COURSE MAP
ACCOUNTING RESEARCH AND STANDARD SETTING
There is an assignment for the first class. See Session 1, page 16.
Students who wish to be in the same group can email us prior to the first class.
See Group Work on page 9.
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Table of Contents
Course Schedule ............................................................................................................................................ 3
Introduction................................................................................................................................................... 4
Goals ............................................................................................................................................................. 4
Assessment.................................................................................................................................................... 9
Group Work ................................................................................................................................................... 9
Group Membership ............................................................................................................................... 9
Deliverables ......................................................................................................................................... 10
Submitting Reports: Noon ................................................................................................................... 11
Declining an Opportunity to Participate: Noon................................................................................... 11
Group Assignment Grading ................................................................................................................. 12
Group Class Participation .................................................................................................................... 13
Course Projects............................................................................................................................................ 15
Session 1 ...................................................................................................................................................... 16
Session 2 ...................................................................................................................................................... 19
Session 3 ...................................................................................................................................................... 21
Session 4 ...................................................................................................................................................... 24
Session 5 ...................................................................................................................................................... 26
Session 6 ...................................................................................................................................................... 35
Session 7 ...................................................................................................................................................... 40
Session 8 ...................................................................................................................................................... 45
Session 9 ...................................................................................................................................................... 48
Session 10 .................................................................................................................................................... 53
Session 11 .................................................................................................................................................... 57
Session 12 .................................................................................................................................................... 62
Session 13 .................................................................................................................................................... 69
Session 14 .................................................................................................................................................... 70
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Course Schedule
SCHEDULE
Session
Topics
1
— Course policies and other administrative Issues
— Introduction to FASB ASC
— Applications: A few things you may not know about cash flow statements and convertible debt
2
— Applying ASC and eIFRS (outsider-user's perspective)
— Applications: capitalizing development costs: IFRS versus US GAAP
3
— Revenue recognition: new authoritative guidance and applications
— Guest participants:
• Nicole Zabinski, Executive Director, EY's Professional Practice Group
• Irina Khouade, Senior Manager, EY's Professional Practice Group
4
— ASC and eIFRS: applications (insider-preparer's perspective)
Identifying and applying the appropriate authoritative guidance
— Guest participant: Scott Ehrlich, Founder and President, Mind the GAAP
— Applications: Restricted stock units, software development costs and preferred shares
with detachable warrants
5
— Financial instruments: proposed authoritative guidance
6
— The intersection of reporting practice, standard setting and policy – case studies from the credit crisis
and SEC IFRS policy
— Guest participants:
• Paul Beswick, Chief Accountant at the U.S. Securities and Exchange Commission during crisis
• Greg Jonas, Managing Director of Moody's Accounting during crisis, currently Director of the Office
of Research and Analysis at the PCAOB
7
— Consolidation: authoritative guidance
8
— Consolidation: VIE application
9
— Employee benefits: authoritative guidance and related concepts and computations
10
— Financial instruments related to securitizations
— Guest participants:
• Roger Pearson, PWC's Financial Instruments, Structured Products, and Real Estate Group
11
— Employee benefits: applications
— Guest participants:
• Diana Scott, Leads Towers Watson's North American Benefits Accounting and Financial Reporting
Consultation Group and co-leads Towers Watson's Global Accounting Consultation Team
• Greg Jonas, Director of the Office of Research and Analysis at the PCAOB
12
— Leases: proposed authoritative guidance
13
— Project presentations
14
— Project presentations
3
Introduction
This detailed Course Map, which takes the place of a syllabus, course packet and textbook, will help you
navigate the course. We hope it will give you a sense of our commitment to work with you to make the
course a rewarding experience.
This course likely differs significantly from most, if not all, of the other courses you have encountered.
You need to understand these differences, so we can work effectively together. But first you need to
know how they will benefit your career, so you will be motivated to embrace them. This means you
need to buy into the course goals because everything we do is designed to help you meet them,
including the things we do differently.
The course goals are aligned with a bigger overarching goal: above all, we seek to prepare you to thrive
in an increasingly challenging workplace. Human capital based solely on lower-level thinking skills is
becoming commoditized as students around the world learn these skills on line from leading authorities
at no cost, or low cost. As a result, the major accounting firms and other companies are increasingly
outsourcing tasks requiring lower level thinking to countries where these tasks can be done for a
fraction of the cost. Additionally, jobs requiring these basic skills are being rapidly replaced by
technology.
This means to continue to earn their current levels of compensation, accountants and finance
professionals in the US and other developed countries must focus increasingly on tasks requiring higherlevel critical thinking. Accordingly, you must enter the workforce prepared to think more critically
individually and collectively than your predecessors did in the recent past. Also, because of the
exponential growth in information, you must strengthen your research skills and learn to work
effectively with others.
We’ve developed the course goals based on numerous conversations about the changing workplace
with thought leaders from Wall Street, Main Street, and the major accounting firms. The course is
challenging because these goals are challenging. But we are absolutely convinced that the benefits you
will attain from pursuing them will far outweigh the costs.
Goals
1. This course aims to help you become reasonably proficient at locating, interpreting, and applying
the appropriate authoritative guidance to events or circumstances under US GAAP and IFRS.
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Relevance to your career: You will use and continue to hone these research skills throughout your
career, especially if you are preparing or auditing financial statements. However, as you will learn
through the assignments, it is also an important skill for finance professionals who are trying to
assess how faithfully financial statements represent the underlying events and circumstances. If you
plan take the CPA exam, an additional benefit of meeting this goal is researching authoritative
guidance is tested on the exam, as are many of the topics you will be researching (e.g., revenue
recognition, leases, business combinations, pensions, etc.).
2. This course aims to help you understand the complex processes and judgments behind standard
setting, including ways parties who will be affected by proposed standards, and often have
conflicting interests, can significantly influence standards.
Relevance to your career: The first goal centers on “what” authoritative guidance should be applied
to events and circumstances. By contrast, this goal centers on “why” standard setters decided on
this guidance. Knowing standard setters’ objectives and the tradeoffs they made can help you
interpret authoritative guidance and thus determine whether it is appropriate for your setting. The
assignments will help you appreciate how easy it is to misinterpret guidance before delving into its
background. Understanding the tradeoffs standard setters made is especially important for finance
professionals who are trying to assess how faithfully financial statements reflect the underlying
reality. Additionally, knowing the “whys” behind the myriad of rules and procedures you will be
studying to prepare for the CPA exam will help you learn and apply them.
3. This course aims to help you become an effective learner and teacher in the workplace.
Relevance to your career: You’re entering a knowledge economy where your capacity to learn and
teach will give you, your team, and your organization competitive edges. Some of your on-the-job
learning will occur in relatively short training programs. These will be similar to your college courses
in that, regardless of your level of engagement (lectures, simulations, case discussions etc.), the
things you learn and how you learn them will largely be controlled by instructors. Also, similar to
college courses featuring group work; you will be teaching others and learning from them. We’re
confident your college courses have prepared you to fully capitalize on these training programs.
But most of your learning on the job will occur outside these settings and you and your teammates
will largely control the things you learn and how you learn them (rather than instructors). You’ll also
be spending more time teaching each other. We’ve designed the course to help you start developing
the teaching and learning skills you will need to become highly effective in these roles.
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We’re going to use a workplace scenario to explain the process we will follow each week. In this
scenario, your team gets assignments from, and reports directly to, a “senior.” For the most part,
our role in the course is to simulate the senior’s role in this scenario. This includes giving weekly
assignments that will require your group to submit written responses to questions therein. You must
also be prepared to present and defend your responses during class if you’re called on to do so and
to discuss other groups’ responses. So our objective during class discussions will be to simulate what
you’re going to experience in the workplace when you report back to your senior (and possibly
others). We also want to simulate what you will experience if your senior invites high profile guests
to attend the meeting.
To prepare for class each week, we recommend you mimic the process you will follow when you’re
team is given assignments in the workplace. The first thing you will likely do is split the workload to
ensure the assignment is manageable. We will recommend a way to split each assignment into two
parts and also recommend the number of members you should assign to each part.
Each subgroup will be responsible for learning the terms, concepts, and authoritative guidance
needed to complete the assignment (using recommended readings and other sources) and for
applying what they learn to assigned questions. This will require a good deal of collaboration where
subgroup members will alternate between learning on their own and teaching each other.
Importantly, except for a brief introduction in the assignment, we won’t be explaining the related
terms and concepts through lectures or otherwise before you encounter them. Your task would be
much easier if we did preview these things and this would be great for us because we would enjoy
explaining them. However, we won’t provide previews because your seniors won’t be doing it in the
workplace. Rather, they will be giving you guidance similar to what we will provide in the
assignments.
We’re also going to try and simulate how teams interact with their seniors while working on
assignments. We envision a three-step process. First, each team member will tackle tasks on their
own, including learning and applying related concepts. Second, when a team member gets bogged
down after struggling for a while, he or she should seek help from others on the team. Figuring out
when individuals should seek help from teammates and how they should do it is not easy, but
continually refining the process your team follows can significantly improve your performance. Here
are a few suggestions to get you started. If you get bogged down, send a text or email to your team
briefly describing: the task you are working on; the progress you’ve made thus far, including
concepts you understand and are comfortable applying to the assigned questions; and the place
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where you are bogged down, including concepts you either don’t understand or can’t apply. Third,
when the team can’t resolve an issue, they should send a similar email to the us (or your senior on
the job), describing the team’s collective progress thus far etc. We can then respond electronically
or arrange a meeting with part or all of the team.
Your challenge both during the course and later on the job is to determine the right time to seek
help from your teammates and us (or your senior). This involves balancing the satisfaction and
positive feedback you will get from working independently against the harm you will do to yourself
and team if you continue to spin your wheels.
More generally, we’re hoping you and your teammates will view the course as an opportunity to
strengthen your team building skills to the point where your team would be highly regarded in the
workplace.
4. This course aims to help you develop compelling arguments and communicate them concisely and
persuasively in written reports, presentations, and discussions.
Relevance to your career: We’ve attended several presentations where senior representatives from
the major accounting firms, Main Street, Wall Street, and government have indicated that college
graduates’ communication skills are generally inadequate. They’ve also emphasized that new hires
who can communicate effectively tend to advance more rapidly.
We’ll provide feedback each week on the written reports that will increasingly help you develop
stronger arguments and express them more persuasively. Similarly, we will do several things during
class to help you strengthen your presentation and discussion skills. But this is another place where
team work is important. When you first start working together, you may find that some of your
members have much stronger communication skills than others (written, oral, or both). This is a
teaching opportunity to develop and encourage continuous improvement. It is particularly
important to help each other contribute effectively to the class discussions because we’ll be
expecting everyone on the team to participate regularly.
5. This course aims to help you use the Pathways Vision Model to think more critically about
accounting issues.
Relevance to your career: This goal relates to another thing we often hear from accounting thought
leaders: A distinguishing feature of outstanding accountants is they have a deep understanding of
both accounting and how it relates to the broader business context, which allows them to think
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more critically about accounting issues. This is something we urge you to look for in the highly
successful accountants who will be guest participants in the course.
We’ll be using the Pathways Vision Model to help you begin to gain this broader perspective. The
Pathways Vision Committee, which was sponsored by the American Accounting Association (AAA)
and the American Institute of Certified Public Accountants (AICPA), created the conceptual
framework depicted on the cover page of this document – the Vision Model:
Before explaining how the Model can help you think more critically, we’re going to briefly discuss
one of its most distinguishing features: its elements are highly interdependent. There is a circular
flow of causality: starting at the bottom “economic activity” in a reporting unit (which can range
from a small business unit, to a company, to an entire country) affects “accounting judgments”
which affects how “useful” reported information is to users’ “good decisions,” which have
“consequences” back on the reporting entity.
But once the circle is closed, all the arrows can be reversed. Stated alternatively, every element
affects and is affected by every other element. This means to think critically about one element, you
need to think critically about all of them and how they affect each other. For example, to think
critically about an accounting judgment, in addition to gaining a deep understanding of the related
authoritative guidance, you need to think critically about: the underlying economic activity; the
decisions that will be affected by the related reported numbers; the consequences these decisions
have back on the reporting entity; and how each of these elements affects and is affected by the
others. The deeper you understand these elements and connections, the more informed your
accounting judgment.
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Assessment
Your course grade will be based on: (a) your total course score (out of 100 points) and (b) the way
grades are assigned to course scores to form the grade distribution.
Your total course score (out of 100 points) will be based on your group’s total course score, adjusted for
your contribution to the group work (as explained later). Historically, with rare exceptions, these
adjustments have not affected students’ grades: everyone in the group has received the same grade.
The following factors will determine your group’s total course score:
Group assignments for Sessions 2-12, including class participation
70 points
Course project and course reflections:
Project slides
10 points
Project presentation
10 points
Written report on course reflections
5 points
Participation during sessions 13-14
5 points
We have not yet determined the cut-offs for the various grades – how grades will be assigned to scores.
However, during recent years the grades in a similar predecessor course were exceptionally high relative
to other accounting courses. Why? Because most of the students who self-selected into the course
realized that while the course goals were challenging, meeting them would greatly benefit their careers.
Accordingly, they were motivated to perform at a high level, individually and collectively.
Group Work
As discussed below, your course score will be based entirely on group work, including class participation.
Group Membership
The weekly assignments and course project are far too demanding for small groups. Based on previous
experience we highly recommend six members, which will allow you to form two subgroups with three
members.
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Groups for Sessions 1-5
Groups are the same for Sessions 1-5. Students who wish to be in the same group can do so by emailing
us the names of their members prior to class. Students who do not specify group preferences prior to
the start of class will be randomly assigned to groups.1
Groups for Sessions 6-14
Students stay in the same group for Sessions 6-14, including the course project. You can stay in your
original group, form a new one on your own, or get assigned to one. This decision should be guided by
feedback your original group receives in Session 5 related to a Peer Assessment that members of the
group will submit at the start of Session 4 (discussed later).

