Mercer County Chapter of NJSCPA –
Half-Day Audit & Accounting Seminar
November 6, 2009
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I.
Introduction
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II.
FASB Statements
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III.
Table of Contents
Codification
Business Combinations
Noncontrolling Interests
Accounting for Convertible Debt Instruments that may be Settled in Cash Upon Conversion
Uncertainty for Tax Positions
Fair Value Measurements and Disclosures
Subsequent Events
Variable Interest Entities
Other Than Temporary Impairments (OTTI)
“Hot Audit and Accounting Topics”
 Impairment of Goodwill and Other Intangible Assets
 Going Concern
2
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IV.
IFRS for U.S. Companies

V.
Compilations and Reviews
“FASB Accounting Standards Codification”
FASB ASC 105-10
The FASB Accounting Standards Codification TM
and the Hierarchy of GAAP (FASB 168)
(Replacement of FASB 162)
 Introduction to Codification
 Source of Authoritative US GAAP recognized by the FASB to be applied by nongovernmental entities
 Effective Date
 Effective for financial statements issued for interim and annual periods ending after September 15,
2009
 Example
 SFAS 123(R) – Stock Based Compensation  FASB ASC 718-10
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5
6
“Business Combinations”
FASB ASC 805-10
Business Combinations (FASB 141(R))
Executive Summary
 Purpose of standard is to improve reporting for business combinations
 Significant Differences between FASB 141 and FASB 141(R)
 Treatment of Acquisition/Restructuring Costs
 Negative goodwill – do not reduce applicable assets under FASB 141(R)
 Purchase less than 100% but more than 50%
 Effective Date
 Years beginning after December 15, 2008
 Early adoption is not permitted
8
Business Combinations
Executive Summary
 Acquisitions prior to December 15, 2008 are should not be adjusted to reflect new
requirements
 Requires all business combinations to be accounted for using the acquisition method of
accounting
9
Business Combinations
Accounting under SFAS 141(R):
 Treatment of Acquisition and
Restructuring Costs
 Transaction costs are expensed
 Legal
 Appraisal accounting fees
 Negative Goodwill (Bargain Purchases)
 Do not reduce applicable assets on pro
rata basis
 If acquire less than 100% but more than
50%
 Fair value 100% of all assets
10
Accounting under SFAS 141:
 Treatment of Acquisition and
Restructuring Costs
 Transaction costs are capitalized
 Legal
 Appraisal accounting fees
 Negative Goodwill (Bargain Purchases)
 Reduce applicable long-term assets on a
pro rata basis
 If acquire less than 100% but more than
50%
 Fair value percent of assets purchased
Business Combinations
Consistencies between FASB 141 and FASB 141(R):
 Measurement Values
 All assets acquired, liabilities assumed, and any noncontrolling interest must be valued at fair
value on the acquisition date
11
Business Combinations
 Note - Standard states that disclosures noted do not include all necessary information and the
acquirers should disclose whatever information is necessary
 Disclosure Requirements
 Highlights of Disclosures
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Name of the entity acquired
Description of business acquired
Acquisition date
Percentage of voting interest acquired
Major reasons for the acquisition
How the acquirer gained control
Description of goodwill
Description of Acquisition Date Fair Value
Any contingent considerations
 Additional Disclosure Considerations
 Highlights of Disclosures
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12
Incompleteness of Initial Accounting
Disposal of Contingent Asset or Liability by Acquiree
Disposal of Contingent Asset or Liability by Acquirer
Reconciliation of Goodwill at the beginning and end of period
“Noncontrolling Interests in Consolidated
Financial Statements”
FASB ASC 810-10
Noncontrolling Interests in Consolidated
Financial Statements
(FASB 160 )
Executive Summary
 Amends ARB 51 to incorporate the changes to be consistent with FASB 141(R)
 Effective for annual and interim periods beginning on or after December 31, 2008
 Does not apply to not-for-profits
 Standard changes financial statement presentation for noncontrolling interests
 Financial statements are presented retrospectively upon adoption
 Deconsolidation – subsidiaries not meeting the consolidation criteria
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Noncontrolling Interests in Consolidated
Financial Statements
 Financial Statement Presentation
 Noncontrolling interest component of stockholders’ equity should be presented separate and distinct from
parent’s equity
 Noncontrolling interest cannot be presented as a liability or in the mezzanine section of the balance sheet
 Noncontrolling interest can be a deficit and requires all income and losses be presented on the financial
statements
 Prior to ASC 810, losses would be absorbed by the parent corporation
 Noncontrolling interest formally known as “minority interest”
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Noncontrolling Interests in Consolidated
Financial Statements
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Noncontrolling Interests in Consolidated
Financial Statements
 Financial Statement Presentation
 Comprehensive items related to noncontrolling interests are presented separately on the
