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Audit & Accounting Alert - July 2020 (Issue 6)
 


AT-A-GLANCE 

 
The persistence of the COVID-19 pandemic can affect certain aspects of life in a variety of ways. Retirement is one such area. Those in retirement face the uncertainty of whether their funds will run out, while those still working wonder if they will ever be able to accumulate enough to retire. Governments have taken steps attempting to address those questions. Employers need to assess how to report on the measures impacting financial statement reports, while grappling with the more immediate concern of trying to stay in business. Accountants auditing pension plans have the challenge of evaluating plan viability and asset measurement, while considering broad new examination requirements coming on line next year. Vendors are preparing applications to facilitate the audit process for greater efficiency and accessibility in the new normal that is emerging. This edition of the Audit & Accounting Alert will highlight some of the implications for retirement and pension plans.
 Our Worldwide Update is again split into two sections The first covers COVID-19 news from organizations across the globe, while the second covers other news   

Special Remembrance

Members and friends of Integra International mourn the passing this past month of long time Global Board Member and past Global Chairman, Doug White. Beloved by all who had the good fortune of making his acquaintance, Doug was a tireless and multi-talented cheerleader for Integra International over more than two decades. Doug was always upbeat and filled with words of encouragement and wisdom for his fellow Integra International colleagues. A devoted family man, Doug affirmed his dear wife, Linda, and sweet daughter, Stephanie, as valued fixtures at Integra International conferences, a living testimony of Integra International’s culture, as one big family, of which all members are a part. Doug will be sorely missed and well-remembered for his priceless contribution to the continued success of Integra International.

Gerald Herter - Editor

Pension Plan Implications During Covid-19


Plan sponsors, participants, auditors and vendors feel the impact

 
Financial statement auditors have no higher calling than when examining the reports of employee benefit plans. These plans represent the accumulation and distribution of funds that have accumulated for years in order to provide for participants financially in their retirement. While major concerns have been mounting for years around underfunding of certain plans, especially in the governmental sector, the COVID-19 pandemic has exasperated those anxieties while also bringing new ones.
 
The excessive volatility of the stock market over recent months has exposed the fragility for retirees of 401(k) plans and IRAs in the United States, as well as for recipients of comparable plans in other parts of the world, that have relied on strong market growth over an extended period of time. While markets have rebounded somewhat, uncertainty remains. For those still in the work force and their employers, the ability to continue participation in and contributions to plans are in jeopardy, as are the very worker jobs and the survival of employers.
 
Governmental programs have begun to address these issues. The Coronavirus Aid, Relief, and
Economic Security (CARES) Act in the United States established the Payroll Protection Program (PPP) to provide assistance for employers to keep their employees, as well as to fund their pension plans. Also, plan distribution provisions were loosened so that financially affected participants can take early distributions without penalty, while retirees are not required to take distributions if not needed, thereby saving taxes. If a retiree has already taken a required minimum distribution (RMD) for 2020, the RMD will not be taxable if returned to the Plan by August 1, 2020. Plan loan provisions were made more generous in amount, while repayment terms were stretched out. Similar employee furlough and other assistance legislation in other countries covers these types of needs as well.
 
The PPP assistance was provided in the form of a forgivable loan. If certain requirements are met, the loan in effect becomes a grant. The American Institute of Certified Public Accountants (AICPA) issued guidance in June 2020 on the accounting treatment by recipient entities. The guidance noted that the US Securities and Exchange Commission staff were agreeable to accounting for the assistance as debt under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 470, Debt, or in a manner described by International Accounting Standard (IAS) 20, Accounting for
Government Grants and Disclosure of Government Assistance. IAS 20 was issued by the International Accounting Standards Board (IASB), which is the authority that governs financial reporting for most plans outside of the United States. Under FASB ASC 470, the assistance is recorded as a liability until it is legally released, at which time the liability is eliminated as gain on extinguishment. IAS 20, which relates directly to this type of transaction, would have the assistance recorded as a deferred income liability until forgiven, when the liability is transferred to other income or as a reduction of the related expense (i.e. payroll) over the time period the expense is incurred. A not-for-profit entity could use the FASB ASC 470 treatment, or FASB ASC 958-605, Not-for-Profit Entities—Revenue Recognition, where a refundable advance is recorded and converted to contribution income upon forgiveness.
 
