The Clarity Project
&
Financial Statements
J
Presented by Woody Goldstein, CPA Senior Manager
Standard Setters for CPAs

To Name a few:
 FASB
– Financial Accounting Standards Board
 ASB – Accounting Standards Board
 PCAOB – Public Company Accounting Oversight Board
Clarity Project Goals




Address concerns over length and complexity of
standards
Make standards easier to read, understand &
implement
Lead to enhancements in audit quality
Converge with International Standards on Auditing
ASB- Clarity Project

Effective for years ending on and after:
 December
15, 2011- Public Companies
 December 15, 2012 – Non Public Companies

Main Purposes:
 Codifies
to one document to make it easier to apply
 Converges with International Standards on Auditing
What has changed?



Auditors' Reports
Terminology in Financial Statements
Engagement Letters
Overview of Substantive Changes to the Standards

Audit Report
 Although
the report is substantively unchanged in
content, the new format is very different.
 The standard report is now six paragraphs instead of
three. It is required to use headings to identify the
content of the different sections of the standard report
and any additional paragraphs.
Forming an Opinion & Reporting (AU-C 700)

One requirement to note
 Report
uses standard language to describe
management's responsibility for the:
 Preparation
of financial statements, and
 Design, implementationand maintenance of relevant internal
controls
 Prohibits
elaboration in auditor's report about
management's responsibility (or reference to another
document that does so)
Modifications to the Opinion (AU-C 705)


Basis for qualified, adverse, or disclaimer (placed
before opinion paragraph)
Modified opinion (Qualified, Adverse, or Disclaimer)
Auditor Report: Prior to 12-15-2012
Independent Auditors’ Report
To the Board of Directors and Stockholders of
Sample Owners Corp.:
We have audited the accompanying balance sheets of Sample Owners Corp. (a Cooperative Housing Corporation) as of
December 31, 2011 and 2010, and the related statements of operations and accumulated deficit and cash flows for the
years then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
Sample Owners Corp. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the
years then ended in conformity with U.S. generally accepted accounting principles.
Management has omitted the information about the estimates of future costs of major repairs and replacements that U.S.
generally accepted accounting principles require to be presented to supplement the basic financial statements. Such
missing information, although not a part of the basic financial statements, is required by the Financial Accounting
Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements
in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected
by the missing information.
CPA Firm Signature
Auditor Report: Clarity After 12-15-2012
Independent Auditors’ Report
To the Board of Directors and Stockholders
of Sample Owners Corp.:
We have audited the accompanying financial statements of Sample Owners Corp. (a Cooperative Housing Corporation), which comprise the balance sheets as
of December 31, 2012 and 2011, and the related statements of operations and accumulated deficit and cash flows for the years then ended, and the related
notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted
in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected
depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sample Owners Corp. as of December
31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in
the United States of America.
Auditor Report: Clarity After 12-15-2012
Page 2
Other Matter
Sample Owners Corp. has omitted the information about the estimates of future costs of
major repairs and replacements that accounting principles generally accepted in the
United States of America require to be presented to supplement the basic financial
statements. Such missing information, although not a part of the basic financial statements,
is required by the Financial Accounting Standards Board, who considers it to be an
essential part of financial reporting for placing the basic financial statements in an
appropriate operational, economic, or historical context. Our opinion on the basic financial
statements is not affected by such missing information.
CPA Firm Signature
Auditor’s Report - New






1st Paragraph – Describes the financial statements
that were audited
2nd Paragraph - Sets forth management’s
responsibility for the financial Statements
3rd Paragraph - Auditor’s responsibility to express an
opinion on the financial statements based on the audit
4th Paragraph - Overview of audit procedures
5th Paragraph - Statement by auditor that the audit is
sufficient to provide a basis for opinion
6th Paragraph - Auditor’s opinion
Emphasis of Matter & Other Matter Paragraphs (AU-C 706)

Emphasis of Matter
 Matters

appropriately presented or disclosed
Other Matter
 To
understand audit matters (combining statements,
Supplementary Information, Required Supplementary
Information)
New Terms – Continued


Old term:
 Emphasis-of-a-matter paragraph
New term:
 Emphasis-of-matter paragraph or other-matter paragraph
The concept of an additional paragraph that does not
affect the opinion has been retained, but the name of the
paragraph depends on its content: if it relates to something
appearing in or disclosed in the financial statements, it is an
emphasis-of-matter paragraph; if it relates to the audit, it is
an other-matter paragraph.
Emphasis of Matter & other Matter Paragraphs (AU-C 706)
Emphasis of Matter
Other Matter
Going concern
Audit reports of prior
periods presented
Contractual or regulatory
reporting frameworks
Materially inconsistent
"other information"
Consistency
"In relation to" opinion
Litigation uncertainty
RSI (required supplementary information)
Major catastrophe
General use regulatory F/S
Significant related parties
"In connection with"
compliance reporting
Subsequent events
“Other supplementary information
New Terms

Old term:
 GAAP

New term
 Applicable
financial reporting framework
The new standards are not GAAP-centric; they are
written to apply GAAP and other bases of accounting.
References to GAAP have been replaced with
reference to the financial reporting framework, and
discussions of the effects of the application of GAAP
have been replaced with generic discussions.
New Terms – Continued


Old Term:
 OCBOA
New Term:
 Special purpose framework
A special purpose framework is difference from a fair
presentation framework, such as GAAP. The standard
notes that OCBOA is a term commonly used to refer to
some special purpose presentations, but does not use
that term again.
New Terms – Continued

Old term:
 Financial
statements containing components such as
consolidated or combined financial statements,
principal auditor, other auditor

New term:
 Group
financial statements, group audit team, group
engagement partner, component auditor. (The dividedresponsibility report, itself still refers to the component
auditor as an other auditor, however.)
Overview of Substantive Changes to the Standards

Financial Reporting Framework
 The
clarified standards assume a more principles based
perspective than their predecessors. There is no longer
a presumption that GAAP provides the basis of
accounting underlying the financial statements, which
makes it easier to apply the standards in a non-GAAP
environment.
Overview of Substantive Changes to the Standards

Fair Presentation
 Historically,
the standards never used the term fair
presentation or fairly present unless it was modified to
refer to the criteria used such as "in conformity with
GAAP.“
 The clarified standards, in contrast, use the term on its
own and say that mere conformity with GAAP, or another
framework, does not necessarily mean the financial
statements are fairly presented.
Special Considerations - Special Purpose
Frameworks (AU-C 800)



Replaces OCBOA with cash, tax, contractual and
regulatory
Requires the auditor to understand the purpose and
intended users for framework appropriateness
Audit still based on the rest of GAAS, but this section
provides the reporting requirements and guidance.
Multi-Employer Pension Plan Disclosures



The FASB now requires employers that participate in
multi-employer pension plans to provide additional
quantitative and qualitative disclosures.
Enhanced disclosures are designed to assist financial
statement users in assessing the potential impact of an
entity’s participation in plan on future cash flow.
Employers must provide a narrative description of the
general nature of the plan and of the employer’s
participation in the plan to explain how the risks of
participation in multi-employer pension plans differ.
Multi-Employer Pension Plan Disclosures




Effective for Nonpublic entities 12/15/12
Must be applied retrospectively
Early adoption is permitted
Certified “zone status” as defined by the Pension Protection Act of
2006:




Less than 65% funded - Red
Between 65% and 80% - Yellow
Greater than 80% funded - Green
For each statement, the amount of employer contributions and
whether these contributions represent more than 5% of total
contributions must be disclosed.
Questions?