In this issue: Top story ...... 2 Accounting update ...... 3 Regulatory developments ...... 6 Other considerations ...... 9 Reference library ...... 10 Financial reporting briefs

What you need to know about this quarter’s accounting, financial reporting and other developments

December 2020

Top story

Welcome to the December Year-end considerations for effects of COVID-19 and other factors 2020 Financial reporting As entities prepare for year-end reporting, they need to carefully consider how macroeconomic and briefs. This edition highlights company-specific factors affect their accounting and disclosures. That is, management will need to the latest developments in consider how the COVID-19 pandemic, low interest rates, the market transition from the London financial reporting and alerts Interbank Offered Rate (LIBOR) and changes in business strategy affect their accounting for and you to some important disclosures about topics such as asset impairments, valuation allowances, and pension obligations and considerations for 2020. their going concern evaluation.

Interested in learning about Entities also need to consider whether having employees work remotely for extended periods of time this year-end financial reporting year affected internal control over financial reporting (ICFR). As a reminder, Securities and Exchange considerations? We’ve got it Commission (SEC or Commission) filers must disclose any change that materially affects or is reasonably covered in our Top story. likely to materially affect its ICFR in the filing for the fiscal quarter in which the change occurred. Our Accounting update SEC filers also need to make sure their disclosures in management’s discussion and analysis (MD&A) section discusses proposed and their risk factor disclosures about the current and potential effects of COVID-19 and other factors changes to the new leases are tailored to their facts and circumstances and appropriately reflect any changes in those facts and standard and the guidance circumstances. Such disclosures may include a discussion of the effects of COVID-19 on revenue, production on reference rate reform, and supply chains, availability of qualified employees and other aspects of a company’s operations. among other things. As markets move away from LIBOR and other interbank offered rates, companies need to disclose the In our Regulatory status of their efforts to evaluate and mitigate the risks related to the discontinuation of these rates. developments section, we provide updates on In addition, calendar-year registrants need to consider the SEC’s recent amendments to Regulation S-K other SEC and PCAOB Items 101, 103 and 105, which are effective for periodic reports and registration statements filed on or developments and provide after 9 November 2020. The amendments streamline the disclosures registrants are required to make about business, legal proceedings and risk factors and add new requirements for disclosures about a summary of the AICPA human capital resources. Conference on Current SEC and PCAOB Developments As entities evaluate their real estate needs in light of the COVID-19 pandemic, those that plan to reduce in our Other considerations their leased real estate footprint should carefully consider the guidance on long-lived asset impairment section. and long-lived asset abandonment if they have recognized right-of-use (ROU) assets under the new leases standard.

Companies should also keep in mind that, while they need to assess both negative and positive evidence to determine whether to record, maintain or reverse a valuation allowance on deferred tax assets, the Need more information? assessment may require more judgment in the current environment. Reminders about many of these topics are discussed in more detail in the Accounting update section. Check out our Reference library, where we list our recent publications on the topics discussed here and provide links to them.

2 | Financial reporting briefs December 2020 Accounting update

Proposal would make targeted changes to the new leases standard The Financial Accounting Standards Board (FASB or Board) proposed three targeted amendments to the new lease standard. The proposal would exempt lessees and lessors from applying the modification guidance in Accounting Standards Codification (ASC) 842, Leases, when one or more lease components are terminated early but the economics of the remaining lease components stay the same. It would also provide lessees with an option to remeasure lease liabilities for changes in an index or rate that would affect future lease payments. Finally, it would require lessors to classify leases with lease payments that are predominantly variable and are not based on an index or rate as operating leases.

Entities that have already adopted ASC 842 would apply the proposed guidance either retrospectively to the date of adoption of ASC 842 or prospectively for each of the proposed targeted changes. Entities that have not yet adopted ASC 842 as of the effective date of any final guidance would be required to apply the guidance when they adopt ASC 842 and follow the transition requirements in ASC 842. Proposal would expand the scope of guidance on reference rate reform The FASB proposed expanding the scope of its reference rate reform guidance in ASC 848, Reference Rate Reform, to allow entities to apply certain optional expedients and exceptions to all derivative instruments affected by the change in the interest rates used for discounting, margining or contract price alignment (commonly referred to as the discounting transition), even if they do not reference LIBOR or another rate that is expected to be discontinued as a result of reference rate reform.

