Accounting and Auditing Updates

Question 1

ARSC in Accounting

Accounting and Review Service Standards and Interpretations
hint: SSARs
Statements on Standards for Accounting and Review Services

Answer 1

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.

Question 2

SSAE 18 - Attestation Standards: Clarification and Recodification

Answer 2

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.

Question 3

FASB

Financial Accounting Standards Board

Answer 3

Responsible for Accounting Standards Update

Question 4

ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

Answer 4

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?

Question 5

FASB Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers

Answer 5

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.

Question 6

FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)

Answer 6

When the entity provides a good or service in concert with another party

Question 7

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)

Answer 7

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

Question 8

ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients

Answer 8

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.

Question 9

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements

Answer 9

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).

Question 10

FCAG - Financial Crisis Advisory Group

Answer 10

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.

Question 11

PCAOB

Answer 11

Public Companies Accounting Oversight Board, of the SEC

Question 12

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”

Answer 12

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

Question 13

SEC Guidance: Non-GAAP Financial Measures

Answer 13

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.

Question 14

SEC Guidance - Non-GAAP Financial Measures - what are the main provisions?

Answer 14

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.

Question 15

Proposed ASU, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments

Answer 15

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.

Question 16

Proposed ASU, Intangibles, Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment

Answer 16

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.

Question 17

Proposed ASU, Other Income - Gains and Losses from De-recognition of Nonfinancial Assets (Subtopic 610-20)

Answer 17

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.

Question 18

Propsoed ASU, Consolidation (Topic 810): Interests Held through Related Parties That are under Common Control

Answer 18

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.

Question 19

FASB - Financial Accounting Standards Board

Answer 19

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

Question 20

Emerging Issues Task Force (EITF)

Answer 20

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

Question 21

Private Company Council (PCC)

Answer 21

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

Question 22

FASB ASC

Answer 22

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).

Question 23

How is the content of the FASB ASC arranged and updated?

Answer 23

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.

Question 24

What is the topical structure of the FASB ASC?

Answer 24

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.

Question 25

What are the four main areas of the FASB ASC?

Answer 25

Presentation Topic Codes 205 - 299: These topics relate only to presentation matters and do not address recognition, measurement, and derecognition

Financial Statement Accounts Topic Codes 305 - 700: These look and act like financial statement line items - Cash, Receivables, Investments, Inventory, etc.

Broad Transactions Topic Codes 805 - 899: These topics relate to multiple financial statement accounts and are generally transaction-oriented

Industries Topic Codes 905 - 900: These topics relate to accounting that is unique to an industry or type of Activity - Agriculture, Airlines, Contractors, etc.

Question 26

FASB ASC Master Glossary

Answer 26

The FASB ASC also contains a master glossary that includes links to the topics, subtopics, sections, and paragraphs where the terminology is used in the FASB ASC.

Question 27

What are ASC sections?

Answer 27

Sections represent the nature of the content in a subtopic such as recognition, measurement, disclosure, and so forth. Every subtopic uses the same sections. If there is no content for a section, then the section will not display. Similar to topics, sections correlate very closely with the sections of individual International Financial Reporting Standards:

• 00 Status
• 05 Overview and Background
• 10 Objectives
• 15 Scope and Scope Exceptions
• 20 Glossary
• 25 Recognition
• 30 Initial Measurement
• 35 Subsequent Measurement
• 40 Derecognition
• 45 Other Presentation matters
• 50 Disclosure
• 55 Implementation Guidance and Illustrations
• 60 Relationships
• 65 Transition and Open Effective Date Information
• 70 Grandfathered Guidance
• 75 XBRL Elements

Question 28

How accessible is the FASB ASC?

Answer 28

Three views of the FASB ASC are available online: the professional view, the academic view, and the basic view. The professional and academic views are available for an annual subscription fee and provide full functionality and advanced navigation. The basic view is available free of charge; and although it does allow browsing by topic, printing is limited.

Question 29

IFRS

Answer 29

International Financial Reporting Standards

Question 30

What is the basic history of IFRS?

Answer 30

The international standard setting process began several decades ago as an effort by industrialized nations to create standards that could be used by developing and smaller nations. Now, more than 100 nations and reporting jurisdictions permit or require IFRSs for domestic limited companies and most have fully conformed to IFRS as promulgated by the International Accounting Standards Board (IASB).

To support IFRS, the US SEC removed the requirement for foreign private issuers registered in the United States to reconcile their financial reports with US GAAP if their accounts complied with IFRS as issued by the IASB. In addition, the SEC continues to analyze and evaluate appropriate steps toward, and changes related to, incorporating IFRS in the US financial reporting system.

In 2009, G20, called for standard setters to redouble their efforts to complete convergence in global accounting standards.

Question 31

What is the IFRS Cost vs. Benefits basic discussion?

Answer 31

US entities with international operations could realize significant cost savings from the use of a single set of financial reporting standards.

Many multinational companies support the use of common accounting standards to increase comparability of financial results from many entities from different countries. They believe common standards will help investors better understand the entities’ business activities and financial position. Large public companies with subsidiaries in multiple jurisdictions would be able to use one accounting language company-wide and present their financial statements in the same language as their competitors.

Although certain cost reductions are expected, the initial cost of convergence with IFRS is expected to be one of the largest obstacles for many entities, including accounting firms and educational institutions.

Question 32

The IASB

Answer 32

The International Accounting Standards Board (IASB) is the independent standard setting body of the IFRS Foundation, formerly the International Accounting Standards Committee Foundation. As a private sector organization, the IFRS Foundation has no authority to impose funding regimes on countries. However, a levy system and national contributions through . . . . Although the AICPA was a founding member if the IAS Committee (the IASB’s predecessor), it is not affiliated with the IASB.

Founded on April 2001 in London, the IASB is responsible for developing IFRSs and promoting the use and application of these standards. In pursuit of this objective, the IASB cooperates with national accounting standard setters to achieve convergence in accounting standards around the world.

Question 33

Are IFRSs a different basis of accounting than generally accepted accounting principles?

Answer 33

In May 2008, the AICPA Governing Council voted to recognize the IASB as designated accounting body for the purposes of establishing international financial accounting and reporting principles. Accordingly, IFRSs are not considered to be an other comprehensive basis of accounting, but rather a source of generally accepted accounting principles.

Question 34

What are IFRSs?

And why the effing extra s?

Answer 34

Don’t know about the extra s.
The term IFRSs has both a narrow and broad meaning IFRSs refer to the numbered series of pronouncements issued by the IASB, collectively called standards. More broadly, however, IFRSs refer to the entire body if IASB literature.

Question 35

FASB and IFASB Convergence Efforts

Answer 35

To address significant differences between IFRSs and US GAAP, the FASB and IASB agreed to a “Memorandum of Understanding” (MOU), which was originally issued in 2006 and subsequently updated. To date the FASB and IASB have converged several topics, such as:

• Revenue Recognition (ASU No. 2016-02 and IFRS 16)
• Fair Value Measurements (ASU No. 2011-04 and IFRS 13)
• Leases (ASU No. 2016-02 and IFRS 16.

Question 36

What is the SEC Work Plan?

Answer 36

The SEC continues to affirm its support for a single set of high quality, globally accepted accounting standards; however, no decision has been made on whether or not to adopt IFRSs. In May 2011, the SE staff produced a work plan outlining how such a possible transition might happen.

In July 2012, the SEC published its final staff report on the work plan, which focuses on the arguments for and against various forms of adoption of global accounting standards. The SEC concluded that although international standards have improved in comprehensiveness, there are still some gaps, especially in the areas of insurance, extractive industries, and rate-regulated industries.