors can respond when management asks for an audit opinion on its work to correct a reported material weakness.

The PCAOB adopted Audit Standard No. 4, Reporting on Whether a Previously Reported Material Weakness Continues to Exist, on July 26, and sent it to the SEC for its review and final approval on July 28. Nearly five months later, the SEC posted the standard to its website asking for comments separately. The PCAOB’s filing to the SEC includes the 30 comments letters the board received on the standard when initially proposed.

The standard gives audit firms the option to issue opinions on management assertions that previously reported weaknesses have been corrected. Previously, audit firms had no guidance on whether or how they could issue such opinions outside the context of the annual audit.

COSO Extends Comment Deadline On Small Co. Framework

The Committee of Sponsoring Organizations of the Treadway Commission has extended the deadline for any who want to comment on its proposed framework for internal-control reporting in smaller companies. Citing a number of requests that the comment period extend past the holiday season, COSO added another 15 days and will accept comments through Jan. 15.

Those interested in commenting on the draft can use the link in the box above, right; related coverage—including a downloadable version of the draft—can also be found at right.

IAASB Wants To Raise Bar For Auditors On Related Parties

The International Auditing and Assurance Standards Board wants auditors to pay closer attention to the relationships among directors, owners and management when auditing financial statements.

The IAASB issued an exposure draft proposing to revise International Standard on Auditing 550: Related Parties, to require the auditor to get an understanding of the nature and business rationale of an entity’s related-party relations and transactions so that it can identify, assess and respond to any risk that such relationships might lead to material misstatements. It also adds emphasis to the auditors’ duty to identify transactions or relationships not identified or disclosed by management.

Kellas

“The proposed standard gives greater recognition to the particular risks associated with related parties and calls on the auditor to do more work to identify related parties and the rationale for the transactions between them and the audit client,” John Kellas, chairman of the IAASB, said in a prepared statement.

The proposal can be found in the box at right.