This week’s GAAP Flash includes articles implementing the new CECL model under ASC 326, disclosing a material weakness in internal controls over financial reporting (PCAOB AS 5), regulator sanctions, and other accounting news provided to help increase business acumen of CPAs.

Credit Loss Standard Implementation Tips (March 16, 2017) – Journal of Accountancy (@AICPA_JofA)

According to the article, banks are quickly learning that the FASB’s new expected credit loss (CECL) standard presents significant implementation challenges. ASC 326 takes effect for SEC filers beginning after December 15, 2019, while other organization have a year to prepare. A recent survey by Deloitte found that the largest banks already are gathering resources and personnel to handle this monumental task. The article provides tips for bank finance executives as they are implementing CECL.

How It’s Relevant: Upon adoption of ASC 326, banks can expect their allowance for loan losses to increase. Why? Because CECL requires banks to reserve for expected losses, rather than incurred losses, as is required under current U.S. GAAP. The new standard will require banks to implement new models, processes, systems, and internal controls. “Don’t wait,” said Irv Bisnov, U.S. banking audit leader at Deloitte & Touche LLP. “Don’t put this off. This is not something that you’re going to be able to implement in a couple of weeks’ time. This is a very, very large initiative.”

Whether it’s a 2-week “banking boot camp” for your new hires, or a 1-day Banking Update course, we’ve got you covered to ensure your personnel are knowledgeable of the latest developments affecting banks and other financial institutions, including CECL.

Trivago Ramps Up GAAP Expertise After Material Weakness Disclosure (March 13, 2017) – WSJ CFO Journal (@CFOJournal)

In a filing with the SEC, Trivago said it had “limited accounting personnel and other resources” prior to its initial public offering in December. Finance chief Axel Hefer said the company didn’t have enough employees experienced in U.S. reporting requirements, making it heavily reliant on outside consultant and advisors. Trivago disclosed this material weakness in internal controls over financial reporting in its most recent Form 20-F, although Mr. Hefner said the company plan to have eliminated all internal control issues before its next Form 20-F filing in 2018.

How It’s Relevant: Many entities, especially foreign companies or those that recently went public, struggle to ensure proper accounting expertise throughout their organizations. We’ve helped a Big 4 firm implement a worldwide U.S. GAAP accreditation program and a Fortune 100 company increase the level U.S. GAAP and IFRS knowledge. We can help your organization too!

PCAOB Sanctions Former PricewaterhouseCoopers Brazil Partner for Audit Failures (March 20, 2017) – Public Company Accounting Oversight Board (@PCAOB_News)

The PCAOB announced sanctions against a former partner of PricewaterhouseCoopers Auditores Independentes in Brazil for audit failures and violations of PCAOB rules and standards. “Audit quality is a global issue,” said PCAOB Chairman James R. Doty. “As this order demonstrates, the Board is committed to investigating and disciplining auditors who present risks to investors in the U.S. markets, regardless of where the audit is conducted.”

How It’s Relevant: Four out of ten audits contain deficiencies according to our analysis of PCAOB inspection reports, although a recent survey by the International Forum of Independent Audit Regulators (IFIAR) shows a decline in audit firm inspection findings compared to last year. We agree wholeheartedly with Mr. Duty and, at the request of our global member firm clients, have developed a course designed to help them improve audit quality.

Auditor Charged with Insider Trading on Client’s Nonpublic Information (March 14, 2017) – The Securities and Exchange Commission (@SEC_News)

The SEC announced that an auditor based in Silicon Valley has agreed to settle charges that he traded on inside information about a client. Through his work at an independent audit firm, the auditor learned that his client was about to acquire another company and, using this information, purchased out-of-money call options in the common stock of the acquisition target. To make matters worse, he roped his fiancée and mother into his scheme. And for what? A measly $43,000!

How It’s Relevant: Between disgorgement and fines, the auditor agreed to pay $87,000. Furthermore, he was immediately terminated when his employer discovered his misconduct. And I’ll bet the marriage is put on hold, although I am speculating here. Forrest Gump had some great advice that applies in this situation!

SEC Regulators Should Adopt Global Financial Reporting Language for Better Business (March 21, 2017) – Accounting Today (@AccountingToday)

This op-ed article makes the argument that the SEC should adopt IFRS in the U.S., stating that IFRS is already the global financial reporting language. The author states that over 125 jurisdictions around the world have already moved to IFRS and China, India, and Japan are next. He states there has been some success, citing the FASB and IASB convergence project, although he admittedly notes “the process has waned in recent years.” He writes, “A new administration and new blood at the SEC with a pro-business agenda and enthusiasm for capital market growth may change all that.”

How It’s Relevant: I hate to be “Downer Debbie,” but none of the main projects (revenue recognition, leases, and financial instruments) have resulted in convergence between U.S. GAAP and IFRS. In fact, they are creating more differences! Furthermore, the author might want to follow POTUS on Twitter. Does he honestly think the President, the same guy who wants to impose tariffs, back out of the UN, or decrease funding to NATO is going to put America’s accounting rulemaking in the hands of the IASB. I heard he sought council from former President George H.W. Bush. President Bush wasn’t available, but Dana Carvey was!

Disclaimer
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