Financial Reporting

  FASB published standards that change the way entities account for securitizations and special-purpose entities. Both standards will require new disclosures.


FASB Statement no. 166, Accounting for Transfers of Financial Assets, and Statement no. 167, Amendments to FASB Interpretation No. 46(R), will affect financial institution balance sheets beginning in 2010.


Statement no. 166 is a revision to Statement no. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. It will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures.


Statement no. 167 is a revision to FASB Interpretation no. 46(R), Consolidation of Variable Interest Entities, and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly affect the entity’s economic performance.


FASB said in its press release that it began the projects after concerns were voiced by investors, the SEC, and The President’s Working Group on Financial Markets.


“These changes were proposed and considered to improve existing standards and to address concerns about companies who were stretching the use of off-balance-sheet entities to the detriment of investors,” FASB Chairman Robert Herz said in the release. “The new standards eliminate existing exceptions, strengthen the standards relating to securitizations and special-purpose entities, and enhance disclosure requirements. They’ll provide better transparency for investors about a company’s activities and risks in these areas.”


Regulators factored the impact of the two new standards into the recent “stress tests” regulators conducted on financial institutions.


Copies of the standards and a briefing document are available on FASB’s Web site.


Both new standards will require new disclosures. Statement no. 167 will require a company to provide additional disclosures about its involvement with variable-interest entities and any significant changes in risk exposure due to that involvement. A company will be required to disclose how its involvement with a variable-interest entity affects the company’s financial statements. Statement no. 166 enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and a company’s continuing involvement in transferred financial assets.


Statement no. 166 and Statement no. 167 will be effective at the start of a company’s first fiscal year beginning after Nov. 15, 2009, or Jan. 1, 2010, for companies reporting earnings on a calendar-year basis.



  FASB issued rules that establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.


FASB Statement no. 165, Subsequent Events, applies to interim and annual periods ending after June 15, 2009. The standard, available at, requires the disclosure of the date through which an entity has evaluated subsequent events and whether that represents the date the financial statements were issued or were available to be issued. Such disclosures should signal to financial statement users that events happening after the specified date have not been factored into the financial statements being presented, FASB said in a press release.


The standard is not expected to result in significant changes in the subsequent events that an entity reports—either through recognition or disclosure—in its financial statements, FASB says in the 36-page document. However, the standard introduces the notion, likely to be of particular interest to private companies, of financial statements being “available to be issued.”


An entity, including a public company, expected to widely distribute its financial statements to shareholders and other financial statement users is required to evaluate subsequent events through the date that the financial statements are issued, according to the standard. All other entities will evaluate subsequent events through the date that the financial statements are available to be issued. FASB says financial statements are considered available to be issued when they are complete in a form and format that complies with U.S. GAAP and have all the approvals (for example, from management, the board of directors or significant shareholders) necessary for issuance.



  The AICPA issued a technical practice aid on personal financial statements. TPA TIS section 1600.04, Personal Financial Statements, deals with the presentation of assets at current values and the presentation of liabilities at current amounts in personal financial statements.


FASB Accounting Standards Codification (ASC) 274, Personal Financial Statements, states that personal financial statements should present assets at their estimated current values and present liabilities at their estimated current amounts at the date of the financial statements. It also defines estimated current values and current amounts.


At issue in the TPA is whether the definitions of current values (assets) and current amounts (liabilities) for personal financial statements are meant to be the same as fair value, as defined in FASB ASC 820, Fair Value Measurements and Disclosures. The TPA concludes that FASB ASC 820 did not contemplate the reporting of personal financial statements, and FASB did not amend the definitions of estimated current values and current amounts for personal financial statements as part of its codification process.



  The SEC’s Office of the Chief Accountant published Staff Accounting Bulletin (SAB) no. 112, which updates the codification of previous SABs by removing material no longer necessary because of private-sector developments in U.S. GAAP, and in particular FASB’s issuance of Statement no. 141(R), Business Combinations, and Statement 160, Noncontrolling Interests in Consolidated Financial Statements. The SAB also clarifies the basis of accounting for purchased assets and liabilities that should be used when a substantially wholly owned subsidiary presents separate financial statements. The SAB is available at



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