Proposed ASU on Comprehensive Income

The FASB issued the Proposed Accounting Standards Update Comprehensive Income (Topic 220), Statement of Comprehensive Income on May 26, 2010. The comment period ends September 30, 2010

Under the amendments in this proposed Update an entity would be

• Required to report total comprehensive income and its components in two parts— net income and other comprehensive income—in a continuous statement of financial performance.
• Required to display a total for each part
• Required to display each component of net income and each component of other comprehensive income in that statement of financial performance.

The amendments in this proposed Update would not

• Change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.
• Change the option for an entity to show components of other comprehensive income gross or net of the effect of income taxes in the statement of comprehensive income as long as the tax effect for each component is disclosed in the notes to the financial statements or is displayed parenthetically on the statement of comprehensive income.
• Affect how earnings per share are calculated or reported.

The amendments in this proposed Update would be applied on a fully retrospective basis to improve comparability between reporting periods.

Early adoption would be permitted, because compliance with the proposed amendments is already permitted. The amendments do not require any transition disclosures.

Become a subscriber.
To receive more detailed updates, become a subscriber by going to http://www.cpafirmsupport.com/ and clicking on “Join Us.”

Proposed ASU on Financial Instruments

As you may recall the FASB and the IASB have been working on a number of joint projects. One of these projects is Accounting for Financial Instruments. As a result of this project FASB issued the Proposed Accounting Standards Update. Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities, Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815) on May 26, 2010. The comment period ends September 30, 2010,

Under this proposal,

• Most financial instruments would be measured at fair value in the statement of financial position each reporting period.
• For derivatives and financial instruments for which an entity’s strategy is trading the instruments, fair value would continue to be required, with all changes in fair value recognized in net income each reporting period.
• Changes in the fair value of equity securities, certain hybrid instruments, and financial instruments that can be contractually prepaid in such a way that the holder would not recover substantially all of its investment also would be recognized in net income each reporting period regardless of an entity’s business strategy with respect to those financial instruments.
• Financial instruments for which an entity’s business strategy is to hold for collection or payment(s) of contractual cash flows, the proposed guidance would recognize the utility to financial statement users of both fair value and amortized cost information by requiring a reconciliation from amortized cost to fair value on the face of the statement of position.
• Financial liabilities would be accounted for similar to financial assets, thus reflecting how financial assets and liabilities are managed together.
• Hedge accounting criteria would be simplified.

The FASB has scheduled a free webcast on Financial Instruments on June 30, 2010. You may register for it on the FASB website, http://www.fasb.org/.

Become a subscriber.

To receive more detailed updates become a subscriber by going to http://www.cpafirmsupport.com/ and clicking on "Join Us."

Consideration of Laws and Regulations

The Auditing Standards Board recently issued a clarified auditing standard, SAS Consideration of Laws and Regulations in an Audit of Financial Statements. This Statement supersedes SAS No. 54, Illegal Acts by Clients (AICPA, Professional Standards, vol. 1, AU sec. 317).

It addresses the auditor’s responsibility to consider laws and regulations in an audit of financial statement and does not apply to other assurance engagements in which the auditor is specifically engaged to test and report separately on compliance with specific laws or regulations.

The Statement addresses:

• The effect of laws and regulations on financial statements
• The responsibility for compliance with laws and regulations (both management's and the auditor’s responsibility).

Of particular interest to auditors is that the Statement discusses the auditor’s responsibilities in relation to compliance with the two categories of laws and regulations:

(1) The provisions of those laws and regulations generally recognized to have a direct effect on the determination of material amounts and disclosures in the financial statements, such as tax and pension laws and regulations.
(2) The provisions of other laws and regulations that do not have a direct effect on the determination of the amounts and disclosures in the financial statements but compliance with which may be fundamental to the operating aspects of the business; fundamental to an entity’s ability to continue its business; or necessary for the entity to avoid material penalties.

This SAS is effective for audits of financial statements for periods ending on or after December 15, 2012.

Become a subscriber.
To receive more detailed updates, become a subscriber by going to www.cpafirmsupport.com and clicking on “Join Us.”