Accounting And Auditing

Below is some of the most recent Compliance Week coverage on issues related to accounting and auditing. Coverage focuses on developments emanating from FASB and the PCAOB—on issues as diverse as FIN 48, "fair value," auditor independence and more—but extends to broader financial reporting issues as well. The list below shows the most recent articles first.

Updated COSO Framework to Spark Review of Internal Controls

May 21, 2013

Now that COSO has completed the update of its widely used internal control framework, it's time for companies to determine where control changes might be in order. The good news is that the framework keeps the five core principles, but it also adds 17 new underlying principles that will likely require additional documentation. "Now you need to go one level below," says Christian Peo, a partner with KPMG.
 

FASB, IASB Reveal Latest Lease Overhaul Proposal

May 16, 2013

At long last, the Financial Accounting Standards Board and the International Accounting Standards Board have published their second draft of a proposed standard to overhaul lease accounting to bring all but the shortest-term leases onto corporate balance sheets. Three of FASB's seven members do not support the proposal, however, calling it overly complex and overly burdensome on preparers. More inside.
 

PCAOB Pushes for More Scrutiny of Related-Party Transactions

May 14, 2013

Auditors will soon have to follow new rules requiring them to dig deeper into transactions that appear out of the ordinary and to scrutinize business dealings with executives' family members, large shareholders, former executives, and other related-party transactions. Some say the PCAOB's proposal on related-party transactions is long overdue. "The proposed new standard gets rid of the old 'don't worry too much about this' mentality," says Brian Mayhew, associate professor at the University of Wisconsin in Madison.
 

Making Changes to Pay Plans? Don't Forget the Accounting

May 07, 2013

When companies make changes to their executive compensation plans they often overlook the accounting consequences. As public companies gravitate toward performance-based plans, for example, they face more mark-to-market accounting. And adding clawback provisions creates other accounting headaches. Some changes leave accountants scratching their heads: "It certainly must not be accountants designing these plans," says Doug Reynolds, a partner at Grant Thornton.
 

In Search of Insolvency Clues

April 30, 2013

Investors have demanded better warning signs for insolvency recently, and the Financial Accounting Standards Board has been working on identifying ways to require companies to send up a red flag when concerns about continuing as a going concern arise. It's no easy task. "Everyone wants to know what the magic warning sign is, but I can't say there's a single one," says Esther DuVal, managing director at CBIZ Corporate Recovery Services.
 

Going Concern Proposal to Follow Liquidation Guidance

April 24, 2013

Good news if you're going out of business: The Financial Accounting Standards Board plans to revisit its rules for when a floundering company should switch its accounting to a liquidation basis, as part of a larger effort to improve disclosure about a company's ability to continue as a going concern. FASB has been tinkering with the subject since 2008.
 

FASB's Russ Golden Replaces Seidman as Chairman

April 23, 2013

Russ Golden will take over as chairman of the Financial Accounting Standards Board when the term for present Chairman Leslie Seidman ends on June 30. Golden, currently a board member, says one of his key priorities will be to complete the remaining major projects to converge U.S. accounting standards with international standards. More inside.
 

KPMG Insider-Trading Scandal Leaves Some Clients in the Lurch

April 23, 2013

An insider-trading scandal has left KPMG reeling, but it has also created a crisis for audit clients pulled into the fray, including Skechers and Herbalife. The companies must find new auditors and submit to new audits going back as far as 2010, which could require a substantial amount of rework. "The new audit firm would not want to rely on anything that team did," says Brian Fox, founder of audit services firm Confirmation.com.
 

FASB, PCC Call for Views on Private Company Rules

April 16, 2013

The Financial Accounting Standards Board is asking again for views on how it should develop differences in accounting standards for private companies compared with public companies. FASB and its Private Company Council have published a second "invitation to comment" on their proposed framework.
 

The End of U.K. GAAP

April 16, 2013

U.S. companies will have to start producing financials for all their British subsidiaries under a new financial reporting rulebook next year, as the United Kingdom phases out its version of Generally Accepted Accounting Principles. While most public U.K. companies moved to International Financial Accounting Standards by 2005, private companies and subsidiaries have had the option to remain on U.K. GAAP. In 2015, that will no longer be an option. More details inside.
 

Court Ruling Buoys IRS's Hard Line on Deferred Compensation

April 16, 2013

The Internal Revenue Service is aggressively pursuing those who claim discounted stock options as qualified deferred compensation. The IRS says it doesn't comply with Section 409A, and a Court of Federal Claims recently agreed. The ruling is cause for companies to review their option granting practices. "For the IRS to slap this penalty on a taxpayer who it seems tried to comply with 409A is a little disheartening," says Lori Basilico, a partner at law firm Edwards Wildman Palmer.
 

