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NEWS DIGEST
Auditing  
December 2013

  The PCAOB approved new standards for auditors of brokers and dealers.

Two new attestation standards are designed to help protect customer funds by establishing rules for examinations and reviews of compliance information that broker-dealers submit to the SEC.

A new auditing standard applies to procedures performed and reporting on supplemental information that brokers and dealers file with the SEC. The board also adopted related amendments to other PCAOB standards.

The standards were enacted in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203, which authorized the PCAOB to oversee audits of brokers and dealers registered with the SEC. Previously, the generally accepted auditing standards of the AICPA Auditing Standards Board governed broker and dealer audits.

If approved by the SEC, the standards and amendments will take effect for services performed for fiscal years ending on or after June 1, 2014. The standards are available at tinyurl.com/ljlwypy and tinyurl.com/m8n73af.

AICPA President and CEO Barry Melancon, CPA, CGMA, issued a statement saying the AICPA has been consistent in its position that brokers and dealers should be subject to SEC regulation, and that auditors of brokers and dealers that carry, clear, or have custody of customer funds should be subject to the PCAOB’s standards, inspections, and enforcement programs.

Melancon said it is critical that the PCAOB use risk analysis in determining which audits of broker-dealers should be included in a permanent inspection program that will be implemented by the board.

“We urge the board to act expeditiously in determining the scope of that program,” he said.

The PCAOB, which is operating an interim inspection program, anticipates presenting a rule proposal for a permanent inspection program in 2014 or later.


  Companies in the U.K. FTSE 350 will be required to place their audit contracts out for bid every 10 years under new rules announced by the U.K. Competition Commission (CC).

The rules represent a softening of the five-year mandatory retendering proposed earlier by the CC. Some businesses and regulators, including the U.K. Financial Reporting Council (FRC), voiced opposition to the five-year retendering proposal.

But the CC’s rules are stronger than those imposed in 2012 by the FRC, which merely required companies that did not go to tender every 10 years to explain their reasons for not retendering.

The CC said in a news release that it is aware that its rules may be affected by audit reform measures the European Union (EU) is considering. But the CC said it is acting based on the evidence of its own investigation in the absence of definitive EU proposals. The CC said it will be able to amend its rules, if necessary, if the EU agrees upon measures. The EU is considering a possible mandatory audit firm rotation requirement.

The CC also will require that the FRC’s Audit Quality Review team review every audit engagement in the FTSE 350 every five years, on average; prohibit Big Four-only clauses in loan agreements; require a shareholder vote at the annual meeting on whether audit committee reports in company annual reports are satisfactory; and strengthen the accountability of the external auditor to the audit committee and reduce management’s influence.


NEWS DIGEST
Financial reporting  
December 2013

  Three new standards the AICPA Accounting and Review Services Committee (ARSC) voted to propose are designed to help practitioners clearly distinguish between preparation and reporting services.

ARSC voted to expose for public comment proposals titled Preparation of Financial Statements, Compilation Engagements, and Association With Financial Statements. An exposure draft was expected at press time to be made public by the end of October, and comments will be accepted through May 2, 2014.

The proposed compilation standard was revised after feedback suggested substantial changes from an ED issued last year. The revised standard would apply when the accountant is engaged to perform the service rather than when the accountant prepares and presents the financial statements.

A report would always be required, and the proposed standard would maintain the current requirement to modify the report when the accountant’s independence is impaired.

The new, proposed preparation standard would govern engagements in which the accountant prepares financial statements but does not perform a compilation, review, or audit. The standard would require the accountant to place a legend on each page stating that no assurance is being provided.

The proposed association standard applies when the accountant allows use of his or her name in a report, document, or communication that contains financial statements on which the accountant has not issued an audit, review, or compilation report. In these cases, the financial statements would be required to be marked to indicate that no CPA provides any assurance on the financial statements, or a disclaimer of opinion would be required.

