Significant Updates to the Profession: Accounting & Auditing Update May 2010 Presented by: WSU...

Significant Updates to the Profession:Significant Updates to the Profession:Accounting & Auditing UpdateAccounting & Auditing Update

May 2010

Presented by:

WSU Accounting & Auditing Conference

Aron Dunn Senior Manager,Assurance ServicesAllen, Gibbs & Houlik, [email protected]

Mike Lowry Manager, Assurance ServicesAllen, Gibbs & Houlik, [email protected]

Agenda

• Auditing standards updates

• FASB updates

• Codification and Codification updates

• GASB updates

• Ethics updates and others

Auditing standards updates

• SAS 117 (Dec 2009) – Compliance audits• SAS 118 (Feb 2010) – Other information in

documents containing audited financial statements

• SAS 119 (Feb 2010) – Supplementary information in relation to the financial statements as a whole

• SAS 120 (Feb 2010) – Required supplementary information

SAS 117 – Compliance audits

Addresses application of GAAS to a compliance audit:

• Establishing materiality levels• Identifying government programs & applicable

compliance requirements• Performing risk assessment procedures• Assessing the risks of material noncompliance• Performing further audit procedures in response

to assessed risks

SAS 117 – Compliance audits

Addresses application of GAAS to a compliance audit:

• Supplementary audit requirements• Written representations• Subsequent events• Evaluating sufficiency & appropriateness of

audit evidence and forming an opinion• Reporting

SAS 118 – Other information

Establishes the requirement for the auditor to read the other information:

• Definition excludes required supplementary information.

• Credibility of the audited financial statements may be undermined by material inconsistencies.

• Effective for periods beginning on or after December 15, 2010

SAS 119 – Supplementary information

Addresses the auditor’s responsibility to report:• If supplementary information is fairly stated, in all

material respects, in relation to the financial statements

• Not considered necessary for the financial statements to be fairly presented in accordance with applicable financial reporting standards


SAS 120 – Required supplementary information

Addresses the auditor’s responsibility with respect to:

• Information that a designated accounting standard setter requires to accompany an entity’s basic financial statements


FASB updates

• FASB 165 – Subsequent events

• FASB 166 – Accounting for transfers of financial assets

• FASB 167 – Amendments to FASB interpretation no. 46(R)

• FASB 168 – The FASB accounting standards Codification and the hierarchy of generally accepted accounting principles (i.e. – the last FASB ever)

FASB 165 – Subsequent events

• Effective for interim or annual periods ending after June 15, 2009

• No significant changes in the subsequent events that an entity reports in the financial statements

• Introduces the concept of financial statements being available to be issued

• Requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date

FASB 166 – Accounting for transfers of financial assets

• Effective for annual periods beginning after November 15, 2009 (and transfers as of and after that date)

• Removes concept of a qualifying SPE from FASB 140 & FIN 46

• Clarifies surrender of control over transferred financial assets and continuing involvement with the assets

• Defines participating interest for reporting a transfer of a portion of a financial asset as a sale

• Incorporated into ASU 2009-16

FASB 167 – Amendments to FIN 46

• Effective for annual periods beginning after November 15, 2009

• Requires ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE (vs. reconsideration event)

• Eliminates the quantitative approach for determining the primary beneficiary

• Removed the qualifying SPE concept to align with FASB 166

• States that only one primary beneficiary can exist• Incorporated into ASU 2009-17

FAS 168 – The FASB hierarchy

• Applies to financial statements of non-governmental entities that are presented in conformity with GAAP

• Established Codification as the sole source of authoritative GAAP with all guidance carrying equal level of authority

• Effective for financials issued for periods ending after September 15, 2009 (NOW)

The Codification

• No longer four levels of GAAP (A through D)– Now just two levels (authoritative and non-

authoritative)

• Major restructuring of more than 2,500 standards into five areas broken into 90 topics

• Supersedes all previously issued A-D GAAP– If not found in the Codification, no longer

authoritative

The Codification

• SEC content is included in Codification topics, but in separate SEC sections.

• SEC content is the domain of the SEC and thus not under the authority of FASB.

The Codification structure

• Topics – broadest category of related content (cash, receivable, etc.)

