Thursday, May 17, 2012

A & A Alert - January 2012

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JANUARY 2012

RubinBrown's Accounting & Auditing Alert is published monthly
to inform our clients and contacts about relevant technical
accounting and audit-related information.

GASB Moves Forward With Project To Improve Economic Condition Reporting

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The Governmental Accounting Standards Board (GASB) is moving forward with a project intended to improve financial reporting of the economic condition and fiscal sustainability of governmental entities. 

On November 29, 2011, the GASB issued a Preliminary View on the fundamental reporting information that would be required of all governmental entities as required supplementary information. A Preliminary View is not an exposure draft, but solicits public comments on the views of GASB on economic condition reporting and financial projections.

This project is designed to provide financial statement users with more forward looking information to assess the financial position, fiscal capacity and service capacity of governmental entities. The view is that presenting this information in the comprehensive annual financial report will allow users to better evaluate a government’s ability to meet future financial obligations and their ability to provide future services.

The GASB position in the Preliminary View is that financial projections of total cash inflows and outflows and major individual cash inflows and outflows with explanation of known causes of changes in cash inflows and outflows are necessary information to assess the economic condition of a governmental entity. 

In addition, projections of total financial obligations and major financial obligations, including bonds, pensions, other postemployment benefits, and long-term contracts with explanations of known causes of fluctuations in financial obligations are considered necessary. Cash inflows and outflows would be presented on a cash basis of accounting and financial obligations would be presented on the accrual basis.

Projections of annual debt service obligations are also considered necessary components to assess economic condition. These financial projections would be presented for a minimum of five years after the reporting period.

Along with presenting financial projections, a narrative discussion of the major intergovernmental service interdependencies that exist and the nature of those interdependencies would also be required. The financial projections and narrative discussion would be reported for the primary government, including both governmental activities and business type activities.

The GASB has requested that public comments on their views on economic condition reporting be submitted by March 16, 2012.  The full text of the Preliminary View is available by clicking here.

   

Auditing Standards Board Proposes Going Concern Guidance

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The Auditing Standards Board (ASB) of the AICPA has issued a proposed Statement on Auditing Standards (SAS) titled, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern (Redrafted). 

This effort is resulting from its Clarity Project and would supersede SAS No. 59, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern. 

Although the proposed SAS represents the redrafting of SAS No. 59 to apply the ASB's clarity drafting conventions, the ASB decided to delay convergence of the proposed SAS with International Standards on Auditing 570, Going Concern, with the assumption that the FASB would address this issue as part of its current agenda.

Several key highlights are proposed as part of the new standard.  First, auditors would be required to obtain written representations from management if conditions or events exist that indicate there could be a substantial doubt about the entity’s ability to continue as a going concern.  The current standard does not require written representations of these matters.

In addition, in the event that an auditor agrees to reissue an audit report that previously contained a going concern explanatory paragraph, the new statement would require the auditor to reassess the going concern status of the entity by performing certain procedures.  Based on the results of these additional procedures, the auditor would determine whether it was appropriate to eliminate the going concern explanatory language in the reissued report.

Comments in response to this exposure draft are due January 31, 2012.  The full text of the exposure draft is available by clicking here.
   

FASB Issues Exposure Draft Related To Cumulative Translation Adjustment

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The FASB recently published an exposure draft, titled Consolidation (Topic 810):  Parent’s Accounting for the Cumulative Translation Adjustment upon the Sale or Transfer of a Group of Assets That Is a Nonprofit Activity or a Business within a Consolidated Foreign Entity. 

The exposure draft represents a consensus of the FASB Emerging Issues Task Force and is intended to address diversity in practice related to the accounting for such transactions.

Under the proposals contained in the exposure draft, when a reporting entity ceases to have a controlling financial interest in a group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a consolidated foreign entity, the reporting entity would be required to apply the guidance in Subtopic 810-10 to release any related cumulative translation adjustment into earnings. 

The amount of the cumulative translation adjustment to release into earnings would be determined in a systematic and rational manner that reflects an asset group’s relative portion of the cumulative translation adjustment associated with the foreign entity.

Approaches for determining the amount of cumulative translation adjustment to release into earnings include:
  • A pro rata portion of the cumulative translation gain or loss attributable to the nonprofit activity or business based on the relative proportion of the net assets of the consolidated foreign entity at the date of disposition; and
  • The cumulative translation gain or loss attributable to specific assets and liabilities of the nonprofit activity or business.
In addition, this proposal would require that upon such sale or transfer, if a parent has hedged part (or all) of its net investment in the foreign entity in which the group of assets had resided, the parent would be required to release into earnings the related amount of accumulated gain or loss on the net investment hedge attributable to the nonprofit activity or business.

Comments in response to this exposure draft are due February 6, 2012.  No proposed effective date was specified in the exposure draft.  However, the exposure draft indicated that its provisions would be applied prospectively to derecognition events occurring after the effective date and that prior periods would not be adjusted. 

The full text of the exposure draft is available by clicking here.
   

IASB And FASB Publish Revised Proposal For Revenue Recognition

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The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) (collectively, the Boards) have issued for public comment a revised draft standard to improve and converge the financial reporting requirements of International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP) for revenue (and some related costs) from contracts with customers. 

The Boards decided to re-expose 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 proposed standard is intended to improve IFRS and GAAP.  The core principle of this revised proposed standard is the same as that of the 2010 exposure draft: that an entity would recognize revenue from contracts with customers when it transfers promised goods or services to the customer.

The amount of revenue recognized would be the amount of consideration promised by the customer in exchange for the transferred goods or services. However, in response to feedback received from nearly 1,000 comment letters on the 2010 exposure draft and extensive outreach activities, the Boards further refined their original proposals.

Some of the modifications of the original proposal include:

  • Additional guidance on how to determine when a good or service is transferred over time;
  • Simplification of the proposals on warranties;
  • Simplification on the determination of transaction price;
  • Modification of the long-term services test;
  • Addition of the ability to expense costs of obtaining a contract (if one year or less); and
  • Disclosure exemptions for non-public entities applying U.S. GAAP.

Comments in response to this exposure draft are due March 13, 2012.  The full text of the exposure draft is by clicking here.

   
Fred Kostecki, CPA - St. Louis
Partner-in-Charge
Assurance Services Group
314.290.3398
fred.kostecki@rubinbrown.com		 Todd Pleimann, CPA - Kansas City
Managing Partner - Kansas City Office
Assurance Services Group
913.499.4411
todd.pleimann@rubinbrown.com		 Bert Bondi, CPA - Denver
Partner & Denver Practice Leader
Assurance Services Group
303.799.6826
bert.bondi@rubinbrown.com
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