Hot Topics in the Accounting World
2009 Telergee CFO & Controller’s Conference
October 14 – 16, 2009
Newcastle, New Hampshire
www.telergee.com
Presented by:
Julie Keim
Today’s Goals
1. Discuss new accounting pronouncements that you
might not have been aware of.
2. A brief explanation of the pronouncement.
3. An example of how each pronouncement might
affect your company.
Hot Topics
• FASB ASC 810, Consolidation (SFAS No. 160,
Noncontrolling Interests in Consolidated
Financial Statements)
• FASB ASC 855, Subsequent Events (SFAS No.
165, Subsequent Events)
• SAS 115
• IFRS
Common Abbreviations
• Financial Accounting Standards Board (FASB)
• Accounting Standards Codification (ASC)
• U.S. Generally Accepted Accounting Principals
(GAAP)
• Statement of Financial Accounting Standards (SFAS)
• Statements on Auditing Standards (SAS)
• International Accounting Standards Boards (IASB)
• International Financial Reporting Standards (IFRS)
FASB ASC 810, Consolidation
• SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, issued
December 2007.
• It is effective for fiscal years beginning on or after
December 31, 2008.
• Applies to all entities that prepare consolidated
financial statements, except for not-for-profit
organizations (should continue to apply FASB ASC
810 (ARB No. 51).
FASB ASC 810, Consolidation
What Are the Differences?
• It establishes:
– accounting and reporting standards for the noncontrolling
interest in a subsidiary.
– accounting and reporting standards for the deconsolidation of a
subsidiary.
– and it amends previous consolidation procedures in FASB ASC
810 to be consistent with the requirements of FASB ASC 805,
Business Combinations (SFAS No. 141(R)).
What is a Noncontrolling Interest?
• “A noncontrolling interest is the portion of the equity
(net assets) in a subsidiary not attributable, directly
or indirectly, to a parent.”
• Noncontrolling interests have been called minority
interests.
Noncontrolling Interest Presentation
Balance Sheet
• “The noncontrolling interest should be clearly
identified and labeled, and classified as equity in the
parent’s consolidated financial statements. “
Income Statement
• “All intercompany income or loss must be eliminated
in the consolidated financial statements.”
What else should you know about
SFAS No. 160, Noncontrolling Interests?
(continued)
• It must be applied retrospectively to the financial
statement footnotes for all periods presented,
including:
– The controlling interest should be reclassified to equity.
– Consolidated net income should be adjusted to include the
net income attributed to the noncontrolling interest.
– Consolidated comprehensive income should be adjusted
to include the comprehensive income attributed to the
noncontrolling interest.
– Additional disclosures for deconsolidation or changes in a
parent company’s ownership interest.
How does SFAS No. 160,
Noncontrolling Interests, affect my Company?
For most Companies, this pronouncement will
primarily be a change in presentation and
disclosure, however it could impact a Company with
an equity debt covenant.
FASB ASC 855, Subsequent Events
SFAS No. 165, Subsequent Events, issued May
2009, applies to entities with interim or annual
financial periods ending after June 15, 2009.
SFAS No. 165, Subsequent Events, Objective
The objective to establish accounting and reporting
standards for events that occur after the financial
statement reporting period, but before the financial
statements are issued, or are available to be issued.
SFAS No. 165, Subsequent Events, Objective
• Definition of when financial statements are issued
and when financial statements are available to be
issued.
• Stating management should evaluate events or
transactions that occur during this time period for
recognition or disclosure in the financial statements.
• Defining events or transactions that an entity should
recognize or disclose in the financial statements.
Subsequent Events – Financials are issued
When financial statements are issued – “financial
statements are considered to be issued when they
are widely distributed to shareholders and other
financial statement users for general use and
reliance in a form and format that complies with
GAAP”.
Subsequent Events Financials are available to be issued
When financial statements are available to be
issued – “financial statements are considered to be
available to be issued when they are complete in a
form and format that complies with GAAP and all
approvals necessary for issuance have been
obtained, for example, from management, the board
of directors, and/or significant shareholders”.
Two Types of Subsequent Events
Subsequent events are events or transactions that occur
after the balance sheet date but before financial statements
are issued or are available to be issued. The two types are:
1.) Events or transactions that provide additional evidence about
conditions that existed at the date of the balance sheet, including
the estimates inherent in the process of preparing financial
statements (referred to as recognized subsequent events).
2.) Events that provide evidence about conditions that did not exist
at the date of the balance sheet but arose after that date (referred
to as nonrecognized subsequent events).
Examples of Recognized Subsequent Events
An entity is required to recognize events or
transactions that take place from the period ending
date until the issuance (either available or issued)
date that impact conditions that existed at the
balance sheet date.
Common examples of events or transactions to be
recognized:
-Litigation
-Accounts Receivable
Examples of Nonrecognized Subsequent Events
An entity would not be required to recognize events
or transactions that take place from the period
ending date until the issuance (either available or
issued) date that impact conditions that did not exist
at the balance sheet date. Common examples of
events or transactions that took place after the
balance sheet that should be disclosed:
–
–
–
–
Business combinations
Litigation
Natural disasters
Commitments
How does SFAS No. 165, Subsequent Events,
affect my Company?