Your group must notify us via email by 8:00 PM the day after session 5, whether the team plans
to continue working together or instead disband.2

If your group disbands, you must also notify us via email by 8:00 PM that you have either: (1)
joined a new group and indicate its members or (2) wish to be assigned to a new group. We will
assign unassigned students to newly formed groups of 4-6 members or to existing groups if
there are not enough unassigned students to form a new group. We will notify the entire class
of the new groups.
Deliverables
For Sessions 2-12, you are to submit written responses to assigned questions via email by noon the day
the questions will be discussed in class. Be sure to cite sources and include quotation marks when text
is copied verbatim from other sources. In the past, some groups have also created notes they could
reference when contributing to class discussions (more later).
For Sessions 13-14, you are to submit a PowerPoint presentation on the date your group’s assigned
topic is discussed in class. Directions for Sessions 13-14 will be distributed no later than Session 11.
1
Students who join the course after the first session will also be randomly assigned to groups. If you form a group
prior to class that has fewer than 6 members, we will randomly assign additional members or merge your group
with another small group. We may also need to rebalance groups during the add-drop period.
2
Considering the way group work will be graded (discussed later); differences in students’ learning styles, course
and work experiences, aptitudes, and ambitions; and the coordination and free-rider problems that can occur
within groups, we decided that once you get an opportunity to work with each other, you will be in the best
position to determine the classmates you can work with most effectively.
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Academic Integrity
The entire group is responsible for complying with the College’s Academic Integrity polices.
Absent compelling evidence that a group member violated a policy on his or her own and that other
group members couldn’t have been reasonably expected to detect the violation, the entire group will be
held responsible for the violation, receive zero points for the assignment (written and participation
points, as discussed later) and be reported to the appropriate dean (consistent with the procedures
detailed at the above website).
In addition to the breaches of academic integrity listed at the above website, sharing information with
other groups when preparing responses to the group assignments is not permitted and will be
considered a breach of academic integrity.
Submitting Reports: Noon
Submit your group assignment via email to before noon on the group assignment due date. For
Sessions 2-12, when appropriate please use the “Assignment Template” word file posted to the “Course
Resources” module of the course site. It is designed to facilitate grading.
Declining an Opportunity to Participate: Noon
To allow for absences, tardiness, and unusual circumstances that would make it difficult for individuals
to prepare adequately for the assigned questions or otherwise hinder their performance, each student
has one free pass – an opportunity during the course to elect not to be included in the random selection
procedure (discussed later) without any negative consequences on the participation scores he or she
and others in his or her group receives.
However, students must inform us that they will be absent or otherwise not participating in the random
selection via email no later than noon on the day the assignment is scheduled to be discussed in class.3
Students can elect not to participate in the random selection more than once but they must notify us no
later than noon on the assignment due date.4
3
The participation scores of students who do not notify us by this time and the scores of others in their group will
be reduced significantly if these students are subsequently selected to answer an assigned question and they are
late for class, absent, or not prepared to give a respectable performance.
4
If they notify us in time, their participation scores (but not those of others in their group) will be reduced but this
penalty will be considerably smaller than the one they and others in their group will receive if they don’t notify us,
are subsequently selected to open the discussion, and are late for class, absent, or not prepared to give a
respectable performance.
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Group Assignment Grading
Your group score for the eleven graded assignments, out of 70 course points, is the sum of your scores
for two assessment periods. The first assessment period covers Sessions 2-4, which includes three of the
eleven graded assignments. However, group membership can take a few sessions to stabilize (during to
add-drop). For this reason, we only use the best two scores for these three assignments when
determining the course points you can earn for the first assessment period. This means only 10
assignment scores count towards your course score and you can earn a maximum of 14 course points
during the first assessment period (= 70 *(2/10)). The second assessment period covers Sessions 5-12,
which includes 8 of the graded assignments. You can earn a maximum of 56 course points during this
period (= 70 *(8/10)).
The period assessment scores are each determined following a three step process:
Step 1― Determine the group’s raw score out of 100 for each assignment in the assessment period
A group can earn a maximum of 100 raw (un-scaled) points per assignment for Sessions 2-12,
determined in three steps:
1.1
Each group receives a written report score (WRS) out of a maximum of 100 points each session.
1.2
Each group receives a class participation score (CPS) out of a maximum of 100 points each
session, which reflects its members’ combined contributions to the class discussion. To learn
more about these discussions, see the group class participation section, page 13.
1.3
Each group’s raw score (RS) for the session is a weighted average of the above scores:
RS = 80% *Maximum [WRS, CPS] + 20% Minimum [WRS, CPS]
Step 2― Determine the group’s baseline score for the assessment period
The group’s baseline score out of 14 points for the first assessment period is the sum of the best two
raw scores for the graded assignments for Sessions 2-4 (each out of 100) multiplied by 70/1,000.
Similarly, the group’s baseline score out of 56 points for the second assessment period is the sum of the
raw scores for the graded assignments for Sessions 5-12 (each out of 100) multiplied by 70/1,000.
Step 3― Determine each group member’s assignment score for each assessment period
For each assessment period, members of the same group can have group assignment scores that are
less than, equal to, or greater than the group’s baseline score determined in step 2, depending on their
contributions to the group’s performance.
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Each member’s score for the period is the lesser of the maximum score for the period (14 or 56) and the
group’s baseline score multiplied by the member’s Peer-Assessment factor for the period. These PeerAssessment factors are determined in 4 steps:
3.1
Each student is required to submit completed confidential Peer Assessment forms for each
assessment period (details later). The first period Peer Assessment form is to be submitted at
the start of Session 4 and the second at the start of Session 14. For each assessment, each
student is to evaluate each of their group member’s overall contribution during the assessment
period (except their own contributions). The score for each member should reflect an
assessment of the combined contributions to all group work during the assessment period:
research, written reports and class discussions.
3.2
For each assessment period, each member’s total assessment score is determined by adding the
assessments of this member by all other members of the group. For example, five scores will be
totaled for each member in a six-member group.
3.3
For each assessment period and each group, the average of the total assessment scores in step
3.2 is determined. For example, for a six-member group, six totals (one per member) will be
averaged.
3.4
A member’s Peer-Assessment factor for each assessment period is determined by dividing the
individual member’s total assessment score by the average assessment score for the group.
Thus, if the member’s contribution is assessed by the group to be above (below) the group
average, the member’s assessment factor will be greater than (less than) 1.
Thus, the Peer Assessments can significantly affect members’ assignment scores and reflect members’
level of contributions to the group’s overall performance. But, with rare exceptions, historically the
assessment factors have been close to 1.0. When they have been significantly lower than 1.0, we have
agreed with the group’s assessment that a student was free riding.
Group Class Participation
Everyone in the group receives the same raw participation scores. These are out of raw 100 points. Here
is the process we will follow for these classes:
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
Numbers on Bingo balls will be assigned to groups prior to class, with more numbers assigned to
groups that have been selected fewer times in the past. This procedure guarantees that every group
has the same probability of being selected starting in Session 2. Thereafter, the probability of being
selected decreases the more a group has been selected previously.

For each part of a question to be discussed during the class, a group may be randomly selected by
drawing a Bingo ball from a cage. No group can be selected twice during the same class unless all
groups have been selected at least once.

Within the selected group, a student will then be randomly selected to represent the group by the
toss of a die. Everyone in the group gets this student’s participation score. No one else in this group
can address this question thereafter.

By contrast, when there is enough time, other groups can volunteer to correct or elaborate on
answers provided by the selected group representative. By doing so, they can earn group
participation points without foregoing the opportunity to be selected randomly for another part of
the assigned question. However, groups must rotate their representatives such that a specific
student can’t represent the group again until all group members have had a turn.

The individual who will represent his or her group for the first part of the first question will be
selected 5-10 minutes before class. This will give this person an opportunity to discuss the group’s
answer to this part of the question.
Doesn’t the selected group member feel extremely pressured?
Actually, the selected students generally feel considerably less pressure than they would in courses
where students are cold called: they have advance notice of most of the questions they will address and
they have opportunities to discuss the answers with their groups prior to presenting them to the class.
Additionally, because most groups will get opportunities to participate every week, the participation
score for one question has a relatively small effect on the course participation score.
How are participation scores out of 100 points determined?
For each session, your group’s class participation score out of a maximum of 100 points will be based on:

Quality of contributions. The extent to which your group members:
o
Provide a succinct preview of key points and follow-up with concise supporting arguments.
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o
Offer compelling substantiated arguments, counterarguments, rebuttals, hypotheses,
analyses, or perspectives.

o
Identify and further develop connections among others’ contributions.
o
Provide new perspectives on important issues.
o
Offer clear and correct answers to challenging assigned questions.
Breadth of participation: The extent to which all group members contribute significantly to the
discussion and, thus, the degree to which the group rotates the spokesperson for the group.

Electronic device penalty: Your group’s participation score for a session will be decreased
significantly if one or more members are caught checking email or otherwise accessing noncourse-related content. Thus, your group is responsible for policing such activity. This type of
behavior would not be tolerated in the workplace.
To a lesser extent, your group will be rewarded for correctly answering relatively straightforward
questions, asking good questions, or otherwise providing the essential mortar for excellent discussions.
Course Projects
The course projects are similar to the weekly assignments. Here are a few differences:

Groups will be randomly assigned to a topic no later than Session 11. At the same time, you will
also be notified of the dates the assigned topics will be discussed in class.

Groups must submit PowerPoint presentations rather than Word files via email on the date their
assigned topic is discussed in class.
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Session 1
Introduction to FASB Accounting Standards Codification (ASC) System
Introduction
In this session, you will learn how to use the FASB’s on-line ASC System to locate the authoritative
guidance non-government entities must comply with under US GAAP when preparing financial
statements (including footnotes). We will be using the ASC throughout the course to locate the
authoritative guidance for a wide range of business scenarios. As we do so, you will likely gain a deeper
appreciation for the judgment needed to create and apply authoritative guidance associated with topics
you studied in earlier courses, such as revenue recognition, leases, financial instruments, and pensions.
You will also learn about similar judgments in complex business contexts where you have limited or no
previous experience, starting in this session with a few of the scenarios we will study during class.
Do

Access the FASB ASC and download the Learning Guide before attending the first class.
Students can access the FASB’s Accounting Standard Codification (ASC) through an agreement
with the American Accounting Association (AAA): login information will be distributed separately.