The proposal would alleviate concerns raised by certain constituents about the accounting implications of the discounting transition for derivatives that don’t reference LIBOR or another rate expected to be discontinued and therefore aren’t currently in the scope of ASC 848. Questions had arisen about whether changes to these interest rates would result in (1) a modification of the derivative that would require a reassessment of previous accounting determinations (e.g., whether the instrument is still a derivative in its entirety or a hybrid instrument) or (2) a change in the critical terms that would require dedesignation of any hedging relationship where the affected derivative was designated as the hedging instrument.

The Board stated that it wanted to avoid potential diversity in practice and that it believes reassessing the accounting conclusions for these derivatives, including any affected hedging relationships, would not provide decision-useful information to users of financial statements.

The proposal also would clarify certain aspects of the guidance in ASC 848 and provide new guidance on how to address the effects of the cash compensation adjustment that is provided as part of the discounting transition on certain aspects of hedge accounting. Impairment reminders for lessees planning to reduce leased space Lessees contemplating what their business will look like after the pandemic may consider reducing their real estate footprint. Lessees that decide to reduce the amount of space they lease may determine that this decision is an indicator that would trigger an assessment of whether an asset group that includes ROU assets for leased real estate is impaired under ASC 360-10, Property, Plant, and Equipment — Overall.

Assets generally should be grouped when they are used together (i.e., when they are part of the same group of assets and are used together to generate joint cash flows that are largely independent of cash flows of other assets and liabilities). Determining the appropriate grouping of long-lived assets to be evaluated for impairment requires a significant amount of judgment and consideration of the facts and circumstances, as well as an understanding of an entity’s business.

Each time a lessee performs an impairment test under ASC 360-10, it should reassess whether its grouping of long-lived assets continues to be appropriate. There may also be other factors or changes in circumstances that trigger reassessment of asset groups prior to there being an indicator of impairment. Changes to a lessee’s real estate footprint might indicate that the related asset grouping may have changed.

3 | Financial reporting briefs December 2020 Accounting update

This might be the case even when the ROU asset is not the primary asset in the asset group. For example, a lessee that stops using a leased asset, either immediately or at a future date (e.g., in 12 months) needs to assess whether the corresponding ROU asset is or will be abandoned. Companies must also consider whether a plan to reduce their real estate footprint presents any new or heightened financial reporting risks and whether internal controls continue to be sufficiently precise to mitigate those risks. Reminders on going concern evaluations Entities that have been negatively affected by the COVID-19 pandemic and its economic fallout need to carefully consider their facts and circumstances as part of their going concern evaluations.

As a reminder, management is required to evaluate an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued, when applicable). Disclosures in the notes to the financial statements are required if management concludes that substantial doubt exists or that its plans alleviate that substantial doubt.

When performing a going concern evaluation, management is required to update the cash flow projections in light of lower revenue or significant delays in collecting from counterparties whose businesses are severely affected by the pandemic. Management may also need to update its assumptions about obtaining financing. Many companies are also finding it challenging to make the assumptions necessary to develop prospective financial information that may be used in a going concern assessment. Reminders for measuring postretirement benefit obligations Companies with postretirement benefit plans have to measure their postretirement benefit obligations at year end. The discount rates used in measuring these postretirement benefit obligations are based on high-quality corporate bond yields, which have decreased about 75 basis points in 2020. This could increase benefit obligations by 5% to 15%, assuming there are no major market swings through the year end.

Companies also need to consider the new projection scales released by the Society of Actuaries when estimating their mortality assumptions. These scales do not include data for the current year, so effects of the COVID-19 pandemic are not reflected. Because the long-term effects of COVID-19 on mortality are still unknown, companies may not adjust their mortality assumptions for the effects of the pandemic. However, companies should consider their actual plan experience for the year and incorporate material changes.