It should not result in significant changes in
subsequent events that an entity reports. It
introduces the concept of financial statements being
available to be issued and requires disclosure of the
date which an entity has evaluated subsequent
events. This allows users of the financial statements
to be aware of the date which an entity has
evaluated through.
SFAS No. 165, Subsequent Events,
Additional Disclosures
As part of the financial statement footnotes, the
Company will disclose date through which
subsequent events have been evaluated. An
example of the disclosure could be:
Management has reviewed the events occurring through
XXX, XX, 2010, the date the financial statements were
available to be issued, and no subsequent events occurred
requiring accrual or disclosure (or reference note if events
have occurred).
Communication of Internal Control Related
Matters Identified in an Audit
Statement on Auditing Standards No. 115 (SAS 115)
supersedes SAS No. 112 and:
• Defines the terms deficiency in internal control,
significant deficiency, and material weakness.
• Provides guidance on evaluating the severity of
control deficiencies.
• Requires the auditor to communicate in writing to
Those Charged with Governance significant
deficiencies and material weaknesses.
SAS No. 115
Deficiency in Internal Control – exists when the
design or operation of a control does not allow
management or employees, in the normal course of
performing their assigned functions, to prevent, or
detect and correct misstatements on a timely basis.
SAS No. 115
Significant Deficiency – is a deficiency, or a
combination of deficiencies, in internal control that is
less severe than a material weakness, yet important
enough to bring to the attention of Those Charged
with Governance.
SAS No. 115
Material Weakness – is a significant deficiency, or
combination of significant deficiencies, that results in
a more than a remote likelihood that a material
misstatement of the financial statements will not be
prevented or detected.
Example - Deficiency in Internal Control
Payroll Department - Segregation of Duties
We noted internal control deficiencies resulting from the lack of segregation of duties in
certain accounting areas. For example, a sole employee is responsible for numerous payroll
functions, including the review of time cards, the preparation of the payroll data for
submission to the data processing service bureau, the reconciliation of the payroll bank
account and the distribution of payroll checks.
To improve internal controls over payroll, we recommend the payroll duties be segregated
between two or more employees, as follows: (a) departmental supervisors should be
responsible for reviewing and approving employee time cards, (b) payroll records should be
reviewed by a member of management, who is independent of the payroll function and (c)
payroll checks should be distributed by an employee independent of the payroll function.
Example - Significant Deficiency
Authorized Signers
During our review of the cash confirmations received from local banks, we noted
inconsistencies in the authorized signers for certain accounts of the Company. In some
instances, there were signers listed that were no longer employed by the Company. The
inconsistencies were noted primarily on accounts that are used infrequently.
Although there are compensating controls in place to help identify unauthorized access to
these funds, we recommend that a review of authorized signers be performed for all
accounts of the Company and its subsidiaries and that a current list of signers for all
accounts be developed. We also recommend that this list should be approved by the Board
of Directors.
Example - Material Weakness
Financial Reporting
As part of our audit of financial statements, we assist management in the preparation of the
financial statements in accordance with U.S. generally accepted accounting principles
(GAAP). Although management reviews and approves the financial statements, there is not
a system of internal control in place at the Company to assure that the financial statements
comply with GAAP in all material respects. This is because there is not a trained accountant
with the skills needed for this function employed at the Company.
Based on discussions with the president of the Company, we understand management and
the Board of Directors are aware of this issue, and believe it is not economically feasible to
have an employee with the necessary skills for this function. While our assistance in the
preparation of financial statements complies with GAAP, those standards also require that
we report this material weakness in control over financial reporting to those with governance
responsibilities.
What is IFRS?
International Financial Reporting Standards (IFRS)
are a set of accounting standards developed by the
International Accounting Standards Board (IASB)
that is becoming the global standard for the
preparation of public company financial statements.
Who is the IASB?
“The IASB is an independent accounting standardsetting body, based in London. It consists of 14
members from nine countries, including the United
States. The IASB began operations in 2001, when it
succeeded the International Accounting Standards
Committee, established in 1973.”
www.iasb.org
How many countries have adopted IFRS?
Is the U.S. one of them?
• Over 100 countries have adopted IFRS, including 27
member states of the European Union.
• Other countries scheduled to follow include:
Argentina, Brazil, Canada, Chile, Korea, Singapore,
Mexico and Japan.
GAAP and IFRS - What Are the Differences?
Examples (not meant to be all-inclusive):
• IFRS does not permit Last In, First Out (LIFO).
• IFRS uses a single-step method for impairment writedowns rather than the two-step method used in U.S.
GAAP, making write-downs more likely.
• IFRS has a different probability threshold and
measurement objective for contingencies.
• IFRS does not permit debt for which a covenant violation
has occurred to be classified as non-current unless a
lender waiver is obtained before the balance sheet date.
IFRS Update
• On September 14, 2009 – SEC chief accountant,
James Kroeker, said that: unifying U.S. GAAP with
IFRS will be a priority for regulators in the “coming
weeks and months”.
Conclusion
Enjoy the Fall in New England!
Thank you!
Questions?
jkeim@bdmp.com
(207) 541-2282