Split FASB Proceeds With Complicated Lease Standard

April 10, 2013

Despite misgivings over how complex its plan for lease accounting has become, the Financial Accounting Standards Board has decided, by a vote of four to three, to proceed with issuing its newest proposal on how to bring all leases on to corporate balance sheets. FASB expects to publish the proposal in May with a comment period ending sometime in September.
 

When Buybacks Get Complex, So Does the Accounting

April 09, 2013

Companies flush with cash are conducting increasingly complex stock buybacks, some with thorny accounting implications. Buybacks with forward repurchases, written put options, and those involving derivatives, for example, can invite accounting scrutiny. "Essentially you are pulling very complicated accounting rules down upon yourself," says Bruce Pounder, director of professional programs at training firm Loscalzos.
 

FASB Plans Gut-Check Discussion on Leasing Standard

April 05, 2013

The Financial Accounting Standards Board has scheduled a discussion on its plan to re-propose an overhaul to lease accounting, as it continues to face questions and concerns over its revised approach. The accounting standard setter is preparing to release the update sometime this spring. Details inside.
 

FASB Floats New Definition, Disclosures for Discontinued Operations

April 03, 2013

The Financial Accounting Standards Board has proposed a new accounting standard to narrow what qualifies as a discontinued operation that must be explained in financial statements, but increase the disclosure requirements around those that qualify for reporting.
 

Internal Audit Continues a Push Into Risk Management

April 02, 2013

The role of internal audit continues to evolve. New requirements from Nasdaq and the Federal Reserve emphasize practices such as analyzing the effectiveness of risk management, monitoring compliance with stated risk tolerances, and other risk-based responsibilities. "Stakeholders are stepping up their expectations of internal auditors," says Richard Chambers, CEO of the Institute of Internal Auditors.
 

FASB Extends Comment Period for Credit Loss Proposal

March 28, 2013

Still not sure how you feel about FASB's new proposal for a more forward-looking approach to reporting credit losses? No worries: The board has extended its deadline for submitting comments until May 31. The extra month is intended to let commenters digest the board's FAQ guidance on its plans, published last month.
 

PCAOB Proposes Reorganization of Auditing Standards

March 27, 2013

The Public Company Accounting Oversight Board is preparing to reorganize the entire collection of auditing standards into a topical structure under a single numbering system, much the way accounting standards were reorganized and published in a new format in 2009. More details inside.
 

FASB Issues FAQ on Credit Loss Proposal

March 26, 2013

Attempting to set straight some confusion on its proposal for changing the accounting for credit losses, the Financial Accounting Standards Board has published a 16-page question-and-answer document to clarify the objective of the proposal and the rationale behind the board's approach. Details inside.
 

Big Companies Filing More Restatements, But on Smaller Matters

March 26, 2013

The largest public companies filed more financial restatements for the second straight year in 2012, although the significance of their restatements overall continued to decline. More restatements on smaller matters could be due to increased pressure from regulators to improve audit quality. "There is the potential some of what we are seeing here is connected to inspection reports," says Chris Wright, managing director at consulting firm Protiviti.
 

FASB Rolls Out More XBRL Implementation Guides

March 22, 2013

The Financial Accounting Standards Board has issued new guides on XBRL intended to further refine how preparers use the U.S. GAAP financial reporting taxonomy to submit their financial statements. Of the three new implementation guides, one focuses on segment reporting and two more focus specifically on the insurance sector.
 

Courts Making It Harder to Blame the Auditor for Fraud

March 19, 2013

With a string of recent successes by audit firms in fending off fraud claims, public companies may find themselves shouldering the legal burden alone when injured investors file litigation. Several decisions by courts have set a tougher legal standard on claims against auditors. "The Supreme Court has thrown up some serious hurdles in claims against auditors," says Trace Schmeltz, a partner with law firm Barnes & Thornburg.
 

FASB, IASB Credit Loss Proposals Search for Consensus

March 15, 2013

Nearly five years after the financial crisis that set off a global recession, the debate over how to account for loan losses—especially ones that are expected but haven't yet occurred—has still not produced a clear answer for how accounting rules should be revised. Accounting boards on both sides of the Atlantic are now floating separate ideas.
 

FASB Issues Rule on Currency Translation Adjustments

March 13, 2013

The Financial Accounting Standards Board has finalized a new rule that is intended to clarify when and how a company should release an accumulated foreign currency translation adjustment into earnings when a company sheds its investment or controlling interest in a foreign business operation.
 

PCAOB Inspections Find Modest Improvement in Small Firm Audits

March 12, 2013

Inspections by the Public Company Accounting Oversight Board have found that smaller firms are reducing the number of audit deficiencies, even as larger ones have more. Audit experts say the results don't necessarily mean that smaller firms are making bigger improvements in audit quality. "It's hard to compare why there are more deficiencies with larger firms than smaller ones," says Gaylen Hansen, a partner with Colorado regional audit firm EKS&H.
 