financial statements
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Noncontrolling Interests in Consolidated
Financial Statements
18
Noncontrolling Interests in Consolidated
Financial Statements
 Upon deconsolidation of subsidiary:
 Parent is required to deconsolidate the subsidiary when the entity ceases to have controlling interest and
record at fair value the gain or loss of the sum of:
 Fair value of consideration received
 Fair value of any retained noncontrolling subsidiary at date parent is no longer required to consolidate
 Carrying amount of noncontrolling interest at date parent is no longer required to consolidate
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“FASB Accounting for Convertible Debt
Instruments that may be Settled in Cash
Upon Conversion”
FASB ASC 470-20 (formerly) APB 14-1
Applies
to Convertible Debt Instruments that may be settled in cash upon conversion
“Uncertainty for Certain Tax Positions”
FASB ASC 740-10
Uncertainty for Certain
Tax Positions (FIN 48)
Executive Summary
 Clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial
statements in accordance with FASB Statement No. 109, Accounting for Income Taxes
 Prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return
 Provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition
 ASC 740-10-65-1 (FSP FIN 48-3) deferred the effective date for almost all privately held
companies until fiscal years beginning after December 15, 2008 (effective for 2009 year ends)
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Uncertainty for Certain Tax Positions
 Definition of “Tax Positions” in FIN 48
 A position in a previously filed tax return or a position expected to be taken in a future
tax return that is reflected in measuring current or deferred income tax assets and
liabilities
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Uncertainty for Certain Tax Positions
 A Tax Position can result in a:
 permanent reduction of income taxes payable
 deferral of income taxes otherwise currently payable to future years
 change in the expected realizability of deferred tax assets
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Uncertainty for Certain Tax Positions
 The term tax position also encompasses, but is not limited to:
 A decision not to file a tax return
 An allocation or a shift of income between jurisdictions
 The characterization of income or a decision to exclude reporting taxable income in a
tax return
 A decision to classify a transaction, entity, or other position in a tax return as tax exempt
25
Uncertainty for Certain Tax Positions
 The evaluation of a tax position in accordance with this Interpretation is a two-step process:
 Recognition
 Measurement
26
Uncertainty for Certain Tax Positions
First Step – Recognition
 The enterprise determines whether it is “more-likely-than-not” that a tax position
will be sustained upon examination
 “More-likely-than-not”
 Likelihood greater than 50 percent
 In evaluating whether a tax position has met the “more-likely-than-not”
recognition threshold, the enterprise should presume that the position will be
examined by the appropriate taxing authority that has full knowledge of all
relevant information
27
Uncertainty for Certain Tax Positions
Second Step – Measurement
 A tax position that meets the “more-likely-than-not” recognition threshold is
measured to determine the amount of benefit to recognize in the financial
statements
 The tax position is measured at the largest amount of benefit that is greater than
50 percent likely of being realized upon settlement
28
Uncertainty for Certain Tax Positions
 Differences between tax positions taken in a tax return and amounts recognized in the
financial statements will generally result in one of the following:
 a. An increase in a liability for income taxes payable or a reduction of an income tax refund receivable
 b. A reduction in a deferred tax asset or an increase in a deferred tax liability
 c. Both (a) and (b)
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Uncertainty for Certain Tax Positions
Reporting Requirements
 Payments anticipated to be made within one year or operating cycle, should be classified as a current
liability on a classified statement of financial position
 An income tax liability should not be classified as a deferred tax liability unless it results from a taxable
temporary difference
 Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be
recognized in the first subsequent financial reporting period in which that threshold is met
 Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold
should be derecognized in the first subsequent financial reporting period in which that threshold is no
longer met
 Use of a valuation allowance as described in Statement 109 is not an appropriate substitute for the
derecognition of a tax position
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Uncertainty for Certain Tax Positions
 Adoption of FIN 48:
 Liabilities arising from tax positions prior to beginning of period
 Record FIN 48 liability, plus accrued interest and penalties, and adjust opening retained
earnings balance and disclose
 Liabilities arising from tax positions during the current period
 Record FIN 48 liability, plus accrued interest and penalties, and related income tax expense
31
Uncertainty for Certain Tax Positions
Instructive Example:
 The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, on January 1, 2009. As a result of the implementation of Interpretation 48, the
Company recognized approximately a $100 million increase in the liability for unrecognized tax
benefits, which was accounted for as a reduction to the January 1, 2009, balance of retained
earnings. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows:
Balance at January 1, 2009
$100,000
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Balance at December 31, 2009
32
5,000
50,000
(20,000)
$135,000
Uncertainty for Certain Tax Positions
 ASU No. 2009-06 - Uncertainty in Income Taxes and Disclosure Amendments for
Nonpublic Entities, amends Subtopic 740-10 to:
 Eliminate certain disclosure requirements for non-public entities
 Does not eliminate disclosures for public companies
 Provides implementation guidance on accounting for uncertainty in income taxes. The
guidance clarifies:
 Whether the income tax paid by the entity attributable to the entity or its owners
 What constitutes a tax position for a pass-through entity or a tax-exempt not-for-profit entity
 How accounting for income taxes be applied when a group of related entities comprise both
taxable and nontaxable entities
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“FASB Fair Value Measurements”
FASB ASC 820-10
Fair Value Measurements (FASB 157)
Executive Summary
 Originally effective for fiscal years beginning after November 15, 2007
 Differences between This Statement and Current Practice
 The definition of fair value
 The expanded disclosures about fair value measurements
 However, this statement does not change measurement
 Valuation Techniques
 Market
 Income
 Cost
35
Fair Value Measurements
 FSP 157-1 – States 157 does not apply to FASB 13 and other pronouncements that addresses
measurement or classification of a lease (effective for fiscal years beginning after November
15, 2007)
 FSP 157-2 – Defers 157 until fiscal years and interim periods beginning after November 15,
2008 for non-financial assets and non-financial liabilities
 FSP 157-3 – Clarifies the application of 157 in a market that is not active (effective upon
issuance – August 2008)
 FSP 157-4 – Used to determine FV when the volume and level of activity for an Asset or
Liability have significantly decreased and identifying transactions that are not orderly
(effective for periods ending after June 15, 2009)
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Fair Value Measurements
Fair Value Hierarchy
 Purpose of Hierarchy is to increase consistency and comparability in fair value measurements
and related disclosures
 Establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels
 The level in the fair value hierarchy is determined based on the lowest level input that is
significant to the measurement in its entirety
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Fair Value Measurements
Fair Value Hierarchy
 Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the reporting entity has the ability to access at the measurement date.
 Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly through corroboration with observable
market data
 Level 3 inputs are unobservable inputs for the asset or liability
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Fair Value Measurements
 Examples of Assets and Liabilities:
 Level 1
 U.S. Government and Agency Securities
 Stock – (i.e. – IBM)
 Municipal Bonds
 Level 2
 Money-market and enhanced cash funds
 Long-lived assets
 Interest-Rate Swaps (could also be Level 3)
 Level 3
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Auction Rate Debt Securities
Participant Loans
Goodwill
Investments in private entities
Fair Value Measurements
 Footnote for Recurring Fair Value Measurement
($ in 000s)
Fair Value Measurements at Reporting Date Using
Description
Trading securities
Quoted Prices in
Active Markets for Significant Other
Identical Assets Observable Inputs
12/31/XX
(Level 1)
(Level 2)
$
Available-for-sale securities
Derivatives
Venture capital investments
Total Assets
Notes payable
40
75 $
65 $
50
50
100
35
25
$
250 $
$
50 $
10 $
-
Significant
Unobservable
Inputs
(Level 3)
-
50
-
15
-
25
150 $
60 $
-
50 $
$
40
-
Disclosure Requirements:
Fair Value Measurements
 Since nonfinancial assets and liabilities are now recorded at “fair value” there are additional
disclosures under SFAS 157, as follows
 The fair value measurements recorded during the period and the reasons for the measurements
 The level within the fair value hierarchy in which the fair value measurements in their entirety fall,
segregating fair value measurements using quoted prices in active markets for identical assets or liabilities
(Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3)
 For fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and
the information used to develop the inputs
 In annual periods only, the valuation technique(s) used to measure fair value and a discussion of changes, if
any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods
 The quantitative disclosures required by this SFAS shall be presented using a tabular format
 Note under SFAS 157 these would be considered fair value measurements measured on a
“nonrecurring basis”
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Fair Value Measurements
Accounting Standard update (ASU) No. 2009-05, Measuring Liabilities at Fair Value,
amends subtopic 820:

All entities that measure liabilities at fair value within the scope of Topic 820 are effected by
this update
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Entity is required to measure fair value using one or more techniques
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Effective for the first reporting period after issuance (August 2009)
Quoted price of identical liability when traded as an asset
Income approach – present value technique
Market approach – based on measurement date reporting entity would pay to transfer or receive identical liability
Fair Value Measurements
Accounting Standard update (ASU) No. 2009-12, Fair Value Measurements and
Disclosures - Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent), amends subtopic 820:

This update:
 Amends Subtopic 820-10 – Fair Value Measurements to, permit a reporting entity to
measure the fair value of certain investments on the basis of the net asset value per
share of the investment (or its equivalent)

Requires new disclosures, by major category of investments, about the attributes
includes of investments within the scope of this amendment to the Codification

Is effective for interim and annual periods ending after December 15, 2009

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Early application is permitted
“Subsequent Events”
FASB ASC 855-10
Subsequent Events (FASB 165)
 Introduction to Standard
 An entity shall disclose the date through which subsequent events have been evaluated:
 The date is the date the financial statements were issued (public) or;
 The date the financial statements were available to be issued (private)
 Effective Date
 For interim and annual periods ending after June 15, 2009
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Subsequent Events
Disclosure Examples:
 No Subsequent Event
 ABC Company evaluated subsequent events through October 26, 2009 which is the date
the financial statements were issued (or: available to be issued).
 Subsequent Event (from example above):
 ABC Company evaluated subsequent events through October 26, 2009 which is the date
the financial statements were issued (or: available to be issued). On October 19, 2009
one of ABC Company’s customers filed for bankruptcy. An increase of $80,000 in the
reserve for that customer’s account receivable balance was recorded as of the 12/31/08
balance sheet date based on this subsequent event, as the conditions resulting in
bankruptcy existed at the balance sheet date.
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“Amendment to FASB
Interpretation No. 46(R)”
Amendment to FIN 46 (FASB 167)
Executive Summary
 Controlling Financial Interest
 Ongoing assessment of Variable Interest Entities
 Qualitative Assessment
 Effective Date
 Annual reporting periods that begin after November 15, 2009
48
Amendment to FIN 46
This Statement:
 Requires an enterprise to perform an analysis to determine whether the enterprise’s variable
interest or interests give it a controlling financial interest in a variable interest entity
 This analysis identifies the primary beneficiary of a variable interest entity as the
enterprise that has both of the following characteristics:
 a. The power to direct the activities of a variable interest entity that most significantly impact
the entity’s economic performance
 b. The obligation to absorb losses of the entity that could potentially be significant to the
variable interest entity or the right to receive benefits from the entity that could potentially be
significant to the variable interest entity
 Amends Interpretation 46(R) to require ongoing reassessments of whether an enterprise is the
primary beneficiary of a variable interest entity.
 Before this Statement, Interpretation 46(R) required reconsideration of whether an enterprise is the primary
beneficiary of a variable interest entity only when specific events occurred
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“Other than Temporary Impairments”
FASB ASC 320-10
Other than Temporary Impairments
(FSP 115-1 and 124-1)
Executive Summary
 FSP 124-1 only applies to not-for-profits who use a performance indicator
 Effective Date
 For interim and annual reporting period ending after June 15, 2009
 Early adoption permitted for periods ending after March 15, 2009
 Declines in Investment Values
51
Other than Temporary Impairments
Other-Than-Temporary Investments (OTTI):
 4-Step Approach to address OTTI:
 Determine Whether an Investment is Impaired
 Evaluate Whether an Impairment is Other-Than-Temporary
 If the Impairment is Other-Than-Temporary, Recognize an Impairment Loss Equal to the
Difference between the Investment’s Cost and its Fair Value at the Balance Sheet Date
 Provide Adequate Disclosures
 Types of Impairment
 Temporary
 Other-than temporary
 Permanent
52
Other than Temporary Impairments
Other-Than-Temporary Investments (OTTI):
General Definitions:
 Temporary – declines in fair value of investments that expect future recovery to take place
prior to being disposed of
 Recorded in other comprehensive income
 Other-than-temporary – it is probable that the investor will be unable to collect all amounts
due from held-to-maturity investments or available-for-sale investments according to the
