Weekly Summary of Accounting, SEC and Auditing Developments

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June 15-19, 2020

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ACCOUNTING AND SEC HEADLINES:

Checklist – New Edition of Summary of Recent Authoritative IFRS Checklist Published 

We published a new edition of our “Summary Checklist of Recent Authoritative International Financial Reporting Standards" to reflect the amendments made to IFRS No. 16, Leases, by Covid-19-Related Rent Concessions, to make it easier for lessees to account for COVID-19-related rent concessions such as rent holidays and temporary rent reductions.

The amendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the COVID-19 pandemic are lease modifications and allow lessees to account for such rent concessions as if they were not lease modifications. It applies to COVID-19-related rent concessions that reduce lease payments due on or before June 30, 2021.

VIE Checklist – New Edition of VIE Checklist Published 

We have published a new version of our Variable Interest Entity (VIE) Checklist, This checklist is designed to aid the reporting entity in evaluating and documenting the VIE consolidation decision under the variable interest model in FASB Accounting Standards Codification Topic 810, Consolidation. It includes any ASUs Issued through June 1, 2020. Users of this content after this date should make themselves aware of subsequent changes.

Consolidation – New Edition of Consolidation Interpretation Published 

We have published a new edition of our interpretation, Interpretations of Topic 810, Consolidation, which provides key questions and focused answers on the application of Topic 810 updated through 6/1/20. Users of this content after this date should make themselves aware of subsequent changes.

In addition, this publication includes a practice aid in the Appendix, Consolidation Decision Evaluation Under the Variable Interest Model and is to be used as a tool for purposes of evaluating whether a reporting entity should consolidate a variable interest entity.

Derivatives and Hedging – New Edition of Derivatives and Hedging Interpretation Published 

We have published a new edition of our publication, Derivatives and Hedging — Interpretations of U.S. GAAP. We have updated the publication to reflect amendments of the FASB Accounting Standards CodificationTM through FASB Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (issued March 12, 2020). We have updated the publication to reflect these and other changes in the past year.

Financial Instruments – New Edition of GAAP Update Service Discusses FASB Codification Updates for Financial Instruments and Credit Losses 

We have published a new edition of the GAAP Update Service that discusses FASB changes to the accounting rules on financial instruments and credit losses. This newsletter covers two new standards issued in the first quarter of 2020. These standards accomplish the following:

  • Add SEC Staff guidance on accounting for credit losses under the new credit loss standard to the Codification (ASU No. 2020-02).
  • Make a handful of improvements to financial instrument rules to clarify: fair value disclosures related to the use of the fair value option; lessor accounting for credit losses related to net investments in a lease; and the application of the new credit loss accounting rules to the re-recognition of previously sold or transferred receivables (ASU No. 2020-03).

Public companies should consider the SEC Staff guidance as they implement the new credit loss accounting rules (Topic 326). The effective dates of the codification improvements to financial instruments are specific to the individual topic that is being amended.

Variable Annuity Contracts – SEC Publishes Technical Corrections to Final Rule on Variable Annuity and Variable Life Insurance Contracts 

The SEC has published technical corrections to amendments to disclosure requirements and summary prospectus for variable annuity and variable life insurance contracts previously adopted in March 2020.

Specifically, this document amends Instructions 15(d) and 18(b) published in the previous release. Instruction 15(d) is amended to redesignate Note 2 to rule 405 of Regulation S-T as Note 1 to rule 405 of Regulation S-T, and Instruction 18(b) is amended to replace the reference to Item 3 of Form N-14 with a reference to Item 5(c) of Form N-14.

These technical corrections are effective July 1, 2020.

AUDITING AND INTERNAL CONTROLS HEADLINES:

Preparation, Compilation, and Review Engagements – 2020-2021 Edition of KBA Guide Published 

We have published the 2020-2021 Knowledge-BasedTM Preparation, Compilation, and Review Engagements. This toolset is designed to help the accountant efficiently and effectively perform financial statement preparation engagements, compilations, and reviews of nonpublic commercial entities in accordance with Statements on Standards for Accounting and Review Services (SSARS) issued by the Accounting and Review Services Committee (ARSC) of the AICPA.

The 2020-2021 tools include links to detailed analyses related to the steps and processes discussed in the workpapers. Also included is a revised financial statement disclosures checklist that provides a centralized resource of the required and recommended U.S. GAAP disclosures and key presentation items currently in effect, using the style referencing under the FASB Accounting Standards Codification.™

The tools in this edition of Knowledge-BasedTM Preparation, Compilation, and Review Engagements have been updated, where applicable, to take into account the latest literature, standards, and guidance applicable to preparation, compilation, and review engagements, including Statement on Standards for Accounting and Review Services (SSARS-25), Materiality in a Review of Financial Statements and Adverse Conclusions; and the AICPA Guide Preparation, Compilation and Review Engagements.

SSARS-25 is effective for engagements performed in accordance with SSARSs for periods ending on or after December 15, 2021. Early implementation is permitted. This edition fully implements the provisions of SSARS-25. If you do not wish to implement SSARS-25, the previous edition of this toolset should be used.

