A&A Focus recap: PCC credit loss relief, federal funding freeze impact, and EBP audit updates

The AICPA A&A Focus webcast on April 2 provided important updates for CPAs on emerging accounting and auditing issues. Hosted by Bob Durak, CPA, CGMA, director of A&A Technical Services at the AICPA, and Andrew Merryman, CPA, senior manager–A&A Technical Services, the webcast featured insights from Mike Cheng, CPA; Tom Groskopf, CPA; and Debbie Smith, CPA, on topics including the activities of FASB’s Private Company Council (PCC), audit considerations stemming from federal funding uncertainties, and new updates for employee benefit plan (EBP) audits.

PCC update

Mike Cheng, CPA, national professional practice partner at Frazier & Deeter and a member of the PCC, provided a detailed update on the PCC’s recent activities and upcoming priorities. He began by highlighting the PCC’s mission to represent private company stakeholders in the financial reporting standard-setting process. In 2024, the PCC engaged with over 1,000 stakeholders and improved its agenda-setting process to focus on the most pervasive issues for private companies. On March 13, the PCC released its 2024 Annual Report.

A key topic was the simplification of credit loss accounting. Cheng explained that private companies had found the implementation of the current expected credit loss model (CECL) particularly burdensome, especially when applied to current accounts receivable and contract assets. As a result, the PCC proposed, and FASB endorsed, a practical expedient allowing entities to use historical loss information under the assumption that current conditions would persist, reducing the need for economic forecasting. An optional policy election was also introduced to consider subsequent collections in estimating losses. The FASB Accounting Standards Update, expected to be released this quarter, will apply prospectively and be effective for fiscal years beginning after Dec. 15, 2025, with early adoption permitted.

Cheng also discussed the PCC’s future agenda, which includes simplification of lease accounting, evaluating revenue recognition issues in short-cycle manufacturing, and addressing challenges in debt accounting, particularly around modifications, subjective acceleration clauses, and disclosure requirements.

Cheng emphasized the importance of continuous stakeholder outreach and aligning PCC efforts with the needs of financial statement users, preparers, and practitioners to ensure practical, scalable solutions.

Federal funding actions and implications for assurance engagements

Tom Groskopf, CPA, a director at Barnes Dennig and technical director of the AICPA’s Center for Plain English Accounting (CPEA), discussed the complex and evolving financial reporting implications of recent federal funding disruptions, particularly for not-for-profit (NFP) entities. Groskopf explained that these disruptions stem from a series of federal actions, including freezes and policy shifts that have led to uncertainty surrounding grants and contracts. Groskopf noted that many federal agreements include termination-for-convenience clauses, which permit the government to cancel contracts while still requiring payment for work performed up to the termination date. While some of these disruptions may only delay payments, others could introduce more significant accounting challenges.

Groskopf emphasized the need for NFPs to reexamine the nature of their federal funding arrangements to determine whether new conditions or modifications affect revenue recognition. For contributions, new assertions by federal agencies might create additional barriers, requiring organizations to reassess whether revenue can be recognized. For exchange transactions under FASB ASC Topic 606, Revenue From Contracts With Customers, entities may need to evaluate the applicability of contract modifications or variable consideration, potentially requiring updates to both recognition and disclosures. Groskopf stressed that many of these considerations are fact-specific and judgment-intensive.

Groskopf also addressed the disclosure requirements for affected entities, particularly regarding liquidity, risks and uncertainties, concentrations, and going concern evaluations. For calendar-year filers, these events are typically considered nonrecognized subsequent events, but for later year ends, more extensive disclosure or recognition may be necessary.

Groskopf closed by encouraging continued communication with practitioners and noted that the CPEA would remain proactive in monitoring and guiding members through the evolving landscape.

Employee benefit plan industry update

Debbie Smith, CPA, national industry professional practice director for employee benefit plans (EBPs) at Grant Thornton and executive committee chair for the AICPA Employee Benefit Plan Audit Quality Center (EBPAQC), provided an in-depth update on audit quality efforts and regulatory developments affecting EBPs. Smith began by revisiting the U.S. Department of Labor’s (DOL’s) most recent audit quality study, which found that while about 70% of plan audits complied with professional standards, roughly 30% showed deficiencies, particularly in areas unique to EBPs such as contributions, benefit payments, and participant data. In response, the EBPAQC has been actively working on multiple initiatives to address these concerns.

Among the center’s key efforts is the development of enhanced guidance for auditors on testing the timeliness of contributions and loan repayments. Smith emphasized that late remittances continue to be a recurring issue, despite long-standing regulatory expectations. A proposed update to the EBP audit guide is in process, aiming to clarify the auditor’s responsibilities in this area, including inquiries of plan sponsors and risk assessment procedures. Additionally, nonauthoritative guidance has been released to help plan sponsors better understand and apply DOL rules.

Smith also highlighted upcoming regulatory changes, notably the SEC’s requirement for Form 11-K filers to begin using XBRL for filings submitted on or after July 11, 2025. Smith encouraged plan sponsors to take a proactive approach by conducting trial runs in advance. To support practitioners and sponsors, the AICPA has released modular training programs and will continue offering targeted education through upcoming webcasts and conferences.

Open forum

In the open forum segment, our guests answered viewer questions.

Mike Cheng returned to answer two viewer questions:

Q: In regard to leases, are there any items that would cause a simple related-party operating lease to not be treated as a right-of-use (ROU) asset and liability under FASB ASC Topic 842, Leases?

