This GAAP Flash includes articles about the newly released IFRS insurance standard (IFRS 17), the PCAOB moving away from risk-based audit selections, how ASU 2016-01 will impact the reporting of minority investments, and ACCA recommendations on how an auditor should handle potential biases.

IASB releases insurance contracts standard (May 17, 2017) – Accounting Today (@AccountingToday)

After more than a decade of waiting, IFRS 4 has finally been replaced with a new insurance standard, IFRS 17. The new standard requires that all insurance obligations are reported using current values, rather than historical costs. Under IFRS 4, there was more reporting flexibility, and as a result, diversity in accounting practices, than there was under U.S. GAAP. The IASB and FASB have been working for years to improve insurance company reporting, so this is a welcome change! The effective date is January 1, 2021, so there is plenty of time for impacted companies to prepare for this revision.

How It’s Relevant: The changes in IFRS 17 are significant, and there will be substantial impacts on insurance companies and their investors. This undertaking requires a significant amount of work for companies to change accounting procedures and reporting methods. But ultimately, IFRS 17 will allow investors to compare insurance companies’ financial reports much more accurately! We will cover IFRS 17, along with other pertinent information in our IFRS update course.

PCAOB Trying Different Tack in Selecting Audits (May 10, 2017) – CFO Newsletters (@CFO)

In the past, the PCAOB inspections were primarily selected using a risk-based approach. This past April, it was discovered that a PCAOB employee had given auditors a heads up about upcoming inspections. Last week, it was announced that to give the board a more complete representation of audit quality, they will be “incorporating an element of randomization” to the process.

How It’s Relevant: In anticipation of this shift, it is important that all firms subject to PCAOB audits are prepared! GAAP Dynamics has a plethora of information available to help improve the quality of your audits. For instance, our PCAOB eBook, our blog about important observations from the most recent PCAOB inspection report, and our day-long audit quality course. As always, please feel free to reach out to us with any questions you may have!

A Little-Known Accounting Change Could Have Big Impact (May 12, 2017) – New York Times (@nytimes)

Starting on December 15, ASU 2016-01 outlines how public companies with minority investments in other businesses (typically less than 20% ownership) will need to change how they are accounted for and reported. Currently, these investments are reported on the balance sheet at cost (ASC 321). If the investment decreases in value, the books are adjusted, but nothing is updated if the investment increases in value. Going forward, companies will need to report decreases and increases in their investments, either quarterly or when there is a market event.

How It’s Relevant: This change could impact how the financial statements are interpreted. If there is a large gain in a minority investment, the asset on the balance sheet increases and the gain flows through to the income statement. Since these investments are not part of their “core business,” the P&L statement could be misleading. It can also be argued that the time and money that need to be put into watching the investment fluctuations is too high. This modification is yet another recent change in how investments are being reported.

ACCA recommends auditors be more skeptical (May 10, 2017) Accounting Today (@AccountingToday)

The Association of Chartered Certified Accountants released a report that recommends auditing standards be designed to decrease the chance of biases in the field. The “human factor” during an audit is inevitable, and professional skepticism has been a focus since the global financial crisis. Implementing quality procedures can help how possible weaknesses are managed.

How It’s Relevant: As an auditor, applying professional skepticism while performing an audit is a priority. However, there are times that even subconscious biases affect the process. Taking intentional steps to minimize any oversights is necessary. What types of steps can be taken? Our audit quality course provides excellent guidance on common audit deficiencies!

FASB issues update on modification accounting for shared-based payment awards (May 10, 2017) – Journal of Accountancy (@AICPA_JofA)

Last week, FASB issued ASU 2017-09 which should give clarity on when to apply modification accounting involving stock compensation (ASC 718). Generally, when changes are made to the terms or conditions of stock incentives, modification accounting should be implemented. However, there had been confusion as to what types of terms or conditions trigger this change.

How It’s Relevant: Last year, we wrote a blog about how ASU 2016-09 simplified the accounting for stock compensations. This was one of the topics FASB focused on during their simplification initiative. Obviously, clarification and updates are constant, which is why it is so important to keep up with the changes. Our Essential U.S. GAAP Update course is a great way to ensure you are on top of your game!

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.