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Financial reporting  
March 2013

U.S. federal government entities will be required to report the effects of general property, plant, and equipment impairments under new standards issued by the Federal Accounting Standards Advisory Board (FASAB).

Statement of Federal Financial Accounting Standards (SFFAS) No. 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use, is designed to provide clarity for users of financial statements.

The standards will enable users to discover the cost of impairments when they occur, the financial impact on the reporting entity, and the cost of services provided following the impairment. Comparability of financial statements between federal government entities also should improve because the standards require those entities to account for impairments in a similar manner.

Administrative burdens are expected to be negligible because the standards do not require departments or agencies to specifically search for impaired assets, according to FASAB. Impairments are required to be considered in the context of entities’ existing practices, and the statement is required to be applied only when an indicator of significant impairment is present.

The standards, available at, take effect for reporting periods beginning after Sept. 30, 2014, and FASAB encourages early implementation.

March 2013

  The SEC approved PCAOB Auditing Standard No. 16, Communications With Audit Committees, and related amendments to PCAOB standards that were designed to help external auditors communicate effectively with audit committees during public company audits.

All U.S. public companies, including emerging growth companies as defined in the Jumpstart Our Business Startups (JOBS) Act, P.L. 112-106, will be required to comply with the standard.

The standard is designed to facilitate effective two-way communication, and is aimed at external auditors because the PCAOB has no authority over audit committees. It requires auditors to:

  • Establish the terms of the audit engagement with the audit committee and record them in an engagement letter.
  • Give audit committees an overview of the audit strategy, including the timing of the audit, significant risks identified, and significant changes to the planned audit strategy or risks.
  • Reveal the identities of others involved with the audit, including internal auditors or other independent auditing firms.
  • Provide information regarding the company’s accounting policies, practices, estimates, and significant unusual transactions.
  • Give an evaluation of the quality of the company’s financial reporting, including conclusions about critical accounting estimates and the company’s financial statement presentation; difficult or contentious matters for which the auditor consulted outside the engagement team; the auditor’s evaluation of the company’s ability to continue as a going concern; and difficulties encountered in performing the audit.

The standard, available at, is effective for audits of financial statements with fiscal years beginning on or after Dec. 15, 2012.

Center for Audit Quality (CAQ) Executive Director Cindy Fornelli said in a comment letter, available at, that the standard will contribute to investor protection because it should improve audit quality and audit committees’ oversight. The CAQ is affiliated with the AICPA.

  Insufficient testing of controls and failure to properly evaluate control deficiencies were among the common findings that led the PCAOB to issue a summary of observations from 2010 inspections of audits of internal control over financial reporting (ICFR).

The PCAOB released a 31-page report on deficiencies in firms’ audits of ICFR. The report, available at, does not identify individual audits, but includes information summarized from inspections.

Deficiencies found under PCAOB Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements, were included in the report, which was issued to help inform auditors on common problems to avoid.

In 46 of the 309 audit engagements inspected by the PCAOB in 2010 that were referenced in the report, the PCAOB found that the firm had failed to obtain enough evidence to support its audit opinion on the effectiveness of internal control.

In an additional 50 of the 309 audit inspections, the PCAOB found what it considered to be deficiencies in firms’ quality-control systems that required remediation. Those deficiencies did not mean the audited companies had materially misstated financial statements or had inadequate internal controls. Rather, the deficiencies generally indicated failure by engagement teams to comply with their firms’ methodologies, according to the report.

The most commonly identified deficiencies named in the report were firms’ failures to:

  • Identify and test controls that are intended to address the risks of material misstatement.
  • Sufficiently test the design and operating effectiveness of management review controls that are used to monitor the results of operations, such as:
    • Monthly comparisons of budget and actual results to forecasts for revenues and expenses.
    • Comparisons of other metrics, such as profit margins and certain expenses as a percentage of sales.
    • Quarterly balance sheet reviews.
  • Obtain sufficient evidence to update the results of testing of controls from an interim date to the company’s year end (the roll-forward period).
  • Sufficiently test the system-generated data and reports that support important controls.
  • Sufficiently perform procedures regarding the use of the work of others.
  • Sufficiently evaluate identified control deficiencies and consider their effect on both the financial statement audit and the audit of internal control.

