ASU No. 2010 -18 on Receivables

ASU No. 2010–18, Receivables (Topic 310) Effect of a Loan Modification When the Loan is Part of a Pool That is Accounted for as a Single Asset, a consensus of the FASB Emerging Issues Task Force was issued April 2010 and is effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010.

This ASU was issued to provide guidance on accounting for acquired loans that have evidence of credit deterioration upon acquisition.

Why Issued?
Diversity in practice has developed on whether a loan that is part of a pool of loans accounted for as a single asset should be removed from that pool upon a modification that would constitute a troubled debt restructuring. The objective of the amendments in this Update is to address the diversity in practice regarding such modifications.

Any entity that acquires loans subject to Subtopic 310-30, that accounts for some or all of those loans within pools, and that subsequently modifies one or more of those loans after acquisition is affected by this ASU.

ASUs are available on the FASB website, http://www.fasb.org/ under Standards.

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ASU No. 2010 -17 on Revenue Recognition, the Milestone Method

ASU No.2010–17, Revenue Recognition–Milestone Method (Topic 605) Milestone Method of Revenue Recognition, a consensus of the FASB Emerging Issues Task Force was issued April 2010.

The objective of this ASU is to provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions.

Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a drug study or achieving a specific result from the research or development efforts. An entity often recognizes these milestone payments as revenue in their entirety upon achieving the related milestone, commonly referred to as the milestone method. Authoritative guidance on the use of the milestone method did not previously exist. Therefore, constituents have raised questions on when and whether the use of this method is appropriate.

This ASU provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. Vendors that provide research or development deliverables in an arrangement in which one or more payments are contingent upon achieving uncertain future events or circumstances are affected by this ASU.

It is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. A vendor may elect, but is not required, to adopt the amendments in this Update retrospectively for all prior periods.

ASUs are available on the FASB website, http://www.fasb.org/ under Standards.

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ASU 2010-16 on Entertainment Casinos

ASU No. 2010-16, Entertainment–Casinos (Topic 924), Accruals for Casino Jackpot Liabilities, a consensus of the FASB Emerging Issues Task Force was issued April 2010 and is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments should be applied by recording a cumulative-effect adjustment which is the difference between the amounts recognized in the statements of financial position before initial application of the amendments in the Update and the amounts recognized in the statement of financial position at initial application of those amendments.

The objective of this ASU is to address diversity in practice in the accounting for casino base jackpot liabilities. It addresses diversity in practice regarding whether an entity accrues liabilities for a base jackpot before it is won, or the entity is not required to award the base jackpot. Some entities do not accrue liabilities for a base jackpot before it is won because they could avoid the payment while other entities accrue liabilities for a base jackpot ratably over the period of play expected to precede payout.

Entities that generate revenue from gaming activities that involve base jackpots are affected by this ASU.

This ASU clarifies that (1) an entity should not accrue jackpot liabilities (or portions thereof) before a jackpot is won, if the entity can avoid paying that jackpot (2) jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot and (3) it applies to both base and progressive jackpots.

ASUs are available on the FASB website, http://www.fasb.org/ under Standards.

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ASU 2010-15 on Financial Services

n April 2010 the FASB issued ASU No. 2010-15 Financial Services—Insurance (Topic 944) How Investments Held Through Separate Accounts Affect an Insurer’s Consolidation Analysis of those Investments (a consensus of the FASB Emerging Issues Task Force). The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early adoption is permitted and the amendments in this ASU should be applied retrospectively to all prior periods upon the date of adoption.

This ASU was issued to address practice questions on how investments held through the separate accounts of an insurance entity affect the consolidation analysis under Subtopic 810-10, Consolidation—Overall. It explains that separate accounts represent assets that are typically maintained by a life insurance entity for purposes of funding obligations to individual contract holders under fixed-benefit or variable annuity contract, personal plans, and similar contracts. The contract holder generally assumes the investment risk, and the insurance entity receives a fee for investment management, certain administrative expenses, and mortality and expense risk assumed. The accounting for separate accounts is outlined in Subtopic 944-80 Financial Services – Insurance – Separate Accounts. That Subtopic requires that the portion of separate account assets representing contract holder funds be measured at fair value and reported in the insurance entity’s financial statements as a summary total, with an equivalent summary total reported for related liabilities if all of the criteria in 944-80-25-2 are met.

Who is Affected?
Insurance entities that have separate accounts that meet the definition of a separate account in paragraph 944-80-25-2 when evaluating whether to consolidate an investment held through the separate account or through a combination of investments in the separate and general accounts are affected by this ASU. The accounting for situations in which an insurer’s general account has a controlling financial interest in an investment is not affected by the amendments in this Update and should follow existing GAAP on consolidations.

The amendments in this Update are specific to insurance entities that have separate accounts and should not be analogized for other entities in no-separate-account arrangements or other investment situations.

ASUs are available on the FASB website, www.fasb.org under Standards.

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Change in Qualifications for the CFF Credential

Many of you may have the experience and qualifications to hold certification in forensic accounting. Since May 2008, the AICPA has had a such a credential. The credential, Certified in Financial Forensics (CFF), combines specialized forensic accounting expertise with the core knowledge and skills that make CPAs among the most trusted business advisers. This credential encompasses fundamental and specialized forensic accounting skills that CPA practitioners apply in a variety of service areas. If, in your practice, you supply services encompassing bankruptcy, insolvency and reorganization; computer forensic analysis; economic damages calculations; family law; fraud prevention, detection and response; financial statement misrepresentation; and valuations then you may be interested in holding the CFF.