For other postretirement health plans, one of the significant assumptions is the per capita claims cost, which companies typically base on historical claims experience. Health care costs have been significantly lower this year since people avoided health care services during the pandemic. As a result, health care claim experience for 2020 may not be an appropriate base to establish the per capita claims cost assumption for future years. Because health care utilization fell in March 2020 and has remained below normal levels during the pandemic, it may be more appropriate to use the experience from 2019 or even a rolling 12-month period through February 2020. Reminders on valuation allowances Companies need to keep in mind that assessing both negative and positive evidence to determine whether to record, maintain or reverse a valuation allowance on deferred tax assets under ASC 740, Income Taxes, may require more judgment than usual in the current environment. For example, while current market conditions may prompt a company to consider recording a valuation allowance for the first time, the provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) could mitigate the need for an allowance or allow the company to benefit from deferred tax assets or net operating losses if it previously recorded a valuation allowance. As a reminder, the SEC staff frequently asks companies to explain how they considered both positive and negative evidence when evaluating the need for a valuation allowance.

Estimating future taxable income (exclusive of the reversal of existing temporary differences and carryforwards) may also be especially challenging for some companies in the current environment. Companies that are in a cumulative loss position or that expect to be in a cumulative loss position based on forecasts that reflect current market conditions (e.g., COVID-19) should consider this significant negative evidence about the realizability of deferred tax assets.

4 | Financial reporting briefs December 2020 Accounting update

Reminders on credit losses Companies that have adopted the new credit losses standard need to carefully consider the “reasonable and supportable” forecasts of future economic conditions they are required to develop and use to estimate expected credit losses. The impact of COVID-19 has made it difficult to forecast future economic conditions. Additionally, historical data may not include the effects of similar events.

This applies to both entities with long-term receivables and those with trade receivables, which have shorter reasonable and supportable forecast periods. Entities need to consider how their forecasts they use for estimating credit losses compare with those used for other purposes (e.g., goodwill impairment testing, going concern analysis, deferred tax asset valuation allowance analyses, capital planning, budgeting) and make sure they understand the reasons why differences may exist.

Companies may also need to assess whether financial assets they account for in pools continue to display similar risk characteristics or whether they need to revise their pools or estimate credit losses for some assets individually. Companies that have granted concessions to customers who are experiencing financial difficulties due to COVID-19 also need to make sure their allowances appropriately reflect the credit risk of these customers, who may not be delinquent under their current payment terms. Accounting for changes to certain equity-classified freestanding contracts The FASB proposed guidance that would require issuers to account for certain modifications or exchanges of equity-classified freestanding forwards and options (e.g., warrants) based on the economic substance of the modification or exchange. That is, under the proposal, an issuer would determine the reason for a modification or exchange and account for any increase in fair value resulting from the modification or exchange as a cost in accordance with existing guidance or as a dividend if the transaction is not in the scope of another ASC topic.

The proposal, which is based on a consensus-for-exposure of the Emerging Issues Task Force, is intended to address the lack of accounting guidance on how issuers should account for modifications or exchanges of equity-classified freestanding forwards and options that are not in the scope of ASC 718, Compensation — Stock Compensation, and remain classified in equity after a modification or an exchange, which has resulted in diversity in practice.

FASB defers effective date of new insurance standard The FASB deferred the effective dates for its new standard on long-duration insurance contracts for all insurance entities by one year. An SEC filer that is not a smaller reporting company (SRC) is now required to adopt the guidance for fiscal years beginning after 15 December 2022 and for interim periods therein. All other entities (i.e., SRCs and private insurers) are required to adopt the guidance for annual periods beginning after 15 December 2024 and interim periods within fiscal years beginning a year later. The guidance allows entities to elect an early application transition date of either the beginning of the prior period presented or the earliest period presented. FASB proposes guidance for revenue contracts acquired in a business combination The FASB proposed amendments to ASC 805, Business Combinations, that would require companies to apply ASC 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities relating to contracts with customers they acquire in a business combination. At the acquisition date, companies would assess how the acquiree applied ASC 606 to determine the amounts to recognize for acquired revenue contracts. This would generally result in companies recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree. Requiring companies to apply ASC 606 would create an exception to the guidance in ASC 805 that generally requires assets and liabilities acquired in a business combination to be accounted for at fair value.

5 | Financial reporting briefs December 2020 Regulatory developments

SEC adopts amendments to certain Regulation S-K disclosure requirements The SEC adopted amendments that will modernize, simplify and enhance certain financial disclosure requirements in Regulation S-K. The amendments eliminate the requirements for registrants to provide the selected financial data and contractual obligations tables, scale back the requirement to provide selected quarterly financial data so that registrants can omit it in most cases and codify existing SEC guidance requiring disclosure of critical accounting estimates.