“We encourage all auditors to … consider the items noted in planning and performing public company audits,” the CAQ’s Fornelli said in a statement. “We also encourage preparers and audit committee members to familiarize themselves with the report as it may contain observations that might be useful in improving upon the design or operating effectiveness of internal controls over financial reporting.”

Financial reporting / International  
March 2013

  FASB released an expected credit loss proposal that is likely to differ from the approach to be recommended by the International Accounting Standards Board (IASB).

But FASB Chairman Leslie Seidman said she has not given up on the idea of convergence in the project, which involves impairment of financial instruments and would require recognition of credit losses that are expected rather than previous guidance that calls for recognition when losses are incurred. Seidman encouraged global stakeholders to comment on FASB’s exposure draft and the one the IASB is scheduled to release in the first quarter of this year.

Seidman said that because the comment periods will overlap, FASB plans to review feedback on both the FASB and IASB proposals. And she said both boards have made progress by proposing approaches focused on expected rather than incurred losses.

“If you roll the clock back a couple of years ago where we were really divided on this approach, the FASB model looked nothing like the IASB approach,” Seidman said during a conference call with reporters. “We have come a lot closer together. … I think that we are now at least both looking at an expected loss approach, and I think with the benefit of an additional round of commentary, we will be in a better position to ultimately come to a converged approach that people around the world view as an improvement.”

IASB spokesman Mark Byatt said the IASB continues to cooperate with FASB on the project and intended to publish a proposal for public comment in the first quarter of 2013 based on a simplified version of the expected credit loss method FASB originally had agreed to.

The project undertaken by both boards was designed to address the loan loss problems that helped lead to the recent financial crisis. The objective was to improve financial reporting about expected credit losses on loans and other financial assets held by banks, financial institutions, and other public and private organizations.

FASB said its proposal, which is available at and seeks public comment through April 30, would require more timely recognition of credit losses, while providing additional transparency about credit risk.

The Proposed Accounting Standards Update, Financial Instruments—Credit Losses (Subtopic 825-15), is the result of an effort that began as a convergence project with the IASB, but has seen differences emerge. Both boards are moving away from the current incurred loss approach to an expected loss approach that calls for current recognition of the effects of credit deterioration on collectibility expectations.

But the expected loss model FASB has proposed differs from the one the IASB is developing, which is called the “three-bucket” model. Although FASB initially agreed to the three-bucket approach, concerns from stakeholders caused FASB to reconsider and develop its current expected credit loss model.

The IASB’s model uses a different expected loss approach than FASB’s model for assets that have not yet displayed significant deterioration in credit risk. Full recognition of an allowance for the expected credit loss would be deferred for financial assets whose loss event is expected to occur beyond 12 months from the date of the financial statement, according to a FASB news release. Seidman said practitioners, investors, and other stakeholders told FASB that they were confused by that approach. She said a few even said, if implemented, the model would have lowered reserves and therefore would not accomplish the project’s objective.

  The IASB plans to complete a new conceptual framework by September 2015.

In addition, the board plans to have its technical program focus on implementation and maintenance, including post-implementation reviews and a small number of IFRS projects.

The IASB announced that it has mapped its future plans after reviewing more than 240 comment letters in response to a consultation document it published in July 2011. The plans are included in a 40-page feedback statement released by the IASB, available at

Respondents to the consultation document advised the IASB to:

  • Have a period of relative calm after 10 years of almost continuous change in financial reporting.
  • Prioritize work on the conceptual framework. This was one of the recommendations of the comment letter submitted by the AICPA Financial Reporting Executive Committee.
  • Make targeted improvements that respond to the needs of new adopters of IFRS.
  • Pay greater attention to the implementation and maintenance of standards.
  • Improve the way it develops new standards, with more rigorous cost/benefit analysis as well as problem definition earlier in the standard-setting process.

