Top 5 Meme(ories) from the AICPA National Conference
Top 5 Meme(ories) from the AICPA National Conference

Top 5 Meme(ories) from the AICPA National Conference

The AICPA National Conference on Current SEC and PCAOB Developments was held in Washington, D.C,. on December 9 –11, 2015. We have always referred to this event as the “Woodstock of Accounting,” and all the rock stars of accounting were there, including GAAP Dynamics. From SEC developments and hot topics to deficiencies noted in PCAOB inspection reports, we’ve summarized the highlights below in a unique way. Enjoy!

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Did you think the new revenue recognition standard was THE big one, the queen mother of all new standards? Well, the FASB has two additional standards in store for you, impairment of financial instruments and leasing, that they will issue during the first few months of 2016. These standards affect companies in all industries and are not effective until 2018 (or beyond). However, companies must begin to assess the standards’ impact now, as they will affect companies’ processes, internal controls and financial statement disclosures.

So how are companies doing? Well, if the new revenue recognition standard is any indication, not good. Only 17% of companies surveyed at the conference had completed their initial assessment of the new revenue recognition standard’s impact. A key message at the conference was it is time for companies to get off the sideline and into the game!

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While accounting restatements are down, there were still 541 restatements through the beginning of September 2015. The topics most commonly identified in restatements were:

  • Debt vs. equity accounting
  • Statement of cash flows classification
  • Income tax accounting

Of course, if companies are unsure about the accounting, they can and should consult the SEC. The most frequently consulted topics were:

  • Revenue recognition
  • Business combinations
  • Identification and reporting of segments

Note that the frequently consulted topics are not the same topics causing restatements. Coincidence? I think not! Companies and their auditors should continue to identify and seek input on accounting application questions to avoid being viewed as “les incompetents.”

And watch out for those non-GAAP measures disclosed in your annual report! Hans Hoogervorst, Chairman of the IASB, stated, “The world of financial statements needs to be the anchor of trust for investors, rather than the sugar-coated realm of non-GAAP measures.” Non-GAAP measures are not bad, they just shouldn’t be a source of confusion when viewed with GAAP financial statements.

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Given the recurring nature of audit deficiencies noted in PCAOB inspections, it may seem that auditors need Clarence to show them the way. The reigning champion of audits deficiencies did not lose its belt in the current year: Auditor attestation of the design and effectiveness of internal controls over financial reporting (ICFR) continues to be the number one inspection issue. Other key areas of deficiencies include:

  • Assessing and responding to the risk of material misstatement
  • Auditing accounting estimates, including fair value measurements

At the conference, we learned that according to emerging research from the PCAOB’s Center for Economic Analysis, when the PCAOB identified an audit deficiency, the engagement partner and quality reviewer increased their effort, and there was a significant decrease in restatement risk.

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How long have we talked about IFRS being required, or at least permitted, for domestic registrants in the United States? We can remember as far back as 2007 preaching IFRS! OH MY GOD! IFRS IS COMING! WE KNOW IT! WE KNOW IT!

Although the recession helped quell the IFRS talk, recently it has reappeared in two forms: 1.) Exploring the possibility of allowing U.S. companies to voluntarily disclose IFRS information within their U.S. GAAP financial statements, and 2.) Convergence. Various speeches cited the poster child of convergence — the new revenue recognition standards. Although we applaud the converged revenue standard, we have serious doubts about achieving the goal of a one world set of accounting standards, especially given the significant differences in proposed standards for impairment of financial instruments and leasing. As such, we continue to recommend that international accountants be bilingual in both U.S. GAAP and IFRS.

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A key theme at the conference was the ongoing initiative to make financial statement disclosures more effective. Not just reducing the volume and complexity, but also considering whether investors actually need more information in certain areas, such as foreign tax disclosures. Companies must do their part too, particularly by removing redundancies, boilerplate language and unnecessary information. Currently the majority of disclosure effectiveness is driven by the proactive work of companies and organizations. However, both the SEC and FASB have projects associated with disclosure initiatives on their plates in hopes to create the hap, hap, happiest financial statement users.

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Companies and their auditors have a lot to think about going into the New Year. Of course there were many more nuggets that we learned at the AICPA conference, but we wanted to keep it short … so you can get your holiday shopping done! We wish you and yours all the best this holiday season!!

accounting and auditing update

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