Accounting and Auditing Updates Flashcards
(36 cards)
ARSC in Accounting
Accounting and Review Service Standards and Interpretations
hint: SSARs
Statements on Standards for Accounting and Review Services
Accounting and Review Services Committee Overview
The Accounting and Review Services Committee is the AICPA’s senior committee for compilations or reviews and is designated to issue pronouncements in connection with the unaudited financial statements or other unaudited financial information of nonpublic entities. Its mission is to develop and communicate comprehensive performance and reporting standards and practice guidance to enable accountants of non issuers to provide high quality, objective compilation and review services in the best interests of the profession and the users of compiled and reviewed financial statements, with the ultimate purpose of serving the public interest. Learn more about ARSC in its Operating Policies.
The Accounting and Review Services Committee promulgates Statements on Standards for Accounting and Review Services (SSARS) and, as a part of its due process, releases Exposure Drafts of proposed SSARS. The AICPA also issues interpretive and other publications to assist practitioners in understanding and applying the standards.
SSAE 18 - Attestation Standards: Clarification and Recodification
Issued by the Auditing Standards Board
Issued April 2016
Becomes effective in May 2017
Significant substantive change to the attestation standards under SSAE No. 18?
- Attestation engagements require written agreement of the terms of the engagement. All attest engagements require an engagement letter or other documentation that evidences certain elements of the engagement.
FASB
Financial Accounting Standards Board
Responsible for Accounting Standards Update
ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
Issued: April 2016
Effective date: Same as Revenue Recognition
- Public Business Entities: Effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within those annual periods. DO WE NEED TO RESTATE 2016 TO BE COMPARABLE?
- All other entities: December 15, 2018
This ASU addresses identifying performance obligations in light of materiality, within the context of a contract and determining whether certain goods and services as well as shipping and handling activities are distinct within that context.
This ASU resulted from feedback from Revenue Recognition. The following issues are addressed
- Identifying performance obligations in light of materiality within the context of a contract and determining whether certain goods or services as well as shipping and handling activities are distinct within that context
- Licensing in terms of the rights granted and appropriate timing of revenue recognition, when to recognize sales-and usage-based royalties, and contractual provisions that require transfer of additional licenses.
To identify performance obligations in a contract, an entity evaluates whether promised goods and services are distinct.
This ASU improves the guidance on assessing “separately identifiable” by
- better articulating the principle for determining by thinking about whether we are doing this one by one or for a group of stuff
- revises the related factors and examples to align with the improved articulation of separately identifiable principle.
To clarify FASB ASC 606 and reduce the cost and complexity of identifying performance obligations:
- ignore the immaterial one
- you can account for shipping and handling as an activity to fulfill the contract
This ASU also looks ant intellectual property - was it a right transferred at a particular point in time, or a service which is satisfied over time?
FASB Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers
When will the update become effective?
What is the update called?
To identify performance obligations in a contract, an entity evaluates whether promised goods and services are distinct.
FASB ASC 606 includes two criteria for assessing whether promises to transfer goods or services are distinct. One of those criteria is that the promises are separately identifiable.
FASB ASC 606 includes implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time).
FASB ASC 606 includes implementation guidance on when to recognize revenue for a sales-based or usage-based royalty promised in exchange for a license of intellectual property.
FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)
When the entity provides a good or service in concert with another party
FASB ASU No. 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815), Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 6, 2016, EITF Meeting (SEC Update)
This ASU kills certain SEC paragraphs that were changes to these two ASCs? I think? Some dealt with Oil and Gas
Specifically, upon adoption of Topic 606, companies should no longer rely on the following SEC Staff Observer comments:
- Revenue and Expense Recognition for Freight Services in Progress
- Accounting for Shipping and Handling Fees and Costs
- Accounting for consideration given by a vendor to a customer
Accounting for Gas-Balancing Arrangements
ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients
Issued May 2016
This ASU resulted from feedback FASB obtained from FASB-IASB-TRG, whose charge is to identify implementation issues related to the new standard and enhance understandability. The board adopted changes to FASB ASC 606 to address certain issues the TRG identified in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition.
