Our last three GAAP Flash posts discussed the accounting change that’s happening with the transition, implementation, and adoption of the “Big 3” accounting standards – ASC 606 – Revenue from Contracts with Customers, ASC 842 – Leases, and ASC 326, Financial Instruments – Credit Losses (CECL). However, that’s not all the accounting change that’s happening. Although many of us accountants might be in the foggy haze of The Big 3, we can’t forget to come up for air and see what else is happening in the accounting and auditing world.

FASB is Changing Leases

Well . . .changing might be a strong word, but the FASB did issue ASU 2018-10, Codification Improvements to Topic 842, Leases, which provides mostly minor revisions and technical corrections to the leasing standard. Many of the items addressed in this new ASU have arisen from inquiries the FASB staff has been fielding to help stakeholders transition to the new lease standard. There is a great summary table at the beginning of the ASU that details the amendments made.

Public entities will be transitioning to and implementing the new lease standard over the next 5 months. Our June GAAP Flash provided some resources for preparing for the new lease standard that will be beneficial to you. Note that there is also a proposed ASU that is specific to a new optional transition method to adopt the new lease requirements that you’ll want to keep on your radar.

PCAOB is Changing the Auditor’s Report

The auditor’s reporting model has not significantly changed over the past 70 years, so we were likely due for a bit of change to the auditor’s report. The PCAOB issued a new auditing standard and other amendments: The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion in June 2017. This new guidance will be implemented in two phases. Phase One was effective for audits of fiscal years ending on or after December 15, 2017. This phase includes changes to the auditor’s report to standardize its form, enhance some of the language, include a statement on auditor independence, and disclose the audit firm’s tenure.

Although the Phase One changes are pretty interesting, the Phase Two changes are garnering more attention. The changes in Phase Two are centered around the auditor disclosing Critical Audit Maters (CAMs) in the auditor’s report. This previous blog post will be helpful to our auditor friends in trying to determine what qualifies as a CAM and therefore has to be disclosed in the auditor’s report. Phase Two of this new auditing standard is effective for audits of fiscal years ending on or after June 30, 2019 for large accelerated filers and for fiscal years ending on or after December 15, 2020 for all other companies. So, there is still a bit of runway left for auditors, management, and audit committees to have discussions about their CAMs.

Another resource that might help in the understanding of CAMs and what to expect in the coming year is the Key Concepts and FAQs that’s just been released by the Center for Audit Quality. The guide is aimed at investors, audit committees, and other users of the financial statements, but it could be helpful for management and auditors as well.

GAO is Changing Auditing Standards

The Government Accountability Office (GAO) has not updated their guidance on Generally Accepted Government Auditing Standards (GAGAS) since 2011; however, they have recently issued an updated version of the “Yellow Book”. The 2018 revision of the Yellow Book introduces a new format that distinguishes requirements from application guidance, which hopes to provide better clarity for government auditors. It also includes updated independence requirements for auditors who prepare the financial statements of audited entities; revised peer review requirements for audit organizations; more guidance on waste and abuse, including a definition of waste and abuse; and updated internal control guidance for performance audits.

The 2018 revision of the Yellow Book is effective for financial audits, attestation engagements, and reviews of financial statements for periods ending on or after June 30, 2020, and for performance audits beginning on or after July 1, 2019.

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.