The U.S. Still Far From Using IFRS

by Kevin McGarry 13. September 2012 10:12
In July 2012, the SEC issued a report describing the issues that the U.S. would face if they got rid of U.S. GAAP. Regulators said they needed to do additional research before revisiting the controversial subject. One of the main drawbacks and hold ups from the U.S. moving towards IFRS is the sheer burden of converting. It would take a huge effort on individuals and high costs to change the vast number of references to U.S. GAAP in U.S. regulations and laws. To combat this fear, there was a hope that IFRS would be approved and tailored for U.S. companies on an as-needed basis. However, many countries that use IFRS modify the standards for their markets, which causes a lack of consistency across the world. To better understand the issues and concerns that face the U.S. with a possible switch to IFRS, please see the full report issued by the SEC. If you have any questions or concerns, please do not hesitate to contact me at kmcgarry@urishpopck.com.
Categories: Tax

Private Company Audit Standards - Finally a Resolution?

by Kevin McGarry 2. August 2012 11:30
There are many stakeholders in the decade-long debate over financial reporting standards for privately held companies, including lenders, assurers, venture capitalists and the companies themselves. Now, a recently enacted measure may be bringing the debate to conclusion.   Currently, private companies follow U.S. Generally Accepted Accounting Principles (GAAP) when issuing reports, which are viewed as the gold standard for financial reporting; however, private company managers view GAAP as unnecessarily complex and lacking relevance to external users. In 2009, a panel was formed as a joint effort between the Financial Accounting Foundation (FAF), the AICPA, and the National Association of State Boards of Accountancy (NASBA) to determine the future of the standards-setting process for private companies.   Just a few months ago, the FAF Trustee Working Group announced its final decision to create a Private Company Council (PCC) to improve the standards-setting process for private companies. Although all decisions of the PCC are subject to FASB approval, the differences include: The PCC is a nine to twelve-member committee, including a non-FASB chairperson. A FASB board member will be assigned as a liaison to the PCC. The PCC is encouraged to set its own agenda without FASB approval. The PCC and FASB are encouraged to mutually agree on a set of criteria to identify possible exceptions and modifications to existing Generally Accepted Accounting Principles (GAAP) for private companies. Any such exceptions and modifications raised by the PCC are subject to FASB endorsement and a public comment period; FASB makes the final endorsement decision based upon a majority vote (four of seven members). In the instance of non-endorsement, the FASB chairperson will present written documentation to the PCC chair, providing a reason for the non-endorsement and possible changes for the PCC to consider that could lead to FASB endorsement. The endorsement process must be completed within a specified time frame, and all endorsed decisions will be issued as Accounting Standards Updates to the Accounting Standards Codification.   The PCC will provide reports to a newly established committee of the FAF Board of Trustees for the first three years, at which point the PCC will be re-assessed to determine whether further changes to the overall standards-setting process for private companies are necessary. With the creation of the PCC, the FAF trustees will try to avoid two sets of GAAP (one for private companies and one for public companies). The AICPA subsequently announced the development of a financial reporting framework to support self-contained, other comprehensive basis of accounting (OCBOA), intended for use by privately held small- to medium-sized entities preparing financial statements.   To understand how and why the PCC committee was formed or additional information on the newly announced final decision, please see The Controversy over Private Company Reporting Standards in The CPA Journal.
Categories: Assurance

Watch for New Revenue Recognition Standard

by Ken Urish 27. December 2011 15:37
  As we witnessed recently in the buildup to Groupon’s IPO, the manner that revenue is recognized is a critical accounting issue. In Groupon’s case, they were forced to restate their financial statements. Revenue recognition has been the cause of audit failures and the focus of corporate abuse and fraud for many years. However, new standards, currently expected to be issued in 2012, are intended to improve the financial reporting of revenues.  Following is an update on the status of the proposed new standards. In November 2011, the Financial Accounting Standards Board (FASB) updated a measure on the financial reporting requirements for recognizing revenue from contracts with customers. The FASB, along with the International Accounting Standards Board (IASB), have made a number of changes to a joint exposure draft, first issued in June, 2010.  According to a press release, both boards have “further refined their original proposals” following review of nearly 1,000 comment letters. The boards are reviewing the proposals because of “the importance of the financial reporting of revenue to all entities and the boards’ desire to avoid unintended consequences arising from the final standard.”  The boards agree that “an entity would recognize revenue from contracts with customers when it transfers promised goods or services to the customer.”  In addition, in its 221-page proposal, the boards added guidance on how to determine when a good or service is transferred over time; simplified the proposals on warranties; simplified how an entity determines a transaction price (including collectability, time value of money and variable consideration); modified the scope of the onerous test to apply to long-term services only; added a practical expedient that permits an entity to recognize as an expense costs of obtaining a contract (if one year or less); and provided exemption from some disclosures for nonpublic entities that apply U.S. GAAP. The proposal contains 26 examples of how the revised revenue recognition requirements would work. 
Categories: Tax

Significant Support for Incorporating IFRS into GAAP

by Ken Urish 17. November 2011 13:33
In a letter to the SEC dated November 15, 2011, the Financial Accounting Foundation (FAF) announced that it supports the incorporation of IFRS into U.S. GAAP “as the appropriate path forward for the continued development of high-quality, investor-focused, international financial reporting standards.” FAF is the independent, private-sector organization with responsibility for the oversight, administration, and finances of the Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB and their Advisory Councils. FAF expressed its support for an incorporation approach that “advances improvements to U.S. GAAP and furthers the comparability and consistency of high-quality, investor-focused financial reporting standards throughout the globe.” Toward that end, it has recommended a number of modifications to the SEC’s proposed approach to IFRS incorporation. The proposed FAF approach is based on the premise that, over time, international standards will become the foundation of U.S. GAAP. Significantly, FAF believes that its proposed approach complements the SEC’s primary responsibility of facilitating investor protection in the U.S. capital markets, and that it reinforces the SEC’s goal of setting standards that provide necessary financial information to investors in our capital markets.
Categories: Assurance

What’s Next – New Standards for Private Companies

by Laura Lewis 12. July 2011 15:58
Financial Accounting Standards Board (FASB) has identified several factors that indicate major differences in the financial reporting needs of public companies versus private companies or governmental entities. This is an initial assessment that comes from comments over two years from dozens of interested stakeholders gathered by the Board. From these differences, FASB will be able to establish a “differential framework” that will be used in determining if different financial standards will be created to apply to private companies. The framework will be used by the Board to decide when and how to modify specific U.S. GAAP accounting standards for private company use. “This work is an important step forward in the FASB’s effort to develop a set of criteria for evaluating when accounting or disclosure standards should be different for private companies,” said FASB Chairman Leslie F. Seidman. “This process demon­strates our commitment to better serving the needs of without sacrificing the quality and fundamental level of comparabil­ity that are the touchstones of the U.S. accounting system and U.S. capital markets.” The significant differences include: the types of users, access to management, investment strategies, ownership structures, accounting resources and education. What’s next? FASB will continue to solicit input from those using, preparing and auditing financial statements of public companies. In addition, the board will expose a draft of the proposed differential framework for industry feedback.
Categories: Assurance