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ACCOUNTING AND SEC HEADLINES:
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A Closer Look – New Edition of A Closer Look Provides Year-End U.S. GAAP Review
We have published a new edition of A Closer Look,
Year-End U.S. GAAP Review. This new edition provides a discussion of recently issued FASB rules and guidance that may impact 2020 year-end financial reporting.
PCAOB Standard Setting – PCAOB Releases Spotlight on the Use of Economic Analysis and Stakeholder Input
The PCAOB has released the Spotlight publication,
The PCAOB’s Use of Economic Analysis and Stakeholder Input in Standard Setting.
The Spotlight highlights how the PCAOB implements its strategic objective of better leveraging economic and risk analysis to effectively set standards, rules, and guidance. It provides an overview of how it conducts economic analysis and gathers stakeholder input. The Spotlight also includes a mini case study on how the PCAOB has used, and will continue to use, economic analysis and stakeholder input related to the requirement for auditors to determine and communicate critical audit matters in the auditor’s report.
The Spotlight explains that before issuing a new or revised standard, the PCAOB seeks input from relevant stakeholders and perform an economic analysis. This process includes:
- Describing the need for the standard or rule;
- Developing the baseline and measuring for the impacts of the rule or standard;
- Considering reasonable alternatives; and
- Analyzing the economic impacts of the standard and alternatives.
The PCAOB continues its economic analysis after the adoption of new or revised standards and approval by the SEC, including by conducting a post-implementation review.
Codification Improvements – New Edition of GAAP Update Service Discusses Codification Improvements for Callable Debt
We have published a new edition of the GAAP Update Service that discusses FASB Accounting Standards Update (ASU) No. 2020-08,
Codification Improvements to Subtopic 310-20 – Receivables – Nonrefundable Fees and Other Costs. The new guidance affects public and private companies that hold callable debt securities with multiple call dates.
Public companies must adopt the new guidance for fiscal years beginning after December 15, 2020. Calendar year-end public companies thus have a relatively short time horizon to implement the new guidance. Early adoption is not permitted.
Private companies may adopt for fiscal years beginning after December 15, 2020. Mandatory implementation is not required until fiscal years beginning after December 15, 2021. Implementation is prospective.
Intangible Assets – FASB Discusses Identifiable Intangible Assets and Goodwill
As reported in its “Summary of Board Decisions” publication, the FASB met on November 11, 2020, and discussed the FASB staff’s research and analysis on amortization periods and methods for an impairment-with-amortization model for the subsequent accounting for goodwill, as well as evolving models in which the subsequent accounting for goodwill changes over time. The meeting was educational and no decisions were made.
The FASB also discussed the feedback from comment letter respondents on several issues related to proposed FASB Concepts Statement No. 8,
Conceptual Framework for Financial Reporting—Chapter 7, Presentation. The FASB decided that:
- Distinguishing between revenues and gains and expenses and losses should be addressed in the elements chapter of the conceptual framework.
- No additional aggregation factors for grouping line items need to be included in the chapter. For certain factors, clarifying modifications need to be made.
- The decision that there is no conceptual basis for other comprehensive income should be retained.
- No additional detail should be added about the articulation and relationship between financial statements.
Securities Act – SEC Staff Updates Compliance and Disclosure Interpretation on Securities Act
The staff in the SEC’s Division of Corporation Finance (Corp Fin) has updated the Compliance and Disclosure Interpretation (C&DI), Securities Act Sections. Corp Fin has updated question 139.13 and withdrawn questions 139.15 -139.20. This C&DI provides guidance from Corp Fin on aspects of sections under the Securities Act of 1933.
Corp Fin has updated this C&DI to provide updated guidance on when a company may file a registration statement for the resale by the investors of securities sold in a private equity line financing. The questions withdrawn generally provided guidance on Securities Act Section 5.
Regulation S-T – SEC Adopts Amendments to Electronic Signature Rules
The SEC voted to adopt rules and rule amendments that will “provide additional flexibility in connection with documents filed with the Commission by permitting the use of electronic signatures in authentication documents, and facilitate electronic service and filing in the Commission's administrative proceedings.” The SEC indicates that these new rules and amendments are part of a series of initiatives designed to modernize and strengthen the agency's operations.
The SEC adopted rule amendments to permit the use of electronic signatures when executing authentication documents in connection with many documents filed with the SEC. Rule 302(b) of Regulation S-T currently requires that each signatory to an electronic filing manually sign a signature page or other document ("authentication document") before or at the time of the electronic filing to authenticate the signature that appears in typed form within the electronic filing.
The SEC amendments permit a signatory to an electronic filing who follows certain procedures to sign an authentication document through an electronic signature that meets certain requirements specified in the
EDGAR Filer Manual. In addition, the SEC amended certain rules and forms under the Securities Act, Exchange Act, and Investment Company Act to allow the use of electronic signatures in authentication documents in connection with certain other filings when these filings contain typed, rather than manual, signatures. The SEC indicates that these amendments “recognize the widespread use of electronic signatures and technological developments in the authentication and security of electronic signatures, as well as the continuing need to support remote workforces, and follow a rulemaking petition joined by nearly 100 public companies.”