Go to the AAA access point:
http://www2.aaahq.org/ascLogin.cfm





Login using the provided username and password
Click “FASB Accounting Standards Codification”
Agree to the licensing terms (scroll down window)
Click on “Help: How to use the Codification”
Download the “FASB Codification Learning Guide” PDF
The reading assignment below references this document

Stay logged in to the ASC – you will likely want to reference it as you complete the reading
assignment
Read
Complete the following reading assignment before attending the first class.
I.
FASB Codification Learning Guide (downloaded above)
Lesson 1
Skim: pages 1-4
Master: pages 5-7
Lesson 2
Master: pages 11-12
Skim: pages 13-19
Lesson 3
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Master: pages 22-25
Skim: pages 26-28
Grasp: page 29
Lesson 4
Grasp: pages 35-36
Skim: pages 36-38
Grasp: page 39
Lesson 6
Grasp: pages 59-60
Lesson 11
Skim: pages 107-108
Lesson 12
Master: pages 116-121
Skim: pages 122-126
Lesson 13
Grasp: pages 127-135
Skim: pages 136-139
II. Download Intel’s 2009 and 2014 10-Ks (which you will need for the exercise below)
 Do an internet browser search for “Intel investor relations,” which will take you to:
http://www.intc.com/
 Click “Financials and Filings” in the “INVESTOR RELATIONS” menu on the left side of the window
 Click “SEC filings” in the submenu that appears below “Financials and Filings”
 Select “Annual” in the “View” pop-up menu
 Click “Annual Report” for the 2/22/10 filing (this is the 2009 10-K)
 Download the PDF
 Return to the Annual Report list and click on the 2/13/15 filing (this is the 2014 10-K)
 Download the PDF
Do

Download and test the most recent version of Skype prior to class following the directions in
Skype Student Instructions, which is posted to the Session 01 module of the course site.

Interactive FASB Accounting Standards Codification (ASC) Exercise: scenarios 1-5
(Download from the Session 01 module of the course site)
You need not complete this exercise prior to class. However, it will be the basis for an interactive
in-class group activity, which will be more successful if everyone tries the exercise on their own
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before class. At the very least, we encourage you to read the five scenarios and consider
strategies you would pursue to address the related questions.
Written Assignment
You will NOT be submitting a written assignment for Session 1. However, as indicate above, you
are encouraged to sketch out answers to questions in the above exercise so you can reference them
during the class discussion.
18
Session 2
Applying ASC and eIFRS (Outsider-User's Perspective) — Capitalizing
Development Costs: US GAAP versus IFRS
Introduction
In this session, you will assume the role of an outsider-user, such as an auditor or investor, who is
applying the ASC or eIFRS to gain a solid understanding of a company’s financial disclosures. In the
process, you will learn that the authoritative guidance for the “D” in R&D (development costs) differs
significantly for US GAAP and IFRS and that applying this guidance can require considerable judgment
that can hinder comparability. You’re also going to learn how to use the IASB’s on-line eIFRS System,
which is similar to the FASB’s ASC.
Similar to Session 1, the assigned exercises ask you to use development cost disclosures in US GAAP and
IFRS companies’ annual reports to: (i) understand the related business context – events, circumstances
and risks; (ii) understand the related accounting and its financial-statement effects; and (iii) use the ASC
and eIFRS systems to locate the related authoritative guidance.
While we have assigned a question that asks you to use the eIFRS System, it is not part of the graded
written assignment you are to submit prior to class. Rather, we will work on the exercise during class to
help you get comfortable using eIFRS. We recommend you try the question before class to ensure you
are ready to participate in the class discussion.
Read
I.
Big-picture Introduction to Accounting for R&D under US GAAP and IFRS.
Posted to the Session 02 module of course site
Grasp: pages 1-3
Download (and access as needed to complete the assignment)
II. PDFs of General Motors’ 2014 10K and Daimler’s 2014 annual report from the investors relations
sections of the companies’ web sites (see Session 01 for additional guidance)
III. Accounting for Development Costs Exercises from the Session 02 module of the course site.
19
Splitting the Workload
We recommend you split the workload within your group as follows:

Written assignment
o

Split your group into two subgroups of comparable size.

The first subgroup should answer questions 1-3 and 5(a) in Accounting for Development
Costs Exercises

The second subgroup should answer questions 4 and 5(b) in Accounting for
Development Costs Exercises
o
Merge your responses to questions 1-5(b) and work together on 5(c).
o
Take whatever steps the group deems necessary to ensure everyone is prepared to discuss
the group’s responses to questions 1-5.
Additional preparation for the class discussion (not included in written report)
o Read “Accessing eIFRS“ (download from Canvas)
o
Join IAAER
o
Watch “Introducing the new eIFRS”
http://eifrs.ifrs.org/eifrs/Menu
(May need to clear browser history first)
o
Answer question 6 in Accounting for Development Costs Exercises (as best you can).
Written Assignment

Your report should include your responses to questions 1-5 in Development Cost Exercises. It
should be clear, concise, organized, and focused on the most significant issues. Additionally, it
should cite authoritative guidance where appropriate.

Submit your written report via email before noon.
20
Session 3
Revenue Recognition – New Authoritative Guidance and Applications
Introduction
This session, which centers on recent changes in revenue recognition guidance, will be led by
representatives from EY’s Professional Practice Group:

Nicole Zabinski is an executive director in Ernst & Young LLP’s Professional
Practice Group. Nicole is responsible for industry sector initiatives that support
audit clients and engagement teams, with a particular focus on new accounting
pronouncements and other emerging issues. She also serves as the
telecommunications industry executive. Prior to her current role, Nicole was in the
New York and New Jersey Assurance Services practices, serving a variety of
multinational clients in the telecommunications and technology industries.

Irina Khouade is a senior manager in Ernst & Young LLP’s Professional Practice
Group. Irina is a wealth and asset management sector resident supporting EY’s
audit clients and engagement teams. Her primary focus is on application of existing
accounting literature to complex and judgmental financial statements reporting
matters and on interpretation of new accounting and regulatory developments
impacting investment companies.
The FASB and IASB recently released a new revenue recognition standard that is scheduled to become
effective for US GAAP for annual reporting periods beginning after December 15, 2017, including interim
periods within those reporting periods. For IFRS, the effective date is January 1, 2018. Early adoption is
permitted under IFRS but not under US GAAP. The new FASB guidance, ASC 606, is identical to the IASB
guidance (IFRS 15 in the eIFRS Red Book) for the issues in this assignment (and, more generally, the
differences that exist are relatively minor).
Your immediate challenge is to learn enough of “today’s” US GAAP revenue recognition guidance to
perform well on the job during the next few years (as companies transition to the new standard) and on
the CPA exam if you choose to take it during this time period. However, you’re likely going to spend
considerable time learning the “new” guidance early in your career: the implementation and auditing
challenges associated with the new standard will be very significant for many industries.
Our EY guests have created exercises you will prepare for class that compare today’s guidance to the
new guidance in two situations where the differences are very pronounced: the telecom industry and
asset management. The class discussion will center on these exercises and related issues.
21
Splitting the Workload
Here are a few recommendations regarding splitting the workload within your group:






Everyone should start by reading ASC 606-10-5-1-4. This will give you a big-picture
understanding of the 5-step revenue recognition process in the new guidance.
Split your group into two subgroups of comparable size.
Each subgroup, working independently, should complete Part I of the Telecom exercise
(questions I.1-I.4) and questions 1-2 of the Asset Management exercise. Working together, the
two subgroups should then share responses and reconcile differences.
Then split the remaining portions of the exercises: One subgroup should complete Part II of the
Telecom exercise (questions II.1- II.3). The other subgroup should complete question 3 of the
Asset Management exercise. Working together, the two subgroups should share responses and
ensure they understand the work completed by the other subgroup.
Merge your responses to all questions in the Telecom and Asset Management exercises into a
written report to be submitted by noon.
Take whatever steps the group deems necessary to ensure everyone is prepared to discuss the
group’s responses to all of the assigned questions.
Telecom Exercise: Part I
The Telecom Exercise is posted to the Session 3 module of the course site.
READ
I.
EY: The New Revenue Recognition Standard – Telecommunications
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCsQFjAAahUKEwiN0d_ZwfH
HAhUB8YAKHRM_AHA&url=http%3A%2F%2Fwww.ey.com%2Fpublication%2Fvwluassetsdld%2Ftechnicalline_
bb2808_revenuerecognition_telecomm_27august2014%2F%24file%2Ftechnicalline_bb2808_revenuerecogniti
on_telecomm_27august2014.pdf%3FOpenElement&usg=AFQjCNE9UItuSBvbZ_uQ_Mxd5OmzKtZ7pw&cad=rja


Grasp: Pages 1-4
Master: Illustration 1 on page 6 (only the first part – before modification)
II. The authoritative guidance referenced in Part I of the Telecom Exercise (under the headings “New
Guidance” and “Today’s Guidance”)
DO
Answer questions I.1 - I.4.
Telecom Exercise: Part II
READ
III. EY: The New Revenue Recognition Standard – Telecommunications
 Master: Pages 5-9
IV. The authoritative guidance referenced in Part II of the Telecom Exercise.
22
DO
Answer questions II.1-II.3.
Asset Management Exercise
The Asset Management exercise is posted to the Session 3 module of the course site.
READ
V. The authoritative guidance referenced in the Asset Management Exercise.
DO
Answer questions 1-3.
Written Assignment
Your report should include your responses to all of the questions in the Telecom and Asset
Management Exercises. It should be clear, concise, organized, and focused on the most significant
issues. Additionally, it should cite authoritative guidance where appropriate.
Submit your assignments via email before noon.
23
Session 4
Applying ASC and eIFRS (Insider-Preparer's Perspective) — Identifying and
Applying the Appropriate Authoritative Guidance
DO
The Peer Assessment form distributed during Session 3 is to be submitted at the start of Session 4.
Introduction
In prior sessions, you assumed the role of an outsider-user, such as an auditor or investor, who was
applying the ASC or eIFRS to gain a deeper understanding of a company’s financial disclosures. In this
session, you will assume the role of an insider-preparer who is trying to identify and apply the
appropriate authoritative guidance for specified events or circumstances. The session will be led by
Scott Ehrlich, a US GAAP and IFRS expert who does this daily for companies around the globe:

Scott Ehrlich, Founder and President of Mind the GAAP, started his company in
2002 to develop the highest quality, best-in-class U.S. GAAP and IFRS training.
Training and personal development has always been one of Scott’s passions.
Shortly after delivering one of Mind the GAAP’s first training sessions, Scott
recognized that some companies were looking for a “sounding board” – someone
with whom they could discuss technical accounting and regulatory questions
before forming conclusions and presenting them to the auditors. This observation
led to the development of Mind the GAAP’s consulting and advisory service
offering. Scott thoroughly enjoys breaking down complex technical issues and
trying to find solutions that are faithful to the underlying economics of a
transaction, compliant with GAAP regulations, and operational.
Prior to founding Mind the GAAP, Scott was a senior manager at Arthur Andersen,
spending his final three years in the firm’s professional standards group. Scott
graduated from Bucknell University as class valedictorian and was awarded the
Gold Medal Award in the state of Connecticut for the highest score on the
November 1993 CPA exam.
Scott has created three cases based on actual consulting experiences that you will prepare for class. We
expect you will find the first case relatively easy, the second slightly more challenging, and the third
even more challenging. Accordingly, we don’t advise you split the workload as you have in prior sessions
(by dividing the assigned exercises among subgroups).
24
Download
I.
Identifying and Applying the Appropriate Authoritative Guidance Exercises for Session 04 from the
Session 04 module of the course site.
Splitting the Workload
Here are a few recommendations regarding splitting the workload within your group:




Split your group into two subgroups of comparable size.
Each subgroup, working independently, should respond to all of the questions in Identifying and
Applying the Appropriate Authoritative Guidance Exercises for Session 04. Working together,
the two subgroups should then share responses and reconcile differences.
Merge your responses into a written report.
Take whatever steps the group deems necessary to ensure everyone is prepared to discuss the
group’s responses to all of the assigned questions.
Written Assignment

Your report should include your responses to all of the assigned questions. It should be clear,
concise, organized, and focused on the most significant issues. Additionally, it should cite
authoritative guidance where appropriate.