For auditors of employee benefit plans (EBP), issues similar to those found in business entity audits, such as asset valuations and going concern, need to be addressed. Additionally, for US auditors, Statement on Auditing Standards Number 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, originally scheduled to go into effect at the end of 2020, has been delayed until the following year. As reported in last September’s Audit & Accounting Alert, SAS 136 “addresses the auditor’s responsibility to form an opinion and report on the audit of financial statements of employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (ERISA), and the form and content of the auditor’s report issued as a result of an audit of ERISA plan financial statements. The SAS includes new requirements for: engagement acceptance, audit risk assessment and response, communications with those charged with governance, procedures for an ERISA section 103(a)(3)(C) audit, [and] considerations relating to the Form 5500.” The substantive changes in audit conditions and requirements will most certainly cause a dramatic increase in audit fees.
 
With the substantial challenges arising from the pandemic, the additional year to plan for SAS 136 implementation is welcomed by auditors. Anticipating that the new standard would be effective this year, the AICPA in partnership with CaseWare recently released a new cloud-based audit application, OnPoint EBP, to facilitate the audit process. According to the AICPA, OnPoint EBP is “designed to facilitate the efficient and effective performance of “limited scope” employee benefit plan audits.”
 
Further details can be found at AICPA Statement on Reporting Forgivable Assistance Loans  and IAS 20 Accounting for Government Grants and Disclosure of Government Assistance .
(https://www.aicpa.org/content/dam/aicpa/interestareas/frc/downloadabledocuments/tqa-sections/tqa-section-3200-18.pdf) and (https://www.ifrs.org/issued-standards/list-of-standards/ias-20-accounting-for-government-grants-and-disclosure-of-government-assistance/).

 
Covid-19 related actions and activities by audit and accounting organizations throughout the world.

 
IASB
International Accounting Standards Board (www.ifrs.org)
  1. Coronavirus Information and resources – link – https://www.ifrs.org/news-and-events/2020/03/the-coronavirus-and-the-foundations-work/

IFAC
International Federation of Accountants (www.ifac.org)
  1. COVID-19 Resources from IFAC's Network – link https://www.ifac.org/knowledge-gateway/series/COVID-19-resources-ifacs-network
  2. International Auditing and Assurance Standards Board (IAASB) – Auditing Accounting Estimates in the Current Evolving Environment Due to COVID-19, staff audit practice alert issued June 26, 2020, provides guidance for complying with International Standard of Auditing (ISA) 540, Auditing Accounting Estimates and Related Disclosures (Revised).       
  3. International Auditing and Assurance Standards Board (IAASB) – Review Engagements on Interim Financial Information in the Current Evolving Environment Due to COVID-19, staff audit practice alert issued July 2, 2020, “highlights key areas of focus in the current environment when undertaking a review of interim financial information in accordance with International Standard on Review Engagements (ISRE) 2410, Review of Interim Financial Information by the Independent Auditor of the Entity.”

ACCA
Association of Chartered Certified Accountants (www.accaglobal.com)
  1. Coronavirus Information and resources – link - https://www.accaglobal.com/us/en/cam/coronavirus.html
  2. Covid-19: The road to recovery? – Professional insight report published June 24, 2020, based on 4,500 responses to ACCA’s April survey report, “aims to share ACCA member survey data on how the crisis is evolving, some of the strategies being adopted, and suggests a roadmap for recovery.  The roadmap suggests a number of practical steps that organisations can take as they chart a path to recovery and build resilience for the future.”
  3. Finance Insights – Reimagined – report jointly published June 29, 2020 by ACCA and PwC, based on a survey of 3,500 firms, “on the changing role of the finance professional and how they can influence companies’ future direction. The report highlights the greater focus on the finance business partner (FBP): individuals, or a group of individuals, who are the conduit between finance and its stakeholders. It outlines how they can help companies navigate turbulent economic times.”

CIMA
Chartered Institute of Management Accountants (www.cimaglobal.com)
  1. Update on the Coronavirus and Impact for Association Activities – link - https://www.cimaglobal.com/Members/Update-on-Coronavirus/
  2. CIMA Policy Suggestions for UK Economic Recovery, guidance published July 2, 2020, lays out a 20 point plant for “providing businesses and consumers with the confidence to invest; reducing uncertainty for businesses; creating a more sustainable business environment; investing in skills to help generate economic growth and improve productivity.

IIRC
International Integrated Reporting Council
(www.theiirc.org)
  1. The CFO and Finance Function Role in Value Creation, report jointly published June 25, 2020, by IIRC, IFAC, and the Association for International Certified Professional Accountants. In the context of the COVID-19 pandemic disruption, the report provides “new guidance for Chief Financial Officers (CFOs) and finance teams to navigate their organizations toward long-term value creation.”

