The Center for Audit Quality issued a set of white papers to address issues practitioners may encounter as a result of the “liquidity crisis” spurred by deterioration in the markets for subprime mortgages and related securities. The CAQ Professional Practice Executive Committee said firms would benefit from the papers as an aid in completing audits and quarterly reviews of public companies that have been affected by the sharp downturn that has also hit certain high-yield and short-term debt instruments.

The papers are all brief (seven pages or less). They provide practical analyses of how to apply GAAP to situations affected by the current unusual conditions in these segments of the credit market.

The white papers include the following:

  1. Measurements of Fair Value in Illiquid (or Less Liquid) Markets , which addresses the severe volatility caused by increased credit risk and reduced liquidity. This volatility raises questions about how to measure fair value of subprime mortgage-related assets. The paper includes discussions of “Active Markets” and “Application of the Fair Value Hierarchy” of FASB Statement no. 157, Fair Value Measurements , in light of this volatility.
  2. Consolidation of Commercial Paper Conduits , on the application of FASB Interpretation no. 46(R), Consolidation of Variable Interest Entities , by sponsors of commercial paper conduits, particularly how they are affected by current illiquid conditions in commercial paper markets.
  3. Accounting for Underwriting and Loan Commitments , aimed at helping preparers and auditors understand the application of GAAP associated with commitments to lend money or underwrite securities in the context of current illiquid conditions.
The white papers are available at http://thecaq.org/members/alerts/CAQAlert2007_51_10032007.pdf .

The PCPS Technical Issues Committee (TIC) held its annual liaison meetings with FASB and GASB in October. TIC, which is composed of CPA firm partners who work primarily with private companies, not-for-profits and governments, monitors and comments on technical developments that could significantly affect private companies and the public accounting firms that serve them.

Among the issues discussed during the FASB meeting were:

FASB’s joint project with the International Accounting Standards Board (IASB) to reconsider financial statement presentation. While TIC members acknowledged the value of this project for public companies, they questioned whether the proposed comprehensive restructuring of the financial statement model would be cost beneficial or relevant for the users of private company financial statements.

The FASB project reassessing lease accounting. TIC members applauded the project but recommended that recognition of a lease should occur at signing and that FASB carve out a scope exception for very short-term leases. They encouraged the board to reconsider its tentative decision to adopt fair value as the measurement method for the lessee’s obligation to the lessor.

In discussions with GASB, TIC addressed proposals in development, including:

The board’s proposal on fund balance reporting and governmental-type fund definitions. TIC agreed with most of the revisions to an earlier invitation to comment, but offered suggestions on changes to disclosures, accounting for rainy day funds and presentation. TIC members also asked for further examples to enhance understanding and implementation.

The project on intergovernmental financial dependency risk. TIC raised questions about the proposed disaggregation of intergovernmental revenues and other elements of the proposal.

TIC plans to maintain ongoing communications with each board. For more information on TIC or to read the TIC Alert and recent comment letters, go to http://pcps.aicpa.org/Resources/Technical+Issues+Committee+and+Communications /.

The SEC staff published a report on its initial review of the disclosure of 350 public companies for compliance with the SEC’s new rules for executive compensation and disclosure. Two principal themes emerged from these reviews, according to an SEC news release. First, companies should provide more focused disclosure of how and why they made specific executive compensation decisions. Second, the manner of presentation is important, and companies can use it to provide more understandable disclosure. The staff’s reviews of the 350 companies are ongoing. After it completes each review, the staff will post its comments and company responses on the SEC’s EDGAR system. The report is available at www.sec.gov/divisions/corpfin/

The AICPA’s Accounting and Review Services Committee issued an exposure draft of Omnibus Statement on Standards for Accounting and Review Services—2008 . The statement would amend AR sections 100, 200, 300 and 400. One revision proposed in the ED is designed to clarify the objective of a compilation and the objective of a review of financial statements. Also, the ED, among other things, calls for adopting certain terminology used by other standard setters, proposes to incorporate guidance on analytical procedures in a review engagement and provides additional guidance relative to going concern and subsequent events considerations in compilation and review engagements.

Comments are due Dec. 28. The ED is available at www.aicpa.org/
Professional+Resources/Accounting+and+Auditing/Audit+and+Attest+Standards/ Exposure+Drafts+of+Proposed+Statements/

The AICPA’s Auditing Standards Board issued Statement on Quality Control Standards no. 7, A Firm’s System of Quality Control . (See “Official Releases,” page 94.) The guidance replaces all previously issued SQCSs. It requires a CPA firm to establish a quality control system to provide reasonable assurance that the firm’s accounting and auditing practice as well as its personnel comply with professional standards and applicable legal and regulatory requirements. The statement requires monitoring procedures rigorous enough to assess compliance with quality control policies and procedures. It also includes guidance on the assignment of engagement teams and on the capabilities and competencies expected of an engagement partner. The SQCS is available at www.cpa2biz.com (product #067025).

The AICPA issued an Audit Risk Alert, State and Local Governmental Developments . It helps CPAs who audit the financial statements of state and local government plan for and carry out those audits. It covers audit, regulatory and legislative developments, as well as GASB guidance and rules. The alert also provides discussions and analyses of overarching developments in economic and business trends and professional issues of interest to CPAs auditing state or local governments. It is available at www.cpa2biz.com (product #022437).

As part of its annual improvements project, the IASB published an exposure draft of proposed amendments to 25 International Financial Reporting Standards (IFRS). They include a restructuring of IFRS 1, First-Time Adoption of International Financial Reporting Standards , to remove redundant transitional provisions. In other IFRS, changes are intended to simplify and clarify language. Comments are due Jan. 11. The ED is available at www.iasb.org.

The SEC created a new office to lead the transformation to interactive financial reporting by public companies. David Blaszkowsky, the SEC’s new director of interactive disclosure, will coordinate the agencywide disclosure modernization program and will work with investor groups, analysts, journalists and preparers of financial statements as well as other key public and private sector stakeholders to advance the use of interactive data in financial reporting.

The PCAOB published for public comment preliminary staff guidance on auditing internal control over financial reporting in smaller public companies. The guidance explains how auditors can apply Auditing Standard no. 5, An Audit of Internal Control Over Financial Reporting That Is Integrated With An Audit of Financial Statements , to audits of smaller, less complex public companies. Topics discussed in the guidance include: entity-level controls, risk of management override, segregation of duties and alternative controls, information technology controls and financial reporting competencies.

Comments are due Dec. 17. The guidance is available at www.pcaobus.org/.


Year-end tax planning and what’s new for 2016

Practitioners need to consider several tax planning opportunities to review with their clients before the end of the year. This report offers strategies for individuals and businesses, as well as recent federal tax law changes affecting this year’s tax returns.


News quiz: Retirement planning, tax practice, and fraud risk

Recent reports focused on a survey that gauges the worries about retirement among CPA financial planners’ clients, a suit that affects tax practitioners, and a guide that offers advice on fraud risk. See how much you know with this short quiz.


Bolster your data defenses

As you weather the dog days of summer, it’s a good time to make sure your cybersecurity structure can stand up to the heat of external and internal threats. Here are six steps to help shore up your systems.