06 Jul

Valuation of Financial Instruments

The AICPA is seeking comments from financial professionals and organisations on the valuation of financial instruments and their underlying components. The Framework is said to bring further clarity, consistency and transparency to the valuation of these instruments.

Historically, financial instruments, such as mortgage-backed securities, credit default swaps, complex bonds and other derivatives, have been difficult to value, which has the potential to adversely impact markets and the global economy.

The new Framework defines the level of documentation necessary for a professional working with securities and financial instruments to effectively demonstrate the valuation performed. The guidance provided by the Framework relies upon three major principals: independence, objectivity and consistency. This guidance will inform the basis for a new credential from the American Institute of CPAs, Certified in Valuation of Financial Instruments (CVFI), expected to launch later this year.

The Disclosure Framework for the Valuation of Financial Instruments and the Certified in Valuation of Financial Instruments (“CVFI”) Credential, provides guidance on how to explain the characteristics of financial instruments and disclose how these securities have been valued in a way that is understandable, consistent and transparent. The Framework establishes parameters of documentation requirements, sets definitions of terms that may be unique to the Framework, and includes a list of accounting, audit and valuation standards and references to technical literature directly applicable to the guidance in the Framework.

The comment period for this Framework is open through September 27, 2017. Comments within this time period will be reviewed and applied to the disclosure framework by the AICPA Disclosure Framework Work stream and the AICPA Financial Instruments Task Force, both of which are comprised of financial professionals, academics, and financial policy experts.

Jeannette Koger, CPA, CGMA vice president of advisory services and credentialing, AICPA:

Financial instruments have become increasingly complex and determining their value has been a challenge that has adversely affected the market in the past. With this Framework, the AICPA is responding to marketplace needs by creating a standardised and replicable process for financial professionals who perform valuations on financial instruments,”
This Framework will ensure that professionals working with financial instruments perform their engagements with independence, objectivity and consistency. We encourage all stakeholders to review and comment on the draft

The Application of the Disclosure Framework for the Valuation of Financial Instruments demonstrates how the Framework would be applied for areas of valuation that are often either misapplied or insufficiently supported or documented in valuations for financial reporting. It also identifies the most common components in which the valuation professional provides a conclusion of value, and addresses matters where there is need for greater consistency in the application of the approaches and methodology. It provides support for matters that require the application of professional judgment, as well as documentation of inputs and results.

The Application of the Financial Instruments Framework will continue to evolve and expand to cover a broader spectrum of subject matter topics and professional practice trends in the valuation profession.

Once finalized, CVFI credential holders will be required to comply with the Framework, ensuring confidence in the consistency in their work, to ensure integrity and transparency in the fulfillment of their duties, in the interest of the financial markets and ultimately to the public.

CPAs and valuation professionals are encouraged to sign up for information and updates on the Certified in Valuation of Financial Instruments (CVFI) credential from the AICPA.

21 Jun

AICPA Praises House for Passing Mobile Workforce Bill

The AICPA applauded the U.S. House of Representatives today for passing the Mobile Workforce State Income Tax Simplification Act of 2017, H.R. 1393.  The bill would simplify state income tax reporting and withholding rules for employees who sometimes work outside their home states.

“The House’s passage of the Mobile Workforce State Income Tax Simplification Act of 2017 is a victory for taxpayers and their employers,” Barry C. Melancon, CPA, CGMA, president and CEO of the AICPA, stated.  “Enactment of H.R. 1393 would eliminate the need for much of the complex record-keeping that employers face when their employees cross state lines to work.  It also would relieve many workers of the burden of filing state income tax returns for states in which they worked only a few days during the year.” 

Melancon explained that the legislation would create a uniform national standard that would eliminate the compliance maze many employers and employees currently face because they have to keep track of numerous state income tax withholding laws and varying de minimis exemption periods imposed on nonresident workers.  Employee earnings would not be subject to state income tax and withholding outside their home state unless the employee worked in a state for more than 30 days during the calendar year.

However, Melancon noted that under H.R. 1393 notable individuals, such as professional athletes, professional entertainers and public figures, do not qualify for the 30-day de minimis exemption.  They would still have to pay tax to the state where they are appearing.  Non-headline performers, including dancers and musicians, would be covered by the 30-day national standard. 

H.R. 1393 was introduced by Representatives Mike Bishop (R-Mich.) and Hank Johnson (D-Ga.).

“The AICPA has strongly supported the passage of mobile workforce legislation for many years,” Melancon stated, “and we appreciate the leadership shown by Representatives Bishop and Johnson.”

“We urge the Senate to pass its companion bill soon so that thousands of employers and employees can be relieved of the burden imposed by inconsistent state tax laws,” he added.