Audit & Accounting Update
114
Audit & Accounting Update presented by Timothy McLaughlin, CPA, CGMA, Partner Jennifer Martlew, CPA, CFE, Director Insero & Company CPAs, P.C. September 25, 2013 Insero & Company presents
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Insero & Company's annual Audit & Accounting Update as presented by Timothy McLaughlin, CPA, CGMA and Jennifer Martlew, CPA, CFE
Transcript of Audit & Accounting Update
Audit amp Accounting Updatepresented by
Timothy McLaughlin CPA CGMA PartnerJennifer Martlew CPA CFE DirectorInsero amp Company CPAs PC
September 25 2013
Insero amp Company presents
Agenda
bull SpeakersIntroTimelinebull Session 1
bull Standards Updatesbull Session 2
bull 401(k) Plan Trends
bull Session 3bull Reporting Updatesbull Other
Timothy McLaughlin CPA
Tim has 28 years of audit experience and is the head of our Audit and Accounting Services Group Tim is the primary lead partner on a wide variety of engagements Tim also has significant experience with benefit plan audits and provides consulting services to manufacturing real estate service and high tech clients
Tim also serves as our Quality ControlAuditing and Accounting Director and consults with our partners and managers as well as the senior management of our clients regarding technical audit and accounting issues
Jennifer Martlew CPA CFE
Jennifer is a Director in the Audit amp Accounting Department and has been with Insero amp Company since 2000 She leads the planning and execution of Audits for large multi-national clients as well as many closely held middle market corporations She has also helped to grow the companys benefit plan audit practice into one of the 25 largest benefit plan audit practices in the United States
FASB Updates
FASB Updates
bull FASB Codificationbull Accounting Standards Update
bull 11 New ASUs in 2013 (So Far)bull 7 New ASUs in 2012bull 10 New ASUs in 2011
Summary of New Accounting Standards Updates Since September 2012
ASU 2012 ndash 04
Technical Corrections and Improvements
This Update contains amendments that affect a wide variety of Topics in the Codification The Status tables in the ASU list all Topics affected by this Update The amendments in this Update apply to all reporting entities within the scope of the affected accounting guidance
bull Mostly technical corrections and definitionsbull Expanded Fair Value Guidance
ASU 2012 ndash 05
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The objective of this Update is to address the diversity in practice about how to classify cash receipts arising from the sale of donated financial assets such as securities in the Statement of Cash Flows of not-for-profit entities (NFPs)
ASU 2012 ndash 05 (continued)
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The Update requires an NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash Accordingly the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities unless the donor restricted the use of the contributed resources to long-term purposes in which case those cash receipts should be classified as cash flows from financing activities Otherwise cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities
ASU 2012 ndash 06
Business Combinations (Topic 805)Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification
Any amortization of changes in value should be limited to the contractual term of the indemnification agreement
ASU 2012 ndash 07
EntertainmentmdashFilms (Topic 926)Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
The amendments in this Update eliminate certain requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Agenda
bull SpeakersIntroTimelinebull Session 1
bull Standards Updatesbull Session 2
bull 401(k) Plan Trends
bull Session 3bull Reporting Updatesbull Other
Timothy McLaughlin CPA
Tim has 28 years of audit experience and is the head of our Audit and Accounting Services Group Tim is the primary lead partner on a wide variety of engagements Tim also has significant experience with benefit plan audits and provides consulting services to manufacturing real estate service and high tech clients
Tim also serves as our Quality ControlAuditing and Accounting Director and consults with our partners and managers as well as the senior management of our clients regarding technical audit and accounting issues
Jennifer Martlew CPA CFE
Jennifer is a Director in the Audit amp Accounting Department and has been with Insero amp Company since 2000 She leads the planning and execution of Audits for large multi-national clients as well as many closely held middle market corporations She has also helped to grow the companys benefit plan audit practice into one of the 25 largest benefit plan audit practices in the United States
FASB Updates
FASB Updates
bull FASB Codificationbull Accounting Standards Update
bull 11 New ASUs in 2013 (So Far)bull 7 New ASUs in 2012bull 10 New ASUs in 2011
Summary of New Accounting Standards Updates Since September 2012
ASU 2012 ndash 04
Technical Corrections and Improvements
This Update contains amendments that affect a wide variety of Topics in the Codification The Status tables in the ASU list all Topics affected by this Update The amendments in this Update apply to all reporting entities within the scope of the affected accounting guidance
bull Mostly technical corrections and definitionsbull Expanded Fair Value Guidance
ASU 2012 ndash 05
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The objective of this Update is to address the diversity in practice about how to classify cash receipts arising from the sale of donated financial assets such as securities in the Statement of Cash Flows of not-for-profit entities (NFPs)
ASU 2012 ndash 05 (continued)
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The Update requires an NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash Accordingly the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities unless the donor restricted the use of the contributed resources to long-term purposes in which case those cash receipts should be classified as cash flows from financing activities Otherwise cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities
ASU 2012 ndash 06
Business Combinations (Topic 805)Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification
Any amortization of changes in value should be limited to the contractual term of the indemnification agreement
ASU 2012 ndash 07
EntertainmentmdashFilms (Topic 926)Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
The amendments in this Update eliminate certain requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Timothy McLaughlin CPA
Tim has 28 years of audit experience and is the head of our Audit and Accounting Services Group Tim is the primary lead partner on a wide variety of engagements Tim also has significant experience with benefit plan audits and provides consulting services to manufacturing real estate service and high tech clients
Tim also serves as our Quality ControlAuditing and Accounting Director and consults with our partners and managers as well as the senior management of our clients regarding technical audit and accounting issues
Jennifer Martlew CPA CFE
Jennifer is a Director in the Audit amp Accounting Department and has been with Insero amp Company since 2000 She leads the planning and execution of Audits for large multi-national clients as well as many closely held middle market corporations She has also helped to grow the companys benefit plan audit practice into one of the 25 largest benefit plan audit practices in the United States
FASB Updates
FASB Updates
bull FASB Codificationbull Accounting Standards Update
bull 11 New ASUs in 2013 (So Far)bull 7 New ASUs in 2012bull 10 New ASUs in 2011
Summary of New Accounting Standards Updates Since September 2012
ASU 2012 ndash 04
Technical Corrections and Improvements
This Update contains amendments that affect a wide variety of Topics in the Codification The Status tables in the ASU list all Topics affected by this Update The amendments in this Update apply to all reporting entities within the scope of the affected accounting guidance
bull Mostly technical corrections and definitionsbull Expanded Fair Value Guidance
ASU 2012 ndash 05
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The objective of this Update is to address the diversity in practice about how to classify cash receipts arising from the sale of donated financial assets such as securities in the Statement of Cash Flows of not-for-profit entities (NFPs)
ASU 2012 ndash 05 (continued)
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The Update requires an NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash Accordingly the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities unless the donor restricted the use of the contributed resources to long-term purposes in which case those cash receipts should be classified as cash flows from financing activities Otherwise cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities
ASU 2012 ndash 06
Business Combinations (Topic 805)Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification
Any amortization of changes in value should be limited to the contractual term of the indemnification agreement
ASU 2012 ndash 07
EntertainmentmdashFilms (Topic 926)Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
The amendments in this Update eliminate certain requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Jennifer Martlew CPA CFE
Jennifer is a Director in the Audit amp Accounting Department and has been with Insero amp Company since 2000 She leads the planning and execution of Audits for large multi-national clients as well as many closely held middle market corporations She has also helped to grow the companys benefit plan audit practice into one of the 25 largest benefit plan audit practices in the United States
FASB Updates
FASB Updates
bull FASB Codificationbull Accounting Standards Update
bull 11 New ASUs in 2013 (So Far)bull 7 New ASUs in 2012bull 10 New ASUs in 2011
Summary of New Accounting Standards Updates Since September 2012
ASU 2012 ndash 04
Technical Corrections and Improvements
This Update contains amendments that affect a wide variety of Topics in the Codification The Status tables in the ASU list all Topics affected by this Update The amendments in this Update apply to all reporting entities within the scope of the affected accounting guidance
bull Mostly technical corrections and definitionsbull Expanded Fair Value Guidance
ASU 2012 ndash 05
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The objective of this Update is to address the diversity in practice about how to classify cash receipts arising from the sale of donated financial assets such as securities in the Statement of Cash Flows of not-for-profit entities (NFPs)
ASU 2012 ndash 05 (continued)
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The Update requires an NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash Accordingly the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities unless the donor restricted the use of the contributed resources to long-term purposes in which case those cash receipts should be classified as cash flows from financing activities Otherwise cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities
ASU 2012 ndash 06
