ASU No. 2010

The FASB issued ASU No. 2010–20, Receivables (Topic 310) Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses in July 2010.

The objective of this ASU is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. It is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. Currently, a high threshold for recognition of credit impairments impedes timely recognition of losses.

Amendments in this Update:

• Apply to all entities, both public and nonpublic. Affect all entities with financing receivables, excluding short-term trade accounts receivable or receivables measured at fair value or lower of cost or fair value.
• The extent of the effect depends on the relative significance of financing receivables to an entity’s operations and financial position.

Disclosures

This Update requires an entity to provide disclosures that facilitate financial statement users’ evaluation of the following:

• The nature of credit risk inherent in the entity’s portfolio of financing receivables
• How that risk is analyzed and assessed in arriving at the allowance for credit losses
  The changes and reasons for those changes in the allowance for credit losses.

To achieve the above objective, an entity should provide disclosures on a disaggregated basis. The amendments in this Update define two levels of disaggregation—portfolio segment and class of financing receivable.

Effective date

For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Therefore, for calendar year issuers, the year end information will be presented for 2010, but activity for the year will not be presented until 1st quarter 2011.

For nonpublic entities the disclosures are effective for annual reporting periods ending on or after December 15, 2011.

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PCAOB Proposed AS Related to Confiramtions and Related Amendments

If you or your firm audit public companies then you'll be interested in the PCAOB's latest proposed Auditing Standard. The PCAOB released Proposed Auditing Standard Related to Confirmation and Related Amendments to PCAOB Standards on July 13, 2010. The comment period ends September 13, 2010.

The proposed auditing standard, Confirmation,

• Supersedes the Board's standard, AU section 330, The Confirmation Process, and related amendments to the Board's auditing standards.
• Is applicable to all registered firms conducting audits in accordance with PCAOB standards.

The new standard:

• Requires confirmation procedures for specific accounts.
• Incorporates procedures in response to risk of material misstatement.
• Updates the standard to reflect significant advances in technology.
• Defines a confirmation response to include electronic or other medium.
• Enhances requirements when confirmation responses include disclaimers and restrictive language.

In drafting the proposed standard the Board considered International Standard on Auditing (ISA) 505, External Confirmations, issued by the International Auditing and Assurance Standards Board (IAASB) and the Proposed Statement on Auditing Standards, External Confirmations (the ASB's proposed SAS), of the ASB of the AICPA.

The proposed auditing standard may be downloaded from the PCAOB’s website, www.pcaob.com.

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Proposed SAS Interim Financial Information (Redrafted)

The ASB has issued another Proposed SAS as part of its Clarity Project. The Proposed SAS Interim Financial Information (Redrafted) will supersede SAS No. 116, Interim Financial Information (AICPA, Professional Standards, vol. 1, AU sec. 722). It was issued July 8, 2010. The comment period ends October 8, 2010.

The proposed SAS would be effective for reviews of interim financial information for interim periods of fiscal years beginning on or after December 15, 2012.

Changes from existing standards include:

• Change of the term "accountant" to "auditor" because the scope of this proposed SAS is limited to a review of interim financial information performed by the auditor of the financial statements of the entity.
• Consistent with the proposed SAS Revised Applicability of Statement on Auditing No. 116, Interim Financial Information, states that the proposed SAS is applicable when the auditor audited the entity’s latest annual financial statements and the appointment of an auditor to audit the current year financial statements is not effective prior to the beginning of the period covered by the review. This change in applicability will affect current practice in that the auditor may apply AU section 722 even when the auditor does not expect to be engaged to audit the current year financial statements and will allow for appropriate transition between auditors when there is a change in auditors.
• The proposed SAS requires the auditor to issue a written report unless the review of the interim financial information is required by a third party and the third party does not require that the auditor performing the interim review issue a written review report. However, the proposed SAS permits oral reports for entities that are subject to external requirements to report in a manner that is substantially similar to the reporting required of issuers, pursuant to PCOAB AU section 722, Interim Financial Information (AICPA, PCAOB Standards and Related Rules, PCAOB Standards, Interim Standards). This change in requirements will affect current practice by limiting the circumstances in which an oral report is permitted.
• The proposed SAS requires the auditor, before accepting the engagement, (i) to review the interim financial information to determine whether the financial reporting framework to be applied in the preparation of the interim financial information is acceptable and (ii) to obtain the agreement of management that it acknowledges and understands its responsibility for certain specified matters.
• The proposed SAS requires a statement that the review of interim financial information was conducted in accordance with auditing standards generally accepted in the United States of America.

