A&A Focus recap: Updates on CECL and artificial intelligence

The AICPA A&A Focus Series webcast on Dec. 11, brought together leading voices in private company and nonprofit accounting, artificial intelligence, and assurance to discuss current developments and industry challenges.

Hosted by Bob Durak, CPA, CMGA, director of A&A Technical Services at the AICPA, and Andrew Merryman, CPA, senior manager–A&A Technical Services, the session featured discussions with experts Mike Cheng, Cathy Cobey, and Mike Glynn, who discussed the newly released Private Company Council exposure draft on credit losses, provided insights on artificial intelligence in the profession and offered an overview of expected changes from the latest preparation standard proposal.

Updates on CECL for nonpublic entities

The first speaker, Mike Cheng, CPA, a partner at Frazier & Deeter, presented on the current expected credit loss (CECL) model, offering a comprehensive exploration of the proposed practical expedient presented in FASB’s Proposed Accounting Standards Update, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets for Private Companies and Certain Not-for-Profit Entities. The practical expedient is designed to simplify credit loss estimation for private companies and nonprofits. Cheng began by reminding viewers of the common challenges entities face with the current CECL requirements, particularly the complexities associated with forecasting future economic conditions. These challenges, he noted, often lead to excessive documentation efforts with minimal impact on the resulting financial estimates.

Cheng’s explanation of the practical expedient emphasized its two main components. First, entities could estimate credit losses under the assumption that current economic conditions would persist, effectively removing the need for exhaustive forward-looking economic forecasts. This approach significantly reduces the burden on nonfinancial institutions and smaller entities that lack the resources for in-depth economic analyses. Second, Cheng highlighted an accounting policy election allowing companies to consider subsequent collections of receivables after the balance sheet date but before financial statement issuance. This expedient acknowledges real-world collection patterns and provides a more accurate reflection of expected losses.

To illustrate the practical application of these provisions, Cheng walked through several detailed examples presented in the exposure draft. He demonstrated how entities could stratify receivables into homogeneous groups and apply historical loss rates to estimate allowances. By integrating subsequent collections into the calculation, companies can refine these estimates further without the need for complex predictive modeling.

In discussing the broader implications, Cheng highlighted how the practical expedient aligns with FASB’s commitment to reducing compliance burdens without compromising the quality of financial reporting.

He also noted the proposal’s anticipated adoption timeline, with potential implementation as early as May 2025. Importantly, Cheng emphasized the need for stakeholders to provide feedback during the comment period to ensure the final standard addresses its intended users’ needs.

CPA Canada & AICPA series on AI

In the broadcast’s second segment, Cathy Cobey, a technology risk partner at EY, provided a detailed discussion on the collaborative efforts among CPA Canada, the AICPA, and EY in developing a three-part thought leadership series aimed at addressing key aspects of artificial intelligence (AI) implementation. She began by examining the rapid evolution of AI technology, particularly generative AI, which has redefined how organizations interact with data. This technology enables the creation of content such as text, images, and videos through simple user prompts, broadening access to advanced analytics that were once limited to specialized data scientists and firms with much greater resources.

Cobey also emphasized the growing use of AI in accounting tasks, such as drafting financial disclosures, conducting variance analyses, and detecting fraud. While the benefits are clear, she pointed out that integrating AI requires careful consideration of governance and ethical implications. Unlike traditional rule-based systems, AI systems can dynamically adapt and change after deployment, necessitating robust monitoring processes and controls. Cobey stressed the importance of defining boundary conditions for AI behavior and instituting continuous oversight to ensure compliance with organizational and regulatory standards.

Governance emerged as a central theme, with Cobey noting that organizations must revisit their approaches to data security and trust as AI becomes more embedded in ERP systems. She detailed emerging threats, including deepfake technologies, which pose significant risks to organizational integrity. For example, Cobey described instances of fraud where attackers manipulated voice and video data to impersonate executives, highlighting the need for stringent authentication protocols.

Looking ahead, Cobey discussed the concept of agentic AI, or AI agents, which refers to systems capable of not only generating insights but also acting on that information. While this advancement holds immense potential for streamlining operations, it also introduces new layers of complexity in terms of accountability and oversight. Cobey advised CPAs to stay informed about regulatory frameworks to navigate the evolving landscape effectively.

Cobey’s segment underscored AI’s dual nature — Its ability to drive efficiency and innovation while simultaneously presenting ethical and security challenges.