FASB Agrees to Reconsider Business Segment Rules

March 06, 2013

The Financial Accounting Standards Board has agreed to take a fresh look at its rules on business segment reporting, after an internal review suggested there may be a reason to consider changes to existing standards. The SEC has cited business segment issues as a frequent area of problems and comments in financial statements. More details inside.
 

Clock Ticking on Applying Income Reclassification Standard

March 05, 2013

The Financial Accounting Standards Board approved a new method last month to explain to investors where companies have reclassified amounts out of "other comprehensive income" into net income. While the standard is fairly straightforward, calendar year-end companies will have to apply it to first-quarter financial statements. "It's not often we see guidance come out that is effective so quickly," says Stuart Moss, a partner at Deloitte & Touche.
 

FASB Clarifies How to Book Joint and Several Liability Arrangements

March 01, 2013

The Financial Accounting Standards Board has finalized a new update to accounting standards to straighten out varying practices on how to account for obligations stemming from joint and several liability arrangements. The update provides guidance for the recognition, measurement, and disclosure of such obligations. Details inside.
 

FASB Renews Siegel, Gives Board Agenda Authority

February 27, 2013

The Financial Accounting Foundation has moved authority for setting the agenda and prioritizing new projects for the Financial Accounting Standards Board from the chairman to the full board. It says current chairman, Leslie Seidman, suggested the change. It also reappointed Marc Siegel to a new five-year term on the board. More inside.
 

FASB Goes With 'Three-Buckets' Approach to Financial Instruments

February 26, 2013

The Financial Accounting Standards Board has finalized its proposal on financial instruments, calling for a mixed use of historical cost and fair value. Some changes in value will be recognized in earnings and others through equity, depending on how a company manages or plans to use the instruments. "The idea is to reduce the number of models and reduce complexity," says Sydney Garmong, a partner with Crowe Horwath.
 

Many Companies Unprepared for Coming Derivatives Regulation

February 20, 2013

Non-financial companies are just starting to awaken to the complexities of new derivatives regulation. The added requirements include burdensome documentation rules, and with some rules still not finalized, uncertainty is adding to the struggle. "Companies that use derivatives to hedge normal business risks ... are playing catch up," says Gail Bernstein, special counsel at law firm Wilmer Hale.
 

FASB Unveils Long-Awaited Proposal on Financial Instruments

February 15, 2013

The Financial Accounting Standards Board has finally revealed its proposal for how to establish new methods for classifying and measuring financial instruments. Years in the making, the new approach focuses less on fair-market value of an instrument and more on aligning measurement with the business purpose behind a given asset or liability.
 

Audit Firms Passing PCAOB Scrutiny to Clients

February 12, 2013

The Public Company Accounting Oversight Board has been pushing external audit firms to get tougher on internal controls. Now, auditors are, in turn, turning up the heat on companies. "It stands to reason that if the PCAOB is finding reasons to be critical of the work external auditors have done in controls or financial reporting, the auditors would place expectations on the company," says Hal Garyn, vice president of the Institute of Internal Auditors.
 

FASB Kicks Off XBRL Guidance Series

February 11, 2013

The Financial Accounting Standards Board issued new guidance meant to help companies through some rough patches in their submission of financial statements formatted in XBRL. The new guidance is part of a series intended to help users of the taxonomy understand how certain disclosures are structured within it. More details inside.
 

FASB Finalizes OCI Reclassification Requirement

February 06, 2013

The Financial Accounting Standards Board has finalized new requirements for how to present other comprehensive income in financial statements when amounts are reclassified out of accumulated OCI into net income. Details inside.
 

FASB Clarifies Scope of Offsetting Disclosures

January 31, 2013

The Financial Accounting Standards Board has put to rest any worry that its new disclosure requirements on offsetting might apply to a much wider range of netting arrangements. FASB says it didn't intend for ordinary trade receivables to be subject to the new disclosure requirements. More details inside.
 

Auditors Are Seeking More Information From Internal Investigations

January 29, 2013

External auditors, under pressure to improve audit quality, are increasingly demanding to see behind the curtain of internal investigations that could affect financial statements—a request often at odds with the interests of lawyers conducting the investigations who want to keep the information privileged. "Privilege has always been a barrier to seeing what's going on in an investigation," says Peter Bible, a partner with audit firm EisnerAmper.
 

Taking Measure of a Multitude of Measures

January 29, 2013

Sure, accounting can be complex, but after considering all the different measurement models accountants need to apply, the system seems downright Byzantine. It seems as if there are almost as many measurement attributes as there are things to measure. Inside, Columnist Scott Taub highlights several models and their variants as he argues for a simpler—or at least smaller—group of accounting measures.
 