• Subtopics – generally distinguished by type or scope

• Sections – nature of the content, such as recognition, measurement or disclosure

• Subsections – allows further segregation

The Codification structure

Example:

Consistent numbering across topics:• Area: Broad transactions• Topic: Leases• Subtopics: Overall, operating, capital, sale-

leaseback• Sections: Background, scope, disclosures• Subsections: General, lessees, lessors

Codification updating process

• Results of standards activity issued as an Accounting Standards Update (ASU) numbered as year – sequence (i.e. 2010-02) and will include:– Summary and basis for conclusions– Codification update instructions

• The FASB will update the Codification concurrent with the release of an ASU.

Codification updating process

• The proposed updates will be exposed with the proposed Codification update instructions.– Same exposure and due diligence process as

before within the FASB framework

• The ASUs will not be authoritative in their own right.

• Current and transitional text is presented together to ensure access to all relevant content in the same location.

Codification updates

There were 17 issued ASC updates in 2009 and 17 updates in 2010 to date (end of April).

Some significant updates:• 2009-05: Measuring liabilities at fair value• 2009-06: Implementation guidance on

accounting for uncertainty in income taxes and disclosure amendments for nonpublic entities

• 2009-12: Investments in certain entities that calculate net asset value per share (or its equivalent)

Codification updates (continued)

• 2009-13: Multiple-deliverable revenue arrangements

• 2009-14: Certain revenue arrangements that include software elements

• 2010-03: Oil and gas reserve estimation and disclosures

• 2010-06: Improving disclosures about fair value measurements

• 2010-09: Amendments to certain recognition & disclosure requirements

ASU 2009-05: Fair value of liabilities

• Provides clarification for the fair value measurement of liabilities

• When a quoted price in an active market for the identical liability is not available, measure FV by:– Using a valuation technique that uses the quoted price of

the identical liability when traded as an asset (for example, a bond) or quoted prices for similar liabilities or similar liabilities when traded as assets

– Another valuation technique consistent with the principles of FV (within Topic 820), such as income or market

• Not required to include an adjustment relating to the existence of a restriction that prevents transfer

ASU 2009-06: Uncertain tax positions

• Clarifies that taxes paid by an entity attributable to the entity should be analyzed under Topic 740– Taxes paid by an entity attributable to owners recorded

as a transaction with the owners– Attribution done for each jurisdiction where the entity is

subject to income taxes• Clarifies that management’s determination that the

entity is a pass-through entity or a tax-exempt entity is a tax position

• Requires a reporting entity to consider tax positions by all entities within a related group of entities regardless of the tax status of the reporting entity

• Eliminates certain disclosure requirements for nonpublic entities

ASU 2009-12: Net asset valuation

Allows a reporting entity to measure the fair value of an investment (within the scope of this update):

Basis of the net asset value per share if:• The net asset value is calculated in a manner consistent

with measurement principles of Topic 946, financial services – investment companies,

• Including measurement of all or substantially all of the underlying investments of the investee in accordance with Topic 820, fair value measurements and disclosures

ASU 2009-13: Multiple-deliverables revenue

• Amends criteria for separating consideration in multiple-deliverable arrangements likely resulting in more arrangements that will be separated

• Establishes a selling price hierarchy for determining selling price

• Replaces fair value with selling price in allocation guidance

• Relative selling price method replaces residual method of allocation (discounts now allocated proportionately)

ASU 2009-14: Software revenue

• Change accounting model for revenue arrangements that include both tangible products and software elements

• Products containing software and non-software components that function together to deliver essential functionality are no longer within the scope of the software revenue guidance (Subtopic 985-605).

ASU 2010-03: Oil and gas

• To align oil & gas reserve estimation & disclosure requirements of Topic 932 with requirements in SEC’s final rule, Modernization of the Oil and Gas Reporting Requirements

• Expands definition of oil and gas-producing activities

• Entities must use the average, first-of-the-month price during the 12-month period before the ending date of the period (vs. year-end price), when estimating whether reserve quantities are economical to produce.

ASU 2010-03: Oil and gas (continued)

• Required to separately disclose information about reserve quantities and financial statement amounts for geographic areas that represent 15% or more of proved reserves

• Equity method investments must be considered in determining whether it has significant oil and gas-producing activities.

ASU 2010-06 Fair value disclosures

• New disclosures for transfers in and out of Levels 1 and 2 and reasons for the transfers

• Level 3 reconciliation disclosure must separately break-out information on purchases, sales, issuances and settlements.

• Clarifies level of disaggregation on asset & liability FV disclosure

• Clarifies disclosures about valuation techniques and inputs used to measure FV for Level 2 and Level 3 items

ASU 2010-09: Subsequent events disclosure

• Clarifies that an SEC filer or conduit bond obligor (that is traded in a public market) is required to evaluate subsequent events through the date of the financial statements

• If not one of the above types of entities, must evaluate subsequent events through the date the financials are available to be issued.

