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April 2013, a new website, is providing resources to help audit committees, financial executives, internal auditors, and external auditors deter and detect financial reporting fraud.

The site is a product of the Anti-Fraud Collaboration, a partnership between the Center for Audit Quality (CAQ), Financial Executives International, The Institute of Internal Auditors, and the National Association of Corporate Directors.

The organizations partnered in 2010 to develop thought leadership, awareness programs, educational opportunities, and related resources to help deter and detect fraud.

April 2013

  Proposed reforms designed to streamline and improve the way the federal government administers more than $600 billion in grants annually have been published by the Office of Management and Budget (OMB).

The OMB is proposing broad reforms to compliance audits performed under OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (also referred to as single audits or Circular A-133 audits). A number of other key grant reforms also are proposed.

If the proposal is approved, the threshold that triggers a single-audit requirement would be raised from $500,000 a year to $750,000 a year.

The proposal, titled Proposed OMB Uniform Guidance: Cost Principles, Audit, and Administrative Requirements for Federal Awards, was developed to combine multiple federal regulations for administering grants into a single, comprehensive, streamlined policy guide. The proposal is available at

Proposed changes are designed to eliminate unnecessary and redundant requirements to achieve better outcomes at a lower cost. The OMB is seeking comments on the proposal by May 2. An AICPA Governmental Audit Quality Center report, GAQC Alert No. 211, provides more information about the proposal.

The increase in the threshold for single audits would mean that states, local governments, and not-for-profit entities that spend $750,000 or more in federal awards in a year would be required to undergo a single audit.

Entities that spend less than $750,000 in federal awards in a year would be required to make records available for review or audit by appropriate officials of the federal agency, passthrough entity, and the U.S. Government Accountability Office, according to the proposal.

The OMB proposes a number of other changes to the current rules for determining which federal programs will be audited as part of a single audit and that the number of types of compliance requirements to be tested in a single audit be reduced from 14 to six. These would be:

Activities allowed or unallowed, and allowable costs/costs principles.

  • Cash management.
  • Eligibility.
  • Reporting.
  • Subrecipient monitoring.
  • Special tests and provisions.

In addition, more detail will be required to be reported in auditor findings, but the questioned cost threshold for reporting will be increased from $10,000 to $25,000.

Eight existing OMB circulars will be combined into one document, which will clarify key differences for different entities.

  A new program announced by the Center for Audit Quality (CAQ) and the Auditing Section of the American Accounting Association (AAA) will help accounting and auditing academics gain access to audit firm personnel to participate in academic research projects.

The joint venture between the CAQ and AAA Auditing Section is designed to help generate research on issues that are relevant to audit practice. The CAQ is affiliated with the AICPA.

Doctoral students and tenure-track professors are the initial group to be provided access to audit firm staff to complete data collection protocols through the Access to Audit Personnel program.

Firms that are CAQ Governing Board members have agreed to participate in the program, which requires doctoral students and tenure-track professors to submit a request for proposal (RFP) to a committee of senior academics and audit practitioners.

The RFP will require the researchers to provide a detailed description of their research, methodology, and how the research will fit into the existing literature. The full criteria for the RFP are available on the CAQ’s website at

A total of five proposals will be approved this year by the committee in what will be an annual program, and the requests will be forwarded to the firms that have pledged to cooperate. The deadline for RFPs to be submitted is April 22.

  A new statement issued by the AICPA Auditing Standards Board (ASB) clears the way for audits of financial statements prepared in accordance with the Financial Reporting Framework for Small- and Medium-Sized Entities (SMEs) that the AICPA is developing.

Statement on Auditing Standards (SAS) No. 127, Omnibus Statement on Auditing Standards—2013, defines a new special-purpose framework in the auditing standards that uses a definite set of logical, reasonable criteria that is applied to all material items appearing in financial statements. SAS No. 127 is available at

Previously, the special-purpose frameworks included in the AICPA Professional Standards had been limited to:

  • Cash basis.
  • Tax basis.
  • Regulatory basis.
  • Contractual basis.