Business Combinations (Topic 805)Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification
Any amortization of changes in value should be limited to the contractual term of the indemnification agreement
ASU 2012 ndash 07
EntertainmentmdashFilms (Topic 926)Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
The amendments in this Update eliminate certain requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
FASB Updates
FASB Updates
bull FASB Codificationbull Accounting Standards Update
bull 11 New ASUs in 2013 (So Far)bull 7 New ASUs in 2012bull 10 New ASUs in 2011
Summary of New Accounting Standards Updates Since September 2012
ASU 2012 ndash 04
Technical Corrections and Improvements
This Update contains amendments that affect a wide variety of Topics in the Codification The Status tables in the ASU list all Topics affected by this Update The amendments in this Update apply to all reporting entities within the scope of the affected accounting guidance
bull Mostly technical corrections and definitionsbull Expanded Fair Value Guidance
ASU 2012 ndash 05
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The objective of this Update is to address the diversity in practice about how to classify cash receipts arising from the sale of donated financial assets such as securities in the Statement of Cash Flows of not-for-profit entities (NFPs)
ASU 2012 ndash 05 (continued)
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The Update requires an NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash Accordingly the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities unless the donor restricted the use of the contributed resources to long-term purposes in which case those cash receipts should be classified as cash flows from financing activities Otherwise cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities
ASU 2012 ndash 06
Business Combinations (Topic 805)Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification
Any amortization of changes in value should be limited to the contractual term of the indemnification agreement
ASU 2012 ndash 07
EntertainmentmdashFilms (Topic 926)Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
The amendments in this Update eliminate certain requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
FASB Updates
bull FASB Codificationbull Accounting Standards Update
bull 11 New ASUs in 2013 (So Far)bull 7 New ASUs in 2012bull 10 New ASUs in 2011
Summary of New Accounting Standards Updates Since September 2012
ASU 2012 ndash 04
Technical Corrections and Improvements
This Update contains amendments that affect a wide variety of Topics in the Codification The Status tables in the ASU list all Topics affected by this Update The amendments in this Update apply to all reporting entities within the scope of the affected accounting guidance
bull Mostly technical corrections and definitionsbull Expanded Fair Value Guidance
ASU 2012 ndash 05
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The objective of this Update is to address the diversity in practice about how to classify cash receipts arising from the sale of donated financial assets such as securities in the Statement of Cash Flows of not-for-profit entities (NFPs)
ASU 2012 ndash 05 (continued)
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The Update requires an NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash Accordingly the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities unless the donor restricted the use of the contributed resources to long-term purposes in which case those cash receipts should be classified as cash flows from financing activities Otherwise cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities
ASU 2012 ndash 06
Business Combinations (Topic 805)Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification
Any amortization of changes in value should be limited to the contractual term of the indemnification agreement
ASU 2012 ndash 07
EntertainmentmdashFilms (Topic 926)Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
The amendments in this Update eliminate certain requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Summary of New Accounting Standards Updates Since September 2012
ASU 2012 ndash 04
Technical Corrections and Improvements
This Update contains amendments that affect a wide variety of Topics in the Codification The Status tables in the ASU list all Topics affected by this Update The amendments in this Update apply to all reporting entities within the scope of the affected accounting guidance
bull Mostly technical corrections and definitionsbull Expanded Fair Value Guidance
ASU 2012 ndash 05
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The objective of this Update is to address the diversity in practice about how to classify cash receipts arising from the sale of donated financial assets such as securities in the Statement of Cash Flows of not-for-profit entities (NFPs)
ASU 2012 ndash 05 (continued)
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The Update requires an NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash Accordingly the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities unless the donor restricted the use of the contributed resources to long-term purposes in which case those cash receipts should be classified as cash flows from financing activities Otherwise cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities
ASU 2012 ndash 06
Business Combinations (Topic 805)Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification
Any amortization of changes in value should be limited to the contractual term of the indemnification agreement
ASU 2012 ndash 07
EntertainmentmdashFilms (Topic 926)Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
The amendments in this Update eliminate certain requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2012 ndash 04
Technical Corrections and Improvements
This Update contains amendments that affect a wide variety of Topics in the Codification The Status tables in the ASU list all Topics affected by this Update The amendments in this Update apply to all reporting entities within the scope of the affected accounting guidance
bull Mostly technical corrections and definitionsbull Expanded Fair Value Guidance
ASU 2012 ndash 05
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The objective of this Update is to address the diversity in practice about how to classify cash receipts arising from the sale of donated financial assets such as securities in the Statement of Cash Flows of not-for-profit entities (NFPs)
ASU 2012 ndash 05 (continued)
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The Update requires an NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash Accordingly the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities unless the donor restricted the use of the contributed resources to long-term purposes in which case those cash receipts should be classified as cash flows from financing activities Otherwise cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities
ASU 2012 ndash 06
Business Combinations (Topic 805)Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification
Any amortization of changes in value should be limited to the contractual term of the indemnification agreement
ASU 2012 ndash 07
EntertainmentmdashFilms (Topic 926)Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
The amendments in this Update eliminate certain requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2012 ndash 05
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The objective of this Update is to address the diversity in practice about how to classify cash receipts arising from the sale of donated financial assets such as securities in the Statement of Cash Flows of not-for-profit entities (NFPs)
ASU 2012 ndash 05 (continued)
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The Update requires an NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash Accordingly the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities unless the donor restricted the use of the contributed resources to long-term purposes in which case those cash receipts should be classified as cash flows from financing activities Otherwise cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities
ASU 2012 ndash 06
Business Combinations (Topic 805)Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification
Any amortization of changes in value should be limited to the contractual term of the indemnification agreement
ASU 2012 ndash 07
EntertainmentmdashFilms (Topic 926)Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
The amendments in this Update eliminate certain requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2012 ndash 05 (continued)
Statement of Cash Flows (Topic 230)Not-for-Profit Entities Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
The Update requires an NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash Accordingly the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities unless the donor restricted the use of the contributed resources to long-term purposes in which case those cash receipts should be classified as cash flows from financing activities Otherwise cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities
ASU 2012 ndash 06
Business Combinations (Topic 805)Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification
Any amortization of changes in value should be limited to the contractual term of the indemnification agreement
ASU 2012 ndash 07
EntertainmentmdashFilms (Topic 926)Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
The amendments in this Update eliminate certain requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2012 ndash 06
Business Combinations (Topic 805)Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution
When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification
Any amortization of changes in value should be limited to the contractual term of the indemnification agreement
ASU 2012 ndash 07
EntertainmentmdashFilms (Topic 926)Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
The amendments in this Update eliminate certain requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2012 ndash 07
EntertainmentmdashFilms (Topic 926)Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs
The amendments in this Update eliminate certain requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 01
Balance Sheet (Topic 210)Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
The main objective in this Update is to address implementation issues about the scope of Accounting Standards Update No 2011-11 Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities
The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging including bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 02
Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income The amendments in this Update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income
For public entities the amendments are effective prospectively for reporting periods beginning after December 15 2012 For nonpublic entities the amendments are effective prospectively for reporting periods beginning after December 15 2013 Early adoption is permitted
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 03