The Proposed SAS may be downloaded from the AICPA website, http://www.aicpa.org/.

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FASB Staff Draft on Financial Statement Presentation

The FASB and the IASB took an unusual step on July 1, 2010 by issuing a Staff Draft of an Exposure Draft on Financial Statement Presentation that prescribes the basis for presentation of general purpose financial statements to ensure consistency with an entity’s financial statements for previous periods and to promote comparability with the financial statements of other entities. It sets out overall requirements for the presentation of financial statements, requirements for the structure of financial statements, and principles for classification and disaggregation of information in the statements.

The draft reflects the cumulative, tentative decisions made by the Boards concluding with their joint meeting in April 2010. Work on the project is continuing, and the proposals are subject to change before the Boards decide to publish an Exposure Draft for public comment.

This Staff Draft reflects the Boards’ decision to engage in additional outreach activities before finalizing and publishing an Exposure Draft. Those activities will focus primarily on two areas: (1) the perceived benefits and costs of the proposals and (2) the implications of the proposals for financial reporting by financial services entities.

While the Boards are not formally inviting comments on this staff draft they welcome input from interested parties. They expect to publish an Exposure Draft for public comment in early 2011.

Scope
An entity shall apply this proposed guidance in preparing and presenting general purpose financial statements in accordance with U.S. GAAP. It applies equally to all entities except a not-for-profit entity and a benefit plan within the scope of the FASB Accounting Standards Codification™ Topics 960, Plan Accounting—Defined Benefit Pension Plans; 962, Plan Accounting—Defined Contribution Pension Plans; and 965, Plan Accounting—Health and Welfare Benefit Plans. In addition investment companies and other entities identified in Codification paragraph 230-10-15-4 are not required to present a statement of cash flows.

This proposed guidance does not change the accounting principles and reporting practices in Codification Topic 270, Interim Reporting.

The Staff Draft is available on the FASB website, 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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New Proposed ASU on Revenue Recognition

The joint project on revenue recognition of the FASB and the IASB has resulted in a recently released Exposure Draft. The Proposed Accounting Standards Update, Revenue Recognition (Topic 605), Revenue from Contracts with Customers was issued June 24, 2010 with a comment period ending October 22, 2010. The Proposed ASU was issued to improve both U.S. GAAP and IFRSs standards that cover revenue recognition by removing inconsistencies and weaknesses in existing revenue recognition standards and practices; providing a more robust framework for addressing revenue recognition issues; improving comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; and simplifying the preparation of financial statements by reducing the number of requirements to which entities must refer.

Who is affected?
The proposed guidance would affect any entity that enters into contracts to provide goods or services that are an output of the entity’s ordinary activities, unless those contracts are within the scope of other requirements of U.S. GAAP or IFRSs.

You should be aware that the proposed guidance would supersede most of the guidance on revenue recognition in Topic 605. In addition, the existing requirements for the recognition of a gain or loss on the sale of some nonfinancial assets that are not an output of the entity’s ordinary activities (for example, property, plant, and equipment within the scope of Topic 360 or IAS 16, Property, Plant and Equipment, or IAS 40, Investment Property) would be amended to be consistent with the proposed revenue recognition and measurement requirements.

Main Proposals
The Proposed ASU specifies the principles that an entity would apply to report useful information about the amount, timing, and uncertainty of revenue and cash flows arising from its contracts to provide goods or services to customers. The core principle would require an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it receives, or expects to receive, in exchange for those goods or services.

It also specifies the accounting for some costs. An entity would recognize the costs of obtaining a contract as expenses when incurred. If the costs incurred in fulfilling a contract are not eligible for capitalization in accordance with other standards an entity would recognize an asset only if those costs relate directly to a contract; generate or enhance resources of the entity that will be used in satisfying performance obligations in the future; and are expected to be recovered.

The Proposed ASU also covers identifying the contract(s) with a customer; determining the transaction price;allocating the transaction price to the separate performance obligations; and recognizing revenue when a performance obligation is satisfied

The Proposed ASU requires disclosures to help users of financial statements understand the amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. An entity would be required to disclose more information about its contracts with customers than is currently required, including more disaggregated information about recognized revenue and more information about its performance obligations remaining at the end of the reporting period.

Effective Date
The Boards have not designated an effective date for this Proposed ASU.
The Proposed ASU is available for download at www.fasb.org

Tell us how you think it will affect your practice by adding a comment.

New Publication
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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