contractual terms of an investment not previously impaired at acquisition
 Recorded in earnings
 Permanent – declines in fair value reflect losses where recovery is not expected
 Recorded in earnings
53
Other than Temporary Impairments
 Declines determined to be Other-than-temporary, the Company must:
 Write down basis to new fair value
 Include write-down in current year earnings
 Record subsequent recoveries/declines in fair value in Available-for-sale securities as
separate component of Stockholders' Equity
54
FSP 115-2 and 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments (OTTI)
 If the fair value of a debt security is less than its amortized cost basis at the fair value measurement
date, the security is impaired
 The reporting entity must access whether the impairment is OTTI by assessing whether the entity
meets either criteria:
 Has the intent to sell the debt security; or
 More likely than not will be required to sell the debt security before its anticipated recovery
 If both criteria are met, the OTTI must be recognized in earnings
 If both criteria are not met, the OTTI must be allocated between credit losses and other factors
 Credit losses – difference between the present value of the cash flows expected to be collected and the
amortized cost basis
 Record loss to earnings
 Other factor losses – record loss to OCI
55
“Goodwill and Other
Intangible Assets”
FASB ASC 350-10
Goodwill and Other Intangible
Assets (SFAS 142)
 Impairment of indefinite lived intangibles
 Tested for impairment annually
 Tested for impairment more often if triggering event occur
 Carrying Value > Fair Value = Impairment
 Fair value based on SFAS 157
 Impairment included in income from continuing operations
 Impairment of Goodwill
 Not amortized; rather tested for impairment annually
 Test must be same date (Annual date)
 More than annually if triggering events occur
 Lapse between Annual Date and Financial Report Date will require a
quantitative/qualitative roll forward
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“Impairment and Disposal of Long-Lived
Assets”
FASB ASC 360-10
Impairment and Disposal of
Long-Lived Assets (SFAS 144)
 Asset groups shall be tested for recoverability whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable.
The following are examples of such events or changes in circumstances
 Highlights of Triggering Events:
 A significant decrease in the market price of a long-lived asset (asset group)
 A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in
its physical condition
 A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived
asset (asset group), including an adverse action or assessment by a regulator
 A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a
projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset
group)
 A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise
disposed of significantly before the end of its previously estimated useful life
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Goodwill and Other Intangible Assets
 Note: the “triggering events” applicable for long-lived assets are also
applicable for Goodwill and Indefinite Lived Intangible testing for testing
for impairment, other than annually
 An impairment loss is NOT recognized unless both impaired AND not
recoverable
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Goodwill and Other Intangible Assets
 The following information shall be disclosed in the notes to the financial statements that
include the period in which an impairment loss is recognized
 A description of the asset group and the facts and circumstances leading to the
impairment
 If not separately presented on the face of the statement, the amount of the impairment
loss and the caption in the income statement or the statement of activities that includes
that loss – practically should be presented separately unless immaterial
 The method or methods for determining fair value (whether based on a quoted market
price, prices for similar assets, or another valuation technique)
61
Determination of the Useful Life of Intangible
Assets - FASB 142-3
 Effective for financial statements issued for fiscal years beginning after December 15, 2008
 Effective for interim periods within those fiscal years
 Early adoption is prohibited
 This standard changes the determination of the useful life of a recognized intangible asset.
 Rather than using an entity’s own assumptions, an entity shall use:
 Its own historical experience in renewing or extending similar arrangements
 The assumptions that other market participants would use in renewing or extending
similar arrangements
62
Going Concern
 More than 100,000 companies—about one in every 270 American businesses—have landed in
bankruptcy court since the economic downturn began 18 months ago
Source: Business Week
 Approximately 40% to 50% of all companies filing for bankruptcy since the effective date of
SAS 59 -The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern
failed to receive a going-concern paragraph in the audit opinion on their last financial
statements issued prior to filing for bankruptcy
Source: The CPA Journal
 FASB Project on Going Concern
63
Common Indicators of Going Concern Issues
64