A joint conceptual framework project undertaken by the IASB and FASB was suspended in 2010 to allow the boards to focus on high-priority, standards-level projects. The remainder of the IASB’s conceptual framework project will not be run jointly with FASB.

An important step in the building of a new conceptual framework will come when the IASB publishes a discussion paper on the topic in June.

March 2013

Nearly 40% of CPAs see themselves as catalysts for their clients’ adopting innovative technologies such as cloud computing and mobile devices, according to survey results released by the AICPA.

The survey of 624 AICPA members in public accounting found that an additional 43% of CPAs will respond to clients’ requests for assistance in assessing and implementing emerging technologies that can help business leaders make better decisions. Just 17% of the survey respondents, representing a mix of small to large firms, said they play a minimal role, or no role at all, in assisting their clients with technology adoption.

The survey results, available at, were unveiled on the first day of the Digital CPA: 2012 CPA2Biz Cloud User Conference in Washington. CPA2Biz is the AICPA’s technology subsidiary.

“We’re at a defining moment in the accounting profession,” Erik Asgeirsson, president and CEO of CPA2Biz, said in a news release. “It’s now possible for small and medium-sized businesses to tap powerful technologies that make them more productive and offer faster, better insight into financial decision-making. But most of these companies need a tech-savvy business adviser to help them take advantage of these opportunities, and that’s a role CPAs are uniquely qualified to fill.”

Eleven percent of the survey respondents, who were polled in September, said that their firms exclusively use cloud-based applications, infrastructure, and platforms for their technology needs. Another 33% said that they use business-grade cloud solutions—such as accounting, bill management, or payroll applications—in certain areas of their practice. Nearly 10% of those not using cloud services are actively planning to adopt cloud technology, while 46% are planning to remain cloud free.

March 2013

  President Barack Obama appointed former U.S. Attorney Mary Jo White as SEC chairman. At press time, her approval was still pending before the Senate. SEC Commissioner Elisse Walter had served as interim chairman since Chairman Mary Schapiro resigned in December. Walter will continue on the commission.

Paul Beswick, who had been serving as the SEC’s acting chief accountant since James Kroeker’s departure for the private sector in July, will retain the post, the commission also announced.

Beswick has been a member of the SEC staff since September 2007 and was deputy chief accountant before Kroeker’s departure. Beswick served as staff director of an SEC effort to evaluate the idea of incorporating IFRS into the financial reporting system for U.S. public companies.

That effort resulted in a document released in July that explained the benefits and challenges associated with IFRS but did not make a recommendation. Beswick will lead the SEC’s Office of the Chief Accountant.

The SEC has seen numerous other changes in key positions recently. Division of Corporation Finance Director Meredith Cross, General Counsel Mark Cahn, Trading and Markets Director Robert Cook, and Chief of Staff Didem Nisanci all announced in December that they are leaving the commission. Geoffrey Aronow was named general counsel, and acting directors were named for the divisions of Corporation Finance (Lona Nallengara) and Trading and Markets (John Ramsay).

The SEC announced in January that Enforcement Director Robert Khuzami is leaving the commission.

  Charles Cox, John Dugan, and Teri List- Stoll have been appointed to the FAF board of trustees, the foundation announced.

Their five-year terms began Jan. 1. The three new trustees replace Frank Brod, Edward Harrington, and John Perrell, whose terms ended Dec. 31.

Cox has served as director of finance for the city of Farmers Branch, Texas, since 1993. Dugan, who previously served as U.S. comptroller of the currency, is a partner at the law firm of Covington & Burling LLP. List-Stoll is senior vice president and treasurer of Procter & Gamble.

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