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NEWS DIGEST
Government  
October 2012

An independent report commissioned and released publicly by FAF reviewed GASB’s activities as the standard setter for state and local governments. FAF is GASB’s parent organization.

The report advised FAF and GASB to consider:

  • Developing a plan to work toward improving the timeliness with which GAAP financial reports are issued.
  • Exploring the meanings and dimensions of accountability in practice and the conceptual framework, with an emphasis on research from public administration.
  • Analyzing the potential for expanding due process.
  • Clarifying the desired policymaking strategy with regard to being proactive or reactive as well as narrow or broad.


The full report is available at tinyurl.com/bng5cdy.


NEWS DIGEST
Financial reporting  
October 2012

  FASB released its initial staff recommendations on whether and when it will be appropriate to adjust financial reporting requirements for private companies.

The recommendations are contained in a paper, Private Company Decision-Making Framework: A Framework for Evaluating Financial Accounting and Reporting Guidance for Private Companies. FASB invited stakeholders to comment on the recommendations.

In May, the Financial Accounting Foundation (FAF), FASB’s parent organization, created the Private Company Council (PCC). The council will identify, deliberate, and vote on proposed changes, which will be subject to endorsement by FASB.

FASB and the PCC must agree jointly on the proposed decision-making framework before it is implemented. The framework will guide the PCC as it determines whether modifications or exceptions to existing U.S. GAAP are needed for private companies.

The staff paper says that in identifying guidance for possible GAAP exceptions, FASB and the PCC should first determine whether the guidance provides relevant information to private company financial statement users at a reasonable cost.

The paper gives substantial guidance to help define the cost/benefit analysis and provides a flowchart illustrating the framework to decide whether to permit exceptions or modifications in disclosures for private companies.

In addition, the staff paper recommends that:

  • In some circumstances, FASB and the PCC may conclude that private companies should be provided exceptions from applying the same display requirements as public companies, or should apply a modified display requirement.
  • Generally, the amendments in an Accounting Standards Update (ASU) should be effective for private companies one year after the first annual period for which public companies must adopt them. Exceptions could be made to this principle, though.
  • If public companies are required to apply the full method or limited method of retrospective transition when an ASU is issued, FASB and the PCC should consider whether the same method of retrospective transition is appropriate for private companies.


The discussion paper is available at tinyurl.com/br9qr67. The comment period ends Oct. 31.


  The guidance for testing the impairment of intangible assets such as indefinite-lived trademarks, licenses, and distribution rights has been simplified.

FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.

The standard applies to testing the decline in realizable value of indefinite-lived intangibles other than goodwill, and applies to all public, private, and not-for-profit organizations.

The ASU allows an organization the option of first assessing qualitative factors to determine if a quantitative impairment test of the indefinite-lived intangible asset is necessary. If the qualitative assessment reveals that it’s “more likely than not” that the asset is impaired, a calculation of the asset’s fair value is required.

Otherwise, no quantitative calculation is necessary.

“The board expects that the revised guidance will reduce the cost of accounting for indefinite-lived intangible assets, especially in cases where the likelihood of impairment is low,” FASB Chairman Leslie Seidman said in a statement.

FASB’s previous guidance required an organization to compare the fair value of an indefinite-lived intangible asset with its carrying amount at least annually to test for impairment. If the asset’s carrying amount exceeded its fair value, the difference was recognized as an impairment loss.

The ASU is available at tinyurl.com/cq4op2k. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after Sept. 15, 2012. Early adoption is permitted.


  FAF is gathering survey participants for a post-implementation review of a FASB standard on business combinations.

A joint project with the International Accounting Standards Board (IASB) resulted in FASB Statements No. 141(R), Business Combinations, and No. 160, Noncontrolling Interests in Consolidated Financial Statements, which were issued in December 2007.

A month later, the IASB issued a revised version of IFRS 3, Business Combinations, and an amended version of IAS 27, Consolidated and Separate Financial Statements.

FAF is seeking stakeholders who want to be considered to participate in a post-implementation review survey of Statement No. 141(R). IFRS 3 also is scheduled to be reviewed by the IASB. Stakeholders can register at tinyurl.com/c467dkj to be considered for participation in the FAF post-implementation review.


  The Federal Accounting Standards Advisory Board (FASAB) has adopted a new mission statement that notes its service to the public interest.

“The FASAB serves the public interest by improving federal financial reporting through issuing federal financial accounting standards and providing guidance after considering the needs of external and internal users of federal financial information,” a FASAB statement says.

FASAB Chairman Tom Allen said in a news release that the previous mission statement did not adequately emphasize the board’s commitment to serving the public interest, which is the primary driver of its work. A full explanation of the FASAB’s mission and objectives is available at tinyurl.com/7lv3gtm.


  The AICPA Health Care Expert Panel developed nonauthoritative guidance on how health care entities should account for costs incurred in connection with the implementation of the 10th edition of the International Classification of Diseases (ICD-10).

By Oct. 1, 2013, the U.S. health care system is scheduled for a transition to ICD-10 from the ninth edition (ICD-9) code sets used to report medical diagnoses and inpatient procedures.

Technical Question and Answer (TPA) 6400.48, provides nonauthoritative guidance that includes factors to consider in assessing whether modifications to an entity’s existing software system qualify as an upgrade or enhancement.

The TPA is available at tinyurl.com/3so64k8.


NEWS DIGEST
Auditing  
October 2012

  The PCAOB released a 26-page report describing how its inspections of audit firms work and how audit committees can gather information from audit firms about those inspections. The release is available at tinyurl.com/cdlytcp.

