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ACCOUNTING AND SEC HEADLINES:
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Loan Losses – FASB Adds SAB Topic on the Accounting for Loan Losses to the Codification

The FASB has issued Accounting Standards Update (ASU) No. 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842). This ASU adds an SEC paragraph pursuant to the issuance of SEC Staff Accounting Bulletin No. 119 to the FASB Codification. This ASU also updates the SEC section of the Codification for the change in the effective date of Topic 842.

Checklist – New Edition of Summary Checklist of Authoritative US Accounting Standards Reflects ASU 2020-02

We have published a new edition of our Summary Checklist of Authoritative US Accounting Standards Checklist. This new edition reflects ASU 2020-02, which is discussed above.

Not-for-Profit Entities – FASB Proposes Amendments to Increase Transparency for Gifts-in-Kind to Not-for-Profit Entities

The FASB has issued a proposed ASU, Not-for-Profit Entities (Topic 958)— Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The proposal includes amendments intended to improve transparency around how not-for-profit organizations present and disclose contributed nonfinancial assets, also known as gifts-in-kind. The comment deadline is April 10, 2020.

Examples of contributed nonfinancial assets include fixed assets such as land, buildings, and equipment; the use of fixed assets or utilities; materials and supplies, such as food, clothing, or pharmaceuticals; intangible assets; and/or recognized contributed services.

The proposed ASU, if adopted as proposed, would require a not-for-profit organization to present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash or other financial assets.

The proposed amendments also would require a not-for-profit to disclose:

• Contributed nonfinancial assets received disaggregated by category that depicts the type of contributed nonfinancial assets, and
• For each category of contributed nonfinancial assets received (as identified above):
• Qualitative information about whether the contributed nonfinancial assets were or are intended to be either monetized or utilized during the reporting period and future periods. If utilized, a description of the programs or other activities in which those assets were or are intended to be used.
• A description of any donor restrictions associated with the contributed nonfinancial assets.
• The valuation techniques and inputs used to arrive at a fair value measure, including the principal market (or most advantageous market) if significant, in accordance with the requirements in Topic 820, Fair Value Measurement.

Debt vs. Equity – FASB Discusses Debt vs. Equity

As reported in its “Summary of Board Decisions” publication, the FASB met on February 5, 2020, and continued redeliberating the amendments in proposed ASU, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The FASB reached a number of decisions, including:

• Clarify the scope of the guidance in Subtopic 470-20 for convertible debt instruments and in Subtopic 505-10, Equity—Overall, for convertible preferred stock.
• Clarify the difference between a convertible debt and a debt instrument that could be converted to a variable number of shares with an aggregate fair value equal to a fixed monetary amount (such as share-settled debt).
• Require that an entity apply the if-converted method of calculating diluted EPS to all convertible instruments and that interest expense not be added back to the numerator for convertible debt instruments if the principal is required to be settled in cash.
• Exclude certain share-based payment arrangements (instruments that are liability-classified in accordance with guidance in paragraph 718-10-25-15) from the scope of the EPS amendments on instruments that may be settled in cash or shares.
• Clarify that the reassessment guidance in paragraph 815-40-35-8 applies to both freestanding instruments and embedded features (similar to the scope as written in paragraph 815-40-15-5).
• Add a cross-reference in Section 815-40-35 to the guidance in Subtopic 815-15, Derivatives and Hedging—Embedded Derivatives, on the accounting for embedded features upon a change in assessment of the derivatives scope exception.

Public Accounting Report – Diversification of the Public Accounting Workforce Remains Fairly Stagnant

We have published a new edition of the Public Accounting Report (PAR), Diversification of Public Accounting Workforce Remains Fairly Stagnant. This new edition of PAR also discusses people, firms, and promotions.

Municipal Securities – SEC Staff Provides Guidance on Antifraud Provisions to Municipal Securities

The staff in the SEC’s Office of Municipal Securities has issued Staff Legal Bulletin No. 21, Application of Antifraud Provisions to Public Statements of Issuers and Obligated Persons of Municipal Securities in the Secondary Market. This bulletin provides the views of the staff regarding the application of the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5[2] to public statements made by issuers of municipal securities and obligated persons in the secondary market. The antifraud provisions apply to any statement of a municipal issuer that is reasonably expected to reach investors and the trading markets.

Tokens – SEC Commissioner Peirce Discusses Regulation of Tokens

SEC Commissioner Hester Peirce recently discussed a possible centralized regulatory framework for oversight of tokens. Peirce indicated that many “crypto entrepreneurs are seeking to build decentralized networks in which a token serves as a means of exchange on, or provides access to a function of the network. In the course of building out the network, they need to get the tokens into the hands of other people. But these efforts can be stymied by concerns that such efforts may fall within the ambit of federal securities laws. The fear of running afoul of the securities laws is real. Given the SEC’s enforcement activity in this area, these fears are not unfounded.”

