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Audit & Accounting Alert January 2019 (Issue 1)
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At-A-Glance
As
this issue of the Alert is released, two major financial reporting
milestones have been reached, one for public companies and another for
private companies. As of January 1, 2019, the new lease accounting
standard goes into effect for public companies with calendar year ends,
while the new revenue accounting standard is now effective for private
companies. Our first article highlights recent reports on the
implementation status of these generational changes.
A
milestone for nonfinancial reporting was also announced recently by the
Sustainability Accounting Standards Board. Industry-specific
sustainability standards have been finalized for 77 different
industries. Helpful tools for use in implementing these standards have
been developed by the SASB, as discussed in our second article.
Finally, our Worldwide Update covers news from organizations across the globe.
The New Year Brings Momentous New Standards for Both Public and Private Companies
Public companies tackle leases while private companies update revenue recognition
A
year ago, the January 2018 issue of the Alert summarized the
significant financial reporting changes contained in the new lease and
revenue accounting standards. At that time, the revenue accounting
standard was just going into effect for public companies while the new
lease accounting standard was still a year off. Private companies were
given more time before implementing either new standard.
As
of January 1, 2019, both standards are now in play for public companies
with calendar year ends, while private companies are also responsible
for applying the revenue accounting changes, but still have another year
to put the lease accounting changes into effect. Various reports and
surveys provide insights as to the progress and approaches employed
leading up to and after implementation.
For example, a November 2018 report titled Impact of Revenue Recognition Standards on Public Companiesfrom
business and regulatory compliance analytics company, Intelligize,
revealed that most companies chose the easier of two approaches in one
aspect of their initial reporting. For the transition, companies could
apply either full or modified retrospective reporting. The full approach
required restating the prior two years of revenue to reflect the new
standard, which would have taken a lot more work. However, the report
indicated that the modified approach used by the vast majority could be
riskier, since investors, without the benefit of comparable accounting
for all the years, may misinterpret the reduction in current year
revenue caused by the change in the standard.
More "New Standards"...
First-Ever Industry-Specific Sustainability Standards Issued
Independent board completes six-year process
On
November 7, 2018, the independent Sustainability Accounting Standards
Board published voluntary standards covering 77 specific industries from
across 11 broad sectors. The new guidelines will enable companies of
all sizes to account for and report on factors of sustainability in a
standardized fashion, while also facilitating comparisons between
entities.
The
standards set out a framework for assessing the here-to-fore difficult
to quantify impacts of environmental, social and governmental conditions
(ESG) in a measurable, comparable and decision-useful manner.
Regardless of political persuasion, consideration of these issues will
be crucial for assuring the prosperity and even survival of a business.
For example, whether or not man-made climate change had an influence on
the recent tragic wildfires in California, a small business located in
devastated Paradise, California, may have been destroyed, and owners may
have even suffered loss of live. For large companies like Pacific Gas
& Electric, enormous liability may be incurred as a result of
company power lines implicated in the cause of the conflagration. Owners
and investors will be better served if they are informed in advance of
risks, such as those leading to these fire losses.
Materials
from the SASB provide a wealth of useful information for companies in
any industry. A good place to start is the SASB Industry Standards Field
Guide, available on the SASB website. After explaining the objectives,
governance, and process for developing the standards, this volume
provides a profile for each industry, along with specific exposure
issues for the industry, as well as value drivers and relative financial
impact. Levels of industry exposure compared to market averages are
reflected for the ESG factors, which are expanded to five categories:
environment, social capital, human capital, business model and
innovation, and leadership and governance.
For
further detail into an industry, the in depth standards for that
industry can be downloaded. The content includes accounting metrics for
each industry-specific sustainability disclosure topic, technical
protocol for compiling data, and activity metrics for normalization.
More "Sustainability"...
Worldwide Update
Periodic roundup of recent and upcoming actions and activities by Audit and Accounting Organizations throughout the world....