Update from the Auditing Standards Board

In the last segment of the broadcast, Mike Glynn, CPA, AICPA associate director–Audit & Attest Standards, offered a detailed examination of proposed updates to AR-C section 70, Preparation of Financial Statements, through the proposed Statement on Standards for Accounting and Review Services, Applicability of AR-C Section 70 to Financial Statements Prepared as Part of a Consulting Services Engagement. Glynn began by addressing the flexibility inherent in AR-C section 70, which allows CPAs to prepare financial statements either as a primary service or as a byproduct of broader consulting engagements. He clarified that CPAs explicitly engaged to prepare financial statements must adhere to AR-C section 70 requirements, but when preparation is incidental to other services, such as client advisory services (CAS), following AR-C section 70 becomes optional.

A key aspect of Glynn’s discussion centered on the implications of voluntary application. CPAs choosing to follow AR-C section 70 when it is not mandatory can still ensure high-quality outcomes while maintaining public trust. However, he emphasized that adherence to consulting standards alone, as outlined in Statement on Standards for Consulting Services section 100, Consulting Services, also upholds professional and ethical obligations, such as competence, objectivity, and due professional care. This dual-path approach underscores the profession’s adaptability to meet diverse client needs.

Glynn highlighted the updates’ practical benefits, noting that they simplify compliance requirements and create consistency across engagements. For instance, practitioners performing financial statement preparation under consulting standards are not subject to the quality management standards or peer review processes applicable to AR-C section 70 engagements. This distinction allows firms to tailor their approach based on the scope and purpose of the service provided.

To illustrate these points, Glynn shared examples of scenarios where CPAs might choose one standard over the other. He highlighted cases in which firms embedded financial statement preparation within broader CAS offerings, while adhering to consulting standards streamlined workflows without compromising quality. Conversely, engagements focused exclusively on financial statement preparation naturally aligned with AR-C section 70’s more structured framework.

In other matters

In addition to the featured topical segments, the A&A Focus Series webcast provided updates across several timely emerging issues: 

• FASB published an update aimed at improving guidance on the reporting of induced conversions related to settlement of convertible debt instruments. The Accounting Standards Update (ASU) improves the relevance and consistency of guidance in FASB Subtopic 470-20, Debt—Debt with Conversion and Other Options. The amendments in the ASU are effective for annual reporting periods beginning after Dec. 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The JofA article “New FASB Standard Addresses Induced Conversions” has more details.
• FASB issued the report Post-Implementation Review: Revenue from Contracts with Customers (Topic 606). The Post-Implementation Review process is an important quality control mechanism built into FASB’s standard-setting process to evaluate whether a standard is achieving its objective by providing investors and other financial statement users with relevant information in ways that justify the cost of providing it.
• FASB published a proposed Accounting Standards Update (ASU) that would establish authoritative guidance on the accounting for government grants received by business entities, guidance that would serve to fill a hole in GAAP. The proposed ASU aims to “leverage the guidance in IAS 20 with targeted improvements.”
• FASB published proposed updates to its guidance on interim reporting. The proposed ASU aims to improve and clarify aspects of existing interim reporting guidance and “is not intended to change the fundamental nature of interim reporting.”
• FASB recently published an invitation to comment (ITC) that gives stakeholders the opportunity to provide feedback on potential standard setting related to financial KPIs. According to FASB, stakeholders in a 2021 ITC suggested that FASB consider a project related to financial KPIs, which FASB defines as measures “calculated or derived from the financial statements and/or underlying accounting records that [are] not presented in the GAAP financial statements.”
• GASB issued an exposure draft aimed at improving the consistency of reporting related to subsequent events and an exposure draft of proposed changes to its implementation guide.
• The AICPA Peer Review Board (PRB) voted to approve a standards update designed to better align peer review standards with new quality management (QM) standards and to clarify and improve existing technical guidance. Peer Review Standards Update (PRSU) No. 2, Reviewing a Firm’s System of Quality Management and Omnibus Technical Enhancements, is available for download and the omnibus technical enhancements in PRSU No. 2 are effective for peer reviews commencing on or after Dec. 1. QM-related revisions in PRSU No. 2 are effective for peer reviews with years ending on or after Dec. 31, 2025.
• The recently released AICPA & CIMA Economic Outlook Survey is a leading indicator of U.S. economic strength. The quarterly survey is based on CPA financial executives’ evaluation of corporate prospects and tangible performance data. The survey polls AICPA members in business and industry who hold executive positions in both public and privately owned organizations of all sizes. The Journal of Accountancy podcast has an overview of the results.  

The webcast concluded with a preview of next month’s A&A Focus, live on Jan. 8. 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.