Commercial Entities – 2020-2021 Edition of KBA of Commercial Entities Published 

We have published the 2020-2021 edition of Knowledge-Based AuditsTM of Commercial Entities. This publication is designed to help the auditor efficiently and effectively perform financial statement audits and, when applicable, audits of internal control over financial reporting, of nonpublic commercial entities in accordance with auditing standards generally accepted in the United States of America (U.S. GAAS).

This edition of Knowledge-Based AuditsTM of Commercial Entities includes revisions, updates, and enhancements to reflect current accounting authoritative literature including, among other things:

  • AICPA Statement on Auditing Standards (SAS) No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements;
  • SAS No. 135, Omnibus Statement on Auditing Standards – 2019;
  • SAS No. 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports;
  • SAS No. 138, Amendments to the Description of the Concept of Materiality;
  • SAS No. 139, Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes From SAS No. 134;
  • SAS No. 140, Amendments to AU-C Sections 725, 730, 930, 935, and 940 to Incorporate Auditor Reporting Changes From SAS Nos. 134 and 137; and
  • AICPA Ethics Interpretation, Information System Services (ET sec.1.295.145 ).

Auditor Reporting – New Edition of GAAS Update Service Discusses Auditor Reporting Changes from SAS 139 

We have published a new edition of the GAAS Update Service that discusses the AICPA’s Auditing Standards Board (ASB) issuance of Statement on Auditing Standards No. 139 (SAS139), Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes From SAS No. 134.

The new standard reflects the issuance of SAS-134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, SAS-136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, and SAS-137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports.

Payroll Protection Program – AICPA Issues New TQAs on Accounting for Loans under the PPP 

The AICPA has issued a new Technical Question and Answer (TQA) under Section 3200, Long-Term Debt.

TQA Section 3200, Long-Term Debt, includes guidance for accounting for loans that constitute long-term debt. As with all the AICPA accounting TQAs, it is provided in the form of questions and answers for practitioners in application of FASB standards. This update adds TQA Section 3200.18, “Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program.”

The Paycheck Protection Program (PPP) is available through the Small Business Administration. The PPP provides small businesses with loans to help pay payroll costs, mortgages, rent, and utilities during the COVID-19 (coronavirus) crisis. All payments of principal, interest, and fees under the loans are deferred for a period of time. The loans are also forgiven for payroll costs, mortgage or rent obligations, and certain utility payments incurred between February 15, 2020, and December 31, 2020. The amount forgiven is excluded from gross income of the eligible recipient and is not considered cancellation of debt income for federal income tax purposes. The loans are 100 percent guaranteed by the SBA.

New TQA 3200.18 asks the question, “How should a nongovernmental entity account for a forgivable loan received under the Small Business Administration Paycheck Protection Program (PPP)?”

The answer notes at the outset that, “Given the unique nature of the PPP, questions have arisen relating to how a borrower under the program should account for the arrangement. Although the legal form of the PPP loan is debt, some believe that the loan is, in substance, a government grant.” In addition, the Staff of the SEC’s Office of the Chief Accountant has indicated that they “would not object to an SEC registrant accounting for a PPP loan under FASB Accounting Standards Codification (ASC) 470, Debt, or as a government grant by analogy to International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance.”

The guidance in TQA 3200.18 provides a detailed answer to that question, including guidance tailored to entities that are business entities or not-for-profits. It also provides a table with an overview of the accounting for the loan as debt or as a grant that is expected to be forgiven.

GOVERNMENTAL GAAP HEADLINES:

Cloud Computing – GASB Issues Statement No. 96 on Cloud Computing and Subscription-Based Information Technology Arrangements 

The GASB has issued Statement No. 96, Subscription-Based Information Technology Arrangements. Statement 96 provides new accounting and financial reporting guidance for subscription-based information technology arrangements (SBITAs), which have become increasingly common among state and local governments in recent years.

Statement 96 is based on the standards established in Statement 87, Leases. Statement 96. It:

  • Defines a SBITA as a contract that conveys control of the right to use a SBITA vendor’s IT software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.
  • Requires governments with SBITAs to recognize a right-to-use subscription asset, an intangible asset, and a corresponding subscription liability (with an exception for short-term SBITAs, those with a maximum possible term of 12 months).
  • Provides guidance related to outlays other than subscription payments, including implementation costs, and requirements for note disclosures related to a SBITA.

Although existing GASB literature addresses computer software that is internally developed or commercially purchased through perpetual licensing agreements, stakeholders have raised questions regarding cloud computing and other subscription-based forms of software applications and data storage. The new guidance should remedy existing inconsistencies in accounting and financial reporting for SBITAs.

The Statement is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. Early application is encouraged. In order to give state and local governments and other stakeholders additional time to deal with circumstances arising from the COVID-19 pandemic, this date is one year later than what the GASB proposed in the Exposure Draft.

Checklist – New Edition of Summary of Recent GASB Standards Published 

We have published a new edition of our “Summary Checklist of Recent GASB Standards,” for the release of GASB Statement 96, Subscription-Based Information Technology Arrangements, which is discussed above.

GASB Implementation Guide – New Edition of Governmental GAAP Update Service Discusses GASB Implementation Guide 

We have published a new edition of the Governmental GAAP Update Service that discusses the finalized questions within the GASB’s Implementation Guide 2020 and the implementation provisions.

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