[Global Financial Insights] Key FASB | PCAOB

Editorial Team – [2025] 181 taxmann.com 366 (Article)

Global Financial Insights is a weekly feature for Taxmann.com Accounts and Audit Module subscribers. It provides you with the latest updates on financial reporting and auditing practices from across the globe. Here is this week’s financial update:

1. Financial Accounting Standard Board Issues an Accounting Standard Update to Improve Interim Reporting

The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) to improve the disclosure requirements in Topic 270, Interim Reporting. This update provides the additional guidance on what disclosures should be provided in interim reporting periods. Further, it also provides clarity on the form and content of interim financial statements in accordance with Generally Accepted Accounting Principle (GAAP). However, the user shall hereby note that this update does not expand or reduce current interim disclosure requirements but provides clarity on current interim reporting requirements. The amendments in the aforesaid ASU are discussed herewith:

(a) Clarify that the guidance in Topic 270 is applicable to all entities that prepare interim financial statements and accompanying notes in accordance with GAAP.

(b) Develop a comprehensive listing within FASB detailing all interim disclosure requirements for financial statements and notes prepared in accordance with GAAP.

(c) Introduce a disclosure principle aligned with prior Securities and Exchange Commission guidance, requiring entities to report events and changes occurring after the end of the most recent fiscal year that have a material effect on the entity.

(d) Enhance the guidance regarding the nature, content, and presentation format of information included in interim financial statements.

Effective Date

The amendments in this Update are effective for interim reporting periods within annual periods beginning on or after 15th December 2027, for public business entities, and for interim reporting periods within annual periods beginning on or after 15th December 2028, for all other entities. Early adoption is permitted for all entities.

Source – Financial Accounting Standard Board

2. FASB Issues New Standard Providing Guidance on the Accounting for Government Grants

The Financial Accounting Standard Board (FASB) in its Accounting Standard Update (ASU) has issued a new standard providing guidance on the accounting for government grants received by business entities. This update provides guidance on recognition, measurement, and presentation of government grants. Thus, the board has taken care of areas where stakeholders have consistently highlighted a need. The update is briefly discussed below:

2.1 Definitions

Government Grant – A transfer of a monetary asset or a tangible non-monetary asset, other than in an exchange transaction (including an exchange transaction that may be at a significant discount to fair value), from a government to an entity except for a not-for-profit entity and an employee benefit plan.

Grant related to an Asset – A government grant, or part of a government grant, that is conditioned on the purchase, construction, or acquisition of an asset.

Grant related to an Income – A government grant, or part of a government grant, other than a grant related to an asset

2.2 Recognition Criteria

An entity shall not recognise a government grant until:

(a) It is probable that both of the following criteria are met:

i. The entity will comply with the conditions attached to the government grant.

ii. The government grant will be received.

(b) An entity meets the recognition guidance for a grant related to an asset or a grant related to income

2.3 Disclosures

This Update also includes disclosure requirements regarding the nature of government grants, accounting policies applied, and significant terms and conditions.

2.4 Effective Date

For public business entities, the amendments in this update are effective for annual reporting periods beginning after 15th December 2028, and interim reporting periods within those annual reporting periods. For entities other than public business entities, the amendments are effective for annual reporting periods beginning after 15th December 2029, and interim reporting periods within those annual reporting periods.

Source – Financial Accounting Standard Board

3. A US Audit Firm Gets Sanctioned By the PCAOB for Its Failure to Reasonably Supervise an Unregistered Firm

A public accounting firm in the United States (US) was engaged in auditing a China-based company. The Public Company Accounting Oversight Board (PCAOB) observed that the US-based firm failed to reasonably supervise the work performed by an unregistered China-based firm, which had a significant role in the audit. Therefore, PCAOB concluded that the US-based firm violated PCAOB rules and standards in connection with its use of the work from an unregistered firm.

The PCAOB identified that the China-based firm significantly exceeded the 20% participation threshold in the audits of the previous 5 years. Thus, the China-based firm provided material services to a US firm in issuing the audit report and therefore violated Section 102(a) of the PCAOB Act and PCAOB Rule 2100 by playing a substantial role in the audits without being registered with the board. The board held that the US based firm registered with PCAOB was responsible to reasonably supervising the registration requirements of the China-based firm as per Section 105(c)(6) of the PCAOB Act.

Further, PCAOB Rule 3211, Auditor Reporting of Certain Audit Participants requires that a registered public accounting firm must file with the Board a report on “Form AP” in accordance with the instructions to that form. This form requires the public accounting firm to state the legal name and the extent of participation of the accounting firm that plays a substantial role in the audit. Since the US-based firm failed to disclose about the participation of china China-based firm in its “Form AP”, it violated the PCAOB rule 3211.

Considering the violations made by the public accounting firm, the PCAOB sanctioned the firm by imposing a civil monetary penalty of $1,00,000. Also, the board requires the firm to undertake certain contingent remedial actions.

Source – Public Company Accounting Oversight Board