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements
Issued June 2016
Effective: Effective for annual periods beginning after December 15, 2010, and interim periods in fiscal years beginning after December 15, 2021. Early application is permitted, including adoption in an interim period, for periods in fiscal years beginning after December 15, 2018.
This ASU affects companies holding loans and other instruments, including loans, debt securities, trade receivables, leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. Banks and other financial institutions will be particularly affected by the revised standard.
This ASU seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The accounting for assets under this ASU will make the allowance for credit losses more comparable between originated assets and purchased financial assets and will reduce complexity with the accounting for interest income.
Assets measured at amortized cost: Companies will present these assets in the balance sheet at the net amount the company expects to collect for the asset (amortized cost less an allowance for credit losses).
FCAG - Financial Crisis Advisory Group
In 2008, in response to the global financial crisis, FASB and IASB established a Financial Crisis Advisory Group (FCAG) to advise the boards on improvements to financial reporting.
PCAOB
Public Companies Accounting Oversight Board, of the SEC
PCAOB Staff Guidance - Form AP, Auditor Reporting of Certain Audit Participants and Related Voluntary Audit Report Disclosure under AS 3101, “Reports on Audited Financial Statements”
Issue date: June 28, 2016
Effective Date:
- Engagement partners - January 31, 2017
- Other accounting firms - June 30, 2017
“Form AP” is a form public companies have to file. This is SEC guidance on how to file the form and what to put in it
SEC Guidance: Non-GAAP Financial Measures
Issued: May `17, 2016
Effective 30 days post publication in the Federal Register
The SEC issued Compliance and Disclosure Interpretations (C&DIs) of the rules and regulations on use of non-GAAP financial measures (Questions and Answers on General Applicability). The regulator has expressed concerns about companies’ use of non-GAAP measures to present various financial statement items including (for example, to calculate earnings and other per-share data and tax expense) and warned that it will take enforcement action against companies that do not comply with the non-GAAP reporting guidance.
SEC Guidance - Non-GAAP Financial Measures - what are the main provisions?
The guidance prohibits practices that create misleading results, such as the following:
- presenting a performance measure that excludes normal operating expense
- Inconsistent application of non-GAAP measures from one period to another
- Including gains but excluding charges in presented items
- Adjusting revenue using specially tailored measures that do not reflect reality
- Describing a charge or gain as non-recurring, infrequent or unusual when it does not meet certain criteria
- Presenting per share non-GAAP liquidity measures
- Displaying non-GAAP measures more prominently than GAAP
- Adjustments for tax expense in non-GAAP measures that are not appropriate
Companies should read the SEC’s guidance and determine whether they need to revise or eliminate certain non-GAAP financial measures in filings and press releases. Additionally, companies should reassess the manner in which they apply to non-GAAP financial measures and make adjustments to policies or procedures, as needed.
Proposed ASU, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
Issue Date: April 28, 2016
Comment Due Date: June 27, 2016
Effective date: TBD
The proposed rules would require companies to explain changes in total cash, cash equivalents, and restricted cash (and cash equivalents) during the period in their statement of cash flows. Companies would also include restricted cash and equivalents in reconciling beginning and end amounts in the statement of cash flows. If amounts cannot be reconciled, certain disclosures would be required. Companies are also required to disclose the nature and amounts of restricted cash.
Proposed ASU, Intangibles, Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment
Issue date: May 12, 2016
Comment due date: July 11, 2016
Effective date: TBD
After its recent revision to the ASC to simplify goodwill accounting for private companies due to concerns about cost and complexity, FASB added a project to its agenda to consider whether similar changes might be appropriate for other companies, including public and not-for-profit entities. The first phase of the project considered whether to omit step 2 of the impairment test. FASB will consider possible further changes in phase 2 of the project.
The proposed amendment would remove step 2 in the process of measuring goodwill impairment, that is, companies would no longer calculate the implied fair value of goodwill by assigning fair value of a reporting unit to all of its assets and liabilities as if that unit had been acquired in a business combination. Instead, companies would perform the annual or interim goodwill impairment test by simply comparing fair value of a reporting unit with its carrying value and recognize an impairment value if the carrying amount is greater than fair value. Under the proposal, the amount of the charge should not exceed the carrying amount of goodwill allocated to that reporting unit (no “bad-will” on a reporting unit basis). Companies may still perform a qualitative assessment to determine whether a quantitative impairment is needed.
