This report covers independence, conflicts of interest, and contingent fee issues. CPAFMA enables accounting firm managers to communicate with one another and provide each other with the benefits of everyone’s experiences in what was a new and emerging profession through a combination of local meetings and seminars, and national conferences, publications and surveys. Emailed monthly technical reports covering a variety of A&A topics. The reports include advisories about new pronouncements, explanations of difficult concepts, and specific guidance on implementation issues that practitioners likely can expect to encounter when working with clients. Through responses to technical inquiries, reports, alerts, webcasts, and training sessions, the CPEA’s team of experts provide A&A support by describing “how to do” what you “need to do” in implementing the authoritative literature. We pose several questions each year, and we receive timely written responses–every time.
On May 13, 2020, the AICPA, through the Center for Plain English Accounting , released a report (“Accounting in the Fog of War – Treatment of PPP Loans”) to provide clarification on the accounting considerations. In short, the CPEA provides information about evolving technical issues and answers to specific accounting and auditing questions. Practitioners can provide some assistance but not all services are permissible. Practitioners may provide guidance, advice and recommendations that help management or another service provider design or develop policies, procedures, controls or systems. aicpa center for plain english accounting In addition to impairment considerations, such changes could cause the estimated useful lives of such assets to be shortened for depreciation or amortization purposes. If a lessee has adopted ASC Topic 842, “Leases,” the impairment requirements of Topic 360 will also apply to right-of-use assets recognized on leasing arrangements recorded under Topic 842. Because of the worldwide adverse effects of the COVID-19 pandemic on economic activity, many supply chains have been interrupted, and the replacement cost of inventory items, depending on the industry, has risen or fallen materially.
- If facts and circumstances change and partial or total forgiveness is obtained, the gain on extinguishment is recognized once the company is legally released as the primary obligor of the debt.
- This can be daunting given the complexity and scope of implementing the revenue recognition standard.
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- Bob Durak has been with the AICPA since 1995 and is Director at the AICPA Center for Plain English Accounting.
- Tom is a past member of the Private Company Council and is the representative from the U.S.A. on the International Financial Reporting Standards’ Small- and Medium-sized Entity Implementation Group.
- Given the size and complexity and scale of the government’s response to the pandemic and the fact that the legislation was passed quickly, more guidance is needed and being published almost daily.
Examples of triggering conditions or events applicable to goodwill and other indefinite-lived assets include adverse changes in financial performance, legal or political factors, entity- or industry-specific events, or market considerations. Following such an event, management should consider whether the direct and indirect effects of COVID-19 require it to test and adjust the carrying value of the asset for impairment between required annual testing dates. Also, if there are any indicators that an entity has changed its classification of an intangible asset from indefinite-lived to finite-lived due to COVID-19, an accounting adjustment may be required. Travel and work-at-home restrictions, layoffs, furloughs, illnesses, and other significant disruptions to operations being experienced as a result of the pandemic may have adverse effects on existing internal controls over financial reporting . The risk of new deficiencies in ICFR may be increased, for example, due to reduced segregation of duties or effective monitoring controls, which may give rise to increased fraud risk of potential management override. These developments may cause ICFR to become deficient and fail, or need modification or replacement. In any event, auditors need to update their understanding of ICFR for the conditions prevailing during the audit and subsequent periods.
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Reporting entities may have to revise disclosures about the methods, inputs, and assumptions used. Therefore, extreme caution must be exercised by auditors whose clients are proposing accruing or disclosing any material expected business interruption insurance recoveries in their financial statements. Auditors must verify such coverage and its qualifying conditions and limits by reference to express policy language, by obtaining confirmation from the carrier or a professional insurance agent, or in the event of potentially disputed coverage, by obtaining a legal opinion from the client’s counsel. The curtailment of operations, diminishing liquidity, and other economic hardships currently being experienced by customers and borrowers must be considered when valuing receivables for collectability and establishing allowances.
During the pandemic, accessing client records and key personnel may present formidable risks for auditors, especially in cases where records are still maintained on paper, and auditors or client employees are required to work at home . Accessibility may be particularly challenging for foreign operations, in view of travel restrictions. All such difficulties are required to be communicated to audit committees or others charged with governance. Recognizable or disclosable subsequent events that are consequences of the COVID-19 include lending and other contract modifications, capital contributions, curtailments or shutdowns of operations, and substantial losses on financial assets measured at fair value.
These contingencies would be considered resolved only when the proceeds have either been received or the expected amount has been confirmed by the insurer or a duly authorized representative. Entities often maintain insurance to mitigate losses from business interruption (i.e., disruption), such as lost revenue during periods of suspended operations.