The statement amends AU-C Section 800, Special Considerations—Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks, and takes effect for audits of financial statements for periods ending on or after Dec. 15, 2012. The new definition is similar to one that previously had been deleted from AICPA auditing standards because of lack of use.

The development of the Framework for SMEs, though, creates a need for the new special-purpose framework in the auditing standards. The AICPA’s objective is to provide a simple, robust, and reliable financial reporting framework for SMEs that are not required to file financial statements in accordance with GAAP.

An ED of the framework was released Nov. 1 and is available at

In addition, the ASB’s new statement permits reference in the auditor’s report on group financial statements to component auditors’ reports on component financial statements in some cases.

SAS No. 127 permits such a reference when the group and component financial statements are prepared using different financial reporting frameworks if certain other criteria are met.

The statement amends AU-C Section 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors), and takes effect for audits of group financial statements for periods ending on or after Dec. 15, 2012.

  Auditors should use professional judgment of the circumstances to determine which effective date of AU-C Section 905 applies in a compliance audit performed pursuant to AU-C Section 935, Compliance Audits, and Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, according to a new Technical Question and Answer developed by two AICPA teams.

The Audit and Attest Standards and Governmental Auditing and Accounting teams developed the nonauthoritative guidance in TIS Section 9110.20. The guidance relates to which effective date should be used in a particular circumstance in AU-C Section 905, Alert That Restricts the Use of the Auditor’s Written Communication.

The guidance refers to circumstances in a compliance audit when:

  • The financial statements of an entity are for a period prior to Dec. 15, 2012, and
  • The opinion on compliance and reporting on internal control over compliance relating to that same period is issued after Dec. 15, 2012.

The effective date to be used depends on the auditor’s professional judgment of the circumstances, according to the guidance, which is available at

Financial reporting / International  
April 2013

  The IFRS Foundation’s departure from requirements initially proposed in November could clear the way for FASB membership in a new global forum of national and regional standard setters.

Promoting IFRS adoption will not be a prerequisite for standard setters to participate in a new forum the IFRS Foundation is forming to advise the IASB on technical standard-setting issues.

Documents showed that the IFRS Foundation is dropping the proposed requirement. This move and other changes in language from the original proposal could facilitate FASB’s participation in the forum.

The changes were formalized as the IFRS Foundation released documents that requested applications from potential participants in the Accounting Standards Advisory Forum (ASAF).

A feedback statement on the IFRS Foundation’s proposal to establish the ASAF described the changes. The foundation is requiring national and regional standard setters that wish to participate in the forum to sign a Memorandum of Understanding (MoU) with the foundation. The feedback statement is available at

In an Invitation to Comment (ITC) released in November, the foundation proposed that forum participants agree to make their best efforts to promote the endorsement or adoption of IFRS in full and without modification over time. The new document says no such commitment will be required.

  Financial statement preparers’ concerns about disclosure overload came through loud and clear in a survey recently conducted by the IASB.

Most preparers participating in the survey said the primary problem with the way financial information is disclosed is that disclosure requirements are too extensive, and more needs to be done to exclude immaterial information.

Respondents from Africa, Asia, Europe, and North America participated in the survey. About half of the respondents were preparers, and about 1 in 5 was a financial statement user.

More than 80% said improvements could be made to the way financial information is disclosed. Half of those respondents said improvements are needed across all parts of the annual report, not just the financial statements.

Many financial statement users said preparers could do more to improve the communication of relevant information in financial statements instead of leaving users to sift through large amounts of data.

A variety of views on the causes of disclosure overload were identified. Some respondents said accounting standards could be improved. Others said preparers, auditors, and regulators are approaching financial reporting as a compliance exercise rather than as a means of communication.

  A report by U.K. researchers found inconsistencies in compliance with certain impairment disclosure requirements across jurisdictions in Europe, which suggested that IFRS are not being evenly applied across jurisdictions.

IASB Chairman Hans Hoogervorst said more-consistent application remains a worthwhile goal that requires the attention of regulators, auditors, and standard setters. But he said that even in the presence of inconsistencies, worldwide adoption of IFRS remains the best way to arrive at global comparability between companies.