• The scope of the reissuance disclosure requirements is refined to include revised financial statements only.

GASB updates

• GASB 54 – Fund balance reporting & governmental fund type definitions

• GASB 55 – The hierarchy of generally accepted accounting principles for state and local governments

• GASB 56 – Codification of accounting & financial reporting guidance contained in the AICPA statements of auditing standards

GASB updates (continued)

• GASB 57 – OPEB measurements by agent employers and agent multiple-employer plans

• GASB 58 – Accounting and financial reporting for Chapter 9 bankruptcies

GASB 54 - New approach

Fund balance

Effective for periods beginning after 6/15/10:• Hierarchy of fund balance classifications created

based on the extent to which governments are bound by constraints on resources reported in the funds

• This hierarchy has five possible classifications

GASB 54 - New classifications

• Non-spendable

• Restricted Essentially now

• Committed reserved

• Assigned Essentially now

• Unassigned unreserved

GASB 54 – Other changes

• No longer report encumbrances – significant encumbrances at year-end should be disclosed in the notes to the financial statements, along with other significant commitments

• New rules and reporting for stabilization funds – “rainy day” funds

GASB 54 – Other changes

• Fund definitions – changes to the general fund, debt service fund and capital project fund definitions are minor and in most cases, just reflect the new terms of restricted, committed and assigned

• Biggest change is in special revenue funds – “foundation for the fund should be from a revenue source that is either restricted or committed. That restricted or committed revenue source should be expected to continue to represent a substantial portion of the inflows reported in the fund”

GASB 55: Hierarchy of GAAP for State & Local Governments

Effective NowDescending order of authority:• GASB statements and interpretations• GASB technical bulletins, AICPA industry audit &

accounting guides and statements of position (if made applicable to governments)

• AICPA practice bulletins (if made applicable to governments)

• Implementation guides published by the GASB staff, and practices that are widely recognized and prevalent

GASB 56: Codification of guidance

Effective NowRelated-party transactions: • Should recognize the substance of the transaction

over its legal form• Disclose

Subsequent events: • Recognized events require adjustments• Non-recognized events – may be disclosed

Going-concern considerations: Evaluate for 12 months beyond the financial statement date

GASB 57 – OPEB Measurements

Effective for periods beginning after June 15, 2011• Amends GASB 43 & 45• Applies to individual-employer OPEB plans that

have fewer than 100 total plan members and the agent multiple-employer OPEB plans in which they participate

• May elect to base actuarial information on alternative measurement method regardless of total plan members in the agent multiple-employer OPEB plan in which the employer participates

• The cost of compliance with the requirements of Statement 45 may be reduced.

GASB 58 – Chapter 9 bankruptcies

Effective for periods beginning after 6/15/09: • Guidance for governments that have petitioned for

protection from creditors by filing for bankruptcy under Chapter 9

• Requires government to re-measure liabilities that are adjusted in bankruptcy when the courts approve a new payment plan

• Classifies gains or losses resulting from re-measurement of liabilities and assets as an extraordinary item

Ethics updates

• Application of the independence rules to covered members formerly employed by a client or otherwise associated with a client

• Application of the independence rules to a covered member’s immediate family– Permitted employment– Employee benefit plans (other than share-based

compensation arrangements or nonqualified deferred compensation plans)

– Share-based compensation arrangements– Nonqualified deferred compensation plans

Ethics updates (continued)

Distribution of client information (exposed on September 4, 2009):

• Use or disclosure of client information that is not known to be in the public domain or is not available to the public (even on a “no name” basis) would be considered a breach of client confidentiality unless consent is obtained from the client.

Others:• Client affiliates independence (upstream, downstream,

brother/sister)• Codification (draft topical outline is complete)• Convergence

Other

• Conceptual framework project – 2 EDs– The objective of financial reporting and

qualitative characteristics and constraints of decision-useful financial reporting information (Phase A)

– The reporting entity (Phase D)

• Leases

• Revenue recognition in contracts with customers

• IFRS and convergence

Questions?

M. Aron DunnSenior Manager,

Assurance ServicesAllen, Gibbs & Houlik, L.C.

[email protected]

Mike LowryManager,

Assurance ServicesAllen, Gibbs & Houlik, L.C.

[email protected]

Thank you!

Significant Updates to the Profession: Accounting & Auditing Update May 2010 Presented by: WSU...

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