Submit your assignments via email before noon.
25
Session 5
Financial Instruments: Proposed Authoritative Guidance
Introduction
The FASB ASC Master Glossary defines financial instruments very broadly to include:
Cash, evidence of an ownership interest in an entity, or a contract that both:
a. Imposes on one entity a contractual obligation either:
1. To deliver cash or another financial instrument to a second entity
2. To exchange other financial instruments on potentially unfavorable terms with the
second entity.
b. Conveys to that second entity a contractual right either:
1. To receive cash or another financial instrument from the first entity
2. To exchange other financial instruments on potentially favorable terms with the first
entity.
To address concerns that the accounting guidance for financial instruments was inadequate for the
increasing complexity, risks, and volume of these instruments, the FASB and IASB have been working on
three aspects of accounting for these instruments since 2006: classification and measurement,
impairment, and hedging. To keep the workload as manageable as possible, we will not study
accounting for hedges.
While the boards started out working together on the classification and measurement project and the
impairments project, they have largely gone their own ways and it appears (as we write this assignment)
that the final guidance for classification, measurement, and impairments will differ significantly in
places. The FASB plans to finalize related standards during the first half of 2015 and the IASB guidance
(IFRS 09) was released on July 24, 2014.
Your primary challenges for this assignment for both the classification and measurement project and
impairments project are to:
1. Gain a big-picture understanding of the guidance proposed by the IASB and the guidance that
will likely be proposed by the FASB.
2. Gain a big-picture understanding of how this guidance differs from current guidance (which is
similar for US GAAP and IFRS).
3. Critically compare IASB and FASB proposed guidance in a few places where there are significant
differences: take a position and provide supporting arguments and counterarguments.
26
Process behind the Expected New Financial Instruments Standards
During prior sessions, our focus has been on accessing and applying FASB and IASB standards. This is the
first session where we will be studying the process standard setters follow when creating new
standards. So, we’re going to start with a brief overview of the FASB process, which is similar to the IASB
process, and then show you how to locate related information about the new financial instruments
standards.
READ (everyone should complete these short readings)
I.
FASB Standard Setting Process
http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1351027215692


Scroll down the web page until you come to the paragraph that starts with: “A high-level
overview of the standards-setting process as established by the Rules of Procedure follows.”
Study the seven-step process the FASB follows when setting standards.
Occasionally, when there are still significant unresolved issues after an exposure draft has been
redeliberated in Step 6, the FASB issues a second exposure draft and repeats Steps 4-6 before
moving on to Step 7. This was the case for the expected new standards for financial instrument
classification and measurements and impairments. Next, you will learn how to access related
information posted at the FASB web site.
II. Locating Information Related to the Financial Instruments Standard Setting Process.
(Download from the Session 5 module of the course site.)

Grasp: pages 1-4. They explain how to locate documents needed for this assignment.
Splitting the Workload
We recommend you:

Divide your group into two subgroups of comparable size, with one completing the written
assignment for the section on Classification and Measurement (assigned questions 1 and 2) and
the other the written assignment for the section on Impairments (assigned question 3).

Take whatever steps the group deems necessary to ensure everyone is prepared to discuss the
group’s responses to all three questions.
27
Classification and Measurement
READ
I.
PwC Dataline: A Look at Current Financial Reporting Issues: Financial Instruments Classification and
Measurement: December 07, 2012
http://www.pwc.com/en_US/us/cfodirect/assets/pdf/dataline/dataline-2012-21-financial-instruments.pdf
This is an excellent overview of the results of the FASB’s and IASB’s deliberations prior to 2013 and
thus before the February 14, 2013 proposed ASU for ASC 825-10 was released by the FASB (and
before the IASB released the final version of IFRS 09). It also identifies a few differences in the
Boards’ positions as of that date. As indicated in other assigned readings below, there are now many
more differences.

Skim: pages 1-4 (through the start of Revised Approach)

Grasp: page 4

Skim: pages 5- 6 (through start of Financial Assets)

Grasp: pages 6 – 8 (through start of Instruments Characteristics Criterion)

Skim: pages 8-13

Optional: pages 14-18

Grasp: pages 19-22 (through start of Hybrid Financial and Non-financial Liabilities)

Optional: pages 19-25 (through the start of Presentation)

Grasp: page 25

Optional: pages 26-27

Master: pages 28-30 (Appendix I)
This is an excellent summary of the US GAAP - IFRS differences as of February 2013.

Optional: pages 31-35
II. PWC In depth: A Look at Current Financial Reporting Issues: IFRS 9 – Classification and
Measurement: August, 2014
http://www.pwc.com/en_CA/ca/financial-reporting/ifrs-and-other-accounting-developments/publications/pwc-082014-indepth-en.pdf
This document centers on the final guidance in IFRS 09 associated with classification and
measurement, which is quite similar to the guidance the IASB was proposing at the end of 2012:

Grasp: pages 1-8

Skim: pages 9- 15 (through start of Equity Instruments)

Grasp: page 15 (starting with Equity Instruments) – 16

Optional: pages 17 -19
III. IFRS 9
(Download from eIFRS 2015 Red Book)
28

Optional
If you need more detail than is provided in the assigned PWC readings when addressing the
questions, you can reference this document.
IV. Documents you were instructed to download in Locating Information Related to the Financial
Instruments Standard Setting Process

FASB: Accounting for Financial Instruments: Classification and Measurement: Tentative Board
Decisions to Date During Redeliberations [of the exposure draft of the proposed ASU for ASC
825-10, issued February, 2013] as of January 14, 2015
 Master: pages 1-4

FASB: Proposed Accounting Standards Update: Financial Instruments Overall (825-10), Feb. 2013
 Optional
If you need more detail than is provided in the assigned PWC readings when addressing the
questions, you can reference this document.
DO
1. Which guidance do you prefer for equity investments:
a. Option 1 – current US GAAP, which you will find in the ASC; or
b. Option 2 – IFRS 09; or
c. Option 3 – the proposed Accounting Standards Update to ASC 825-10 as amended by
the Tentative Decisions as of January 14, 2015?
Answer this question by addressing parts (a)-(d) below based solely on the assigned readings. Note
the questions are arranged in the order you will present your responses, starting with a claim and
following with arguments etc. In particular, develop your responses to questions (c) and (d) before
answering questions (a) and (b).
a) Your claim: Fill in the following blank
I prefer
[Option 1, Option 2, or Option 3] guidance for equity investments.
b) Your confidence: Put an X at the spot on the scale below that indicates the likelihood your claim
is the best choice, given the available information and the relative strengths of your arguments,
counterarguments and rebuttals (in parts (c) and (d) below).
29
c) Your strongest arguments: Provide no more than three arguments supporting your claim in 600
words or less, numbered and arranged according to your assessment of their strength (from
strongest to weakest).
d) Your counterarguments and rebuttals: Provide no more than three counterarguments to your
claim in 600 words or less, numbered and arranged according to your assessment of their
challenge to the claim (from strongest to weakest). If possible provide rebuttals immediately
below each counterargument.
2. Which guidance do you prefer for debt investments:
a. Option 1 – current US GAAP, which you will find in the ASC; or
b. Option 2 – IFRS 09; or
c. Option 3 – the proposed Accounting Standards Update to ASC 825-10 as amended by
the Tentative Decisions as of January 14, 2015?
Answer this question by addressing parts (a)-(d) below based solely on the assigned readings. Note
the questions are arranged in the order you will present your responses, starting with a claim and
following with arguments etc. In particular, develop your responses to questions (c) and (d) before
answering questions (a) and (b).
a) Your claim: Fill in the following blank
I prefer
[Option 1, Option 2, or Option 3] guidance for debt investments.
b) Your confidence: Put an X at the spot on the scale below that indicates the likelihood your claim
is the best choice, given the available information and the relative strengths of your arguments,
counterarguments and rebuttals (in parts (c) and (d) below).
c) Your strongest arguments: Provide no more than three arguments supporting your claim in 600
words or less, numbered and arranged according to your assessment of their strength (from
strongest to weakest).
d) Your counterarguments and rebuttals: Provide no more than three counterarguments to your
claim in 600 words or less, numbered and arranged according to your assessment of their
30
challenge to the claim (from strongest to weakest). If possible provide rebuttals immediately
below each counterargument.
Credit Impairments
READ
V. Documents you were instructed to download in Locating Information Related to the Financial
Instruments Standard Setting Process

FASB: Proposed Accounting Standards Update: Financial Instruments – Credit Losses (825-15),
issued December 20, 2012
 Pages 1-5
If you need more detail than is provided in the assigned PWC readings below when
addressing the questions, you can reference the rest of this document.

FASB: Accounting for Financial Instruments: Classification and Measurement: Tentative Board
Decisions to Date During Redeliberations [of the exposure draft of the proposed ASU for ASC
825-15, issued December, 2012] as of April 22, 2015
 Master: pages 1-10
VI. PwC Dataline: A Look at Current Financial Reporting Issues: A Summary of the IASB’s Proposal on
Impairments of Financial Assets, Including a Comparison to the IAS 39 Model and the FASB’s Credit
Loss Proposal: April 25, 2013
http://www.pwc.com/en_US/us/cfodirect/assets/pdf/dataline/dataline-2013-07-iasb-impairment-ed.pdf

Skim: paragraphs 1-10 (starting on page 2)

Grasp: paragraphs 11-16

Skim: paragraphs 16-30

Optional: paragraphs 31-64

Skim: pages 16-18 (first three pages of Appendix I)
This is an excellent summary of the differences between US GAAP and IFRS as of April 25 2013.
We suggest the subgroup working on the Impairments section go over these pages with the
rest of the group to ensure everyone is prepared for the class discussion.
VII. IFRS 9
(Download from eIFRS 2015 Red Book)

Optional
If you need more detail than is provided in the assigned PWC readings when addressing the
questions, you can reference this document.
VIII. Sample of comment letters addressing FASB and/or IASB’s credit loss proposals
Use as needed to respond to the related assigned question.
a) Edward Trott (former FASB Board Member) – two letters
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175825666987&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-
31
Disposition&blobheadervalue2=316035&blobheadervalue1=filename%3DAFIIMP.ED.0003.EDWARD_W._TROTT.pdf&
blobcol=urldata&blobtable=MungoBlobs
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175826587165&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=237319&blobheadervalue1=filename%3DAFIIMP.ED.0003A.EDWARD_W._TROTT.pdf
&blobcol=urldata&blobtable=MungoBlobs
b) Ford
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175827140531&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=2423284&blobheadervalue1=filename%3DAFIIMP.ED.0011A.FORD_MOTOR_COMPA
NY_SUSAN_M._CALLAHAN.pdf&blobcol=urldata&blobtable=MungoBlobs
c) American Bankers Association (pages 1-28 only)
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175826930061&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=1496792&blobheadervalue1=filename%3DAFIIMP.ED.0039A.AMERICAN_BANKERS_A
SSOCIATION_MICHAEL_L._GULLETTE.pdf&blobcol=urldata&blobtable=MungoBlobs
d) Apple
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175827011437&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=503705&blobheadervalue1=filename%3DAFIIMP.ED.0289.APPLE_INC._LUCA_MAEST
RI.pdf&blobcol=urldata&blobtable=MungoBlobs
32
e) CFA Institute
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175827703592&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=976218&blobheadervalue1=filename%3DAFIIMP.ED.0355.CFA_INSTITUTE_CDPC_SA
NDRA_J._PETERS_AND_ASHWINPAUL_C._SONDHI.pdf&blobcol=urldata&blobtable=MungoBlobs
f)
Committee on Committee on Capital Markets Regulation
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175827010603&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=617960&blobheadervalue1=filename%3DAFIIMP.ED.0208.COMMITTEE_ON_CAPITAL
_MARKETS_REGULATION_R._GLENN_HUBBARD.pdf&blobcol=urldata&blobtable=MungoBlobs
DO
3. Which of the following options do you prefer to account for credit losses:
a. Option 1: incurred loss model (current GAAP);
b. Option 2: current expected loss (CECL) model proposed by FASB;
c. Option 3: dual measurement model in IFRS 9;
d. Option 4: Banking Industry Model (BIM) proposed by the American Banking Industry or
e. Option 5: the fair value model supported by the CFA Institute and Edward Trott.
Answer this question by addressing parts (a)-(d) below based solely on the assigned readings.
Note the questions are arranged in the order you will present your responses, starting with a
claim and following with arguments etc. In particular, develop your responses to questions (c)
and (d) before answering questions (a) and (b).
a) Your claim: Fill in the following blank with either
I prefer to account for credit losses using
. [Option 1, Option 2,
Option 3, Option 4, or Option 5] accounting for credit losses.
b) Your confidence: Put an X at the spot on the scale below that indicates the likelihood your claim
is the best choice, given the available information and the relative strengths of your arguments,
counterarguments and rebuttals (in parts (c) and (d) below).
33
c) Your strongest arguments: Provide no more than three arguments supporting your claim in 600
words or less, numbered and arranged according to your assessment of their strength (from
strongest to weakest).
d) Your counterarguments and rebuttals: Provide no more than three counterarguments to your
claim in 600 words or less, numbered and arranged according to your assessment of their
challenge to the claim (from strongest to weakest). If possible provide rebuttals immediately
below each counterargument.
Written Assignment
Include your responses to all parts of questions 1-3.
34
Session 6
The Intersection of Reporting Practice, Standard Setting and Policy – Case
Studies from the Credit Crisis
Introduction
This session features two accounting thought leaders who were deeply involved in the most challenging
events and decisions faced by the accounting profession and capital markets during the past decade,
including responding to the credit crisis; determining whether the US should adopt IFRS; and
determining ways to improve audit quality.