“The truth is that even an unevenly applied global standard provides much more global comparability than an equally unevenly applied multitude of diverging national standards,” Hoogervorst said at the unveiling of a report by three researchers at the Cass Business School at the City University of London. “Without a global standard, there is absolutely no chance you will ever arrive at global comparability.”

Researchers Hami Amiraslani, George Iatridis, and Peter Pope studied impairments recognized at 4,474 listed companies from the European Union, Norway, and Switzerland. Their findings included:

  • Compliance with some impairment disclosure requirements varied across European countries, which suggests uneven application of IFRS.
  • Companies operating in countries with strong regulatory and institutional infrastructure, such as the U.K. and Ireland, are more likely to exhibit high-quality impairment reporting.
  • Companies in jurisdictions with strong regulatory and enforcement settings recognize economic losses in a more timely manner than companies located where enforcement is weaker.

“Ultimately, IFRS appear to have had a significant and positive impact on the financial reporting practices of many reporting companies across Europe,” the researchers wrote. “However … there is scope for further improvement in the application of IFRS requirements.”

The report is available at

  The International Public Sector Accounting Standards Board (IPSASB) released the first four chapters of its conceptual framework for public-sector general-purpose financial reporting. The chapters describe the objective of financial reporting by public-sector entities as providing information to users for accountability and decision-making purposes.

The partial release identifies service recipients and resource providers as the primary users of general-purpose financial reports (GPFRs) of public-sector entities.

The remainder of the framework will be released upon completion.

The chapters identify the qualitative characteristics of information included in GPFRs, and the constraints on that information. The characteristics are:

  • Relevance.
  • Faithful representation.
  • Understandability.
  • Timeliness.
  • Comparability.
  • Verifiability.

Materiality, cost/benefit, and balance between the qualitative characteristics are identified as constraints.

In addition, the chapters identify key characteristics of a public-sector reporting entity, as well as the role of the conceptual framework in the development of International Public Sector Accounting Standards and Recommended Practice Guidelines. These chapters are available at

Additional chapters under development will address the definition, recognition, and measurement of the elements of financial statements, and presentation in GPFRs. The IPSASB develops standards, guidance, and resources for use by public-sector entities around the world.

Financial reporting  
April 2013

  The Private Company Council (PCC) is forging ahead with more in-depth analysis of three of the four issues it initially identified as candidates for possible GAAP exceptions or modifications for private companies.

During the newly created PCC’s second meeting, the council added the three items to its agenda for examination of possible GAAP exceptions or modifications. These were:

  • Recognizing and measuring intangible assets acquired in business combinations. Accounting Standards Codification (ASC) Topic 805, Business Combinations, (formerly FAS 141(R)) and ASC Topic 350, Intangibles—Goodwill and Other (formerly FAS 142), govern this topic.
  • Accounting for variable-interest entities (VIEs). This topic is subject to the requirements of ASC Topic 810, Consolidation. Formerly known as FIN 46(R) and FAS 167, this standard requires consolidation of the financial data of a VIE with the company that is the VIE’s primary beneficiary.
  • Accounting for “plain vanilla” interest rate swaps. ASC Topic 815, Derivatives and Hedging, (formerly FAS 133) requires costly accounting when swaps are used to convert variable interest rates on loans to fixed interest rates. The PCC decided to proceed with further analysis in situations where just one counterparty is involved. The PCC is having FASB’s staff perform more pre-agenda research in situations involving more than one counterparty or lending arrangement.

Accounting for uncertain tax positions was the lone item of initial interest that the PCC decided not to place on its agenda.

Two new items were identified for pre-agenda discussion, and FASB’s staff was asked to prepare preliminary background on them for consideration at the next PCC meeting on May 7. Those items are:

  • Stock compensation, including measurement, modifications, and settlements accounting for private companies.
  • Accounting for development-stage enterprises.

The PCC was formed by FASB’s parent body, the Financial Accounting Foundation (FAF), in part to determine whether and when exceptions or modifications to GAAP should be created for private companies.

The PCC also voted with FASB to seek more public input on the proposed private company decision-making framework, which will create criteria to determine whether and when it is appropriate to adjust financial reporting requirements for private companies using GAAP.