Proposed ASU, Other Income - Gains and Losses from De-recognition of Nonfinancial Assets (Subtopic 610-20)
Issue date: June 6, 2016
Comment due date: August 5, 2016
Effective date: TBD (same time as ASU-2014-09 amendments)
This ASU results from FASB’s 2013 three-phase project on business entities. The first phase proposed guidance in November 2015 to define a business. The second phase resulted in this ASU, which addresses the scope of asset recognition guidance and clarifies references to “in substance nonfinancial assets” and partial sales of nonfinancial assets. The third phase will consider whether to align the accounting for acquisition and de-recognition of assets and businesses.
The amendments in this proposed ASU would clarify the scope of the nonfinancial asset guidance in FASB ASC 610-20. Under the clarified scope, entities would apply the guidance to de-recognition of all nonfinancial assets and in-substance nonfinancial assets unless other specific guidance applies.
Propsoed ASU, Consolidation (Topic 810): Interests Held through Related Parties That are under Common Control
Issue date: June 23, 2016
Comment due date: July 25, 2016
Effective date: TBD
The proposed ASU would affect companies that are required to evaluate whether they should consolidate a variable interest entity (VIE).
This ASU would amend the consolidation guidance on determining whether a company (reporting entity) is the primary beneficiary of a VIE when that company
- is the single decision maker of the VIE and
- has an indirect interest in the entity held through related parties that are under common control with the reporting entity.
A primary beneficiary of a VIE is required to consolidate the VIE.
FASB - Financial Accounting Standards Board
The FASB, established in 1973, is the designated accounting standard setter for establishing private sector financial accounting and reporting standards for nongovernmental entities. The FASB is subject to the oversight of the Financial Accounting Foundation Board of Trustees (FAF).
- 11 independent members, appointed to 5 year terms
- the SEC has the statutory authority to establish financial accounting and reporting standards for publicly held companies. However, SEC policy has historically been to rely on the FASB for this function to the extent that their standards demonstrate the ability to fulfill the SEC’s responsibility to the public interest.
- the FASB maintains the FASB Accounting Standards Codification, which represents the only source of authoritative nongovernmental accounting and reporting standards, other than those issued by the SEC
Emerging Issues Task Force (EITF)
The EITF was formed in 1984. Their mission is to assist the FASB in improving financial reporting by timely addressing and reducing diversity in practice. The EITF addresses narrow emerging issues, and implementation or application issues, arising from existing generally accepted accounting principles (GAAP).
- composed of volunteer members
- takes some of the pressure off FASB
Private Company Council (PCC)
The board of the FAF established the PCC in May 2012 to address the needs of private company financial statement users. The PCC serves to advise the FASB regarding the proper treatment of private company accounting as it relates to the active items on the FASB’s technical agenda.
- volunteer members
FASB ASC
Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC)
On September 15, 2009, the FASB ASC became effective as the only source of authoritative nongovernmental GAAP. The FASB ASC has only one level of authority; accounting guidance residing inside the FASB ASC is considered authoritative, while other accounting literature residing outside of the FASB ASC is considered nom-authoritative (for example, FASB Concept Statements).
How is the content of the FASB ASC arranged and updated?
The content in the FASB ASC is arranged topically and updated by the issuance of Accounting Standard Updates (ASUs). FASB ASUs communicate changes to the FASB ASC, but are not considered standalone authoritative standards. Upon the issuance of a final FASB ASU, its content is added to FASB ASC. If the FASB ASU adds a new paragraph, that new paragraph is inserted in the appropriate place in the FASB ASC. If an existing paragraph is amended or deleted, the amended or deleted paragraph is placed immediately after the existing paragraph. The new, amended, or deleted paragraphs are labeled “Pending Content” and their effective dates and transition provisions are described.
What is the topical structure of the FASB ASC?
First there are topics, then subtopics, then sections, then subsections
In the FASB ASC, topics represent a collection of related guidance. Following the topic level, the FASB ASC further refines topics into subtopics, sections, and subsections. Note that subsections are a further disaggregation of a section, and, except for the general section, occur in a limited number of cases. Unlike a section, a subsection is not numbered.