ARSC proposed the association standard because AU Section 504 (which was withdrawn as part of the clarity project) addressed unaudited financial statements. ARSC and the AICPA Auditing Standards Board decided the guidance should be moved from the auditing literature to the Statements on Standards for Accounting and Review Services.


  The Private Company Council (PCC) approved its first GAAP exceptions for private companies and will forward them to FASB for final endorsement.

If FASB endorses the exceptions, they will be written into GAAP. These would be the first GAAP exceptions approved by the PCC, which was formed last year by FASB’s parent body, the Financial Accounting Foundation, in part to create exceptions and modifications to GAAP for private companies.

The exceptions approved by the PCC would:

  • Allow private companies to choose a simplified hedge accounting approach to their financial reporting when they enter into interest rate swaps to economically convert their variable-rate interest payments to fixed-rate interest payments.
  • Give private companies the ability to amortize goodwill acquired in a business combination.


The exceptions would take effect for fiscal years beginning after Dec. 15, 2014, and early adoption would be permitted.


  A FASB advisory committee asked stakeholders what they thought the board’s standard-setting priorities should be. Respondents said they wanted simplicity and better information.

The top three reasons improvements are needed to financial reporting standards, according to 105 respondents participating in a Financial Accounting Standards Advisory Council (FASAC) survey, are:

  • Simplification is needed.
  • Better information is needed.
  • Current information does not provide decision-useful information to investors and other users of financial reports.


The disclosure framework project, whose aim is to streamline disclosures in the footnotes to financial statements and make them more effective, was ranked as the most important project on FASB’s agenda for the next three to five years.

Full results of the survey are available at tinyurl.com/mjwolcm.

FASAC is FASB’s primary advisory group.

The survey asked respondents to rank the importance of various early-stage projects (see chart). The project listing excluded active agenda projects that FASB expects to complete by the third quarter of 2013 or expected to issue an exposure draft in by the second quarter of 2013.

 


  Going-concern assertions are appropriately made by management, the AICPA’s Financial Reporting Executive Committee (FinREC) and the Center for Audit Quality (CAQ) said in comment letters supporting a FASB proposal.

The proposal, Presentation of Financial Statements (Topic 205), Disclosure of Uncertainties About an Entity’s Going Concern Presumption,  is available at tinyurl.com/k5ukatu.

FinREC and the CAQ, which is affiliated with the AICPA, both commended FASB for its work developing a going-concern model that requires preparers to perform a going-concern assessment and, where required, provide footnote disclosures about going-concern uncertainties in each reporting period.

FASB is undertaking the project because U.S. GAAP does not explicitly define financial statement preparers’ responsibilities with respect to disclosing conditions that may give rise to substantial doubt about an entity’s ability to continue as a going concern.

Financial statements currently are prepared under the presumption that an entity will be able to realize its assets and meet its obligations in the ordinary course of business. When liquidation is imminent, the organization starts applying the liquidation basis of accounting in its financial statements.

Currently, auditors are required under U.S. auditing standards to assess whether there is substantial doubt about an entity’s ability to continue as a going concern.

FASB asked stakeholders to evaluate whether possible bias on the part of management would cause its going-concern evaluation to be of little use for investors. Both FinREC and the CAQ said management bias has the potential to affect other aspects of financial reporting, too, so an exception should not be made with respect to going concern.

“Management should be making a going-concern assessment,” Aaron Anderson, CPA, a FinREC member and chairman of its going-concern task force, said in a telephone interview. “It should not be just left in the hands of the auditor.”

In addition, FinREC welcomed the clarifications in the proposal around the definition of “going concern,” clarification about the time horizon over which an entity should be evaluated, and clarification about the information used in that evaluation.

The full comment letters are available at tinyurl.com/qztxxon (FinREC) and tinyurl.com/oc99p63 (CAQ).


NEWS DIGEST
Government  
December 2013

Former U.S. Comptroller General David Walker is closing a chapter in his campaign against the rising tide of government debt, but he is urging his fellow CPAs to help fight against what he calls fiscal irresponsibility by elected leaders.