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The main objective of this Update is to clarify the scope and applicability of a particular disclosure to nonpublic entities that resulted from the issuance of Accounting Standards Update No 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs
Contrary to the stated intent of Update 2011-04 to exempt all nonpublic entities for a particular disclosure that Updatersquos amendments to Topic 825 suggested that nonpublic entities that have total assets of $100 million or more or that have one or more derivative instruments would not qualify for the intended exemption
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 03 (continued)
Financial Instruments (Topic 825)Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities
The amendments clarify that the requirement to disclose ldquothe level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1 2 or 3)rdquo does not apply to nonpublic entities for items that are not measured at fair value in the statement of financial position but for which fair value is disclosed
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 04
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting DateThe objective of the amendments in this Update is to provide guidance for the recognition measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date Examples of obligations within the scope of this Update include debt arrangements other contractual obligations and settled litigation and judicial rulings US GAAP does not include specific guidance on accounting for such obligations which has resulted in diversity in practice Some entities record the entire amount under the joint and several liability Other entities record less than the total amount of the obligation such as an amount allocated an amount corresponding to the proceeds received or the portion of the amount the entity agreed to pay
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 04 (continued)
Liabilities (Topic 405)Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date
The guidance in this Update requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the following1 The amount the reporting entity agreed to pay on the basis of its
arrangement among its co-obligors2 Any additional amount the reporting entity expects to pay on behalf of
its co-obligors
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 05
Foreign Currency Matters (Topic 830)Parentrsquos Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
The objective of the amendments in this Update is to resolve the diversity in practice about whether Subtopic 810-10 Consolidation or Subtopic 830-30 Foreign Currency Matters applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 05 (continued)
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 06
Not-for-Profit Entities (Topic 958)Services Received from Personnel of an Affiliate
The revenue recognition guidance for not-for-profit entities requires that contributed services be recognized at fair value if employees of separately governed affiliated entities regularly perform services for and under the direction of the donee
The objective of the amendments in this Update is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 07
Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting
There is minimal guidance in current US GAAP that addresses the application of the liquidation basis of accounting
The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent
Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective or (b) a plan for liquidation is being imposed by other forces (for example involuntary bankruptcy)
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 08
Financial ServicesmdashInvestment Companies (Topic 946) Amendments to the Scope Measurement and Disclosure Requirements
Under US GAAP investment companies generally measure their investments at fair value including controlling financial interests in investees that are not investment companies In contrast before the issuance of guidance in Investment Entities (Amendments to IFRS 10 IFRS 12 and IAS 27) IFRS did not include the concept of an investment company and required reporting entities to consolidate controlled investees As part of the joint project on consolidation the FASB and the IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company The amendments in this Update modify the guidance in Topic 946 for determining whether an entity is an investment company
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 09
Fair Value Measurement (Topic 820)Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No 2011-04
Stakeholders raised concerns that certain disclosure requirements in ASC paragraph 820-10-50-2 which was effective for nonpublic entities for annual periods beginning after December 15 2011 potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plansrsquo financial statements on the regulatorrsquos website The amendments in this Update address those concerns
The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsorrsquos own nonpublic entity equity securities
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 10
Derivatives and Hedging (Topic 815)Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes
Topic 815 Derivatives and Hedging provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge Among those risks for financial assets and financial liabilities is the risk of changes in a hedged itemrsquos fair value or a hedged transactionrsquos cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) In the United States currently only the interest rates on direct Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates
The amendments in this Update also permit the Fed Funds Effective Swap Rate (OIS) to be used as a US benchmark interest rate for hedge accounting purposes under Topic 815
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 11
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
Topic 740 Income Taxes does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward a similar tax loss or a tax credit carryforward exists There is diversity in practice in the presentation of unrecognized tax benefits in those instances
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
ASU 2013 ndash 11 (continued)
Income Taxes (Topic 740)Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss or a Tax Credit Carryforward Exists
An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward a similar tax loss or a tax credit carryforward except as follows
To the extent a net operating loss carryforward a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
FASBPipeline
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
FASB Pipeline
bull Definition of a Nonpublic Entity ndash ED Issued 82013bull Going Concern ndash Comment Periodbull Reporting Discontinued Operations ndash In processbull Consolidation Policy and Procedures ndash In processbull Transfers and Servicing Repurchase Agreements and Similar
Transactions ndash Final Standard Q4bull Not-for-Profit Financial Reporting Financial Statements ndash ED Q4 2013bull Clarifying the Definition of a Business (formerly Application of Asset ndash or
Entity-Based Guidance to Nonfinancial Assets Held in an Entity) ndash In process
bull Disclosure Framework ndash In processbull Investment Companies Disclosures about Investments in Another
Investment Company ndash In processbull Development Stage Entities ndash ED Q4 2013bull Accounting for Government Assistance ndash In processbull Pensions and Other Postretirement Benefits ndash In process
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
FASBIASBConvergence Projects
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
FASBIASB Joint Projectsbull These projects are part of the overall Convergence Projectbull Goal of the convergence project is to converge US GAAP
and IFRS into one common world-wide set of GAAPbull Started in 2002
Convergence Project Status
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
FASBIASB Key Joint Projects That Are In Processbull Lease Accountingbull Accounting for Financial Instrumentsbull Revenue Recognitionbull Consolidationbull Insurance Contracts
No implementation anticipated untilJanuary 1 2015
Convergence Project Status
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Current Status of the Key ProjectsLeases Q3 2013 ndash Current Comment Period Ends
Financial instruments Exposure Draft IssuedFinal Standard Expected 2014
Revenue Recognition Q4 2013 ndash Projected Completion ExpectedFinal Standard to be issued
Consolidation November 2011 ndash Exposure draft issuedOngoing deliberations
Insurance Contracts Comment period closes Q4 2013
Convergence Project Status
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Summary of the Key Projects
Leases
Eye Opener
Off-balance-sheet accounting for most leases greater than 12 months would no longer be allowed
Convergence Project Status
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Summary of the Key Projects (continued)
Financial Instruments
Eye Opener
The requirement to measure at fair value would be expanded to additional financial instruments (FI)
Convergence Project Status
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Summary of the Key Projects (continued)
Revenue Recognition
Eye Opener
Most industry-specific revenue recognition guidance would be replaced
Why are they doing this
To clarify the principles for recognizing revenue and develop a common revenue standard that would replace almost all existing revenue recognition guidance
Convergence Project Status
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Summary of the Key Projects (continued)
Consolidation
Eye Opener
The consolidation models for variable interest and voting interest entities would be more closely aligned
Why are they doing this
To consider comprehensive guidance for consolidation of all entities including entities controlled by voting or similar interests as well as to provide comprehensive guidance that would be used to (a) assess whether an entity is an investment company and (b) measure an investment companyrsquos investments
To facilitate achievement of these objectives this project has been separated into two projects covering consolidation policy and procedures and investment companies
Convergence Project Status
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Update on International Financial Reporting Standards
(IFRS)
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
bull International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that are becoming a global standard for the preparation of public company financial statements
bull In the US the Securities and Exchange Commission (SEC) has expressed support for a core set of accounting standards that could serve as a framework for cross-border offerings
bull Process started in 20012002 FASBIASB Norwalk Agreementbull Convergence Projects begin ndash FASBIASB join forces on newrevised
standardsbull 2008 ndash 2012 SEC is slow to ldquoget on boardrdquobull SEC July 2012 Staff Report
A Background of IFRS
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
bull The SEC July 2012 staff report reiterates US commitment to global standards however no timetable is set
bull SEC Concernso There is not sufficient support among constituents at this time for designating
IFRS as the authoritative standards in the US without an endorsement mechanism (US Based Approval)
