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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.

FASB Approves Another Private Company Exception

June 18, 2013

Private companies are getting a pass on some of the more detailed disclosures required about investments held in their employee benefit plans because complying could force them to disclose proprietary information.
 

Internal Audit Slowly Shifting to Take on Strategic Risks

June 18, 2013

Internal auditors say they are shifting their attention toward strategic risks, but are still bogged down in the basic financial controls and assurance over financial reporting, according to a recent survey. The shift is happening slowly and not without some growing pains. One of the difficulties is that big, emerging risks are more ambiguous. "They're used to those very black and white, bright lines," says Tom Harper, general auditor at Federal Home Loan Bank of Chicago.
 

FASB Codifies Criteria for Investment Companies

June 14, 2013

The Financial Accounting Standards Board has codified an approach for determining whether a company is an investment company for accounting purposes, which determines when an entity must record all of its investments at fair value. The move closes a loophole that provided some wiggle room on what constitutes an investment company. Details inside.
 

GAO Blames Loan-Loss Rule for Small Bank Failures

June 13, 2013

The failure of more than 400 community banks through the financial crisis is partly attributable to risky lending practices, but accounting rules that limited loss provisions played an important part as well, according to the Government Accountability Office. The Financial Accounting Standards Board has proposed changes to a more forward-looking approach, but it's getting plenty of pushback. More details inside.
 

Private Companies Win FASB Endorsement of Changes

June 11, 2013

Private companies are starting to win the accounting exceptions and accommodations they have sought as the Financial Accounting Standards Board endorses three alternative accounting proposals put forth by its Private Company Council. The proposals would modify the accounting for intangible assets acquired in a business combination, goodwill, and certain types of interest rate swaps for private companies. More inside.
 

Critics Call Lease Accounting Proposal Overly Complex

June 11, 2013

The latest proposal to overhaul lease accounting fulfills the original objective of bringing all leases on to corporate balance sheets, but not everyone is singing its praises. The plan, proposed by the Financial Accounting Standards Board last month, faces an uphill battle to reach acceptance, and even FASB is divided over it. "The biggest issue is complexity," says Julie Valpey, a partner with BDO USA.
 

How FMC Automated Controls to Improve Financial Visibility

June 04, 2013

When FMC Corp. took a hard look at its internal controls, it saw an opportunity to automate and improve them to increase the visibility of its reconciliation process. The company was also able to move to a more centralized process where data is readily available. "We are able to provide our CEO and CFO with any information they desire," said Nadia Ciaravino, finance control compliance director for FMC.
 

FASB May Revisit Key Rules After FAF Review

May 31, 2013

The Financial Accounting Standards Board says it will take into considerations the recent suggestions of its overseer, the Financial Accounting Foundation, regarding business combinations and fair-value rules to determine if further standard setting is in order. A post-implementation review concluded some preparers are still have trouble applying the rules. More details inside.
 

Updated Control Framework Makes Companies Dig Deeper

May 29, 2013

The burden of adopting the newly updated COSO framework for internal controls will depend on how closely a company's control environment is aligned with the original framework, said internal control experts from Raytheon and Pfizer at the Compliance Week 2013 conference last week. "When you document your system of internal controls today, you probably aren't talking about the 17 principles, but clearly you'll need to do that," said Ray Purcell, director of financial controls at Pfizer.
 

Audit Industry Doing Some Soul Searching

May 29, 2013

After damaging reports from inspections of external audits that found several instances of shoddy work over the last few years, audit firms are working hard to regain public trust and prove the value of the service they provide. Last week, at the Compliance Week 2013 conference in Washington D.C., executives at two of those firms and a top audit regulator exchanged ideas on how to improve the quality of public company audits.
 

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.
 

SEC Approves 2013 GAAP Taxonomy for XBRL Use

May 20, 2013

The Securities and Exchange Commission has approved the 2013 U.S. GAAP financial reporting taxonomy, giving companies the green light to rely on it for use in preparing and submitting their financial statements in XBRL. While the changes are minor, the SEC says it is important for companies to assure that their XBRL filings reflect the latest taxonomy.
 

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.
 
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