The proposal was expected to be re-exposed in March with a 90-day comment period.

  FASB issued proposed financial reporting standards for repurchase agreements, in part to address investors’ concerns that some current practices do not adequately reflect the transferor’s obligations and risks.

The comment period for the Proposed Accounting Standards Update (ASU), Transfers and Servicing (Topic 860)—Effective Control for Transfers With Forward Agreements to Repurchase Assets and Accounting for Repurchase Financings, ended March 29. The proposal is available at

According to an issue of FASB in Focus devoted to the topic, the market for repurchase agreements has changed significantly since FASB issued its first guidance on this subject in 1996 in FASB Statement No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

Repurchase agreements increasingly involve asset types that are not U.S. Treasury or government agency securities and may be less liquid. That can affect how the transactions operate and how investors consider the risks associated with them.

If approved, the proposal would make changes to financial reporting for repurchase agreements and other transfers with forward agreements to repurchase transferred assets. The proposal is intended to clarify the guidance for distinguishing whether these transactions are sales or secured borrowings, and improve disclosures about them.

For some arrangements, the proposal also would result in financial reporting that is more comparable with IFRS.

  FASB issued an ASU that clarifies that a 2011 standard on offsetting disclosures does not apply to ordinary trade receivables and receivables.

ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities, excludes trade receivables and receivables from the scope of the standard and is available at

The new ASU explains that the 2011 standard, ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures About Offsetting Assets and Liabilities, applies to the following when they are offset in accordance with FASB criteria or subject to a master netting arrangement or similar agreement:

  • Derivatives.
  • Repurchase agreements and reverse purchase agreements.
  • Securities borrowing and securities lending transactions.

Issued in December 2011, ASU No. 2011-11 was the result of a joint project with the International Accounting Standards Board (IASB). It was designed to improve transparency and comparability between U.S. GAAP and IFRS. The standard requires enhanced disclosures about financial instruments that are offset in the statement of financial position, or subject to an enforceable master netting arrangement or similar agreement.

After the standard was released, companies realized that many contracts have standard commercial provisions that would equate to a master netting arrangement. FASB concluded that requiring enhanced disclosures for ordinary trade receivables and receivables would significantly increase the cost of compliance with limited value to users of financial statements.

  A FAF review affirmed the general effectiveness of a FASB statement that establishes standards for the way public companies report information about operating segments in annual and interim financial statements.

But the report on the post-implementation review also revealed room for improvement in Statement No. 131, Disclosures About Segments of an Enterprise and Related Information, which is codified in ASC Topic 280, Segment Reporting. Some of the challenges include the effect of changes in technology on the determination of what information is reviewed by the company’s chief operating decision-makers (CODMs). The report is available at

FASB announced that it will review the issues raised in the FAF report with stakeholders and the SEC to determine whether further review of the standard is warranted. FASB believes any plan for such a review or project should be coordinated with the IASB, which is reviewing IFRS 8, Operating Segments. IFRS 8 is converged with Statement No. 131.

The IASB’s review is expected to be finished this year.

  GASB approved a standard geared toward the specific needs of state and local governments’ financial reporting of mergers, acquisitions, transfers of operations, and disposals of government operations.

“Historically, governments have accounted for their mergers and acquisitions by analogizing to guidance intended for the private-sector business environment, which proved problematic because those standards focus on stock arrangements and ownership interests not present in a governmental setting,” GASB Chairman Robert Attmore said in a news release.

GASB Statement No. 69, Government Combinations and Disposals of Government Operations, is available at and provides guidance for:

  • Determining whether a combination is a merger, acquisition, or transfer of operations.
  • Using carrying values to measure the assets, deferred outflows of resources, liabilities, and deferred inflows of resources combined in a government merger or transfer of operations.
  • Measuring acquired assets, liabilities, deferred outflows of resources, and deferred inflows of resources based on their acquisition values in a government acquisition.
  • Reporting the disposal of government operations that have been transferred or sold.

The standard takes effect for periods beginning after Dec. 15, 2013, and should be applied prospectively. GASB encourages early application.

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