GAO – GAO Publishes Professional Standards Update

The GAO has published Professional Standard Update (PSU) No. 76 which discusses changes in professional standards. The purpose of these updates is to “highlight the issuance and some key points of recent standards. PSUs do not contain a complete summary of the standards. Those affected by a new standard should refer to that standard for details. This PSU highlights the effective dates of selected standards reported previously that are expected to affect auditors at the time of or shortly after issuance of the most recent update.”

Common Interest Realty Associations – 2020 Edition of Knowledge-Based Audits, Preparations, Compilations, and Reviews of Common Interest Realty Associations Published

We have published the 2020 edition of Knowledge-Based TM Audits, Preparations, Compilations, and Reviews of Common Interest Realty Associations. This toolset is designed to help the practitioner efficiently and effectively perform financial statement audits of common interest realty associations in accordance with auditing standards generally accepted in the United States (U.S. GAAS), and preparations, compilations, and reviews of common interest realty associations in accordance with Statements on Standards for Accounting and Review Services (SSARSs) issued by the American Institute of Certified Public Accountants (AICPA).

The audit tools in this edition of Knowledge-BasedTM Audits, Preparations, Compilations, and Reviews of Common Interest Realty Associations includes revisions, updates, and enhancements to reflect current accounting authoritative literature including, among other things, the revised AICPA Code of Professional Conduct (Code); and ET Section 1.295, Nonattest Services, and practice points regarding AICPA Statement on Auditing Standards (SAS) No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, and SAS No. 135, Omnibus Statement on Auditing Standards – 2019, which do not provide for early implementation. The 2020 tools include links to specific guidance that provides instant access to detailed analysis related to the steps and processes discussed in the workpapers. Many new tips, practice alerts, and examples have been incorporated.

The preparation, compilation, and review related practice aids and tools in this edition of Knowledge-Based TM Audits, Preparations, Compilations, and Reviews of Common Interest Realty Associations are current through Statement on Standards for Accounting and Review Services No. 24: Omnibus Statement on Standards for Accounting and Review Services – 2018 and the AICPA Guide Preparation, Compilation and Review Engagements.

The 2020 tools are current through FASB Accounting Standards Codification ™ as of December 31, 2019, through Accounting Standards Update (ASU) No. 2019-12.

See our Literature Update for complete details.

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AUDITING AND INTERNAL CONTROLS HEADLINES:
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Materiality – AICPA Issues SSARS No. 25 to Align with GAAS and Converge with International Materiality Standards

The American Institute of CPAs (AICPA) Accounting and Review Services Committee (ARSC) has issued Statement on Standards for Accounting and Review Services (SSARS) No. 25, Materiality in a Review of Financial Statements and Adverse Conclusions.

Convergence with International Review Standards

As noted in an AICPA news release relating to SSARS No. 25, the AICPA issued SSARS No. 25 to converge AR-C section 90, Review of Financial Statements, with International Standard for Review Engagements (ISRE) 2400 (Revised), Engagements to Review Historical Financial Statements. The ARSC believes that the SSARS requirements should be as closely converged with ISRE 2400 (Revised) as possible to facilitate an accountant’s ability to perform and report on engagements in accordance with both sets of standards. Such convergence should reduce any confusion regarding the level of assurance obtained in accordance with either set of standards.

Further, SSARS 25 also aligns more closely with other principles of generally accepted auditing standards (GAAS). While, as noted in the AICPA’s news release, there are significant differences between an audit engagement and an engagement performed in accordance with SSARSs, other concepts, such as materiality, are consistent regardless of the level of services performed on the financial statements.

SSARS No. 25 amends SSARS No. 21, Statements on Standards for Accounting and Review Services: Clarification and Recodification, specifically:

• AR-C section 60, General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services;
• AR-C section 70, Preparation of Financial Statements;
• AR-C section 80, Compilation Engagements; and
• AR-C section 90, Review of Financial Statements.

The AICPA has also issued an At-A-Glance, Revisions to Review Standard for Consistency with Other Professional Standards, to accompany SSARS 25. The At-a-Glance provides a summary and background discussion on SSARS 25 and the materiality standards.

Effective Date:

The amendments made by SSARS 25 are effective for engagements performed in accordance with SSARSs on financial statements for periods ending on or after December 15, 2021, with early implementation permitted.

Public Accounting Report – Diversification of the Public Accounting Workforce Remains Fairly Stagnant

As discussed above, we have published a new edition of the Public Accounting Report (PAR), Diversification of Public Accounting Workforce Remains Fairly Stagnant. This new edition of PAR also discusses people, firms, and promotions.

Accounting and Reviews – Highlights from Accounting and Review Services Committee Meeting Published

We have published highlights from the January 8-9, 2020 meeting of the AICPA’s Accounting and Review Services Committee meeting. Topics discussed include:

• Withdrawal of Selected Procedures exposure draft;
• Proposed Materiality/Adverse Conclusions SSARSs; and
• 2020 Preparation, Compilation, and Review Engagements Guide.

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