IASB– International Accounting Standards Board (www.ifrs.org)
- Exposure Draft -Onerous Contracts—Cost of Fulfilling a Contract, issued December 13, 2018 as a proposed amendment to IAS 37 - Provisions, Contingent Liabilities and Contingent Assets,would
“specify that the costs of fulfilling a contract include both
incremental costs, such as the costs of materials, and an allocation of
other costs directly related to the contract, such as the depreciation
charge for equipment the company uses to fulfil contracts.” The comment
period ends on April 15, 2019.
- Disclosure Initiative—Definition of Material (Amendments to IAS 1 and IAS 8),issued
October 30, 2018, to “clarify the definition of material and how it
should be applied.” The new definition states “Information is material
if omitting, misstating or obscuring it could reasonably be expected to
influence the decisions that the primary users of general purpose
financial statements make on the basis of those financial statements,
which provide financial information about a specific reporting entity.
Effective January 1, 2020, with early application permitted.
IFAC– International Federation of Accountants (www.ifac.org)
- International
Accounting Education Standards Board (IAESB) - Exposure Draft,
International Education Standards 2, 3, 4, and 8: Information and
Communications Technologies and Professional Skepticism–
issued December 4, 2018, “speaks to strengthening professional
skepticism to improve the quality of financial reporting and auditing
and developing competence to meet ICT’s [information and communications
technology] disruptive potential. The comment period ends on March 4,
2019.
- The
International Auditing and Assurance Standards Board (IAASB) - Proposed
International Standard on Related Services 4400 (Revised), Agreed-Upon
Procedures Engagements, Exposure Draft issued November 15, 2018, “proposes to enhance key concepts in the standard, including: the role of professional judgment in an AUP engagement Disclosures relating to the practitioner’s independence or lack thereof; guidance on appropriate or inappropriate terminology to describe procedures and findings in AUP reports; the use of a practitioner’s expert in an AUP engagement; restrictions on the distribution and use of the AUP report.” The comment period ends on March 15, 2019.
- Data Analytics: An Information Resource for IFAC Members,
published November 9, 2018, provides an overview of the different types
of data analytics and their applications to financial reporting and
audit, as well as usage in business, to uncover valuable insights.
More "Worldwide Update, including IFRS, ACCA, IIRC, FRC, FASB, GASB, AICPA..."
Additional A&A News
Have the Big Four lost their advantage?
(https://www.accountingtoday.com/news/have-the-big-4-lost-their-advantage)
Converging Technologies Will Lead to ‘Continuous Auditing’
(http://ww2.cfo.com/technology/2018/11/converging-technologies-will-lead-to-continuous-auditing/)
Why and How Accountants Should “Think Blockchain”
(https://www.cpapracticeadvisor.com/news/12436527/why-and-how-accountants-should-think-blockchain)
CAQ Tool Helps Audit Committees Address Emerging Tech's Impact on Financial Reporting
(https://www.thecaq.org/caq-tool-helps-audit-committees-address-emerging-techs-impact-financial-reporting)
Audit: what it was, what it is, and what it shall never be
(https://www.accountancyage.com/2018/12/12/audit-what-it-was-what-it-is-and-what-it-shall-never-be/?utm_
source=accountancy-age&utm_medium=email&utm_campaign=aa-daily-dose&utm_content=2018-12-13-today-
big-four-reveal-fired-partners-new-ey-partner-the-past-and-future-of
audit&mkt_tok=eyJpIjoiWVRJMVl6Y3dOMlZsTW1NdyIsInQiOiJzaGVMNWxYUURaclh0R2tMS1dVWkZNVmtHXC84K0p0eW4
zb3o1a0ZqSzlvZndGQ0Jmbmsxdk9kMzFsS09KV0xKYjVPaCtTRmlTOWxMVDgwbWZKNTV2NW5Md1RYUTJEb2FqbEdDXC
9JenRXTDRNRURjZDVBNmIrNmRSUVBab09PVkkrIn0%3D)
How to recognize ‘individually tailored’ disclosures
(https://www.journalofaccountancy.com/news/2018/dec/recognize-individually-tailored-disclosures-201820268.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=12Dec2018)
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