Paul Beswick was Chief Accountant at the U.S. Securities and Exchange
Commission from July 2012 through October 2014 and is the youngest person ever
appointed to this office. In this capacity, his responsibilities included advising the
Commission and Commission staff on accounting and auditing matters, resolving
complex accounting and auditing practice issues with registrants and other market
place participants, overseeing the FASB, IASB and other standards setters, and
evaluating the accounting and auditing implications of numerous Commission
rulemakings and initiatives, including those required by the Dodd Frank Wall Street
Reform and Consumer Protection Act and the Jumpstart Our Business Startups Act.
In addition, he developed strong working relations with key market place
participants including other regulators, registrants, large accounting firms, and
others across the financial reporting system.
He joined the SEC staff in September 2007 as senior advisor to the chief accountant
and later was named deputy chief accountant of OCA’s accounting group, which is
responsible for resolving accounting practice issues, rulemaking, and oversight of
private sector standard-setting. Mr. Beswick also served as deputy chief
accountant for OCA’s professional practice group, which has lead responsibility for
auditor independence and interactions with the Public Company Accounting
Oversight Board.
Greg Jonas is Director of the Office of Research and Analysis at the PCAOB, which
supports and informs the audit oversight activities of the PCAOB through research,
risk assessment, data analysis and knowledge management. Prior to joining the
PCAOB, Mr. Jonas was the Managing Director in the Equity Research Group at
Morgan Stanley. Previously, he spent six years as a Managing Director at Moody’s
Investors’ Service. Mr. Jonas worked for 23 years at Arthur Andersen, where he
started as a Staff Accountant before becoming a Partner and then Managing
Director in the Professional Standards Group. He ended his tenure there leading
the technical functions that supported Andersen’s worldwide audit practice. Earlier
in his career, Mr. Jonas served as Executive Director of the American Institute of
Certified Public Accountants Special Committee on Financial Reporting, which
35
undertook a major project to improve the relevance and reliability of the
information companies report to investors. He also served as a Practice Fellow at
the Financial Accounting Standards Board, where he addressed emerging practice
problems.
Major capital market disruptions such as those associated with the credit crisis (2008) and the earlier
dot-com crash (2000-2002) generally create a public outcry for reforms to fix what’s broken, including
new laws, regulations, standards and policies.
At the big-picture level, your assignment for this session asks you to research three areas where there
has been considerable demand for accounting reforms. Based on this research, you are to outline what
you believe to be the top strategic issues for policy makers on those topics and related proposed or
adopted reforms that you either support or oppose (and your reasons for doing so). For each topic, you
will also prepare two questions that are particularly appropriate for our guests. Preparing these outlines
and questions will provide a basis for a discussion with our guests.
About the SEC and PCAOB
To help you gauge whether the questions your prepare are “appropriate” for our guests, everyone in
your group should complete the following readings:
I.
SEC: Office of the Chief Accountant
https://www.sec.gov/oca
Master: The brief discussions in the “About the Office” and three “Office Groups” sections
Skim: Guidance for Consulting with the Office of the Chief Accountant (linked to from the
Accounting Group)
II. PCAOB: About the PCAOB
http://pcaobus.org/About/Pages/default.aspx
Master: The brief description at the top of the “About the PCAOB” home page
III. PCAOB 2014-2018 Strategic Plan
To locate this plan: scroll down the “About the PCAOB” home page to the “Operations” section; click
on “Strategic Plans” and then click on “2014-2018”
Grasp: pages 5-6 and 8-9
Skim: page 10-first paragraph of page 14
36
Splitting the Workload
We recommend you:

Divide your group into three subgroups of comparable size, with the first completing the written
assignment for the section on the Credit Crisis (assigned questions 1 and 2); the second the
written assignment for the section on IFRS Adoption (assigned questions 3 and 4); and the third
the written assignment on Audit Quality (assigned questions 5 and 6).

Take whatever steps the group deems necessary to ensure everyone is prepared to discuss the
group’s responses to all six questions.
Credit Crisis
DO
1. Identify what you consider to be the top few reporting issues raised by the credit crisis. Research
whatever sources you deem appropriate. (Hint: Search the web for related discussions by influential
parties.) Prioritize these issues based on their strategic importance to policy makers (including law
makers, regulators, and standard setters). For your top two issues, briefly outline proposed or
adopted reforms you either support or oppose and your reasons for doing so.
Your response can’t exceed 500 words.
2. Prepare at least two questions about the credit crisis that are particularly appropriate for our guests.
IFRS Adoption
READ
IV. Office of the Chief Accountant, Division of Corporation Finance, United States Securities and
Exchange Commission: Work Plan for the Consideration of Incorporating International Financial
Reporting Standards into the Financial Reporting System for U.S. Issuers: Final Staff Report, July 13,
2012:
http://www.sec.gov/spotlight/globalaccountingstandards/ifrs-work-plan-final-report.pdf
Master: pages 1-6 (Executive Summary)
Study other passages if you seek additional details when responding to the questions.
V. Report to the Trustees of the IFRS Foundation: IFRS Foundation staff analysis of the SEC Final Staff
Report—Work Plan for the consideration of incorporating IFRS into the financial reporting system
for US issuers, October 22, 2012:
37
http://www.ifrs.org/Use-around-the-world/Global-convergence/Convergence-with-US-GAAP/Documents/Analysisof-SEC-Final-Staff-Report.pdf [Ignore the request for a log-in and just click “Cancel” and the PDF will open.]
Grasp: pages 1- 13 (to start of “Issues related to adoption, endorsement and transition”)
Study other passages if you seek additional details when responding to the questions.
VI. Remarks before the 2014 AICPA National Conference on Current SEC and PCAOB Developments,
James Schnurr, SEC Chief Accountant, December 8, 2014
http://www.sec.gov/News/Speech/Detail/Speech/1370543609306#.VKqVGivF98E
Master: “IFRS” section of speech
DO
3. Based on the above readings and whatever other sources you deem appropriate, identify what you
consider to be the 2-3 IFRS adoption policy choices that deserved the most serious SEC
consideration. Identify the policy choice you support. Provide no more than three arguments
supporting your choice and no more than three counterarguments.
Your response can’t exceed 500 words.
4. Prepare at least two questions about IFRS adoption that are particularly appropriate for our guests.
Audit Quality
READ
VII. Big Four Firms to Be Questioned on Push into Consulting, M. Rapoport, WSJ: December 9, 2013
http://www.wsj.com/articles/SB10001424052702303560204579248480271764214
Skim: this brief article to understand one of the reasons the SEC and PCAOB are concerned about
audit quality
VIII. PCAOB: Concept Release on Audit Quality Indicators, July 1, 2015
http://pcaobus.org/Rules/Rulemaking/Docket%20041/Release_2015_005.pdf
Grasp: pages 1- first paragraph on page 9 and page 13
Skim: pages 17-28 (starting with “Use and Availability of Audit Quality Indicators)
Study other passages if you seek additional details when responding to questions. You may find
Appendix A particularly useful for gaining a deeper understanding of specific indicators.
IX. AICPA: Enhancing Audit Quality: A 6-Point Plan to Improve Audits. May 20, 2015
38
http://www.aicpa.org/InterestAreas/PeerReview/DownloadableDocuments/EAQ-6-point-plan.PDF
Skim: pages 1- 8
Keep in mind that the PCAOB and AICPA are seeking ways to improve audit quality for two different
classes of audit clients: The above PCAOB report is focused on audits of public companies and the AICPA
report on non-SEC registrants, including not-for-profit organizations, employee benefit plans and
governmental entities. Nevertheless, many of the issues related to improving audit quality likely pertain
to both classes of clients
DO
5. Identify what you consider to be the top few issues related to improving audit quality (based on the
above readings and whatever other sources you deem appropriate). Prioritize these issues based on
their strategic importance to policy makers (including law makers, regulators, and standard setters).
For your top two issues, briefly outline proposed or adopted reforms you either support or oppose
and your reasons for doing so.
Your response can’t exceed 500 words.
6. Prepare at least two questions about improving audit quality that are particularly appropriate for
our guests.
39
Session 7
Consolidations: Authoritative Guidance
Introduction
We have seen that the challenges associated with accounting for revenue recognition center on
judgments regarding asset and liability recognition and derecognition. Similarly, in Session 12 we will see
that the challenges associated with accounting for leases center on judgments regarding asset and
liability recognition and derecognition. In Sessions 7 and 8 our focus shifts from examining whether
individual assets or liabilities should be recognized on balance sheets to whether the assets and
liabilities of entire entities should be recognized through consolidation.
The critical challenge for standard setters and regulators, which gained prominence during the 20012002 accounting scandals and later during the credit crisis, was creating and enforcing authoritative
guidance that would ensure “special purpose entities” structured to keep assets and liabilities
“controlled” by entities off their balance sheets (by skirting consolidation criteria), would, in fact, be
consolidated. The reason this challenge was particularly problematic was every time a hole was plugged
in the authoritative guidance, new entities were created to avoid consolidation. In this session, you’re
going to learn about a new concept the FASB developed to address this challenge: variable interest
entities (VIEs). In the next session, you’re going to learn that enforcing this guidance can still be
problematic.
Splitting the Workload
We recommend:





Everyone should start by completing reading assignment I (E&Y slides) and question 1 (E&Y
problems). We have assigned several E&Y problems to help you build a foundation of basic
terms and concepts needed for subsequent readings and analyses. We may go over a few of
these exercises quickly during class.
Everyone should complete reading assignment II (PwC guide)
Divide into two subgroups: a small one with two members and a larger one with the remaining
members.
The smaller subgroup complete assigned question 2 and the larger subgroup identify arguments
and counterarguments for the two alternatives in question 3.
After the larger subgroup shares the arguments and counterarguments it identified with the
smaller subgroup, everyone should decide the group’s position and prioritize the supporting
arguments, counterarguments, and rebuttals.
40

Take whatever steps the group deems necessary to ensure everyone is prepared to discuss the
group’s responses to all three assigned questions.
READ
The E&Y readings below and PwC readings that follow discuss variable interest entities (VIEs). You may
find some of the terms and concepts related to VIEs difficult to comprehend when you first encounter
them, especially if you are not familiar with special purpose entities. You will need a solid
understanding of these terms and concepts for the Session 8 assignment (next class). Our goal for
Session 7 is to help you begin to gain this understanding.
I.
E&Y Foundation ARC: Consolidations and Joint Ventures slides
(Posted to Session 7 of the course site)

Skim: slides 2-18

Grasp: slides 19-24

Optional: slides 25-33

Skim: slides 34-37

Grasp: slides 38-48

Optional: slides 49-61

Skim: slide 62
DO
1. E&Y Foundation ARC: Consolidation and Joint Ventures Homework Problems
(Posted to Session 07 section of the course site)
Provide solutions to problems 1-6, 9-10, and 22
READ
II. PwC: Guide to Accounting for Variable Interest Entities
(Posted to Session 07 section of the course site)

Clients and Friends (Third page in the document – not numbered)


Executive summary



Master: pages 2-4
Chapter 1: Definitions of Key Terms

Grasp: pages 3-6.

Skim: page 15: Kick-out rights and participation rights
Chapter 2: Scope and Scope Exceptions


Master: First paragraph
Grasp: pages 2-4
Chapter 3: Variable Interests

Grasp: pages 2-3
41



Master: Example 3.1 on pages 3-4

Skim: pages 4-7

Master: Examples 3-2 and 3-3 on pages 7 and 8

Skim: pages 8-11

Grasp: Examples of Potential Variable Interests on page 11

Skim: pages 12-24. Don’t get tied up in the details. Your goal is to gain an appreciation
for the broad range of potential variable interests and the challenges companies
confront when they are trying to determine whether they have a variable interests in
entities.
Chapter 4: Determining whether an entity is a VIE

Master: page 2

Grasp: page 3

Optional: pages 4-8

Grasp: page 9 (starting with “Next Steps”)
Chapter 5: Identifying the Primary Beneficiary of a VIE

Master: page 2

Grasp: pages 3 - end of Example 5-5 on page 10
III. FASB Accounting Standards Codification

The two flowcharts in paragraph ASC 810-10-05-06 summarize the rather complex process
companies can go through to determine whether they should consolidate an entity.
IV. Refer to Harley Davidson’s annual reports as needed to complete the assignment. The reports are
posted to the Session 7 section of Canvas.



