This week’s GAAP Flash includes articles about potential audit risks for 2017, a new PCAOB staff alert on ASC 606 that discusses auditor considerations, the elimination of goodwill Step 2 impairment testing, and various minor changes to other accounting guidance.

Potential areas of risk for the 2017 audit cycle(October 11, 2017) – Journal of Accountancy (@AICPA_JofA)

The Center for Audit Quality (CAQ) recently released its annual “Select Auditing Considerations for the 2017 Audit Cycle” (2017 CAQ Alert). This alert focuses on some of the more judgmental and/or complex audit areas that firms may encounter during their 2017 audits. Some of the areas include auditor independence (including other auditors in multinational audits), transitioning to new accounting standards (think revenue recognition, leases and credit losses), recurring audit deficiencies, financial reporting areas (going concern evaluations and income tax accounting/disclosures relating to foreign jurisdictions), and increasing transparency through Form AP.

How It’s Relevant: This list might seem extensive, but a lot of these areas have been a consistent focus of the PCAOB. Even though you might not be auditing the new accounting standards for 2017, keep in mind that SAB Topic 11.M (SAB 74) requires a company to discuss the potential effects of the future adoption – so disclosures will be important and will receive a lot of scrutiny! Also, make sure you don’t lose focus on updating and documenting internal controls relating to the adoption of the new standards. With busy season right around the corner, contact us today if you have any customized training needs. Or download our free PCAOB eBook on audit deficiencies!

PCAOB publishes staff audit practice alert on auditing the new accounting standard for revenue(October 5, 2017) – PCAOB News (@PCAOB_News)

The PCAOB has published Staff Audit Practice Alert No. 15: Matters Related to Auditing Revenue from Contracts with Customers, to help auditors apply applicable PCAOB standards when it comes to preparing for (or adopting) ASC 606. The alert highlights many considerations for upcoming audits, including: transition disclosures and transition adjustments, internal control over financial reporting, fraud risks, revenue recognition, and disclosures.

How It’s Relevant: We’ve highlighted so many articles in our recent blog posts about the adoption of ASC 606, but they all focused on the company’s perspective of adoption. There hasn’t been much out there as it relates to auditing the transition and adoption until this alert was issued. There is a lot to consider and hopefully you find this alert helpful. We can also help you prepare – we offer customized revenue recognition workshops, so let us know if you’d be interested!

Goodwill Hunting: Elimination of Step 2 and the implications for public companies (October 11, 2017) – Accounting Today (@AccountingToday)

It’s that time of the year when companies are performing their annual goodwill impairment testing so make sure to let them know that Step 2 has been eliminated by the FASB through the issuance of ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Impairment will be based solely on Step 1: if the fair value of a reporting unit is less than the carrying amount, record an impairment charge equal to the difference (not to exceed the carrying amount of goodwill). While early adoption is permitted for testing dates after January 1, 2017, it’s not required to be adopted until 2020 for public business entities that file with the SEC (2021 for public businesses that are non-SEC filers).

How It’s Relevant: The FASB has been trying to simplify the accounting for goodwill impairment for several years (creating the qualitative Step 0 assessment, revising private company impairment rules) so the elimination of Step 2 is a great next step! Although the cost and complexity of the hypothetical purchase price allocation in Step 2 will be gone, it may result in an increasing number of impairment charges because companies will now have to record an impairment any time the fair value of a reporting unit is less than its carrying amount. We discuss this topic in our U.S. GAAP Update course so make sure you’ve signed up to learn more!

FASB proposes targeted fixes to accounting guidance(October 3, 2017) – Accounting Today (@AccountingToday)

The FASB has a standing project on its agenda to address suggestions received on the codification and make any necessary adjustments or improvements to GAAP, which can include technical corrections, clarifications, and simplifications. During the first week of October, the FASB published a proposed accounting standards update to clarify and address some GAAP inconsistencies. The update includes proposed amendments to 18 different accounting topics!

How It’s Relevant: The FASB has been busy! While the update addresses 18 different topics, they are all relatively minor updates. Some of the main proposals include amendments to Subtopic 718-40, Compensation – Stock Compensation – Income Taxes; Subtopic 805-704, Business Combinations – Income Taxes; and Subtopic 820-10, Fair Value Measurement – Overall. While these changes won’t be effective for your 2017 audits, it’s still important to be aware of what’s being proposed. Before busy season starts, read the proposed update and let the FASB know your thoughts – comments are due by December 4!

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.