Recurring operating losses

Working capital deficiencies

Negative cash flows from operations

Default on loan agreements

Restructuring of debt

Seeking new sources of financing

Substantial dependence on the success of a particular project or customer

Evaluate whether there is substantial doubt about the client’s ability to continue as a going concern for a
reasonable period of time, not to exceed one year from the balance-sheet date

Common practice is to evaluate through opinion date (additional assurance)
International Financial Reporting Standards (IFRS)
 Norwalk Agreement (2002) – Converge US GAAP and IFRS
 Currently over 100 countries have adopted IFRS
 Selected Significant Differences:
Accounting Basis
65
US GAAP
Rules Based
IFRS
Principles Based
Inventory
LIFO
Cannot reverse inventory reserves
no LIFO
Can reverse inventory reserves
Impairment
Two Step Approach
One Step Approach
Intangibles
Cannot Reverse Impairment
Can Reverse Impairment
Property & Equipment
Historical Cost
Can be revalued at fair value
International Financial Reporting Standards (IFRS)
 SEC Roadmap
 In 2011, SEC will determine if IFRS to be adopted by public companies, with:
 2014 for the large accelerated filers;
 2015 for accelerated files; and
 2016 for non-accelerated files
 What is the future role for FASB?
 Canadian Model
66
SAS 115 – Communicating Internal Control Related
Matters in an Audit
 Amends SAS No. 112
 Effective for audits of financial statements for periods ending on or after December 15, 2009
 Contains revised definitions of the terms material weakness and significant deficiency
 Revises list of deficiencies in internal control that are indicators of material weaknesses to include:
 Identification of fraud, whether or not material, on the part of senior management
 Restatement of previously issued financial statements to reflect the correction of a material misstatement due to error or
fraud
 Identification by the auditor of a material misstatement of the financial statements under audit in circumstances that
indicate that the misstatement would not have been detected by the entity’s internal control
 Ineffective oversight of the entity’s financial reporting and internal control by those charged with governance
 A list of deficiencies that ordinarily be considered at least significant deficiencies is no longer
included
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SSARS No. 18 – Applicability of Statements on
Standards for Accounting and Review Services
 Effective for compilations and reviews of financial statements for periods beginning after December
15, 2009
 Early application is permitted
 Standard requires review of interim statements for companies that are audited be conducted under
SAS 116, Interim Financial Information, and not under SSARS standards