Harley Davidson’s 2008 Annual Report

Page 43: Finance Receivable Securitizations

Page 46: Off-Balance Sheet Arrangements

Pages 65-66: Finance Receivable Securitizations
Harley Davidson’s 2009 Annual Report

Page 16: section dealing with credit risk on finance receivables

Pages 41-42: New Accounting Standards Not Yet Adopted
Harley Davidson’s 2010 Annual Report

Page 63: Balance sheet

Pages 68-71: sections dealing with finance receivables

Page 74-75: sections dealing with finance receivables
DO
2. This question centers on the evolution of Harley Davidson’s accounting for securitized finance
receivables from 2009 through 2011.
42
a) Based on discussions in Harley Davidson’s annual reports compare and contrast the GAAP
guidance the company complied with when accounting for securitized finance receivables in
2008 and 2010, emphasizing differences in the balance sheet effects.
b) Under US GAAP, “Assets are probable future economic benefits obtained or controlled by a
particular entity as a result of past transactions or events.” (FASB Con 6 paragraph 25). Do you
believe “Restricted finance receivables held by variable interest entities, net” reported on
Harley Davidson’s 2010 balance sheet meets this definition? Defend your response by
explaining why Harley Davidson: (i) is or is not entitled to the future benefits associated with
the receivables and (ii) does or does not control these benefits.
c) Under US GAAP, “Liabilities are probable future sacrifices of economic benefits arising from
present obligations of a particular entity to transfer assets or provide services to other entities
in the future as a result of past transactions or events.” (FASB Con 6 paragraph 35). Do you
believe “Long-term debt held by variable interest entities” reported on Harley Davidson’s
2010 balance sheet meets this definition? Defend your response by explaining why Harley
Davidson is or is not obligated to pay the amount reported to the debt holders.
3. Taking into account differences in measurement judgments, users’ capacity to interpret the
reported numbers and footnote disclosures, and other factors you consider important, which
accounting do you prefer for securitized finance receivables: The GAAP Harley Davidson followed in
2008 or the GAAP it followed in 2010?
Answer this question by addressing parts (a)-(d) below based solely on the assigned readings. Note
the questions are arranged in the order you will present your responses, starting with a claim and
following with arguments etc. In particular, develop your responses to questions (c) and (d) before
answering questions (a) and (b).
a) Your claim: Fill in the following blank with either “2008” or “2010.”
I prefer the GAAP Harley Davidson followed in
[“2008” or “2010”] for securitized
finance receivables.
b) Your confidence: Put an X at the spot on the scale below that indicates the likelihood your claim
is the best choice, given the available information and the relative strengths of your arguments,
counterarguments and rebuttals (in parts (c) and (d) below).
43
c) Your strongest arguments: Provide no more than three arguments supporting your claim in 600
words or less, numbered and arranged according to your assessment of their strength (from
strongest to weakest).
d) Your counterarguments and rebuttals: Provide no more than three counterarguments to your
claim in 600 words or less, numbered and arranged according to your assessment of their
challenge to the claim (from strongest to weakest). If possible provide rebuttals immediately
below each counterargument.
Written Assignment
Your written report should include your responses to all parts of questions 1-3.
44
Session 8
Consolidation: VIE Application
Introduction
This session examines judgments associated with VIEs on the parts of preparers and regulators. In the
process, you will learn about correspondences between the SEC and registrants regarding SEC concerns
about accounting issues in 10Qs, 10Ks, or other filings. Specifically, the question you will be examining is
whether ITT Educational Services (ESI) should consolidate the PEAKs facility for student loans?
Splitting the Workload
We recommend:






Everyone start by carefully reading the explanation of the PEAKs trust and related entities in the
Appendix to the Morgan Stanley article (reading I, pages 6-8). It’s essential that everyone has a
solid grasp of these issues before tackling the assigned questions.
Divide into two subgroups: a small one with two members and a larger one with the remaining
members.
The smaller subgroup complete questions 1-5 by referencing ESI’s 2011 10K (reading II)
The larger subgroup complete question 6 and identify arguments and counterarguments for the
two alternatives in question 7. Study the correspondences between the SEC and ESI (reading III)
carefully and reference ESI’s reports (reading II) if needed for additional details or clarification.
Your response to question 6 will likely influence some of the arguments and counterarguments
in question 7.
After the larger subgroup shares the arguments and counterarguments it identified in question
7 with the smaller subgroup, everyone should decide the group’s position and prioritize the
supporting arguments, counterarguments, and rebuttals.
Take whatever steps the group deems necessary to ensure everyone is prepared to discuss the
group’s responses to all three assigned questions.
Read
All of the readings for this session are posted to the Session 8 section of course site.
I.
Morgan Stanley: IIT Educational Services: A Peek at PEAKS, April 7, 2011
II. Select ESI filings submitted to SEC

10Q for the first quarter 2010

10Ks for 2010 and 2011
Refer to these documents as needed to interpret the correspondence between the SEC and ESI (in III
below) or to address the assigned questions. If you need additional ESI filings, you can locate them
at the investor relations section of the company website or at SEC.org:
http://www.ittesi.com/index.php?s=127
45
http://www.sec.gov/edgar/searchedgar/companysearch.html
III. Correspondence between the SEC and ESI

Correspondence 01: SEC May 7, 2010 comment letter to ESI

Correspondence 02: ESI June 4, 2010 response to SEC

Correspondence 03: ESI July 19, 2010 response to SEC

Correspondence 04: SEC August 18, 2010 comment letter to ESI

Correspondence 05: ESI August 18, 2010 response to SEC

Correspondence 06: SEC September 14, 2010 comment letter to ESI

Correspondence 07: ESI September 28, 2010 response to SEC

Correspondence 08: SEC October 14, 2010 comment letter to ESI
For future reference, here is how you can locate these correspondences
a) Go to the SEC’s “Company Search” Website:
http://www.sec.gov/edgar/searchedgar/companysearch.html
b) Enter the company name or ticker symbol (e.g., ESI) into the appropriate box and click “Find
Companies”. You may have to select the parent company from a provided list.
c) In the “Filing type” box enter “upload” followed by “Search” to get comment letters from
the SEC to the company or enter “corresp” followed by “Search” to get correspondences
from the company to the SEC
Do
1. What are ESI’s sources of revenue?
2. Where do ESI’s students get money to pay their tuition?
3. Why does ESI need a private source of financing for its students? Hint: Do an internet search for
“90-10 rule.”
4. How does the PEAKs loan program work? What are the economics from the perspective of the
bank, the servicer, and ESI?
5. How would consolidation of PEAKs affect ESI’s financial statements? How would it affect ESI’s
key financial metrics the market uses to evaluate ESI? Hint: See the Morgan Stanley article.
6. Which entity controls the PEAKs facility? Which entity enjoys the benefits of PEAKs loans
performing better than expected? Which entity bears the risks if the loans under-perform?
7. Deciding whether to consolidate VIEs can require considerable judgment, meaning experts can
reasonably disagree on the outcome. Ultimately, the SEC decided ESI’s accounting for the PEAKs
Trust (not consolidating) was acceptable. Do you agree with the SEC’s decision? Should the SEC
have required consolidation?
46
Answer this question by addressing parts (a)-(d) below based solely on the assigned readings.
Note the questions are arranged in the order you will present your responses, starting with a
claim and following with arguments etc. In particular, develop your responses to questions (c)
and (d) before answering questions (a) and (b).
a) Your claim: Fill in the following blank with either “should have” or “should not have.”
The SEC
[should have or should not have] required ESI to consolidate the
PEAKs trust.
b) Your confidence: Put an X at the spot on the scale below that indicates the likelihood your
claim is the best choice, given the available information and the relative strengths of your
arguments, counterarguments and rebuttals (in parts (c) and (d) below).
c) Your strongest arguments: Provide no more than three arguments supporting your claim in
600 words or less, numbered and arranged according to your assessment of their strength
(from strongest to weakest).
d) Your counterarguments and rebuttals: Provide no more than three counterarguments to
your claim in 600 words or less, numbered and arranged according to your assessment of
their challenge to the claim (from strongest to weakest). If possible provide rebuttals
immediately below each counterargument.
Written Assignment
Include your responses to questions 1-7.
47
Session 9
Employee Benefits: Authoritative Guidance and Related Concepts and
Computations
Introduction
Sessions 9 and 11 examine current IFRS and US GAAP guidance regarding accounting for employee
benefits. For IFRS, you will only be responsible for IAS 19, as amended June 2010, which became
effective for years starting after January 1, 2013.
This is a very relevant topic:
“Ford Motor Co. expects to spend $5 billion this year shoring up its pension funds, almost
as much as the auto maker spent last year building plants, buying equipment and
developing new cars.
The nation's second-largest auto maker is one of a who's who of U.S. companies pouring
cash into pension plans now being battered by record low interest rates. Verizon
Communications Inc. contributed $1.7 billion to its pension plan in the fourth quarter
and—highlighting companies' sensitivity to this issue—Boeing Co. now reports "core
earnings" to separate out pension expenses.
‘It is one of the top issues that companies are dealing with now,’ said Michael Moran,
pension strategist at investment adviser Goldman Sachs Asset Management.”
Low Rates Force Companies to Pour Cash into Pensions, Wall Street Journal, February 4, 2013
It’s also a very challenging topic:
“For many years, the accounting for pensions and OPEB (Other Postemployment Benefits)
has been criticized by preparers, auditors, and financial statement users. Preparers and
auditors have found the strict rules-based guidance on this subject difficult to understand
and apply. Investors and other financial statement users have found the information
disclosed about retirement benefits difficult to interpret and correlate to the economics of
the benefit arrangements.”
PwC Dateline, February, 2011, page 1
Splitting the Workload
We recommend:


You divide into two subgroups of comparable size.
The first subgroup should complete questions 1-2, which center on terminology, concepts,
computations, and entries associated with authoritative guidance related to defined benefit
pension plans. Assign group members to this part of the assignment who are most comfortable
working with Excel and technical accounting issues.
48

The second subgroup should complete questions 3-6, which center on other post-retirement
benefits (OPEB) and on differences in business, accounting, and valuation issues for pensions
and other post-retirement benefits.
Take whatever steps the group deems necessary to ensure everyone is prepared to discuss the
group’s responses to all six assigned questions.

Defined Benefit Pension Plans
READ
For question 1, you will derive US GAAP and IFRS measures and record entries in the Pension Example
Exercise Excel model posted to the Session 9 module of the course site. The Pension Example Exercise
Reference document below will help you address this task. It is organized according to the worksheets in
the Excel file and contains definitions and illustrations of computations and entries therein. The
reference document has an extensive hyperlinked table of contents, which will help you easily locate
explanations to terms, computations and entries you encounter in the Excel model.
I.
Pension Example Exercise Reference
(Posted to the Session 9 module of Canvas)
VIEW
II. Using Excel 1: Basics
http://www.navigatingaccounting.com/spreadsheet/using-excel-1-basics

Optional: If you are not familiar with Excel, we recommend this video (26 minutes).
III. Using Excel 2: Linking Cells Across Worksheets
http://www.navigatingaccounting.com/spreadsheet/using-excel-2-linking-cells-across-worksheets

Optional: If you are not familiar with Excel’s “view” menu, we recommend this video (9 minutes).
You’ll find it easier to answer questions 1 and 2 if you know how to link to cells in other
worksheets using three options in Excel’s “view” menu: "freeze panes”, "new window" and
"arrange all." If you’re using the PC version of Excel, the video at the above link will help you
understand these features. If you’re using the Mac version of Excel, scroll to the note at the
bottom of the above web page.
IV. Scenic: Present Values and future values
http://www.navigatingaccounting.com/video/scenic-present-values

Optional: If you are not familiar with present value computations, we recommend this video (29
minutes).
If you are familiar with them and want to learn how to use Excel present value formulas:

For PC or Mac users:
o Click video
o Click the arrow to start the video
49
o Click the “Excel functions” menu item on the left (1.5 minutes)

For users of iPods, iPhones/Android, or iPads:

The menu items require Flash, which is not supported by these platforms. This means you
will need go to about the 24 minute point in the video or otherwise watch most of the 29minute video to get to the “Excel functions” 1.5 minute segment.
V. ASC 715-30

Refer to as needed to complete the assigned questions
VI. IAS 19, as amended June 2011

Refer to as needed to complete the assigned questions
VII. PwC: IFRS and US GAAP: Similarities and Differences, October 2014:
http://www.pwc.com/en_US/us/issues/ifrs-reporting/publications/assets/ifrs-and-us-gaap-similarities-anddifferences-2014.pdf

Refer to as needed to complete the assigned questions
DO
1. Pension Example Exercise Excel Model
(Posted to the Session 9 section of the course site)

Answer the two questions in the Assignments worksheet.