The rule amendments will be effective upon publication of the adopting release in the
Federal Register.
SEC Rules of Practice – SEC Adopts Amendments to Rules of Practice for Administrative Proceedings
The SEC voted to adopt rules and rule amendments that will “provide additional flexibility in connection with documents filed with the Commission by permitting the use of electronic signatures in authentication documents, and facilitate electronic service and filing in the Commission's administrative proceedings.” The SEC indicates that these new rules and amendments are part of a series of initiatives designed to modernize and strengthen the agency's operations.
The SEC adopted rule amendments to require electronic filing and service of documents in administrative proceedings. These rule amendments also require redaction of sensitive personal information from many of these documents before filing with the SEC.
These amendments will become effective 30 days after publication of the adopting release in the
Federal Register. However, compliance will not be required until April 12, 2021, and there will be an initial 90-day phase-in period following the compliance date.
Climate Change Risk – SEC Commissioner Lee Discusses Intersection of Climate Change Risk and Financial Regulation
SEC Commissioner Allison Herren Lee recently spoke about the interaction of climate change risk and financial regulation. Lee indicates that financial regulators like the SEC are not at the forefront of substantive policymaking to address climate change. Financial regulators don’t set emissions standards, implement carbon pricing, or otherwise shape energy or environmental policy. However, Lee notes that the SEC and other financial regulators “must ensure that we work with fellow regulators to understand and, where appropriate, address systemic risks to our economy posed by climate change. To assess systemic risk, we need complete, accurate, and reliable information about those risks. That starts with public company disclosure and financial firm reporting, and extends into our oversight of various fiduciaries and others. Investors also need this information so they can protect their investments and drive capital toward meeting their goals of a sustainable economy.”
Investment Management – SEC Director Discusses SEC Investment Management Activities
Dalia Blass, Director of the SEC’s Division of Investment Management, recently discussed the division’s activities. Topics discussed include:
- COVID-19 response;
- Modernization and healthy innovation;
- Investor experience; and
- Efficient oversight and management.
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AUDITING AND INTERNAL CONTROLS HEADLINES:
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A Closer Look – New Edition of A Closer Look Provides Year-End U.S. GAAP Review
As indicated above, we have published a new edition of A Closer Look,
Year-End U.S. GAAP Review. This new edition provides a discussion of recently issued FASB rules and guidance that may impact 2020 year-end financial reporting.
ARM Engagement Standards – New Edition of ARM Engagement Standards Published
We have published a new edition of the
Attestation and Nontraditional Engagements - AICPA section of Engagement Standards. This resource tool helps a user quickly locate guidance and resolve practice issues relating to attestation and nontraditional engagements conducted in accordance with U.S. professional standards.
This new edition been updated to incorporate standards and interpretations relating to attestation and nontraditional engagements issued by the Auditing Standards Board of the AICPA through July 31, 2020.
Engagement Letters – 14th Edition of CPA’s Guide to Effective Engagement Letters Published
We have published the 14th edition of the CPA's Guide to Effective Engagement Letters. The primary objective of this publication is to provide practitioners with the tools they need to compose effective engagement letters.
This new edition has been updated throughout, including the following highlights:
- New language for consideration in engagements related to financial statements, tax, and valuation work to address the engagement-specific implications of the COVID-19 pandemic.
- Revised record retention language and Client Portal Agreement to clarify the role of the CPA firm as it relates to providing “Hosting Services” as defined by the ethics interpretation in the AICPA’s Code of Professional Conduct (ET §1.295.143).
- Additional clauses for consideration to address issues related to out-of-state sales (“Supreme Court Ruling in South Dakota v. Wayfair, Inc.”), limitations of email transmissions, use of third-party cloud service providers, and more.
- New letters including: Agreed-Upon Procedures—SSAE-19 Compliant, Preparation of Trust Accounting and Tax, Tax Opinion Engagement, and Client Letter—COVID-19 Pandemic Implications to Firm Services.
HUD Programs – 2020-2021 Edition of Knowledge-Based Audits of Housing and Urban Development Programs Published
We have published the 2020-2021 edition of
Knowledge-Based Audits of Housing and Urban Development Programs (Post-SAS-134). This publication highlights professional standards, including recent pronouncements, for CPAs involved in audit and attestation engagements.
This guide has been updated to incorporate the provisions of the following ASB Statements on Auditing Standards (SASs):
- SAS No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements;
- SAS No. 135, Omnibus Statement on Auditing Standards—2019;
- SAS No. 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports;
- SAS No. 138, Amendments to the Description of the Concept of Materiality;
- SAS No. 139, Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes from SAS No. 134;
- SAS No. 140, Amendments to AU-C Sections 725, 730, 930, 935, and 940 to Incorporate Auditor Reporting Changes from SAS Nos. 134 and 137; and
- SAS No. 141, Amendment to the Effective Dates of SAS Nos. 134-140.
International Entities – New Edition of Knowledge-Based Audits of International Entities Published
We have published a new edition of
Knowledge-Based Audits of International Entities. This publication provides practitioners with the most effective approach for conducting audits of international commercial entities. This new edition provides guidance on the implementation of the standards and rules promulgated by the IAASB, as well as selected best practices based on the guidance promulgated by other regulators.