WORLD ECONOMIC FORUM
(www.weforum.org)
  1. Diversity, Equity and Inclusion Toolkit, published June 23, 2020, “explores the practical opportunities and risks that rapidly emerging technologies represent for diversity, equity and inclusion efforts. The toolkit outlines how technology can help reduce bias from recruitment processes, diversify talent pools, and benchmark diversity and inclusion across organizations.”
  2. The COVID Action Platform – link - https://www.weforum.org/platforms/covid-action-platform -  focuses on three priorities: 1. Galvanize the global business community for collective action. 2. Protect people’s livelihoods and facilitate business continuity. 3. Mobilize cooperation and business support for the COVID-19 response.

Africa, Europe, India and the Middle East (AEIME)

FRC– Financial Reporting Council of the UK(www.frc.org.uk)
  1. COVID-19 – Resources, action, the future – Reporting in times of uncertainty – report published June 15, 2020, helps to answer five questions investors are asking: “1. How much cash does the company have? 2. What cash and liquidity could the company obtain in the short-term? 3. What can the company do to manage expenditure in the short-term? 4. What other actions can the company take to ensure its viability? 5. How is the company protecting its key assets and value drivers?
  2. COVID-19 – Going concern, risk and viability - Reporting in times of uncertainty – report published June 15, 2020, provides insights into these areas, along with current reporting disclosure examples.
  3. FRC guidance for companies and auditors during COVID-19 crisis – link - https://www.frc.org.uk/about-the-frc/COVID-19.
 
ICAEW- Institute of Chartered Accountants in England and Wales(https://www.icaew.com/)
  1. Coronavirus – updates – link - https://www.icaew.com/insights/coronavirus.

EFRAG– European Financial Reporting Advisory Group(www.efrag.org)

No new developments

Americas, Asia, Australia & New Zealand (AAANZ)

AICPA American Institute of Certified Public Accountants(www.aicpa.org)
  1. Personal Financial Planning Section – 2020 COVID-19 PFP Trends Survey Report, published June 24, 2020, found that “the majority (70 percent) of their clients didn’t require changes to their financial plans and for those who did, the changes were mostly minor.”
  2. AICPA Coronavirus (COVID-19) Resource Center – link - https://www.aicpa.org/news/aicpa-coronavirus-resource-center.html
FASB Financial Accounting Standards Board (www.fasb.org)
  1. FASB Response to COVID-19 – link - https://www.fasb.org/COVID19
GASB– Governmental Accounting Standards Board(www.gasb.org)
  1. Technical Bulletin 2020-1 - Accounting and Financial Reporting Issues Related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Coronavirus Diseases, issued June 30, 2020, “clarifies the application of existing recognition requirements to resources received from certain programs established by the CARES Act. It also clarifies how existing presentation requirements apply to certain inflows of CARES Act resources and to the unplanned and additional outflows of resources incurred in response to the coronavirus disease.”
  2. GASB Response to COVID-19 – link -  https://www.gasb.org/COVID19
COSOThe Committee of Sponsoring Organizations of the Treadway Commission(www.coso.org)

No new developments

PCAOB– Public Company Accounting Oversight Board(www.pcaob.org)                                

No new developments

SASB– Sustainability Accounting Standards Board(www.sasb.org)                               

No new developments

SEC– Securities and Exchange Commission(www.sec.gov)                      
  1. SEC Coronavirus (COVID-19) Response – link - https://www.sec.gov/sec-coronavirus-covid-19-response
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)
  1. Amendments to IFRS 17 Insurance Contracts, issued June 25, 2020, “aimed at helping companies implement the Standard and making it easier for them to explain their financial performance.” Effective generally in 2023 with early adoption permitted.
IFAC
International Federation of Accountants (www.ifac.org)

No new develoments

ACCA
Association of Chartered Certified Accountants (www.accaglobal.com)

No new develoments

CIMA
Chartered Institute of Management Accountants (www.cimaglobal.com)

No new develoments

IIRC
International Integrated Reporting Council
(www.theiirc.org)

No new develoments

WORLD ECONOMIC FORUM
(www.weforum.org)

No new develoments

Africa, Europe, India and the Middle East (AEIME)

FRC– Financial Reporting Council of the UK(www.frc.org.uk)
  1. Exposure Draft - FRED 74 - Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland - Interest rate benchmark reform (Phase 2), issued May 29, 2020, “to provide relief to minimise discontinuities in the accounting for financial instruments and leases, minimise reporting costs, assist entities in providing useful information to users of financial statements and avoid unnecessary discontinuation of hedge accounting as agreements are modified in order to transition to alternative benchmark rates. Entities will account for modifications as if they result from periodic re-estimations of cash flows to reflect changes in market rates of interest.” The comment period ends on 30 September 2020.