You are to submit this file via email along with your solutions to the other assigned questions
by noon, along with your written assignment.
2. AT&T Pension Exercise Excel Model
(Posted to the Session 9 section of the course site)

Answer the two questions in the Assignments worksheet.
Read the guidance in this worksheet carefully.

You are to submit this file via email along with your solutions to the other assigned questions
by noon, along with your written assignment.
Other Post Retirement Benefits
This section continues our study of accounting for employee benefits, by examining differences in
business, accounting, and valuation issues for other post-retirement benefits (OPEB).
50
READ
VIII. Towers Watson: Comparison of Accounting for OPEB Versus Pensions
(Posted to the Session 9 section of Canvas)

Master slide 2

Skim slides 3-5

Grasp slides 6-7

Master slide 8

Grasp slides 9-14

Skim slides 15-18

Master slide 19
 Grasp slides 20-22
IX. Morgan Stanley: Accounting & Valuation: Voluntary Changes in Pension and OPEB Accounting
Boosts Non-GAAP Earnings
(posted to the Session 9 section of Canvas)

Grasp pages 1-5

Skim pages 6-8

Optional pages 9-13
If you discover terms in the Morgan Stanley reading you aren’t familiar with, you will likely find their
definitions in one of the following sources:
I.

FASB: ASC 715-30-20 (Glossary)

IASB: IAS 19, as amended in June 2010, paragraph 8 (Definitions)
ASC 715-60 (Compensation: retirement benefits: defined benefit plans: other postretirement)
 Refer to as needed to complete the assigned questions
II. Verizon 2011 10K
(Posted to the Session 9 section of Canvas)
DO
Provide bullet point responses to the following questions:
3. Some companies have voluntarily changed their pension accounting to immediately recognize
actuarial gains and losses, while presenting a non-GAAP measure that excludes those gains and
losses. Are companies motivated to similarly change their OPEB accounting? Why or why not?
4. Why is Verizon’s OPEB liability so much larger than its pension liability? Is its OPEB liability more
volatile than its pension liability? Why or why not?
5. What are the actuarial assumptions needed for OPEB accounting that are unique to OPEB
compared to assumptions needed for pension accounting?
51
6. What are the top few ways management could engage in aggressive accounting related to OPEB?
For each way, how would you evaluate the reasonableness of the related estimates or judgments?
Written Assignment
Include your responses to all parts of questions 1-6. For questions 1 and 2: submit your Pension Example
Exercise Excel file and AT&T Pension Exercise Excel file with your answers to the questions in the
Assignments worksheets.
52
Session 10
Financial Instruments Related to Securitizations
Introduction
This session will center on a discussion lead by representatives from the New York and Boston offices of
PwCs’ Financial Instruments, Structured Products, and Real Estate Group (FSR). They will be sharing
insights regarding measuring the fair values of securities associated with securitizations and related
classification and disclosure issues. These securities have been center stage during the recent credit
crisis. They were often referred to as toxic assets by the media.
One of the primary goals of this session is to raise your awareness to the measurement challenges that
can arise in practice and the expertise that is needed to meet them. To this end, we want you to get
your hands dirty in the finance, accounting, and regulatory complexities associated with one of these
securitizations: Mortgage Pass-Through Certificates, Series 2006-NC5, which was sponsored by Morgan
Stanley Capital Inc. in 2006. We are hoping this will be a tremendously valuable learning experience for
all of us.
The primary goal of the written assignment is to ensure that you are prepared as best as possible to
participate in the class discussion. Our guests have prepared a PowerPoint presentation but they are
planning to pose questions to you throughout the class and entertain your questions. The assigned
readings and questions for this assignment and the previous one should prepare you for this role.
Splitting the Workload
We recommend:

Everyone start by carefully reading the assigned sections in the securitization primer (reading I)
and prospectus supplement (reading II). It’s essential that everyone has a solid grasp of these
issues before tackling the assigned questions.

Divide into two subgroups of comparable size.

The first subgroup should complete question 1, referencing the prospectus supplement (reading
II) and E&Y Financial Asset slides (reading III) as needed.

The second subgroup should complete question 2, referencing the prospectus supplement
(reading II), the E&Y Fair Value slides (reading IV) and possibly the referenced sections of ASC
820 (reading V).
53

Take whatever steps the group deems necessary to ensure everyone is prepared to discuss the
group’s responses to all three assigned questions.
PwC Presentation on Securitizations
READ
I.
A Securitization Primer for First Time Issuers, by Joel Telpner, Greenberg Traurig
(See the Session 10 module of the course site.)

Skim pages 1-4 through the “Trustee” section on page 4

Skip the accounting discussion that starts on page 4 with “How does a company remove assets
from its balance sheet for securitization purposes?” through to the start of “What are the
factors that go into rating a securitization?” For the most part, the accounting discussed in this
section is no longer allowed under US GAAP.

Skim the remainder of the document
Return to this document as needed when addressing the assigned questions.
II. Prospectus Supplement
(See the Session 10 module of the course site.)

Master pages S-1 through S-47

Grasp pages S-48 through S-83
Return to this document as needed when addressing the assigned questions.
III. E&Y Foundation ARC: Financial Assets slides (focusing on US GAAP)
(See the Session 10 module of the course site. This should mostly be a review of topics covered in other courses.)

Optional: slides 1-9

Skim: slides 10-19

Grasp: slides 20-22

Optional: slides 23-44

Grasp: slides 45-47

Optional: slides 48-61
IV. E&Y Foundation ARC: Fair Value Basics slides
(See the Session 10 module of the course site. This should mostly be a review of topics covered in other courses.)

Skim: slides 1-12
54

Grasp: slides 13-16

Optional: slides 17-33

Grasp: slides 34-45

Optional: slides 46-50

Grasp: slide 50

Optional: slides 51-56

Grasp: slides 57-67

Optional: slides 68-78
V. ASC 820

Optional
DO
The purpose of these questions is to ensure you are prepared to participate in the discussion lead by the
PwC guests regarding the “Prospectus Supplement” in the assigned reading. Most of the class will center
on this supplement.
Assume you are a junior member of the corporate finance department at Eagle Company who is
responsible for writing executive summaries at various dates related to the A-1 tranche of the
securitization discussed in the supplement.
1. For this question, you are to write an executive summary dated December 1, 2006, when Eagle
Company is considering investing in the A-1 tranche of the securitization. Your memo should not
exceed four pages. You are to address the following issues in language an intelligent executive
whose understanding of securitizations is limited to the primer in the assigned reading.
a) Describe the deal type, structure, and risks by answering the following questions:

Who are the parties in the transaction?

Which parties have an economic interest in the transaction and describe their interest?

Describe the nature of the collateral in this transaction. What may be some of the key
characteristics of the collateral?

What are the risk factors in the structure?

What are the key differences in terms of risk between holding the A-1 and A-2 tranches?

Assume you are a holder of the A-1 tranche, what are the some of the risk mitigating factors
in this deal?
55
b) What are some of the accounting considerations as an investor in the A-1 tranche of this
transaction? Specifically, discuss the classification alternatives under ASC 320, their financial
statement consequences and the one that is likely most appropriate for an investment in
the A-1 tranche.
2. For this question, you are to write an executive summary (not to exceed 4 pages) dated
December 20, 2006, when Eagle’s executives are preparing for a meeting with PwCs’ Financial
Instruments, Structured Products, and Real Estate (FSR) Group to discuss fair-value
measurement and disclosure issues related to Eagle’s investment in the A-1 tranche. These
issues must be addressed to prepare the financial statements and footnotes for the year ended
December 31, 2006. Eagle has hired the FSR Group to help Eagle determine the fair value that
will be reported at this date and related disclosures. Your memo should:
a) Briefly explain the valuation techniques permissible under US GAAP (ASC 820-10-35:24-35,
discussed briefly in slide 52 of E&Y Fair Value Basics slides). Identify the technique you
expect the FSR Group will recommend. Identify related issues that you don’t fully
understand and suggest questions the Eagle executives might pose to the FSR Group to
explain these issues.
b) Briefly explain the valuation inputs you expect the FSR Group to recommend and the level in
the fair value hierarchy where Eagle will likely disclose its investment in the A-1 tranche
(ASC 820-10-36:55, discussed briefly in slides 57-67 of the E&Y Fair Value Basics slides).
Identify related issues that you don’t fully understand and suggest questions the Eagle
executives might pose to the FSR Group to explain these issues.
Written Assignment
Include your responses to all parts of questions 1-2.
56
Session 11
Employee Benefits: Applications
Introduction
This session features a guest speaker – Diana Scott from Towers Watson, a leading expert in employee
benefit accounting. Diana will cover four topics, each of which requires your preparation, and in three
cases, written responses to questions in advance of class. The topics are:

Career issues for technical accountants

Factors affecting funding status

The changing landscape and the actions companies are taking to lower the risk of definedbenefit pension plans

Accountants working with specialists
Splitting the Workload
We recommend:

Everyone start by reading the assigned materials. It’s essential that everyone has a solid grasp of
these issues before tackling the assigned questions and to broadly contribute to the class
discussion. Otherwise, you may split the work in any manner you wish.
READ
I.
Diana Scott’s bio.
(Posted to the Session 11 section of Canvas)
DO
1. In her introductory comments, Diana will comment on the following:

Building your professional brand

Enhancing technical skills

Importance of reinventing yourself as change occurs
Be ready to ask questions about these areas or anything else about career planning you would like
to discuss with Diana. (No write-up is required.)
57
Topic 2 – Factors affecting Funding Status
READ
II. Towers Watson: TW Pension 100: Year-End 2013 Disclosures of Funding, Discount Rates, Asset
Allocations and Contributions
(Posted to Session 11 of Canvas)

Grasp pages 1-4
DO
2. The assigned TW article discusses factors that likely explain most of the change in the aggregate
funded status ratio in Figure 2 during 2013: (l) the change in average discount rates in Figure 5; (ii)
the average target asset allocation percentages in Figure 6; (iii) the investment returns in Figure 7;
and (iv) the plan contributions in Figure 8.
a. Briefly explain how each of these factors affects the aggregated funded status ratio.
b. What would the aggregate funded status ratio have been at the end of 2013 if the following
were true?

The aggregate plan assets at the start of 2013 is the same as the amount used to
determine the aggregated funded status ratio reported in Figure 2

100% of the aggregate plan assets at the start of 2013 were invested in the portfolio used
to determine the Dow Jones Industrial Average (DJIA).

The 2013 return on the aggregate plan assets was the balance at the start of the year
multiplied by (1+ the return on the DJIA). Thus, the net effect of all other cash inflows and
outflows was zero.

The aggregate plan liabilities at the end of 2013 is the same as the amount used to
determine the aggregated funded status ratio reported in Figure 2
To answer this question, you need to determine the aggregate plan assets and liabilities used
to determine the ratios in Figure 2. Here is a hint: The article reports A/L and L-A for the
relevant dates.
c. What would the aggregate funded status ratio have been at the end of 2013 if the following
were true?
58

The aggregate plan contributions during 2013 were the same as the contributions during
2012 ($45.2 billion).

The $17.4 billion difference between the $45.2 billion of aggregate plan contributions
assumed here for 2013 and the $27.8 billion reported in Figure 8 was contributed at the
very end of 2013 (after all of the actual inflows and outflows occurred).

Except for the effects of the $17.4 additional contribution the aggregate pension plan
assets and liabilities at the end of 2013 would have been the same as those used to
compute the ratios in Figure 2.
Topic 3 – The changing landscape and the actions companies are taking to lower the risk of
defined-benefit pension plans
READ
III. Towers Watson: De-risking Report 2014
(Posted to the Session 11 section of Canvas)

Grasp pages 1-18
IV. Towers Watson: Eight Common Concerns About Pension De-Risking Strategies
(Posted to the Session 11 section of Canvas)

Grasp pages 1-3
V. Towers Watson: Journey Planning NA Report
(Posted to the Session 11 section of Canvas)

Grasp pages 1-2
VI. Towers Watson: Pension Risk Management
(Posted to the Session 11 section of Canvas)

Skim slides 1-3
VII. Deloitte: Pension Plan Risk: How Certain Employers are Moving Ahead of the Curve
(Posted to the Session 11 section of Canvas)

Optional
DO
3. Assume you manage a company with a large defined-benefit pension plan. The plan, which is 75%
funded, has invested its assets in 60% equities and 40% bonds. New employees remain eligible to
participate in the plan. The company is prosperous, growing, and carries relatively little debt.
However, the market is concerned with the size of the pension underfunding and volatility in plan
59
liabilities and funding requirements. You have decided to take actions to de-risk the pension plan
in response to the market’s concern.
Outline the actions you suggest the company take to de-risk the plan. For each action:
a. Explain the rationale supporting the action and the risks it reduces
b. Flag the accounting issues the company will need to address if it takes the action you suggest
(you need not specify the accounting, only identify issues)
Topic 4- Accountants working with specialists
In preparing or auditing financial statements, accountants often work with specialists in other
disciplines. Examples include experts in asset valuation, lawyers, engineers, and actuaries. Even
through accountants are primarily responsible for financial reporting, they must rely, to some extent, on
the work of the specialist. At a minimum, the accountant should ensure the accuracy of the data
provided to the specialist and that the specialist understands their assignment related to financial
reporting. Further reliance, however, could fall in three categories:

Complete reliance: The accountant views the specialist’s work as a “black box,” accepting the
specialist’s work

Partial reliance: The accountant performs enough work to understand, at a high level, the work
of the specialist, and reviews the output of the specialist’s work to ensure it is consistent with
that general understanding.