To qualify, you must be an AICPA member in good standing, have at least five years of experience in practicing accounting, and meet minimum requirements in relevant business experience and continuing professional education.

Qualifications for the CFF are changing beginning September 1, 2010. After that date you must pass the CFF Examination to attain the CFF Credential. This exam is scheduled for September 29th through October 29th2010. Registration for the exam will begin September 1st and last through October 1st.

You can download the CFF application by going to the AICPA website http://www.aicpa.org/. Look under Interest Area, Forensic and Valuation Services.

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Proposed SSAE, Reporting on Compiled Prospective Financial Statements When the Practitioner’s Independence Is Impaired.

The AICPA Accounting and Review Services Committee (ARSC) has issued a Proposed Statement on Standards for Attestation Engagements (SSAE) Reporting on Compiled Prospective Financial Statements When the Practitioner’s Independence Is Impaired. The proposed SSAE is a result of SSARS No. 19 which, as you are aware, permits, but does not require, the accountant to disclose the reasons he or she was not independent when performing a compilation of historical financial statements.

The ARSC determined that the attestation standards should also be revised so that the practitioner, if he or she chooses, can disclose the reasons for an independence impairment in the compilation report on compiled prospective financial information. The proposed SSAE would amend paragraph .23 of AT section 301, Financial Forecasts and Projections (AICPA, Professional Standards, vol. 1), to permit, but not require, the accountant to disclose the reason(s) for an independence impairment in a report on compiled prospective financial information.

The proposed SSAE was issued June 3, 2010. The comment period ends September 10, 2010

The proposed SSAE would be effective for compilations of prospective financial statements for periods ending on or after December 15, 2010, with early implementation permitted.

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Proposed SAS, Filings With The U.S. Securities And Exchange Commission Under The Securities Act Of 1933

The AICPA Auditing Standards Board has issued another proposed SAS in its Clarity Project. The Proposed SAS, Filings With The U.S. Securities And Exchange Commission Under The Securities Act Of 1933 supersedes SAS No. 37, Filings Under Federal Securities Statutes, (AU sec. 711). The proposed SAS was issued June 1, 2010 with a comment period ending August 2, 2010. It is effective for audits of financial statements for periods ending on or after December 15, 2012.

You’ll recall that the ASB is converging its standards with the International Standard on Auditing (ISA) when an ISA corresponds to the proposed SAS. In the case of this proposed statement there is no ISA that corresponds to the proposed SAS.

As with many of the “clarified” statements this proposed SAS does not change or expand the SAS it supersedes in any significant respect. It does reflect a more principles-based approach to standard setting, so certain requirements that are duplicative of broader requirements in SAS No. 37 have been moved to application and other explanatory material.

You might find the ASB staff prepared supplementary material on this proposed SAS useful. It compares the proposed SAS with AU Section 711 and 9711 and is available on the AICPA website at www.aicpa.org/InterestAreas/AccountingAndAuditing/Resources.

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Our newest publication is the Quarterly Accounting and Auditing Reference Guide. Focusing on accounting, auditing and reporting issues with wide practice applications, this reference aid will benefit non-governmental accountants in public accounting and private industry. Available now at www.cpafirmsupport.com/home/OurServices/tabid/65/Default.aspx.

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Modified Timeline for Convergence of FASB/IASB Major Standards

The IASB and the FASB recently issued a joint statement on their convergence work.

In November 2009 the two Boards reaffirmed their commitment to improving International Financial Reporting Standards (IFRSs) and US GAAP and achieving their convergence. In that statement they affirmed June 2011 as the target date for completing the major projects in the 2006 Memorandum of Understanding (MoU), as updated in 2008. Then in their March 2010 report they described the progress they had made to date, explained some of the challenges they face in improving and converging their standards in certain areas, and reported changes made to certain project-specific milestone targets.

They also recognized the challenges that arise from seeking effective global stakeholder engagement on a large number of projects. As a result of concerns expressed by various stakeholders about their ability to provide high-quality input on the large number of major Exposure Drafts planned for publication in the second quarter of 2010, the two Boards are now in the process of developing a modified strategy to take account of these concerns. This strategy would:

• Prioritize the major projects in the MoU to permit a sharper focus on issues and projects that will bring about significant improvement and convergence between IFRS and US GAAP.
• Stagger the publication of Exposure Drafts and related consultations to enable the broad-based and effective stakeholder participation in due process.
• Limit to four the number of significant or complex Exposure Drafts issued in any one quarter.
• Issue a separate consultation document seeking stakeholder input about effective dates and transition methods.

The modified strategy retains the target completion date of June 2011 for many of the projects identified by the original MoU. The target completion dates for a few projects have extended into the second half of 2011. To see more of theFASB's activities go to their website, http://www.fasb.org/.

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Our newest publication is the Quarterly Accounting and Auditing Reference Guide. Focusing on accounting, auditing and reporting issues with wide practice applications, this reference aid will benefit non-governmental accountants in public accounting and private industry. Available now at www.cpafirmsupport.com/home/OurServices/tabid/65/Default.aspx

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