The PPP Loan Forgiveness Services Matrix is a new AICPA tool to help CPAs navigate their engagements or other services around documenting expenses related to PPP forgiveness. In addition to revenue contracts and leases, the COVID-19 crisis may precipitate negotiated modification in other executory contracts with accounting or disclosure implications.
The Center for Plain English Accounting (“CPEA”) is the Association’s national A&A resource center. The CPEA’s lead manager assists member firms in understanding and implementing accounting, auditing, review, compilation, and quality control standards by sharing technical advice and guidance. The CPEA’s lead manager accomplishes that in a straight-forward and clear style of writing and speaking.
Technical Director
Substantial doubt about an entity’s ability to continue as a going concern is considerably more likely to arise for previously healthy or even marginal small to medium-sized businesses as a result of COVID-19. Auditors are reminded that the longer the subsequent period is extended beyond the norm, for example, due to COVID-19, the greater the risk of material misstatement with respect to subsequent events. Therefore, auditors’ subsequent events review procedures will need to be more extensive and robust. Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs™) helps the U.S. small business community deliver financial statements in a useful and cost-effective way. The AICPA treats each of these areas both individually and as part of a comprehensive slate of client services, including specialized credentials that demonstrate mastery. Together, we will lead the most influential body of professional accountants and create the future of the global accounting profession. Combining the strengths of the American Institute of CPAs and the Chartered Institute of Management Accountants, we empower the world’s most highly-skilled accountants – CPAs and CGMA designation holders – with the knowledge, insight and foresight to meet today’s demands and tomorrow’s challenges.
Lessors in sales-type and direct financing lease arrangements should likewise follow the impairment testing guidance prescribed for financial assets in Topics 310 or 326, as applicable, when determining credit losses on lease receivables. The events or conditions that give rise to substantial doubt as to an entity’s ability to continue as a going concern need not have occurred before the balance sheet date; they may have occurred in the subsequent period. Such an assessment and conclusion may require the preparation of a management forecast that is based on assumptions judged to be reasonable and therefore sufficiently reliable for this purpose even if not examined by the auditor. In the event substantial doubt was present before the financial statements are issued, even if adequately alleviated by management’s plans, certain disclosures about going concern uncertainty are required by U.S. Those who hold the latter view have considered certain 2020 events or transactions as direct effects of that 2019 condition. Therefore, consistent with their interpretations of the provisions of Topics 855 and 250, they have recognized certain effects of these 2020 events or transactions in their 2019 financial statements. At the same time, they have treated other events or transactions as more directly attributable to 2020 developments, such as stay-at-home orders and government assistance programs, and therefore unrecognizable in 2019.
While the report provides much-needed guidance on the accounting for the funds under the PPP program, the resulting treatment will not be consistent from entity to entity, and in some cases, will require management to select an appropriate accounting policy. Given the fact-specific considerations, we recommend reaching out to your Barnes Dennig Accounting Team Member for assistance. Accounting for the funds as Government Assistance under the International Accounting Standards 20 model. Under this model the funds are recognized when “there is reasonable assurance that the entity will comply with the conditions” of the program and will be recognized on a systematic basis over the period in which the related expenses are incurred.
Previous to his position in the Accounting Standards department, Bob was Director of the Accounting and Auditing Publications team at the AICPA. Prior to joining the AICPA, Bob was a manager at Deloitte & Touche in its New Jersey auditing practice. Be the first to know when the JofA publishes breaking news about tax, financial reporting, auditing, or other topics. Select to receive all alerts or just ones for the topic that interest you most. The discounted price for annual full membership is $1,530, which provides CPEA access and services to all members of the firm. In the association field of the application, put CPAFMA and the staff will verify your CPAFMA membership and apply the discount.
Its principal potential financial reporting and auditing consequences follow. Any unaudited, quantitative, unrecognized subsequent events information disclosed in audited financial statements, such as optional pro forma presentations, must be clearly designated as unaudited. IMTA is for CPAs who offer assurance services and information management support for their clients, helping them to build skills and provide business insight through IT.
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The Governmental Audit Quality Center promotes the importance of quality governmental audits and the value of such audits to purchasers of governmental audit services. GAQC is a voluntary membership center for CPA firms and state audit organizations that perform governmental audits. Keeping a watchful eye for additional guidance on common accounting issues can help financial statement preparers continue to arrive at the right answers as they strive to accurately tell their organizations’ stories during these difficult times. Through various means that have included FASB staff Q&As, AICPA Technical Questions and Answers, and a GASB technical bulletin, standard setters and experts have developed guidance designed to help CPAs and others navigate the accounting challenges posed by the pandemic. In some cases, effective dates were changed as well (see the sidebar, “Virus Leads to Effective Date Changes”). In addition, the AICPA’s Center for Plain English Accounting issued a special report on issues related to CPA involvement in small business loans under the PPP.