The SEC also modernized the rules that require registrants to discuss their financial condition, results of operations and cash flows, among other things. The amendments add objectives to the requirements for MD&A disclosure and change or clarify the requirements for a number of items, including liquidity and capital resources, known trends and uncertainties, and off-balance sheet arrangements.

The amendments are the last major rule changes the SEC has proposed as part of its disclosure effectiveness initiative.

The rules can be applied 30 days after publication in the Federal Register, and compliance is mandatory 210 days after publication. Registrants can determine whether to comply prior to the mandatory date for each item separately. Applying the SEC’s new requirements for significant acquired businesses Calendar-year registrants should keep in mind that, as of 1 January 2021, they will need to consider new information in two of the three significance tests they perform to determine which disclosures about acquired businesses they are required to provide under the SEC’s new rules.

The new rules are intended to elicit more meaningful disclosures about these businesses while reducing the cost and complexity of preparing the disclosures. Fewer acquisitions will likely be considered significant under the new rules, but registrants may need to provide more pro forma financial information than in the past in certain circumstances.

The investment test will require consideration of a registrant’s worldwide market value, and the income test will require a comparison of an acquired business’s revenue to that of the registrant. Registrants will be required to present a maximum of two years of financial statements (rather than three years) for an acquired business, and they will more frequently be able to exclude pre-acquisition financial statements of acquired businesses from their registration statements.

Registrants will report as pro forma transaction accounting adjustments related to acquired businesses those that are necessary to reflect the accounting for the transaction. Registrants can elect to disclose forward- looking adjustments meeting certain criteria in the explanatory notes to the pro forma financial information.

The rules are effective for fiscal years beginning on or after 31 December 2020. Earlier compliance is permitted.

SEC staff transition guidance for Regulation S-K Items 101, 103 and 105 The SEC staff in the Division of Corporation Finance issued a frequently asked questions (FAQs) document to provide transition guidance for amended Regulation S-K Items 101, 103 and 105. The amendments are effective for periodic reports and registration statements filed on or after 9 November 2020.

Among other things, the FAQs clarify that if a registrant files a prospectus supplement to an effective registration statement on Form S-3 on or after 9 November 2020, the prospectus supplement does not need to comply with the amended Items 101 and 103. Although Form S-3 requires Item 105 disclosure, the SEC staff will not object if the prospectus supplement complies with the legacy Item 105 until the next update to the registration statement on Form S-3 for Section 10(a)(3) purposes.

6 | Financial reporting briefs December 2020 Regulatory developments

While the SEC staff did not address this in the FAQ, we believe a registrant could also file a new Form S-3 after the effective date but before its Form 10-K and incorporate the previously filed Form 10-K without any revisions to Items 101 and 103. However, the Form S-3 would need to comply with amended Item 105. Registrants should consult with legal counsel to confirm this approach. SEC amends rules for signatures in electronic filings The SEC adopted amendments to the rule under Regulation S-T that governs signatures in authentication documents for electronic filings. The amendments will permit the use of electronic signatures in addition to manual signatures, subject to certain conditions.

The change was requested by several Silicon Valley lawyers who said the COVID-19 pandemic has made it more difficult to collect manual signatures and noted that improvements in electronic signature technology make it possible to confirm who has signed a document and when. Nearly 100 companies supported the petition.

While the amendments will not be effective until publication of the adopting release in the Federal Register, the SEC staff has said it will not recommend that the Commission take enforcement action with respect to the requirements before the effective date as long as a signatory complies with all of the requirements of the amended rule. SEC proposes changes to rules for exempt compensatory offerings The SEC proposed changes to its framework for compensatory securities offerings by non-issuers that are exempt from registration with the SEC. The amendments to Securities Act Rule 701 are intended to modernize the framework for exempt compensatory securities in light of the significant evolution in compensatory offerings and the composition of the workforce since the Commission last substantively amended these regulations. Key changes to Rule 701 would include:

• Revising the disclosure requirements for Rule 701 exempt transactions that exceed $10 million, including the type of financial disclosure required and the frequency with which it must be updated

• Raising two of the three alternative regulatory ceilings that limit the amount of securities a non-reporting issuer may sell pursuant to the Rule 701 exemption during any consecutive 12-month period