o There is substantial support among constituents to continue exploring the incorporation of IFRS into the financial reporting system for US issuers using a method other than designating IFRS as the authoritative standards in the US One such method might involve an endorsement mechanism whereby the FASB has to endorse an IFRS standard before it becomes part of US GAAP
IFRS ldquoTrouble In Paradiserdquo
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
bull SEC Staffo Does Not provide a final recommendation to SECo Does Not set any IFRS timelineo Current Status is unknowno IFRS now in state of Limbo
bull Since July 2012 there has been no movementbull IFRS for SMEs is still allowed by AICPA
IFRS ldquoTrouble In Paradiserdquo
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
bull Differences of opinion on following areasbull Lease Accountingbull LIFObull Loan Loss Impairment Accounting
IFRS Major Open Issues
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Lease Accounting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Lease Accounting Update
bull First Exposure Draft Issued August 2010 (Joint FASBIASB)bull Obtained User Inputbull Revised Exposure Draft Issued May 2013 (4 to 3 Vote)bull The FASB has a new chair former chair supported the EDbull The FASBrsquos own Investor Advisory Committee (IAC)
opposes the proposal
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Lease Accounting Update
May 2013 ED Provisionsbull Lessees would be required to recognize assets and liabilities
related to their leases (other than certain short-term leases) on their balance sheets
bull The accounting model applied by lessees and lessors to a particular lease would depend on how much of the underlying leased assets economic benefits the lessee is expected to consume over the lease term
bull The determination of the lease term would include periods covered by renewal options when the lessee has a significant economic incentive to extend or not terminate the lease
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Lease Accounting Update
May 2013 ED Provisions
bull In certain situations variable lease payments would be included in the lessees and lessors initial accounting for a lease
bull Numerous new requirements would apply with respect to financial statement presentation and disclosure
bull No effective dates setbull Comments due 9132013 (received 212 negative letters and 25
supporting letters)bull Final decision expected Q1 2014
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Lease Accounting Update
bull What to do nowbull Gain an understanding of the leasing activity including where and
how leases are originated administered and accounted forbull Evaluate the broad potential impacts of the proposed standard
including systems and processes and other business implicationsbull Compile a complete inventory of leasesbull Evaluate the ability of existing leasing systems to meet the reporting
and remeasurement requirements of the proposed new standardbull Identify additional lease terms and accounting assumptions that will
be required
bull Will it become effectivebull Huge backlashbull Expected effective date if approved is January 1 2017
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
401(k) PlanTrends
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
401(k) Plan Trends
bull IRS Compliance Issues
bull Plan Design Trends
bull Lawsuits
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS) to allow qualified retirement plans and certain other types of retirement vehicles to correct errors and other problems On December 31 2012 the IRS released an updated set of rules and procedures that went into effect April 1 2013 The EPCRS consists of two IRS correction programs
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
IRS Compliance Issues
bull The Self Correction Program (SCP) ndash Used for
ldquoinsignificantrdquo operational errors for any type of plan The
plan sponsor can correct these errors without contacting
the IRS or paying a fee Generally these corrections need
to be within two years following the close of the plan year
in which the error occurred
bull The Voluntary Correction Program (VCP) ndash Used for plan
sponsors that canrsquot or donrsquot want to use the SCP program
and it allows them to voluntarily correct errors before an
audit pay a fee and receive IRS approval of the correction
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
IRS Compliance Issues
If a plan does not use the SCP or VCP program to correct and error and the IRS finds the mistake due to a plan audit the plan will be subject to the audit closing agreement program (Audit CAP) The IRS can impose significant fees in this stage of the program
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
401(k) Plan Checklist
1 Have you updated your plan to reflect recent law changes
2 Is the plan operating according to the plan documentrsquos terms
3 Is the planrsquos definition of compensation for deferrals and allocations used correctly
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
401(k) Plan Checklist
4 Were employer-matching contributions made to appropriate employees under the planrsquos terms
5 Has the plan satisfied the 401(k) plan nondiscrimination tests (ADP and ACP)
6 Were all eligible employees identified and given the opportunity to make an elective deferral
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
401(k) Plan Checklist
7 Do elective deferrals meet the IRS limit for the calendar year and did the plan distribute excess deferrals
8 Did the employer timely deposit employee elective deferrals
9 Do participant loans follow plan document requirements
10 Did the plan administrator follow hardship distribution rules
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Consequences of a Disqualified Plan
bull When a plan is disqualified the ramification affects not only the plan trust and the employer sponsoring the plan but the employees as well
bull Employees must include contributions in gross income
bull Rollovers are not allowed from a disqualified plan into a qualified plan
bull Employer deductions are limited
bull Income tax owed on the trust earnings
bull Contributions are subject to Social Security Medicare and Federal Unemployment Taxes
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Plan Trends
bull Roth Options
bull Self Directed Brokerage Link Accounts
bull Auto Enrollment
bull Auto Escalation of Participant Deferrals
bull Use of Forfeitures
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Plan Trends
bull Uncashed Checksbull Uncashed checks often are material and go
undetected until there is a significant plan change such as a change in service provider or plan termination
bull Your plan document will define how these funds should be handled
bull Controls typically include periodically obtaining an uncashed check detail report form the financial institution and monitoring compliance with established administrative procedures to locate missing participants
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Lawsuits
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Other
bull Penalty Letters May Have Been Sent In Error
bull Participant Fee Disclosure Relief
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
How Does Your Plan Measure Up
The following is based on 2011 plan-year experience of
840 plans with 103 million participants and $753 billion
in plan assets
bull 490 of plans allow for Roth contributions (and is more
common in small plans)
bull On average 795 of eligible employees made
contributions into the plans
bull On average 197 of accounts are related to participants
who are no longer actively employed
bull Non HCErsquos contributed 52 of pre-tax pay on average
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
How Does Your Plan Measure Up
bull Average Employer Contributions were 50 of pay
bull 389 of plans provide for immediate vesting for matching contributions
bull Plans offer an average of 19 fundsbull 298 of plans are restricted to investment
options managed by their record keepersbull 672 monitor investments on a quarterly basisbull 682 of companies retain an independent
investment advisor to assist with fiduciary responsibility (608 are fixed fee)
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
How Does Your Plan Measure Up
bull 459 of plans have automatic enrollment (552 of these increase default percentage over time)
bull The majority of plan expenses are paid for by the company rather than the plan Compensation of internal staff (903) legal fees (766) and audit fees (710) are most commonly paid by the company whereas investment management fees (698) and plan recordkeeping fees (487) are most commonly paid by the plan
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
PCAOB Reporting Model Proposal
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
PCAOB Reporting Model
bull Proposal released August 2013bull Comment period ends December 11 2013
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
PCAOB Reporting Model
The proposed standard would retain the passfail model (unqualifiedqualified) and the basic elements of the current auditors report but would require the auditor to communicate a wider range of information
The proposed standard would require
bull the communication of critical audit matters as determined by the auditorbull enhancements to existing language in the auditors report related to the
auditors responsibilities for fraud and notes to the financial statementsbull the addition of new elements to the auditors report related to
bull auditor independencebull auditor tenurebull the auditors responsibilities for and the results of the auditors evaluation
of other information outside the financial statements
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
PCAOB Reporting Model
Critical Audit Matters
Critical audit matters are those matters the auditor addressed during the audit of the financial statements thatbull Involved the most difficult subjective or complex auditor judgmentsbull Posed the most difficulty to the auditor in obtaining sufficient appropriate
evidencebull Posed the most difficulty to the auditor in forming an opinion on the
financial statements
Critical audit matters ordinarily are matters of such importance that they arebull Included in engagement completion documentsbull Reviewed by the engagement quality reviewerbull Communicated to the audit committee
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
PCAOB Reporting Model
Critical Audit Matters (continued)
Factors that the auditor should take into account in determining critical audit mattersbull The degree of subjectivity involved in determining or applying audit procedures
to address the matter or in evaluating the results of those proceduresbull The nature and extent of audit effort required to address the matterbull The nature and amount of available relevant and reliable evidence regarding the
matter or the degree of difficulty in obtaining such evidencebull The severity of control deficiencies identified relevant to the matterbull The degree to which the results of audit procedures to address the matter
resulted in changes in the auditors risk assessments including risks that were not identified previously or required changes to planned audit procedures