A: Cheng explained that the treatment of a related-party lease under Topic 842 depends on the legally enforceable rights and obligations established in the lease agreement. If the lease meets the definition of a lease under the standard and is longer than 12 months, it must be recognized on the balance sheet as an ROU asset and lease liability. However, if the lease qualifies as short-term (12 months or less), it can be excluded from balance sheet recognition.

He also noted that in some cases, related-party leases might be structured with entirely variable payments or lack enforceable terms, which could also lead to off-balance-sheet treatment. Groskopf, during his question-and-answer time, added that a practical expedient allows private entities under common control to use written terms instead of legally enforceable ones, offering more flexibility in practice.

Q: Does the PCC credit losses election apply to loan receivables as well?

A: Cheng clarified that the practical expedient endorsed by the PCC applies specifically to current accounts receivable and contract assets arising from revenue transactions. It does not apply to long-term loan receivables or receivables with extended payment terms (e.g., a five-year receivable from a sale). For those, entities must continue to apply the full CECL model, including forward-looking estimates, and cannot simply rely on historical loss experience or assume current conditions will persist.

Groskopf also took a question from the audience.

Q: Would the financial reporting implications and disclosure considerations related to the federal funding freeze also apply to subrecipients who receive passthrough federal funds?

A: Groskopf confirmed that the implications could absolutely apply to subrecipients. He explained that subrecipients are generally required to comply with the same terms and conditions that apply to the primary recipient, depending on the nature of the grant or award. Groskopf emphasized that the wide variety of federal actions and the complexity of how funding flows through layers of recipients make it difficult to generalize. However, the key issue is whether the terms of the subgrant carry federal stipulations that could trigger changes in accounting treatment or disclosures.

Smith provided a look at the current and planned activities of the AICPA’s EBP Expert Panel when responding to a viewer question.

Q: Could you comment on other items and topics that the EBP Expert Panel is currently focused on?

A: Smith responded by highlighting two key areas of focus. First, she discussed the CECL model, noting that EBPs are excluded from the scope of the Proposed Accounting Standards Update that provides CECL relief for certain private companies and not-for-profits. However, she emphasized that the EBP Expert Panel is working with the AICPA Financial Reporting Executive Committee to submit a comment letter. The letter will request that the practical expedient and accounting policy election be expanded to include short-term assets such as contributions receivable in benefit plans. The panel is also considering submitting a formal agenda request to FASB to exclude EBPs from CECL requirements entirely.

Secondly, Smith addressed the impact of Statement on Auditing Standards No. 149, Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to Auditors). Smith explained that the Expert Panel has been evaluating whether some benefit plans may unintentionally fall under the scope of this standard due to the updated definition of the consolidation process. To gain clarity, Expert Panel members and AICPA staff plan to meet with the Audit Issues Task Force to confirm their interpretations and resolve outstanding questions about the standard’s applicability to benefit plan audits.

In other matters

In addition to the featured topical segments, the broadcast provided updates across several timely emerging issues:

• The Financial Crimes Enforcement Network issued an interim final rule that removes the requirement for U.S. companies and persons to report beneficial ownership information (BOI) under certain conditions. The change narrows the definition of a “reporting company” and delays reporting deadlines by 30 days. The AICPA and state CPA societies had advocated for these adjustments. More information on BOI and the AICPA’s advocacy efforts can be found in the AICPA BOI reporting resource center.
• FASB has released several updated taxonomies for practitioner use. Among the items released are the 2025 versions of its GAAP Financial Reporting Taxonomy, Employee Benefit Plan Taxonomy, and SEC Reporting Taxonomy, now approved by the SEC. These digital tags help companies organize and report financial statement data. A free FASB webinar on these updates is scheduled for April 8, 2025, at 1 p.m. ET.
• The PCAOB released its March 2025 Spotlight Staff Update on 2024 Inspection Activities. The PCAOB reported a significant decline in audit deficiency rates among inspected CPA firms. This and additional staff publications are available on the PCAOB website.
• Reminder that the AICPA Auditing Standards Board (ASB) has several documents available for public comment. On Feb. 13, 2025, the ASB voted to approve the following items and encouraged stakeholders to provide comments by the published deadline date:
  • Proposed Statement on Standards for Attestation Engagements, Scope Limitations in a Review Engagement — comments due by May 30, 2025.
  • Proposed ASB Strategic Plan 2026–2030 — comments due by June 13, 2025.
  • Proposed Statement on Auditing Standards, External Confirmations — comments due by June 30, 2025.

Comments may be submitted via an electronic survey or email. Details on the comment process are included in each document.

• Following the A&A Focus stablecoin discussion in March, Jay Schulman, CPA, joined the Journal of Accountancy podcast to expand on digital asset reporting and AICPA guidance. Those seeking additional information on stablecoins and the AICPA stablecoin reporting framework are encouraged to listen.

Looking ahead

The broadcast concluded with a preview of next month’s A&A Focus, live on May 7, including a planned discussion with Mark Koziel, CPA, the new AICPA president and CEO, joining to discuss his plans and visions for the future of the profession. Additionally, Angela Newell, CPA, will return to continue her discussion of FASB’s five-step revenue recognition model; and Renee Rampulla, CPA, will make her debut on the program with more on implementing the AICPA’s quality management standards.

AICPA members are encouraged to attend these monthly events and review the accompanying newsletters for more in-depth coverage of these critical topics. Members can access archives of past sessions at the A&A Focus Series webpage.

— Dave Arman, CPA, MBA, is senior manager–Audit Quality at AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.