• Allowing the exemption for offers and sales of securities under a written compensatory benefit plan established by the issuer’s subsidiaries

Separately, the SEC proposed a temporary provision that would, on a trial basis, allow an issuer to use the Rule 701 exemption to compensate certain workers who provide services through the issuer’s technology-based marketplace platform but are not statutory employees of the issuer (i.e., platform workers) with equity awards at a level up to 15% of their compensation but not to exceed $75,000 in a three-year period. This proposed provision would expire in five years, unless the SEC takes further action. Nasdaq proposes board diversity requirements for listed companies Nasdaq filed a proposal with the SEC that would require the boards of all companies listed on the exchange to meet certain minimum diversity requirements or publicly disclose why they aren’t doing so.

Under the proposal, most Nasdaq-listed companies would be expected to have, or explain why they do not have, at least one director who self-identifies as female and one director who either self-identifies as an underrepresented minority or as lesbian, gay, bisexual, transgender, queer or other (LGBTQ+). The proposal defines an underrepresented minority as an individual who self-identifies in one or more of the following groups: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or two or more races or ethnicities.

Nasdaq-listed companies would be required to disclose statistical information about their directors’ self- identified gender, race and self-identification as LGBTQ+ in a uniform manner within one year of the SEC’s approval of the proposed listing rules. However, companies would have two to five years to meet the minimum board composition expectations, depending on their listing tier.

Companies that do not meet the board composition objectives within the required timeframe would not be subject to delisting if they provide a public explanation of their reasons for not meeting the objectives.

7 | Financial reporting briefs December 2020 Regulatory developments

Considerations for SPAC transactions The number of initial public offerings of special purpose acquisition companies has surged in the US during the past year. These offerings have raised more than $66 billion through 17 November 2020, nearly five times as much as the $14 billion raised in 2019. Being acquired by a special purpose acquisition company (SPAC) offers an alternative to a traditional initial public offering (IPO) for private companies that want to enter the public markets.

SPACs are formed by sponsors, who take the SPAC public to raise money for future acquisitions of operating companies. Companies that are considering being acquired by a SPAC need to be aware of the special accounting and financial reporting requirements. For private companies that merge with a SPAC, that means providing information that is similar to what they would need to provide for an IPO, but often on an accelerated timeline. Their financial statements also need to comply with the requirements for public business entities.

SPAC mergers require significant coordination between buyers, sellers and management of operating companies that are acquired. Companies that are considering a SPAC transaction should plan to devote sufficient time and resources to financial reporting in light of the many disclosure and financial statement requirements for proxy statements and joint statements, as well as ongoing Exchange Act filing requirements after the closing of the transaction.

Determining the acquirer for accounting purposes in a SPAC transaction is also important since the accounting and financial statement presentation depend on that determination. Heightened fraud risk in current environment Public Company Accounting Oversight Board (PCAOB) officials have emphasized that the COVID-19 pandemic can potentially heighten the risk of fraud. In a recent EY global survey of board members and employees at some of the largest organizations in 33 countries and territories worldwide, the majority of participants said COVID-19 posed a risk to ethical business conduct at their organizations.

In light of this, entities should consider whether they have made appropriate changes to the controls and programs they have in place to prevent and detect fraud or should make changes to these controls and programs to address the additional risks. This may include enhancing the audit committee’s monitoring and oversight activities; evaluating performance and compensation programs; leveraging internal audit, risk management and compliance functions that target compliance with laws and regulations; and reinforcing antifraud policies and training programs.

Companies should also consider whether the information necessary to perform controls has changed and whether they can still retain evidence of the operation of the controls. Given the uncertainties related to COVID-19 and changes resulting from virtual working arrangements, the risk of failures in internal controls may be higher now, and this would also increase the risk of fraud. SEC officials have also emphasized the need for companies to disclose any material changes in controls as part of this process. AICPA guidance allows more small companies to get examination reports The Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) issued a new attestation standard that allows entities to engage independent accountants to measure or evaluate underlying subject matter without having to (1) evaluate whether an underlying subject matter complies with criteria, (2) prepare the subject matter information or (3) make an assertion. The entity is still responsible for the underlying subject matter and the suitability and appropriateness of the criteria.

