This week’s GAAP Flash includes articles about FASB’s clarification on business combinations versus asset acquisitions, the rising confidence in PCAOB-inspected auditors, the IASB’s proposals to clarify accounting policies and estimates, and the potential impact of the Equifax data breach on the tax filing season.

FASB’s clarification of the definition of a business has wide implications (September 12, 2017) – Accounting Today (@AccountingToday)

ASU 2017-01, Business Combinations (ASC 805): Clarifying the Definition of a Business, was recently issued by the FASB to address concerns that the definition of a business was too broad and challenging to apply. Under the new ASU definition, to be considered a business, a set of assets and activities need to have an input and a substantive process. Together they must significantly contribute to the ability to create outputs. The new guidance provides a framework to evaluate when an input and a substantive process are present. There are also more stringent criteria for sets of assets and activities without outputs to be considered businesses. ASU 2017-01 is effective for public companies in 2018.

How It’s Relevant: Determining whether you have an asset acquisition or a business combination is extremely important! There are many differences in the accounting rules, such as how to account for transaction costs, identifying goodwill, and when to recognize contingent consideration. Essentially, ASU 2017-01 is narrowing the definition of what constitutes a business. Fewer transactions are expected to involve acquiring or selling a business, especially in the real estate industry. As a refresher, refer to our summarized synopsis on the overall differences between a business combination and asset acquisition. Check out this blog post which summarizes the changes as a result of the new ASU! As always, feel free to contact us to help you navigate this complex area in accounting.

PCAOB Probes Help Companies Raise Capital (September 7, 2017) CFO – (@CFO)

A new study shows that after companies are audited by PCAOB-inspected auditors, they are able to raise more capital and issue more debt and equity capital once the report is disclosed. In addition, the extent to which companies change their behavior in respect to raising capital is directly associated with the contents of the report. Both U.S. and non-U.S. companies registered with the Securities and Exchange Commission must be audited by the PCAOB.

How It’s Relevant: There clearly seems to be a respect and trust in the PCAOB-inspected auditors according to the study! When the Sarbanes-Oxley Act of 2002 established the PCAOB to oversee audits of public companies, they were striving for accuracy and transparency in the profession. This study is evidence that the PCAOB is respected and inventors have trust in the auditors. Learn more about the PCAOB inspection report trends in our free eBook!

IASB proposes changes around accounting policies and estimates (September 12, 2017) – Journal of Accountancy (@AICPA_JofA)

The International Accounting Standards Board proposed amendments to IAS 8 which would clarify accounting policies from accounting estimates. This distinction is vital because changes in accounting estimates can impact the profit and loss statements, while accounting policies typically do not. The proposed amendment would clarify the following:

• How estimates and policies relate to each other by making the definition of accounting policies clearer, and explaining that estimates are used in applying policies
• If an estimation or valuation technique cannot be measured with precision it is an accounting estimate
• The selection FIFO or weighted average method for interchangeable inventories is considered a selection of accounting policy

How It’s Relevant: If the proposed changes are finalized, IFRS financial statements will be more comparable and consistent. The IFRS Interpretations Committee realized that companies were not applying the standards uniformly. This specific guidance would make it easier for companies to be confident in their accounting policy and estimate decisions. Stay confident in your IFRS knowledge! Our Essential IFRS Update course makes it easy to stay up to date with IFRS changes.

How Equifax hackers could file taxes in your name and get a refund from the IRS (September 10, 2017) – MarketWatch (@MarketWatch)

The Equifax data breach may have affected up to 143 million people in the United States! The consequences may have lasting effects, and the FTC is recommending that tax returns are filed early. Recently there have been many telephone, email, and text message scams, in which fraudsters demand personal information. Be very wary of this type of communication, as the IRS only initiates contact with taxpayers through the mail.

How It’s Relevant: You should file your tax return as soon as you have all of your information! Identity theft has been an issue in this arena for years. Scammers will file a tax return under your social security number very early, often before the IRS even receives their copy of your W-2s, 1099s, and other tax forms. By the time you file your return, a refund has already been issued to someone else who used your social security number. With all of this newly leaked personal information floating around, it is more important than ever not to procrastinate!

Disclaimer  

This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.