Our membership in the CPEA and use of their resources has led to a direct improvement in our engagements, services and client communications. I would recommend membership in the CPEA to all Firms if they are not already participating.” accounting When attest clients ask for implementation help, CPA firms are faced with the task of maintaining their independence. This can be daunting given the complexity and scope of implementing the revenue recognition standard.
SBA guarantees would be considered as embedded guarantees for all lenders. For lenders that have adopted FASB’s new credit losses standard, ASU No. Small Business Administration should be accounted for similarly to payments received from the borrower. When full or partial payment is received from the borrower or the SBA before the loan matures, amounts received should be accounted for as a prepayment.
Tax Effects
Given the size and complexity and scale of the government’s response to the pandemic and the fact that the legislation was passed quickly, more guidance is needed and being published almost daily. VisitBarnes Dennig’s COVID-19 Resource Centerfor a comprehensive list of resources. Please contact our COVID-19 Advisory Team or any of ourleadership team at Barnes Dennigto discuss. I am the author of The Little Book of Local Government Fraud Prevention, Preparation of Financial Statements & Compilation Engagements.
More than ever, practitioners are trying to understand the current standard setting environment, interpret complex accounting and auditing rules, assess the potential impact of proposed standards, and trying to figure out how to implement standards. And, very often, they do not have access to a national office and have nowhere to turn for help or guidance. Through CPEA membership, practitioners gain national office resources without a national office. The CARES Act enables small businesses and not-for-profit entities that have experienced or are expected to experience significantly lower revenue to be eligible for certain government loans and grants. Under certain conditions, the SBA loans are eligible for forgiveness of amounts spent on stipulated benefits. Once in place, the terms of these loans and grants, if material, will have to be disclosed and compliance verified in future audits.
It represents 650,000 members and students in public and management accounting and advocates for the public interest and business sustainability on current and emerging issues. With broad net sales reach, rigor and resources, the Association advances the reputation, employability and quality of CPAs, CGMA designation holders and accounting and finance professionals globally.
Mike G Austin Cpa
Many travel, hospitality, retail, entertainment, and other enterprises have experienced a serious decline in operating activity; in some instances, businesses have been forced to close temporarily and possibly permanently. It is uncertain how long these effects will persist and how widespread they will be. Some hold the view, however, that since the risk was initially identified in November 2019, its identification represents a “condition that existed as of the balance sheet date,” December 31, 2019. One principle that pervades the issues arising from the pandemic is the use of estimates to ensure timely financial reporting. As discussed below, many of the issues will require greater-than-usual reliance on accounting estimates; due to the higher level of uncertainty, these estimates will be inherently more difficult and less reliable. 7-10 years’ experience in public accounting (medium-large firm) or comparable experience, including experience with non-public entity clients . 7-10 years’ experience in public accounting (medium-large firm) or comparable experience, including experience with non-public entity clients .
Auditors will need to be particularly alert to circumstances that present fraud risks and therefore require special attention. Her passion is providing high-quality CPE that is meaningful, creates efficiencies and improves quality, and positively impacts ROI. She also supports essential professional development, audit level training, and train the trainer efforts. Serve as a subject matter expert on topics and issues impacting PCPS members and CPEA members and promote PCPS, TIC, and the CPEA with internal and external stakeholders. National office experience, or other similar experience in either creating and presenting content on accounting matters as well as significant experience researching accounting/assurance issues. Serve as a subject matter expert on topics and issues impacting PCPS members and CPEA members and promote PCPS, TIC, and the CPEA with and external stakeholders. The Center is a voluntary membership organization for firms that perform or are interested in performing ERISA employee benefit plan audits.
If an entity uses insurance or another technique to mitigate concentration risks, Topic 275 encourages, but does not require, disclosure of the risk-reduction strategy. For these and other reasons, it may be impossible to perform otherwise planned tests of controls, and all such factors should be considered for their potential effect on the risks of material misstatement, the scope of substantive testing, and—for SEC issuers—management and auditors’ reports on ICFR. Audit effectiveness is highly dependent upon the auditor’s ability to identify risks of material misstatement, and design and implement appropriate responses that adequately address those risks. In connection with the risk assessment process conducted in every audit, circumstances surrounding the COVID-19 pandemic will need to be closely examined in almost all audit areas. Properly conducted, this exercise will identify several new or heightened risks of material misstatement, many of which are discussed below, that must be addressed when designing an effective audit scope.
Author: David Paschall