The new direct examination standard allows an entity’s independent accountant to measure or evaluate the subject matter in accordance with criteria, express an opinion about the outcome of that measurement or evaluation, and, as appropriate, present the results of that measurement or evaluation. The changes are effective for reports dated on or after 15 June 2022. Early implementation is permitted.

The ASB also made related amendments to the standard on common attestation concepts (AT-C 105) and revised the assertion-based examinations standard (AT-C 205); however, those amendments did not result in significant changes to examination engagements.

The revisions to the AICPA’s attestation standards are part of a broader effort by the ASB to revisit the 2017 clarified attestation standards. The ASB has already made changes to the agreed-upon procedures standard and is expected to make changes to standards governing other types of engagements.

8 | Financial reporting briefs December 2020 Other considerations

AIPCA Conference on Current SEC and PCAOB a company’s business and internal controls. The SEC staff commended Developments the PCAOB for performing outreach and implementing inspection strategies to understand changes to audit firms’ policies, procedures Regulators and standard setters discussed a broad range of financial and methodologies in response to COVID-19. They also discussed the reporting, auditing and regulatory topics last week at the annual post-implementation efforts related to critical audit matters and AICPA Conference on Current SEC and PCAOB Developments, which highlighted the recent amendments to Rule 2-01 of Regulation S-X that was held virtually for the first time. The speakers and panelists included are intended to modernize the SEC’s auditor independence rules. representatives of the SEC, the FASB, the International Accounting Standards Board and the PCAOB. Proposal on timing of LIBOR cessation Several topics addressed this year related to the COVID-19 pandemic, The administrator of LIBOR has proposed stopping publication of all including how companies, auditors, regulators and standard setters GBP, EUR, CHF and JPY LIBOR settings, as well as the one-week and have been responding to its many challenges. Highlights included: two-month USD LIBOR settings immediately following the LIBOR publication on 31 December 2021. Under the proposal, publication Accounting standard setting — The FASB paused its ongoing standard- of the remaining USD LIBOR settings (i.e., the overnight and the one- setting activities at the beginning of the pandemic to prioritize emerging , three-, six- and 12- month settings) would cease immediately issues related to COVID-19. However, the FASB continued its post- following the LIBOR publication on 30 June 2023. Extending the implementation review activities related to the new standards on publication of these USD LIBOR tenors until 30 June 2023 would credit losses, leases and revenue recognition, including outreach to allow most legacy USD LIBOR contracts to mature before LIBOR stakeholders to obtain feedback on how to improve the standards. FASB experiences disruptions. Feedback is due by 25 January 2021. staff members highlighted a recent proposal to amend the new leases standard to address issues identified in feedback from stakeholders. After the announcement, the Financial Conduct Authority, the Board of Governors of the Federal Reserve System and other regulators Reference rate reform — The FASB continues to monitor global issued statements encouraging banks to cease entering into new developments associated with the transition away from LIBOR and other contracts referencing USD LIBOR as soon as practicable, but no later rates that are due to be phased out as a result of reference rate reform. than 31 December 2021, to facilitate an orderly transition from LIBOR. FASB staff members discussed the Board’s recent proposal to expand the scope of its guidance on reference rate reform and allow entities Summary of open comment periods to apply certain optional practical expedients to all derivative Items are FASB proposals unless otherwise noted. instruments that are affected by changes in the interest rate used for discounting, margining or contract price alignment but do not Proposal Comment period ends reference LIBOR or another rate that is expected to be discontinued. Proposed Accounting Standards Update — 28 December 2020 SEC staff members also stated their expectations for clear and Earnings Per Share (Topic 260), Debt — transparent disclosures about registrants’ plans for the transition Modifications and Extinguishments (Subtopic and discussed the accounting implications of reference rate reform 470-50), Compensation — Stock Compensation for affected financial instruments. (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815- SEC rulemaking — SEC staff discussed new rules the SEC has 40): Issuer’s Accounting for Certain adopted related to capital formation and disclosure effectiveness, Modifications or Exchanges of Freestanding including amendments to isclosure requirements for significant Equity-Classified Forwards and Options (a business acquisitions, subsidiary guarantors and issuers of consensus of the Emerging Issues Task Force) registered debt, as well as MD&A and other areas outside the financial statements. This included the new requirements for human Modernization of Rules and Forms for 9 February 2021 capital disclosures, which are the first disclosures the SEC has Compensatory Securities Offerings and mandated related to environment, social and corporate governance Sales (SEC proposal) topics that have generated increasing attention in recent years. Temporary Rules to Include Certain “Platform 9 February 2021 Non-GAAP measures — SEC staff members provided guidance on Workers” in Compensatory Offerings under the use of non-GAAP measures by companies to discuss the effects Rule 701 and Form S-8 (SEC proposal) of the pandemic. They also said that presenting certain types of Proposed Accounting Standards Update — 15 March 2021 other non-GAAP financial measures may be inappropriate, including Business Combinations (Topic 805): non-GAAP revenue measures. Accounting for Contract Assets and Contract Liabilities from Contracts with Customers Audit matters — Members of the PCAOB discussed its response to COVID-19 and emphasized that auditors may need to perform additional procedures or perform procedures differently to respond to changes in