Minimal reliance: The accountant oversees the work of the specialist, as if the specialist were
an extension of the accountant’s own staff. That is, the accountant understands the specialist’s
approach, and reviews and questions the specialist’s assumptions, estimates and perhaps
calculations too.
READ
VIII. AICPA: AU Section 336, Using the Work of a Specialist
(Posted to the Session 11 section of Canvas)

Grasp pages 545 - 548
DO
4. Answer the following questions:
60
a. Do you characterize the AICPA’s model as complete reliance, partial reliance, or minimal
reliance? Why?
b. If you were in charge of preparing a company’s financial statements, which level of reliance
would you support and why? Would your answer change assuming you were an auditor
rather than a preparer of financial statements? Why?
Written Assignment
Include your responses to all parts of questions 2-4.
61
Session 12
Leases: Proposed Authoritative Guidance
Introduction
Similar to revenue recognition, the FASB and IASB have been working on a joint leasing project that, if
completed in late 2015 as planned, will have profound consequences for many lessors and lessees
financial statements. During early 2014, the Boards started deliberating on feedback to an exposure
draft (ED) released May 16th 2013. In this session, you will learn through the comment letters to the ED
and the Boards’ responses to concerns expressed therein that the related accounting issues are
challenging and the proposed guidance is highly controversial.
To keep the workload manageable, you will not be asked to analyze existing leasing standards.
READ
I.
Locating Information Related to the Leases Standard Setting Process Posted by the FASB

This document explains how to locate and download files (listed below) for the assignment

Steps 1-10 are similar to those you followed in Session 5 to locate information related to
financial instruments. Steps 11-17 explain how to locate and download Staff Papers, which we
will be studying for the first time in this session.
II. May 2013 Exposure Draft: Proposed Accounting Standards Update: Leases (Topic 842): a revision of
the 2010 proposed FASB Accounting Standards Update, Leases (Topic 840)
(To download, see Step 7 in Locating Information Related to the Leases Standard Setting Process Posted by the FASB)
Reference this exposure draft (ED) if needed to complete the assignment. The subsequent readings
and questions center on how the standard evolved as the FASB considered constituents’ feedback
on this ED. You may find the subsequent readings’ descriptions of issues in the ED are sufficient to
complete the assignment. If not, you can read related sections of the ED for clarification.
Splitting the Workload
We recommend you split the workload within your group as follows:

Split your group into two subgroups of comparable size.
o
The first subgroup should answer question 1 below.
o
The second subgroup should answer questions 2 below
62

Merge your responses to questions 1 and 2.

Take whatever steps the group deems necessary to ensure everyone is prepared to discuss
the group’s responses to questions 1 and 2.
READ (for question 1 – first subgroup)
III. Staff Paper 3A (268), prepared for the March 2014 meeting
(To download, see Steps 11-14 in Locating Information Related to the Leases Standard Setting Process Posted by the FASB)
This Staff Paper proposed four alternative leasing models for the Boards to consider during the
March 2014 meeting. Question 1 asks you to choose the model you prefer from the four suggested
by the Staff plus another suggested by Dell in a Comment letter referenced below. We suggest you
read the first six paragraphs of the Staff Paper before continuing and then study the analysis therein
carefully after you read question 1.
IV. Sample of comment letters from various constituent groups
The analysis in the assigned Staff Paper summarizes feedback from several meetings with
constituents and over 600 Comment letters. As a result, details regarding arguments in the
Comment letters that can help you strengthen your analysis tend to be omitted. We’ve indicated
pages in the letters that relate to the issues discussed in the Staff Paper.
a. Leasing 101
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175827393192&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=959365&blobheadervalue1=filename%3DLEASES2.ED.0016.LEASING_101_WILLIAM_
BOSCO.pdf&blobcol=urldata&blobtable=MungoBlobs
Related pages

Start of letter through to beginning of the “Sales leasebacks with non-bargain purchases
option” section
b. Equipment Leasing and Finance Association (ELFA)
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175827603992&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=391180&blobheadervalue1=filename%3DLEASES2.ED.0112.ELFA_WILLIAM_G._SUTT
ON.pdf&blobcol=urldata&blobtable=MungoBlobs
Related pages

Start of “Economic Nature of Equipment Leases” on page 3 through to beginning of
“Lessor Accounting” on page 6.
63

“Question 4: Classification of Leases” section on page 15.
c. Dell
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175827615403&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=440738&blobheadervalue1=filename%3DLEASES2.ED.0216.DELL_INC._SEE_LISTED.pd
f&blobcol=urldata&blobtable=MungoBlobs
Related pages

Start of letter through to beginning of “Leasehold Improvements” on page 5.
d. Penske
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175827606732&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=1110554&blobheadervalue1=filename%3DLEASES2.ED.0130.PENSKE_TRUCK_LEASIN
G_CO._L.P._CHERI_J._HIMES.pdf&blobcol=urldata&blobtable=MungoBlobs
Related pages

Start of letter through to beginning of “Question 3: Lessor Accounting”

“Question 4: Classification of Leases” section
e. IBM
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175827610034&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=475170&blobheadervalue1=filename%3DLEASES2.ED.0157.IBM_CORPORATION_GRE
GG_L._NELSON.pdf&blobcol=urldata&blobtable=MungoBlobs
Related pages

Start of letter through to beginning of “Leases and Services Arrangements”
f. Standard and Poor’s
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175827629998&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=319858&blobheadervalue1=filename%3DLEASES2.ED.0442.STANDARD_%26_POORS_
RATINGS_SERVICES_SEE_LISTED.pdf&blobcol=urldata&blobtable=MungoBlobs
Related pages

Start of letter through to beginning of “Lessor Accounting” on page 3

“Question 4: Classification of Leases” section
DO
The FASB and IASB are expected to adopt different models in their final standards. The IASB is
expected to adopt Approach 1 in the Staff paper. The IASB changed its position during deliberations
following the 2013 ED. The IASB had previously planned to adopt Approach 2 in the Staff Paper.
64
Similarly, the FASB changed positions during deliberations from Approach 2 to Approach 3 in the Staff
Paper.
1. If you were a member of one of the Boards, which of the options below would you support?

Approach 1 in the Staff Paper

Approach 1A in the Staff Paper

Approach 2 in the Staff Paper

Approach 3in the Staff Paper

Dell’s recommended approach – see pages 2-4 of Dell’s Comment letter
Answer this question by addressing parts (a)-(d) below based solely on the assigned readings.
Note the questions are arranged in the order you will present your responses, starting with a
claim and following with arguments etc. In particular, develop your responses to questions (c)
and (d) before answering questions (a) and (b).
a) Your claim: Fill in the following blank:
If I were a Board member, I would support
[one of the above options].
b) Your confidence: Put an X at the spot on the scale below that indicates the likelihood your claim
is the best choice, given the available information and the relative strengths of your arguments,
counterarguments and rebuttals (in parts (c) and (d) below).
c) Your strongest arguments: Provide no more than three arguments supporting your claim in 600
words or less, numbered and arranged according to your assessment of their strength (from
strongest to weakest).
d) Your counterarguments and rebuttals: Provide no more than three counterarguments to your
claim in 600 words or less, numbered and arranged according to your assessment of their
challenge to the claim (from strongest to weakest). If possible provide rebuttals immediately
below each counterargument.
65
READ (for question 2 – second subgroup)
(To download the following Staff Papers, see Steps 16 - 18 in Locating Information Related to the Leases Standard Setting
Process Posted by the FASB)
V. Staff Paper 3A (282), prepared for the May 2014 meeting
VI. Staff Paper 3A (299), prepared for the October 2014 meeting
VII. Staff Paper 3A (301), prepared for the December 2014 meeting
The Boards discussed the definition of a lease during the three board meetings indicated above. The
comment letters to the 2013 ED from Grant Thornton and KPMG referenced below both argue that
the lease definition and supporting discussion in the ED did not adequately distinguish leases from
service contracts.
“Further, moving forward with a right of use model is supportable only if a lease can be
defined in a manner that satisfactorily distinguishes leases from executory contracts (service
contracts). We believe the ED’s proposals and supporting examples fail to achieve this –
quite possibly because in many instances such a distinction does not exist.” (Grant Thornton
Comment Letter, page 2).
If leases could not clearly be distinguished from service contracts, auditors and others were
concerned that companies would try to structure lease contracts as service contracts to get more
favorable financial-statement effects.
While all three Staff Papers listed above consider issues related to defining leases, we recommend
you mostly focus on Staff Paper 3A (299) for the October 2014 meeting. It summarizes issues
discussed in Staff Paper 3A (282), which the Staff prepared for the earlier May 2014 meeting. Staff
Paper 3a (3010 was prepared for the December 2014 meeting. It expands on a choice in the October
2014 Staff Paper (between Alternative A and Alternative B). You can reference Staff Paper 3A (282)
or 3A (301) if you seek additional details on related issues in Staff Paper 3A (299).
We suggest you read the first fourteen paragraphs of Staff Paper 3A (299) before continuing and
then study the analysis therein carefully after you read question 2.
VIII. Sample of comment letters from various constituent groups
The analysis in the assigned Staff Paper summarizes feedback from several meetings with
constituents and over 600 Comment letters. As a result, details regarding arguments in the
Comment letters that can help you strengthen your analysis tend to be omitted. We’ve indicated
pages in the letters that relate to the issues discussed in the Staff Papers.
66
a. Grant Thornton
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175827604094&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=533126&blobheadervalue1=filename%3DLEASES2.ED.0117.GRANT_THORNTON_KEN
NETH_C._SHARP_JEFFREY_L._BURGESS.pdf&blobcol=urldata&blobtable=MungoBlobs
Related pages

Start of letter through to beginning of the “Future work on lease accounting” section.

The “Question 1: Identifying a Lease” section on pages 6 and 7.
b. KPMG IFRG
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175821950849&blobheader=applic
ation%2Fpdf&blobheadername2=Content-Length&blobheadername1=ContentDisposition&blobheadervalue2=2340971&blobheadervalue1=filename%3D0367-_1850100_KPMG_IFRG_LIMITED.pdf&blobcol=urldata&blobtable=MungoBlobs
Related pages

The “Identification of leases” section (2 paragraphs).

The “Definition of a lease – Question 4” section in the Appendix (4 pages).
IX. Summary of Tentative Decisions Reached to Date (As of May 13, 2015)
(To locate this summary, see Step 10 in Locating Information Related to the Leases Standard Setting Process Posted by the FASB)

The “ Scope: Definition of a lease” section presents the definition the Boards settled on after
considering feedback from constituents and the Staff Papers listed above.
DO
2. Does the Boards’ most recent definition of a lease and related discussion in the May 13th summary
satisfactorily address the concern raised by Grant Thornton and KPMG that the lease definition and
supporting discussion in the 2013 ED did not adequately distinguish leases from service contracts?
a) Your conclusion: Fill in the following blank:
The most recent definition
[does, does not] satisfactorily address the concern
raised by Grant Thornton and KPMG.
b) If you concluded the most recent definition and supporting discussion did not adequately
address the concern raised by Grant Thornton and KPMG, why not?
c) How did arguments in the Staff Papers influence the analysis behind your conclusion? Which
arguments, if any, did you find particularly compelling? Which arguments, if any, did you find
particularly weak? (600 word limit)
67
Written Assignment
Your written report should include your responses to all parts of questions 1-2.
68
Session 13
Project Presentations
Directions for Sessions 13 and 14 will be distributed no later than Session 11
69
Session 14
Project Presentations
Directions for Sessions 13 and 14 will be distributed no later than Session 11
70