Part I of the PCAOB audit inspection report is public and describes audit deficiencies where the inspection staff found that the auditor failed to gather enough evidence to support an audit opinion. The PCAOB identified questions that audit committees may want to ask their audit firms about PCAOB inspections. These questions include:

  • Was the company’s audit selected for PCAOB inspection?
  • Did the PCAOB identify deficiencies in other audits that involved auditing or accounting issues similar to issues presented in the company’s audit?
  • What were the firm’s responses to the PCAOB findings?


Regarding Part II audit inspection findings, which are not public, the PCAOB suggests that audit committees ask for generic information such as:

  • What changes is the firm making to address quality-control deficiencies?
  • What is the progress of the quality-control remediation process, and what submissions has the firm made to the PCAOB as part of that process?
  • For what years has the PCAOB made a final determination about the firm’s remediation efforts, and what was the nature of that determination?
  • Has the PCAOB provided initial indications that the audit firm may not have sufficiently remediated any items?

 

  The PCAOB entered a cooperative arrangement with the Accounting and Auditing Institute of Spain.

The partnership will allow joint inspections in the oversight of audit firms subject to the jurisdictions of both regulators. Joint inspections begin this year, as the agreement takes effect immediately.

The PCAOB previously established cooperative arrangements with regulators in three other European Union member states—the United Kingdom, the Netherlands, and Germany—in addition to Switzerland and Norway. Several regulators in North America, the Middle East, Asia, and Australia also cooperate with the PCAOB.


NEWS DIGEST
Practice management  
October 2012

CPAs can find nonauthoritative guidance on how to respond to requests for client information in connection with a pending loan application from Technical Question and Answer (TPA) 9110.19, which was developed by the AICPA Accounting and Auditing Technical Hotline.

Prospective borrowers are asked to furnish only limited information in connection with the no-documentation or low-documentation loans that are popular options within the lending community, especially in lending to the self-employed.

But lenders or brokers still attempt to assess a borrower’s creditworthiness and verify the accuracy of information the borrower has provided them. TPA 9110.19 provides nonauthoritative guidance for CPAs on how to answer such a request from a client, lender, or loan broker to confirm client information.

The TPA is available at tinyurl.com/3so64k8.


NEWS DIGEST
Nonprofits  
October 2012

CPAs performing work for not-for-profits will find guidance dedicated specifically to them in a working draft of a proposed audit and accounting guide, Not-for-Profit Entities, released by the AICPA Financial Reporting Executive Committee (FinREC).

The AICPA requests that comments on the proposed guide be provided during a 60-day period, ending Oct. 15. FinREC will consider these comments before issuing a final version. The draft is available at tinyurl.com/cey8nno.

Enhancements to the proposed guide, which addresses many new accounting issues that have emerged over recent years, include:

  • A greatly expanded section about reporting relationships with other entities. The guide provides guidance and examples for reporting relationships with not-for-profit and for-profit corporations, limited liability partnerships, general partnerships, and financially interrelated entities.
  • New sections about reporting and measuring noncash gifts, including gifts in kind; contributions of fundraising materials, informational materials, advertising, and media time or space; below-market interest rate loans; and bargain purchases.
  • A greatly expanded section about municipal bond debt, including IRS considerations, third-party credit enhancements, capitalization of interest, extinguishments and debt modifications, and the effects of terms such as subjective acceleration clauses on the classification of debt.
  • New guidance for reporting the expiration of donor-imposed restrictions.
  • Greatly expanded discussion about the legal and regulatory environment in which not-for-profit entities operate.


The working draft does not include general and specific auditing considerations, analytical procedures, or reporting or considerations of internal control.


NEWS DIGEST
International  
October 2012

  Very small companies are expected to receive IFRS financial reporting guidance tailored to their needs, as the staff of the International Accounting Standards Board (IASB) will develop guidance to help so-called “micro-sized entities” apply IFRS for Small and Medium-sized Entities (IFRS for SMEs) in their financial reporting.

The IASB staff will extract from IFRS for SMEs only those requirements that clearly are necessary for most micro-size entities. The principles for recognizing and measuring assets, liabilities, income, and expenses will not be altered, but the guidance will include only the main principles relating to those requirements.

Although there is no current official IASB definition of “micro-sized entity,” the term usually refers to entities with fewer than 10 employees.

The micro guidance will contain cross-references to IFRS for SMEs for issues that are not contained in the guidance booklet. A company that applies the guidance will be able to include notes to financial statements and auditor’s reports that refer to conformity with IFRS for SMEs because there is no modification of principles.

The SME Implementation Group will work with the IASB staff in developing the guidance, and will approve a final draft to be sent to the IASB for review.

 

  The IFRS Foundation is changing its constitution to reflect the separation of the roles of the foundation’s CEO and the chairman of the IASB.

This move formalizes a separation that previously was implemented following an internal structure reorganization at the end of 2011.

The chair of the IASB, currently Hans Hoogervorst, no longer serves as CEO of the IFRS Foundation. The CEO position is included in the new role of executive director of the foundation.

Yael Almog, who directed the International Affairs department of the Israel Securities Authority, was appointed to the executive director position in January 2012.

A drafting review of the change in the constitution is available at ifrs.org (registration required); comments can be made through Oct. 23.

The IASB chair retains full responsibility for all standard-setting matters, including resources. The separation was made to ensure segregation of responsibilities for IASB operations to prevent an actual or perceived conflict of interest in standard setting.


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