9 | Financial reporting briefs December 2020 Click on any of the EY publications below, all of which are available free of charge on AccountingLink at Reference library www.ey.com/en_us/assurance/accountinglink.

To the Point Comment letters • SEC adopts rule to modernize fund valuation practices (10 December 2020) • FASB’s proposed changes to the new leases standard (2 December 2020) • SEC eliminates certain MD&A requirements and revises others to make • ASB’s proposal to amend AU-C 315 (25 November 2020) disclosures more useful (24 November 2020) • Proposal issued by the FASB to refine the scope of guidance on reference • FASB proposes expanding the scope of guidance on reference rate rate reform (13 November 2020) reform (30 October 2020) • Proposed statement of financial accounting concepts related to elements • Proposal on issuer’s accounting for modifications or exchanges of certain of financial statements (12 November 2020) equity-classified contracts (27 October 2020) • Proposal issued by the FASB to provide a practical expedient for • FASB proposes targeted changes to the new leases standard nonpublic franchisors to account for pre-opening services provided to (21 October 2020) franchisees (5 November 2020) • AICPA issues new guidance that is intended to expand the use of • FASB proposal to provide a nonpublic entity practical expedient for fair examination reports (8 October 2020) value of equity-classified share options (1 October 2020) • The Fed’s Main Street Lending Program raises accounting questions for Other lenders (24 September 2020) • 2020 AICPA Conference on Current SEC and PCAOB Developments • FASB proposes practical expedient for nonpublic franchisors to account (13 December 2020) for initial franchise fees (23 September 2020) • Accounting pronouncements effective for the third quarter of 2020 • FASB changes NFP presentation and disclosure for contributed (8 October 2020) nonfinancial assets (23 September 2020) • SEC in Focus — October 2020 (1 October 2020) Technical Line • Quarterly Tax Developments — September 2020 (1 October 2020) • Accounting and compliance matters for health care entities receiving US • How to approach the SEC’s new human capital disclosures government aid for COVID-19 (24 November 2020) (29 September 2020) • Applying the SEC’s new requirements for significant acquired businesses (6 November 2020) On-demand webcasts • What audit committees need to know for year-end 2020 and beyond • A closer look at how insurers will have to change their accounting and disclosures for long-duration contracts (6 November 2020) • Accounting for income taxes: a quarterly perspective • Lessee accounting considerations for retailers in the current • Financial reporting for private companies — what you need to know for 2020 environment (22 October 2020) • What you need to know for Q3 financial reporting • Accounting considerations for lessees that plan to reduce physical Upcoming webcasts workspace (15 October 2020) • Human capital disclosures: strategy and considerations (18 December 2020) • A closer look at the new guidance on distinguishing liabilities from equity and EPS (8 October 2020) • Tax in the time of COVID-19: post-election outlook (18 December 2020) • Navigating the requirements for merging with a special purpose acquisition company (16 May 2019) Financial reporting developments • Real estate project costs (16 December 2020) • Postretirement benefits (11 December 2020) • Revenue from contracts with customers (ASC 606) (19 November 2020) • Income taxes (19 November 2020) • Fair value measurement (13 October 2020) • Software: revenue recognition (30 September 2020) • Gains and losses from the derecognition of nonfinancial assets (ASC 610-20) (30 September 2020) • Derivatives and hedging (before the adoption of ASU 2017-12) (24 September 2020)

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10 | Financial reporting briefs December 2020