This guide has been updated to incorporate the provisions of the ISAs through December 2019, including incorporating content for ISA 315 (Revised 2019),
Identifying and Assessing the Risks of Material Misstatement, which is effective for audits of financial statements for periods beginning on or after December 15, 2021.
Auditing Accounting Estimates – New Edition of GAAS Update Service Discusses SAS 143
We have published a new edition of the GAAS Update Service that is the third of a three-part series covering AICPA Statement on Auditing Standards No. 143,
Auditing Accounting Estimates and Related Disclosures. This new edition, and the October 30, 2020 and November 30, 2020 GAAS Updates, cover in detail the requirements and guidance in SAS 143, as codified in AU-C Section 540.
Not-for-Profit Reporting – 2021 Edition of CCH’s Not-for-Profit Reporting Published
We have published the 2021 edition of
CCH’s Not-for-Profit Reporting. This guide is a vital resource that puts expert analysis and explanations of not-for-profit accounting, financial reporting, and regulatory reporting at your fingertips.
The 2021 Edition of
Not-for-Profit Reporting has been updated throughout with the very latest information from the FASB’s ASC and industry best practices that may assist preparers and users of not-for-profit organization financial statements.
Not-for-Profit Reporting includes illustrative example financial statements for a not-for-profit organization.
Single Audits – 2020 Edition of Knowledge-Based Single Audits Published
We have published the 2020 edition of
Knowledge-Based Single Audits. This publication is a supplement to the financial statement audit methodologies provided in
Knowledge-Based Audits of Governmental Entities and Knowledge-Based Audits of Not-for-Profit Entities.
The tools in the 2020 edition of
Knowledge-Based Single AuditsTM have been updated to help auditors conduct efficient and effective audit engagements in accordance with U.S. GAAS and GAGAS and to take into account the latest literature, standards, and guidance, including the 2018 Revision of the Yellow Book (GAGAS).
PCAOB Standard Setting – PCAOB Releases Spotlight on the Use of Economic Analysis and Stakeholder Input
As discussed above, the PCAOB has released the Spotlight publication,
The PCAOB’s Use of Economic Analysis and Stakeholder Input in Standard Setting.
The Spotlight highlights how the PCAOB implements its strategic objective of better leveraging economic and risk analysis to effectively set standards, rules, and guidance. It provides an overview of how it conducts economic analysis and gathers stakeholder input. The Spotlight also includes a mini case study on how the PCAOB has used, and will continue to use, economic analysis and stakeholder input related to the requirement for auditors to determine and communicate critical audit matters in the auditor’s report.
The Spotlight explains that before issuing a new or revised standard, the PCAOB seeks input from relevant stakeholders and perform an economic analysis. This process includes:
- Describing the need for the standard or rule;
- Developing the baseline and measuring for the impacts of the rule or standard;
- Considering reasonable alternatives; and
- Analyzing the economic impacts of the standard and alternatives.
The PCAOB continues its economic analysis after the adoption of new or revised standards and approval by the SEC, including by conducting a post-implementation review.
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GOVERNMENTAL GAAP HEADLINES:
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GASB Implementation Guide – GASB Proposes Implementation Guidance Update for 2021
The GASB has issued the Exposure Draft,
Implementation Guidance Update—2021. The deadline for comments is February 15, 2021.
The Exposure Draft contains proposed new questions and answers that address application of GASB standards on leases, fiduciary activities, and other topics. The Exposure Draft also proposes amendments to previously issued implementation guidance.
The GASB periodically issues new and updated guidance to assist state and local governments in applying GAAP to specific facts and circumstances that they encounter. The GASB develops the guidance based on:
- Application issues that are raised during due process on GASB Statements;
- Questions the GASB receives throughout the year, primarily from governments and auditors; and
- Topics identified by members of the Governmental Accounting Standards Advisory Council and other stakeholders.
The GASB clears the guidance in Implementation Guides, which constitutes Category B GAAP.
Revenue and Expense Recognition – New Edition of Governmental GAAP Update Service Discusses GASB Preliminary Views
We have published a new edition of the Governmental GAAP Update Service is the first of two parts providing a brief overview of the provisions of the GASB’s preliminary views document on
Revenue and Expense Recognition (RER). This edition discusses the objective and scope of the RER project, the foundational principles for the model and the overall methodology for categorizing transactions.
Single Audits – 2020 Edition of Knowledge-Based Single Audits Published
As discussed above, we have published the 2020 edition of
Knowledge-Based Single Audits. This publication is a supplement to the financial statement audit methodologies provided in
Knowledge-Based Audits of Governmental Entities and Knowledge-Based Audits of Not-for-Profit Entities.
The tools in the 2020 edition of
Knowledge-Based Single AuditsTM have been updated to help auditors conduct efficient and effective audit engagements in accordance with U.S. GAAS and GAGAS and to take into account the latest literature, standards, and guidance, including the 2018 Revision of the Yellow Book (GAGAS).
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