Walker released the final report of his Comeback America Initiative, once again highlighting problems facing the finances of the federal government, states, and cities. The report is available at tinyurl.com/p4czdoo. Walker said he is closing his not-for-profit initiative to keep a long-standing commitment to his wife, Mary, to spend more time with his family.

But he is not retiring, he said, and as long as he is healthy, he won’t quit his fight for government fiscal responsibility. He called on CPAs to join him.

“People need to keep in mind that the ‘P’ in ‘CPA’ stands for ‘Public,’ ” Walker said during an interview with the JofA. “We have a public trust. We have to act in the public interest. We need make sure we are taking steps that improve accounting and reporting for governments. We’ve come a long way, but we’ve got a ways to go.”

The final Comeback America report presents a calculation that combines the federal government’s explicit liabilities, commitments, contingencies, and unfunded Social Security and Medicare promises.

In present-value dollars, the total in 2012 of these “off-balance-sheet obligations” was $69.7 trillion, or $221,400 per person. The total has more than tripled since 2000, when it was $20.4 trillion, according to Walker’s analysis. Walker said most states and many cities also have financial problems that mirror the federal government’s, with unfunded obligations for retirement and retiree health care, and outdated tax systems.


NEWS DIGEST
Human resources  
December 2013

Starting salaries for finance professionals in the United States continue to show signs of growth, and hiring demand for recent college graduates is on the rise. Meanwhile, the CPA designation is employers’ most sought-after credential, according to a new guide on salaries.

Average starting salaries for jobs in corporate accounting are expected to rise between 2.9% and 4.5%, depending on the specific role and the size of the company, according to the Robert Half 2014 Salary Guide for accounting and finance.

The guide is available at tinyurl.com/lkzxfwq.


NEWS DIGEST
Management accounting  
December 2013

A rule proposed by the SEC would require U.S. public companies to disclose the ratio between what companies pay their CEOs and their median employee.

SEC commissioners voted 3–2 to propose the rule, which was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203.

If the rule is approved, companies would be required to disclose:

  • The median of the total annual compensation of all their employees except the CEO.
  • The annual total compensation of the CEO.
  • The ratio of the two amounts.


The proposal, available at tinyurl.com/ou47lmc, was drafted to provide companies with flexibility in complying with the requirement while fulfilling the Dodd-Frank requirement, SEC Chairman Mary Jo White said.


NEWS DIGEST
Public accounting  
December 2013

Many CPA services are excluded from the activities that would require registration as a municipal adviser under new rules approved by the SEC.

Under the regulations, which were scaled back from a previous proposal, CPAs would not be required to register as municipal advisers if they are providing audit or attest services, preparing financial statements, or issuing letters for underwriters, according to a specific exemption given by the SEC.

But CPAs and others who provide certain other advice to municipalities—including tax advice on municipal securities offerings—will be required to register with the SEC as municipal advisers.

The SEC voted unanimously to adopt rules to establish a permanent registration of municipal advisers, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203. The rules are available at tinyurl.com/k5ksxey.

State and local governments that issue municipal bonds often rely on the expertise of municipal advisers to help them decide how and when to issue the securities and how to invest proceeds from the sales. The rules require municipal advisers to register with the SEC if they provide advice on the issuance of municipal securities, certain investment strategies, or municipal derivatives.

The new rules take effect 60 days after they are published in the Federal Register.

The AICPA generally supported the investor protections in the proposed rules but was concerned that the broad definition of “municipal advisor” in the proposed rules would apply to accountants performing customary accounting services who should not have been subjected to the required registration.

AICPA President and CEO Barry Melancon, CPA, CGMA, commended the SEC for its flexibility on the issue. He also acknowledged the support of members of Congress who introduced legislation that would have exempted accountants from the municipal adviser definition.

“Accountants providing audit and attestation services are already subject to layers of regulation that are intended to protect investors,” Melancon said in a statement. “We are pleased that the SEC expanded the accountant exemption to include audit and attestation engagements, preparation of financial statements, and the issuance of letters for underwriters.”


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