WSU Accounting & Auditing Conference
Significant Updates to the Profession:
Accounting & Auditing Update
May 2010
Presented by:
Aron Dunn
Senior Manager,
Assurance Services
Allen, Gibbs & Houlik, L.C.
aron.dunn@aghlc.com
Mike Lowry
Manager,
Assurance Services
Allen, Gibbs & Houlik, L.C.
mike.lowry@aghlc.com
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
• Effective for periods beginning on or after
December 15, 2010
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
• Effective for periods beginning on or after
December 15, 2010
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 nongovernmental 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 nonauthoritative)
• 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, saleleaseback
• 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 nonsoftware 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
• Committed
Essentially now
reserved
• Assigned
• Unassigned
Essentially now
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 Now
Descending 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 Now
Related-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?
Thank you!
M. Aron Dunn
Senior Manager,
Assurance Services
Allen, Gibbs & Houlik, L.C.
aron.dunn@aghlc.com
316-267-7231
Mike Lowry
Manager,
Assurance Services
Allen, Gibbs & Houlik, L.C.
mike.lowry@aghlc.com
316-267-7231