68
SAS 116 is an amendment to SAS 100
The purpose of this standard is to establish standards and provide guidance on the independent accountant's professional
responsibilities when the accountant undertakes an engagement to review interim financial information of a nonissuer
An nonissuer includes companies offering securities pursuant to Securities and Exchange Commission (SEC) Rule 144A or
participating in private equity exchanges, when certain conditions are met
This amendment removes the guidance for reviews of the interim financial statements of issuers since such guidance
appropriately resides in the auditing standards of the Public Company Accounting Oversight Board.
SAS 116 – Interim Financial Information
•
This statement applies when interim financial information is intended to provide a periodic update
to year-end reporting and:
–
The entity’s latest annual financial statements have been audited by the accountant or a predecessor;
–
The accountant has been engaged to audit the entity’s current year financial statements; or
–
The accountant audited the entity’s latest annual financial statements and expects to be engaged to audit the current year
financial statements;
–
The client prepares its interim financial information in accordance with the same financial reporting framework as that used to
prepare the annual financial statements; and
–
If the interim financial information is condensed information, all three requirements must be met:
• Condensed interim financial information
– purports to conform with an appropriate financial reporting framework
– Includes a note that the financial information does not represent complete financial statements and should be
read in conjunction with the entity’s latest annual audited financial statements
– Accompanies the entity’s latest audited annual financial statements or such audited annual financial statements
are made readily availably by the entity
– Statement clarifies if conditions 1 and 2 are not met, reviews of interim financial information
of nonissuers should be performed in accordance with SSARS
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ASU No. 2009-13
Revenue Recognition (Topic 605)
Accounting Standard update (ASU) No. 2009-13 amends subtopic 605:

Requires vendors to account for products or services (deliverables) separately rather than as a
combined unit (i.e. – cell phone service)

Establishes a selling price hierarchy for determining the selling price of a deliverable, which is
based on



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(a) vendor-specific objective evidence;
(b) third-party evidence; or
(c) estimates

Eliminates the residual method of allocation

Requires that arrangement consideration be allocated at the inception of the arrangement to
all deliverables using the relative selling price method.

Significantly expands required disclosures related to a vendor's multiple-deliverable revenue
arrangements
ASU No. 2009-14 Software (Topic 985)
Accounting Standard update (ASU) No. 2009-14 amends subtopic 985:

Revises accounting for revenue arrangements that include both tangible products and software
elements.

Determines if included software is essential to the product

Products that include software and nonsoftware components that are essential to product functionality,
revenue recognition is outside the scope of software revenue recognition

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The Standard:

Removes the VSOE requirement

Allows vendors to use the estimated selling price and multiple-deliverable arrangement guidance for revenue recognition
ASU No. 2009-13 and ASU No. 2009-14
 Effective for revenue arrangements entered into or materially modified in fiscal years beginning on
or after June 15, 2010
 Early adoption is permitted under both
 Application is applied prospectively
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Current AICPA Proposals
 Proposed Statement of Auditing Standards
 Auditing Accounting Estimates, Including Fair Value Accounting
Estimates and Related Disclosures
 Proposed SAS:
 Would be effective for audits of financial statements for periods beginning on or after
December 15, 2010
 Combines SAS No. 57 (Auditing Accounting Estimates and Auditing Fair Value Measurements
and Disclosures) and SAS No. 101 (Auditing Fair Value Measurements and Disclosures)
 Reflects a more principles-based approach
 Comments Period on exposure draft ends on November 30, 2009
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Current AICPA Proposals
 Proposed Statement of Auditing Standards
 Audits of Group Financial Statements (Including the Work of
Component Auditors)
 Proposed SAS
 Would be effective for audits of financial statements for periods beginning on or after
December 15, 2010
 Would supersede SAS No. 1 section 543, Part of Audit Performed by Other Independent Auditors
 Is significantly broader
 Specifically articulates the procedures necessary to perform in order to be involved with
component auditor
 Comments Period on exposure draft ends on December 15, 2009
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Current AICPA Proposals
 Proposed Statement of Auditing Standards
 Related Parties
 Proposed SAS:
 Would be effective for audits of financial statements for periods beginning on or after
December 15, 2010
 Would supersede SAS No. 45, Omnibus Statement on Auditing Standards
 Includes financial reporting frameworks as well as SAS Special Considerations – Audits of
Financial Statement Prepared in Accordance with Special Purpose Frameworks
 United States and International Accounting Standards Board (IFRS)
 Comments Period on exposure draft ends on December 15, 2009
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Questions?
 Lawrence Gray, CPA, MBA
Amper, Politziner & Mattia, LLP
732-287-1000
gray@amper.com
 Joseph DiFalco, CPA
Amper, Politziner & Mattia, LLP
732-287-1000
difalco@amper.com
“The material contained in this presentation is for general information and should not
be acted upon without prior professional consultation.”
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