No Clear Solutions in Audit Standoff With China

January 23, 2013

As U.S. regulators press forward with their pursuit of access to documentation from audits conducted in China, public companies with units or subsidiaries there are becoming increasingly concerned that the countries won't be able to resolve the conflict. As few solutions emerge, some are wondering if Big 4 and other leading global audit firms could see their China affiliates barred from practicing before the SEC. More inside.
 

FASB Proposes New Repurchase Guidance

January 15, 2013

Nearly three years after the Lehman Brothers bankruptcy exposed a hole in the accounting rules for repurchase agreements, the Financial Accounting Standards Board has issued a new proposal meant to draw greater distinction between true asset sales and secured borrowings, where the selling company retains control of the asset. Details inside.
 

FASB Wants Companies to Predict and Book Future Credit Losses

January 15, 2013

The Financial Accounting Standards Board has issued a proposed accounting standards update that will require companies to predict credit losses and likely book higher reserves, even before cash flow begins to suffer. While the standard will apply to all companies, the change is intended to give investors an earlier warning that a financial firm may be headed for trouble based on its debt securities and loan portfolio. More details inside.
 

Time for Voluntary Disclosure Agreements on Unclaimed Property?

January 08, 2013

Cash-strapped states are waging a campaign to seize unclaimed property, prompting legal experts and auditors to alert the most vulnerable companies to explore voluntary disclosure agreements or brace for oppressive, costly audits. "They want absolute proof—basically a criminal standard—that property isn't unclaimed," says Diane Green Kelly, a partner at law firm Reed Smith.
 

2013 to Bring More Waiting on Accounting and Audit Answers

January 02, 2013

Answers to the big accounting questions, such as a decision on International Financial Reporting Standards, seem as far off as ever. In the coming year many of the same uncertainties in accounting and auditing as the one just ended will linger, giving public companies good reason to buckle up for another wild ride. Inside, we look at what the coming year holds for accounting and audit developments.
 

FASB Publishes Nearly Final 2013 GAAP Taxonomy

December 26, 2012

Heads up, financial reporting executives: The XBRL taxonomy for 2013 financial reports under U.S. GAAP is ready for public inspection. The document still awaits final approval from the SEC, and XBRL enthusiasts can also chime in with any fixes or additions you believe are worth mentioning. More inside.
 

FASB Issues Proposal on Credit Losses

December 20, 2012

The Financial Accounting Standards Board has issued its long-awaited proposal on how companies should recognize credit losses in financial statements. FASB is calling for a forward-looking approach that will lead to more upfront notice to investors when losses are expected. More details inside.
 

Lawsuit Exposes Gaps in Loss Contingency Disclosures

December 18, 2012

Yahoo announced in late November that it was facing a $2.7 billion penalty as a result of a lawsuit in Mexico it lost against a phone directory company. The verdict surprised investors, since Yahoo hadn't reported the potential outcome as part of its loss contingency disclosure. The Financial Accounting Standards Board and the SEC have made such disclosures a top priority in recent years, after complaints about too many litigation surprises. Details inside.
 

Auditors to Focus on Internal Controls After Poor Inspection Results

December 18, 2012

Public companies can expect extra scrutiny of their internal control over financial reporting in the upcoming audit cycle after regulators warned auditors to fix lingering problems. The Public Company Accounting Oversight Board said the percentage of audits with inadequately supported opinions on internal control over financial reporting rose to 22 percent of cases examined in 2011, from 15 percent in 2010. "Those numbers are too high," said PCAOB member Jeanette Franzel.
 

FASB, CAQ Find Support for New Disclosure Framework

December 14, 2012

The Financial Accounting Standards Board is continuing its work on looking at ways to improve the effectiveness of disclosures. Feedback so far generally supports the idea of allowing preparers to use more judgment in deciding what disclosures are necessary, but the project won't necessarily lead to simplified disclosures, since sophisticated investors don't consider reducing the volume of disclosure a priority. More inside.
 

Audit Firm Rotation Idea Scrapped?

December 10, 2012

For more than a year, audit regulators have threatened to impose mandatory audit firm rotation. But now that drastic idea seems finally to be heading to the dustbin—at least for the foreseeable future. At a recent conference two Public Company Accounting Oversight Board members suggested that a way forward for mandatory audit firm rotation would be difficult. "I struggle to see how we would ever do a mandatory rotation standard," said PCAOB member Jay Hanson.
 

H-P Allegations Won't Derail New Revenue Rules

December 05, 2012

The revenue-related allegations flying at Hewlett-Packard will not slow down or redirect a new accounting standard on revenue recognition that has been in development for years.
 
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