bull The nature and significance quantitatively or qualitatively of corrected and accumulated uncorrected misstatements related to the matter
bull The extent of specialized skill or knowledge needed to apply audit procedures to address the matter or evaluate the results of those procedures
bull The nature of consultations outside the engagement team regarding the matter
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
PCAOB Reporting Model
Critical Audit Matters (continued)
The description for each critical audit matter in the auditors report would
bull Identify the critical audit matterbull Describe the considerations that led the auditor to determine that the
matter is a critical audit matterbull Refer to the relevant financial statement accounts and disclosures that
relate to the critical audit matter
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
PCAOB Reporting Model
Proposed Other Information Standard
Under existing PCAOB standards the auditor has a responsibility to read and consider other information with no related reporting requirements
The proposed standard wouldbull Apply the auditors responsibility for other information specifically to a companys
annual report filed with the SEC that contains the companys audited financial statements and the related auditors report
bull Enhance the auditors responsibility with respect to other information by adding procedures for the auditor to perform in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit
bull Require the auditor to evaluate the other information for a material misstatement of fact as well as for a material inconsistency with amounts or information or the manner of their presentation in the audited financial statements
bull Require communication in the auditors report regarding the auditors responsibilities for and the results of the auditors evaluation of the other information
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
PCAOB Reporting Model
Disclosing Tenure
One item in the proposal that has generated significant disagreement is a requirement for an audit firm to disclose the year it began serving as a companyrsquos auditor
Timing
Comment period ends December 11 2013
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Private CompanyFinancial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Private Company Financial Reporting
Separate Private Company Standards
Originsbull Standards Overloadbull Fin 46 ndash Variable Interest Entitiesbull Fin 48 ndash Accounting for Uncertain Tax Positionsbull Fair Value Measurementsbull Business Combinationsbull Looming IFRS Changesbull Noted increase by users in
bull GAAP ExceptionDepartures andbull OCBOATax Reporting
bull Ongoing debate for 30+ years
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Private Company Financial Reporting
Brief Historybull 1972 ndash Wheat Reportbull 2004 ndash FASB Small Business Advisory Committeebull 2006 ndash FASB Forms Private Company Financial Reporting
Committee (PCFRC)bull 2009 ndash PCFRC Suggests formation of Blue Ribbon Panel
(BRP)bull 2010 ndash BRP Meetsbull 2011 ndash BRP Issues Report July 2011
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Private Company Financial Reporting
BRPbull AICPAFAFNASBA jointly form Blue Ribbon Panel on
Standards Setting for Private Companies (BRP)bull Formed in December 2009bull Comprised of CPAs Bankers Educators Standards
Setters and Private Company Reps
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Private Company Financial Reporting
BRP Recommendationsbull Private companies should use a standard setting model
based on GAAP ndash with exceptionsbull Did not recommend separate free standing GAAPbull A separate private company standards board to be formed
by Financial Accounting Foundationbull New board to determine the exceptions and modifications
to current GAAP for Private Companiesbull Some dissent on BRP ndash mainly NASBA and FASB
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Private Company Financial Reporting
Current Statusbull FAF reviews BRP report 22011bull FAF forms Trustees Working Groupbull Working Group to develop framework and planbull FAF Establishes Private Company Council (PCC)
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Private Company Financial Reporting
Private Company Council (PCC) has 2 responsibilitiesbull In conjunction with FASB it will determine
whether exceptions or modifications to existing GAAP are necessary to address the needs of private company users
bull PCC will serve as primary advisory body to FASB related to Private Company issues
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Private Company Financial Reporting
PCC Problemsbull Not a stand alone entity (subject to approval
by FASB) as suggested by the original BRPbull Controlled by FASB (FASB to make all
appointments)bull Unhappy AICPA
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Private Company Financial Reporting
PCC has issued 3 proposals which are all approved by FASB (June 2013)bull Return to pre SFAS 141 Business
Combination rulesbull Allow amortization of goodwill (pre SFAS
142 rules)bull Simplified accounting for interest rate swaps
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Private Company Financial Reporting
AICPA Responsebull Creates its own accounting ldquoframeworkrdquo
(revealed June 2013)bull Financial Reporting Framework for Small
and Medium Sized Businesses - ldquoFRF for SMEsrdquo
Private Company Financial Reporting
Private Company Financial Reporting
Private Company Financial Reporting
AICPA Frameworkbull Non GAAPbull Special purpose framework ndash such as tax
basis other comprehensive basis of accounting (OCBOA)
bull Major GAAP differencesbull No changes to lease accountingbull Capitalized RampD and Startup Costsbull Amortization of goodwillbull No concept of OCIbull Pension Accounting
Private Company Financial Reporting
NASBA ResponseIn June Gaylen R Hansen the current NASBA board chairman stated
ldquoAt a time when accountability and transparency of those in authority is scrutinized it is troubling that a nonauthoritative proposal to significantly weaken the financial reporting of private companies and public protection is even being suggestedrdquo
Private Company Financial Reporting
Current Optionsbull GAAPbull GAAP with PCC revisions (ldquoLittle GAAPrdquo)bull IFRSbull IFRS for SMEsbull AICPA FRF for SMEsbull OCBOA (tax basis etc)
From standards overload to accounting framework overload
Accounting Changes and Error Correction
ASC 250
Scope
bull ASC 250 applies to all entities including for-profit and not-for-profit entities whether publicly or privately held
bull ASC 250 is codification of SFAS 154
ASC 250 Topics
bull Accounting Changesbull Change in accounting principlebull Change in accounting estimatebull Change in reporting entity
bull Correction of Errors
Change in Accounting Principle
A change from one generally accepted accounting principle to another generally accepted accounting principle when there are two or more generally accepted accounting principles that apply or when the accounting principle formerly used is no longer generally accepted
A change in the method of applying an accounting principle also is considered a change in accounting principleASC 250-10-20
Change in Accounting Principle ndash Treatment
In order to provide useful financial information once an accounting principle has been adopted it should not be changed unless the change is considered by both the entity and its auditor to improve the financial reporting
This enables users to better evaluate a companyrsquos financial information on a consistent basis
Under ASC 250 the accounting and reporting treatment of any change in accounting principle does not depend on the classification or type of change in accounting principle
A change in accounting principle is reported retrospectively unless it is impractical to do so
Change in Accounting Principle ndash Treatment
bull Retrospective application requires the followingbull The cumulative effect of the change to the new
accounting principle on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earnings for that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle
bull ASC 250-10-45-5
Change in Accounting Principle ndash Treatment
bull Neither of the following is considered to be a change in accounting principlebull Initial adoption of an accounting principle in recognition
of events or transactions occurring for the first time or that previously were immaterial
bull Adoption or modification of an accounting principle necessitated by transactions or events that are clearly different in substance from those previous occurring
ASC 250-10-45-1
Change in Accounting Principle ndash Treatment
Change in Accounting Estimate
A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities
A change in accounting estimate is a necessary consequence of the assessment of the present status and expected future benefits and obligations associated with assets and liabilities Changes in accounting estimates result from new information
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Private Company Financial Reporting
NASBA ResponseIn June Gaylen R Hansen the current NASBA board chairman stated
ldquoAt a time when accountability and transparency of those in authority is scrutinized it is troubling that a nonauthoritative proposal to significantly weaken the financial reporting of private companies and public protection is even being suggestedrdquo
Private Company Financial Reporting
Current Optionsbull GAAPbull GAAP with PCC revisions (ldquoLittle GAAPrdquo)bull IFRSbull IFRS for SMEsbull AICPA FRF for SMEsbull OCBOA (tax basis etc)
From standards overload to accounting framework overload
Accounting Changes and Error Correction
ASC 250
Scope
bull ASC 250 applies to all entities including for-profit and not-for-profit entities whether publicly or privately held
bull ASC 250 is codification of SFAS 154
ASC 250 Topics
bull Accounting Changesbull Change in accounting principlebull Change in accounting estimatebull Change in reporting entity
bull Correction of Errors
Change in Accounting Principle
A change from one generally accepted accounting principle to another generally accepted accounting principle when there are two or more generally accepted accounting principles that apply or when the accounting principle formerly used is no longer generally accepted
A change in the method of applying an accounting principle also is considered a change in accounting principleASC 250-10-20
Change in Accounting Principle ndash Treatment
In order to provide useful financial information once an accounting principle has been adopted it should not be changed unless the change is considered by both the entity and its auditor to improve the financial reporting
This enables users to better evaluate a companyrsquos financial information on a consistent basis
Under ASC 250 the accounting and reporting treatment of any change in accounting principle does not depend on the classification or type of change in accounting principle
A change in accounting principle is reported retrospectively unless it is impractical to do so
Change in Accounting Principle ndash Treatment
bull Retrospective application requires the followingbull The cumulative effect of the change to the new
accounting principle on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earnings for that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle
bull ASC 250-10-45-5
Change in Accounting Principle ndash Treatment
bull Neither of the following is considered to be a change in accounting principlebull Initial adoption of an accounting principle in recognition
of events or transactions occurring for the first time or that previously were immaterial
bull Adoption or modification of an accounting principle necessitated by transactions or events that are clearly different in substance from those previous occurring
ASC 250-10-45-1
Change in Accounting Principle ndash Treatment
Change in Accounting Estimate
A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities
A change in accounting estimate is a necessary consequence of the assessment of the present status and expected future benefits and obligations associated with assets and liabilities Changes in accounting estimates result from new information
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Private Company Financial Reporting
Current Optionsbull GAAPbull GAAP with PCC revisions (ldquoLittle GAAPrdquo)bull IFRSbull IFRS for SMEsbull AICPA FRF for SMEsbull OCBOA (tax basis etc)
From standards overload to accounting framework overload
Accounting Changes and Error Correction
ASC 250
Scope
bull ASC 250 applies to all entities including for-profit and not-for-profit entities whether publicly or privately held
bull ASC 250 is codification of SFAS 154
ASC 250 Topics
bull Accounting Changesbull Change in accounting principlebull Change in accounting estimatebull Change in reporting entity
bull Correction of Errors
Change in Accounting Principle
A change from one generally accepted accounting principle to another generally accepted accounting principle when there are two or more generally accepted accounting principles that apply or when the accounting principle formerly used is no longer generally accepted
A change in the method of applying an accounting principle also is considered a change in accounting principleASC 250-10-20
Change in Accounting Principle ndash Treatment
In order to provide useful financial information once an accounting principle has been adopted it should not be changed unless the change is considered by both the entity and its auditor to improve the financial reporting
This enables users to better evaluate a companyrsquos financial information on a consistent basis
Under ASC 250 the accounting and reporting treatment of any change in accounting principle does not depend on the classification or type of change in accounting principle
A change in accounting principle is reported retrospectively unless it is impractical to do so
Change in Accounting Principle ndash Treatment
bull Retrospective application requires the followingbull The cumulative effect of the change to the new
accounting principle on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earnings for that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle
bull ASC 250-10-45-5
Change in Accounting Principle ndash Treatment
bull Neither of the following is considered to be a change in accounting principlebull Initial adoption of an accounting principle in recognition
of events or transactions occurring for the first time or that previously were immaterial
bull Adoption or modification of an accounting principle necessitated by transactions or events that are clearly different in substance from those previous occurring
ASC 250-10-45-1
Change in Accounting Principle ndash Treatment
Change in Accounting Estimate
A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities
A change in accounting estimate is a necessary consequence of the assessment of the present status and expected future benefits and obligations associated with assets and liabilities Changes in accounting estimates result from new information
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Accounting Changes and Error Correction
ASC 250
Scope
bull ASC 250 applies to all entities including for-profit and not-for-profit entities whether publicly or privately held
bull ASC 250 is codification of SFAS 154
ASC 250 Topics
bull Accounting Changesbull Change in accounting principlebull Change in accounting estimatebull Change in reporting entity
bull Correction of Errors
Change in Accounting Principle
A change from one generally accepted accounting principle to another generally accepted accounting principle when there are two or more generally accepted accounting principles that apply or when the accounting principle formerly used is no longer generally accepted
A change in the method of applying an accounting principle also is considered a change in accounting principleASC 250-10-20
Change in Accounting Principle ndash Treatment
In order to provide useful financial information once an accounting principle has been adopted it should not be changed unless the change is considered by both the entity and its auditor to improve the financial reporting
This enables users to better evaluate a companyrsquos financial information on a consistent basis
Under ASC 250 the accounting and reporting treatment of any change in accounting principle does not depend on the classification or type of change in accounting principle
A change in accounting principle is reported retrospectively unless it is impractical to do so
Change in Accounting Principle ndash Treatment
bull Retrospective application requires the followingbull The cumulative effect of the change to the new
accounting principle on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earnings for that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle
bull ASC 250-10-45-5
Change in Accounting Principle ndash Treatment
bull Neither of the following is considered to be a change in accounting principlebull Initial adoption of an accounting principle in recognition
of events or transactions occurring for the first time or that previously were immaterial
bull Adoption or modification of an accounting principle necessitated by transactions or events that are clearly different in substance from those previous occurring
ASC 250-10-45-1
Change in Accounting Principle ndash Treatment
Change in Accounting Estimate
A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities
A change in accounting estimate is a necessary consequence of the assessment of the present status and expected future benefits and obligations associated with assets and liabilities Changes in accounting estimates result from new information
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Scope
bull ASC 250 applies to all entities including for-profit and not-for-profit entities whether publicly or privately held
bull ASC 250 is codification of SFAS 154
ASC 250 Topics
bull Accounting Changesbull Change in accounting principlebull Change in accounting estimatebull Change in reporting entity
bull Correction of Errors
Change in Accounting Principle
A change from one generally accepted accounting principle to another generally accepted accounting principle when there are two or more generally accepted accounting principles that apply or when the accounting principle formerly used is no longer generally accepted
A change in the method of applying an accounting principle also is considered a change in accounting principleASC 250-10-20
Change in Accounting Principle ndash Treatment
In order to provide useful financial information once an accounting principle has been adopted it should not be changed unless the change is considered by both the entity and its auditor to improve the financial reporting
This enables users to better evaluate a companyrsquos financial information on a consistent basis
Under ASC 250 the accounting and reporting treatment of any change in accounting principle does not depend on the classification or type of change in accounting principle
A change in accounting principle is reported retrospectively unless it is impractical to do so
Change in Accounting Principle ndash Treatment
bull Retrospective application requires the followingbull The cumulative effect of the change to the new
accounting principle on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earnings for that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle
bull ASC 250-10-45-5
Change in Accounting Principle ndash Treatment
bull Neither of the following is considered to be a change in accounting principlebull Initial adoption of an accounting principle in recognition
of events or transactions occurring for the first time or that previously were immaterial
bull Adoption or modification of an accounting principle necessitated by transactions or events that are clearly different in substance from those previous occurring
ASC 250-10-45-1
Change in Accounting Principle ndash Treatment
Change in Accounting Estimate
A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities
A change in accounting estimate is a necessary consequence of the assessment of the present status and expected future benefits and obligations associated with assets and liabilities Changes in accounting estimates result from new information
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
ASC 250 Topics
bull Accounting Changesbull Change in accounting principlebull Change in accounting estimatebull Change in reporting entity
bull Correction of Errors
Change in Accounting Principle
A change from one generally accepted accounting principle to another generally accepted accounting principle when there are two or more generally accepted accounting principles that apply or when the accounting principle formerly used is no longer generally accepted
A change in the method of applying an accounting principle also is considered a change in accounting principleASC 250-10-20
Change in Accounting Principle ndash Treatment
In order to provide useful financial information once an accounting principle has been adopted it should not be changed unless the change is considered by both the entity and its auditor to improve the financial reporting
This enables users to better evaluate a companyrsquos financial information on a consistent basis
Under ASC 250 the accounting and reporting treatment of any change in accounting principle does not depend on the classification or type of change in accounting principle
A change in accounting principle is reported retrospectively unless it is impractical to do so
Change in Accounting Principle ndash Treatment
bull Retrospective application requires the followingbull The cumulative effect of the change to the new
accounting principle on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earnings for that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle
bull ASC 250-10-45-5
Change in Accounting Principle ndash Treatment
bull Neither of the following is considered to be a change in accounting principlebull Initial adoption of an accounting principle in recognition
of events or transactions occurring for the first time or that previously were immaterial
bull Adoption or modification of an accounting principle necessitated by transactions or events that are clearly different in substance from those previous occurring
ASC 250-10-45-1
Change in Accounting Principle ndash Treatment
Change in Accounting Estimate
A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities
A change in accounting estimate is a necessary consequence of the assessment of the present status and expected future benefits and obligations associated with assets and liabilities Changes in accounting estimates result from new information
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Change in Accounting Principle
A change from one generally accepted accounting principle to another generally accepted accounting principle when there are two or more generally accepted accounting principles that apply or when the accounting principle formerly used is no longer generally accepted
A change in the method of applying an accounting principle also is considered a change in accounting principleASC 250-10-20
Change in Accounting Principle ndash Treatment
In order to provide useful financial information once an accounting principle has been adopted it should not be changed unless the change is considered by both the entity and its auditor to improve the financial reporting
This enables users to better evaluate a companyrsquos financial information on a consistent basis
Under ASC 250 the accounting and reporting treatment of any change in accounting principle does not depend on the classification or type of change in accounting principle
A change in accounting principle is reported retrospectively unless it is impractical to do so
Change in Accounting Principle ndash Treatment
bull Retrospective application requires the followingbull The cumulative effect of the change to the new
accounting principle on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earnings for that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle
bull ASC 250-10-45-5
Change in Accounting Principle ndash Treatment
bull Neither of the following is considered to be a change in accounting principlebull Initial adoption of an accounting principle in recognition
of events or transactions occurring for the first time or that previously were immaterial
bull Adoption or modification of an accounting principle necessitated by transactions or events that are clearly different in substance from those previous occurring
ASC 250-10-45-1
Change in Accounting Principle ndash Treatment
Change in Accounting Estimate
A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities
A change in accounting estimate is a necessary consequence of the assessment of the present status and expected future benefits and obligations associated with assets and liabilities Changes in accounting estimates result from new information
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Change in Accounting Principle ndash Treatment
In order to provide useful financial information once an accounting principle has been adopted it should not be changed unless the change is considered by both the entity and its auditor to improve the financial reporting
This enables users to better evaluate a companyrsquos financial information on a consistent basis
Under ASC 250 the accounting and reporting treatment of any change in accounting principle does not depend on the classification or type of change in accounting principle
A change in accounting principle is reported retrospectively unless it is impractical to do so
Change in Accounting Principle ndash Treatment
bull Retrospective application requires the followingbull The cumulative effect of the change to the new
accounting principle on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earnings for that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle
bull ASC 250-10-45-5
Change in Accounting Principle ndash Treatment
bull Neither of the following is considered to be a change in accounting principlebull Initial adoption of an accounting principle in recognition
of events or transactions occurring for the first time or that previously were immaterial
bull Adoption or modification of an accounting principle necessitated by transactions or events that are clearly different in substance from those previous occurring
ASC 250-10-45-1
Change in Accounting Principle ndash Treatment
Change in Accounting Estimate
A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities
A change in accounting estimate is a necessary consequence of the assessment of the present status and expected future benefits and obligations associated with assets and liabilities Changes in accounting estimates result from new information
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Under ASC 250 the accounting and reporting treatment of any change in accounting principle does not depend on the classification or type of change in accounting principle
A change in accounting principle is reported retrospectively unless it is impractical to do so
Change in Accounting Principle ndash Treatment
bull Retrospective application requires the followingbull The cumulative effect of the change to the new
accounting principle on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earnings for that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle
bull ASC 250-10-45-5
Change in Accounting Principle ndash Treatment
bull Neither of the following is considered to be a change in accounting principlebull Initial adoption of an accounting principle in recognition
of events or transactions occurring for the first time or that previously were immaterial
bull Adoption or modification of an accounting principle necessitated by transactions or events that are clearly different in substance from those previous occurring
ASC 250-10-45-1
Change in Accounting Principle ndash Treatment
Change in Accounting Estimate
A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities
A change in accounting estimate is a necessary consequence of the assessment of the present status and expected future benefits and obligations associated with assets and liabilities Changes in accounting estimates result from new information
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
bull Retrospective application requires the followingbull The cumulative effect of the change to the new
accounting principle on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earnings for that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle
bull ASC 250-10-45-5
Change in Accounting Principle ndash Treatment
bull Neither of the following is considered to be a change in accounting principlebull Initial adoption of an accounting principle in recognition
of events or transactions occurring for the first time or that previously were immaterial
bull Adoption or modification of an accounting principle necessitated by transactions or events that are clearly different in substance from those previous occurring
ASC 250-10-45-1
Change in Accounting Principle ndash Treatment
Change in Accounting Estimate
A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities
A change in accounting estimate is a necessary consequence of the assessment of the present status and expected future benefits and obligations associated with assets and liabilities Changes in accounting estimates result from new information
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
bull Neither of the following is considered to be a change in accounting principlebull Initial adoption of an accounting principle in recognition
of events or transactions occurring for the first time or that previously were immaterial
bull Adoption or modification of an accounting principle necessitated by transactions or events that are clearly different in substance from those previous occurring
ASC 250-10-45-1
Change in Accounting Principle ndash Treatment
Change in Accounting Estimate
A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities
A change in accounting estimate is a necessary consequence of the assessment of the present status and expected future benefits and obligations associated with assets and liabilities Changes in accounting estimates result from new information
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Change in Accounting Estimate
A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities
A change in accounting estimate is a necessary consequence of the assessment of the present status and expected future benefits and obligations associated with assets and liabilities Changes in accounting estimates result from new information
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Change in Accounting Estimate
Examples of items for which estimates are necessary are uncollectible receivables (bad debt reserve) inventory obsolescence service lives and salvage values of depreciable assets and warranty obligations ASC 250-10-20
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Change in Accounting Estimate ndash Treatment
A change in accounting estimate is reported in the period of change if the change affects that period only or in the period of change and future periods if the change affects both
An example of a change in accounting estimate is a change in the life of a depreciable asset or a chance in the percentage of uncollectible accounts receivable
A change in accounting estimate is not reported by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma statements for prior periods
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Change in Accounting Estimate Effected by a Change in Accounting Principle
An example of a change in estimate effected by a change in principle is a change in the method of depreciation amortization or depletion for long-lived nonfinancial assets These are considered changes in estimatesASC 250-10-20
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Change in Reporting Entity
bull A change that results in financial statements that in effect are those of a different reporting entity A change in the reporting entity is limited mainly tobull Presenting consolidated or combined financial statements in place
of financial statements of individual entities bull Changing specific subsidiaries that make up the group of entities for
which consolidated financial statements are presented and bull Changing the entities included in combined financial statements
bull Neither a business combination accounted for by the purchase method as per ASC Topic 805 nor the consolidation of a variable interest entity pursuant to ASC Topic 810 is a change in reporting entity ASC 250-10-20
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
When an accounting change results in financial statements that are in effect the statements of a different reporting entity the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periodsASC 250-10-45-21
Change in Reporting Entity ndash Treatment
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Correction of an Error
Error in previously issued financial statements ndash an error in recognition measurement presentation or disclosure in financial statements resulting from mathematical mistakes mistakes in the application of GAAP or oversight or misuse of facts that existed at the time the financial statements were prepared
A change from an accounting principle that is not generally accepted to one that is generally accepted is also a correction of an errorASC 250-10-20
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Correction of an Error ndash Treatment
bull Any error in the financial statements of a prior period discovered after the financial statements are issued is reported as an error correction by ldquorestatingrdquo the prior-period financial statements Restatement requires all of the followingbull The cumulative effect of the error on periods prior to those
presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented
bull An offsetting adjustment if any shall be made to the opening balance of retained earningshellipfor that period
bull Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error
ASC 250-10-45-23
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Treatment of Accounting Changes and Error Corrections under ASC 250
Method of Accounting
Type of Change Prospective Retrospective Retroactive
Change in principle
General rule Yes
Impracticability Maybe Maybe
Change in estimate Yes
Change in entity Yes
Error correction Yes
If the cumulative effect of applying a change in accounting principle to all prior periodscan be determined but it is impracticable to determine period-specific effects of that change on all prior periods presented the cumulative effect of the change to the new accounting principle shall be applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied If it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the change was made prospectively as of the earliest date practicable
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Change in Accounting Principle Disclosure
bull ASC 250 requires an entity to disclose the following information in the fiscal period in which a change in accounting principle is made
bull The nature of and reason for the change in accounting principle including an explanation of why the newly adopted accounting principle is preferable
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Change in Accounting Principle Disclosure (continued)
bull The method of applying the change including all of the following bull A description of the prior-period information that has been
retrospectively adjustedbull The effect of the change on income from continuing
operations net income and any other affected financial statement line item
bull The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
bull If retrospective application to all prior periods is impracticable disclosure of the reasons therefore and a description of the alternative method used to report the change
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Change in Reporting Entity Disclosure
ASC 250 requires the following information in a change in reporting disclosure
When there has been a change in reporting entity the financial statements of the period of the changes shall describe the nature of the change and reason for it In addition the effect of the change on income before extraordinary items net income other comprehensive income and any related per-share amounts shall be disclosed for all periods presented
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Correction of an Error Disclosure
ASC 250 requires an entity to disclose the following information when correcting an error in the financial statements
When financial statements are restated to correct an error the entity shall disclose that its previously issued financial statements have been restated along with a description of the nature of the error The entity also shall disclose both of the followingbull The effect of the correction on each financial statement line
item and any per-share amounts affected for each prior period presented
bull The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Change in Accounting Estimate DisclosureASC 250 requires the following information in a change in accounting estimate disclosureThe effect of income from continuing operations net income and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods such as a change in service lives of depreciable assets
Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence however disclosure is required in the effect of a change in the estimate is material
When an entity effects a change in estimate by changing an accounting principle the same disclosures are required If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods a description of that change in estimate shall be disclosedASC 250-10-50-4
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
CGMA
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
CGMA
New Professional Designation Promoted by theAICPA (USA) amp CIMA (UK)
bull Charteredbull Globalbull Managementbull Accountant
Alternative to Certified Management Accountant (CMA)
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
CGMA Annual Requirements
QualificationsA minimum ofbull Three years of financial (including internal audit) or
management accounting experience in business industry or government or
bull Two years of financial or management accounting experience plus one year in public accounting or
bull Three years of financialmanagement accounting experience on a consulting basis or
bull Three years in a management accounting role focused on the management and operation of an accounting firm
Beginning January 2015 a qualifying examination will also be required
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
CGMA Annual Requirements
Designation costThe annual CGMA designation fee for 2013-2014 is $15000 AICPA members who are also a member of a State CPA Society will receive a $50 annual discount off the designation
Maintaining the CGMA designationTo maintain your CGMA designation you must remain a voting member of the AICPA and pay the annual fee for the designation CPE is required for CPAs to maintain their professional competence and provide quality professional services CPAs are responsible for complying with all applicable CPE requirements
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
CGMA Benefits
bull CGMA Magazinebull Web based weekly newsletterbull Global peer networkbull Access to web content
bull Toolsbull Surveysbull Productsbull CPE
wwwCGMAorg
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Thank You
Thank you for your attendance attodayrsquos program
For more information regarding the topics discussed today please feel free to contact
Timothy McLaughlin CPAtimmclaughlininserocpacom
5856979680
Jennifer Martlew CPA CFEjennifermartlewinserocpacom
5856979624
Insero amp Company CPAs PC
wwwinserocpacom
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
Insero amp Company CPAs PCCertified Public AccountantsBusiness amp Financial Advisors
Rochester gtgt 5854546996Corning gtgt 6079732075
DisclaimerThese materials were prepared solely for the purpose of continuing professional education They are distributed with the understanding that Insero amp Company CPAs PC and its employees are not engaged in rendering legal accounting or other professional service as part of this CPE presentation If advice or other expert assistance is required the services of a competent professional person should be sought Please contact an Insero amp Company team member with any questions
The information contained herein is general in nature and based on authorities that are subject to change Insero amp Company CPAs PC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omission or for results obtained by others as a result of reliance upon such information Insero amp Company CPAs PC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein This publication does not and is not intended to provide legal tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situation Circular 230 Disclosure Any information contained herein or on any website or email link associated with this document is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer
Insero amp Company CPAs PC is an integral part of the McGladrey Alliance a premiere affiliation of independent accounting and consulting firms in the United States with more than 90 members in 42 states and Puerto Rico McGladrey Alliance member firms maintain their name autonomy and independence and are responsible for their own client fee arrangements delivery of services and maintenance of client relationships McGladrey Alliance is a business of McGladrey LLP which operates under the McGladrey brand as the fifth largest US provider of assurance tax and consulting services McGladrey the McGladrey logo and the McGladrey Alliance signatures are used under license by McGladrey LLP McGladrey the McGladrey logo the McGladrey Alliance signatures and The McGladrey Classic logo are used under license by McGladrey LLP Correspondent of the RSM International network of independent accounting tax and consulting firms
- Audit amp Accounting Update
- Agenda
- Timothy McLaughlin CPA
- Jennifer Martlew CPA CFE
- FASB Updates
- FASB Updates (2)
- Summary of New Accounting Standards Updates Since September 201
- ASU 2012 ndash 04
- ASU 2012 ndash 05
- ASU 2012 ndash 05 (continued)
- ASU 2012 ndash 06
- ASU 2012 ndash 07
- ASU 2013 ndash 01
- ASU 2013 ndash 02
- ASU 2013 ndash 03
- ASU 2013 ndash 03 (continued)
- ASU 2013 ndash 04
- ASU 2013 ndash 04 (continued)
- ASU 2013 ndash 05
- ASU 2013 ndash 05 (continued)
- ASU 2013 ndash 06
- ASU 2013 ndash 07
- ASU 2013 ndash 08
- ASU 2013 ndash 09
- ASU 2013 ndash 10
- ASU 2013 ndash 11
- ASU 2013 ndash 11 (continued)
- FASB Pipeline
- FASB Pipeline
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
- Slide 39
- Slide 40
- Slide 41
- Slide 42
- Slide 43
- Lease Accounting Update
- Lease Accounting Update (2)
- Lease Accounting Update (3)
- Lease Accounting Update (4)
- Slide 48
- 401(k) Plan Trends
- Slide 50
- IRS Compliance Issues
- IRS Compliance Issues (2)
- 401(k) Plan Checklist
- 401(k) Plan Checklist (2)
- 401(k) Plan Checklist (3)
- Consequences of a Disqualified Plan
- Plan Trends
- Plan Trends (2)
- Slide 59
- Other
- How Does Your Plan Measure Up
- How Does Your Plan Measure Up (2)
- How Does Your Plan Measure Up (3)
- Slide 64
- PCAOB Reporting Model
- PCAOB Reporting Model (2)
- PCAOB Reporting Model (3)
- PCAOB Reporting Model (4)
- PCAOB Reporting Model (5)
- PCAOB Reporting Model (6)
- PCAOB Reporting Model (7)
- Private Company Financial Reporting
- Private Company Financial Reporting
- Private Company Financial Reporting (2)
- Private Company Financial Reporting (3)
- Private Company Financial Reporting (4)
- Private Company Financial Reporting (5)
- Private Company Financial Reporting (6)
- Private Company Financial Reporting (7)
- Private Company Financial Reporting (8)
- Private Company Financial Reporting (9)
- Private Company Financial Reporting (10)
- Private Company Financial Reporting (11)
- Private Company Financial Reporting (12)
- Private Company Financial Reporting (13)
- Slide 86
- Scope
- ASC 250 Topics
- Change in Accounting Principle
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment
- Change in Accounting Principle ndash Treatment (2)
- Change in Accounting Principle ndash Treatment (3)
- Change in Accounting Estimate
- Change in Accounting Estimate
- Change in Accounting Estimate ndash Treatment
- Change in Accounting Estimate Effected by a Change in Accountin
- Change in Reporting Entity
- Change in Reporting Entity ndash Treatment
- Correction of an Error
- Correction of an Error ndash Treatment
- Treatment of Accounting Changes and Error Corrections under ASC
- Change in Accounting Principle Disclosure
- Change in Accounting Principle Disclosure (continued)
- Change in Reporting Entity Disclosure
- Correction of an Error Disclosure
- Change in Accounting Estimate Disclosure
- Slide 108
- CGMA
- CGMA Annual Requirements
- CGMA Annual Requirements (2)
- CGMA Benefits
- Thank You
- Slide 114
-