ICAEW- Institute of Chartered Accountants in England and Wales(https://www.icaew.com/)

No New Developments

EFRAG– European Financial Reporting Advisory Group(www.efrag.org)

No New Developments

Americas, Asia, Australia & New Zealand (AAANZ)

AICPA American Institute of Certified Public Accountants(www.aicpa.org)
  1. A CPA’s Introduction to AI: From Algorithms to Deep Learning, What You Need to Know, white paper published June 18, 2020, is “an overview that will be a foundational resource for auditors seeking information on what AI is, how it works and what it can do.”
  2. The Data-Driven Audit: How Automation and AI are Changing the Audit and the Role of the Auditor, white paper published June 18, 2020, “shows how AI will directly affect assurance engagements by taking over repetitive tasks, improving efficiency and assessing vast pools of data.”
FASB Financial Accounting Standards Board (www.fasb.org)

No New Developments

GASB– Governmental Accounting Standards Board(www.gasb.org)
  1. Exposure Draft - Recognition of Elements of Financial Statements, issued June 30, 2020, proposes a framework of interrelated objectives and fundamental principles that can be used by the Board to establish consistent accounting and financial reporting principles for recognition of elements of financial statements. The comment period ends February 26, 2021.
  2. GASB Statement No. 97 – Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, issued June 23, 2020, is “designed to reduce costs and increase the consistency and comparability of reporting state and local governments’ fiduciary component units. Effective for fiscal years beginning after June 15, 2021 for some provisions and immediately for others, with early adoption encouraged..

COSOThe Committee of Sponsoring Organizations of the Treadway Commission(www.coso.org)

No New Developments

PCAOB– Public Company Accounting Oversight Board(www.pcaob.org)                                

No New Developments

SASB– Sustainability Accounting Standards Board(www.sasb.org)                               

No New Developments

SEC– Securities and Exchange Commission(www.sec.gov)                      

No New Developments


ADDITIONAL
A&A NEWS


Global accounting groups urge long-term value creation amid coronavirus  
(https://www.accountingtoday.com/news/global-accounting-groups-urge-long-term-value-creation-amid-coronavirus)

Big Four told to ring fence auditing in Britain by June 2024
(https://www.reuters.com/article/us-britain-accounts/big-four-told-to-ring-fence-auditing-in-britain-by-june-2024-idUSKBN2470LS)

How COVID-19 taught new ways to work
(https://www.journalofaccountancy.com/news/2020/jun/how-coronavirus-taught-new-ways-to-work.html?utm_source=mnl:adv&utm_medium=email&utm_campaign=06Jul2020&SubscriberID=111403857&SendID=292074)

Audit Q&A: You cannot serve two masters
(https://www.accountancyage.com/2020/07/03/audit-qa-you-cannot-serve-two-masters/)

SASB to Explore Risks and Opportunities Related to Plastics Use
(https://www.sasb.org/blog/sasb-to-explore-risks-and-opportunities-related-to-plastics-use/)

Wirecard scandal leaves German regulators under fire 
(https://www.ft.com/content/f62f7f56-3d45-492c-ae88-172948d21eb8)

Accounting Today's complete coverage of the coronavirus impact
(https://www.accountingtoday.com/coronavirus?utm_source=newsletter&utm_medium=email&utm_campaign=ACT_Weekly_IRS+Watch_reset20200101%2B%27-%27%2B04012020&bt_ee=UFThhPnxqwgF6drHIeCA4zKTxxilQnMChK%2Bu7UcHs1OB9lm8aLso1E6Ek1HHMcwk&bt_ts=1585756935482)


Accountancy Age's Resource on UK regulations on accountancy during coronavirus
(https://www.calcpa.org/sitecore/content/Sites/Public/home/news-and-resources/coronavirus2?utm_source=ESP&utm_medium=email&utm_campaign=calcpa%2Deducation%2Dfoundation&_zs=PoR2g1&_zl=ttUe6)

California CPA Society Coronavirus Resources and Information
(https://www.calcpa.org/sitecore/content/Sites/Public/home/news-and-resources/coronavirus2?utm_source=ESP&utm_medium=email&utm_campaign=calcpa%2Deducation%2Dfoundation&_zs=PoR2g1&_zl=ttUe6)

Accountingweb's Coronavirus Content Series
(https://www.accountingweb.com/content/coronavirus-content-series)

Accountancy Daily Corona Virus Resources
(https://www.accountancydaily.co/coronavirus-0)

China Briefing's Coronavirus Insights for Your Business in China
(https://www.china-briefing.com/landing/coronavirus-updates)

 
 Audit & Accounting Alert is a publication of Integra International intended to highlight emerging issues in the profession.  The goal is to give Integra members an awareness of developments impacting the practice of Audit & Accounting enabling them to stay on the forefront of industry trends.This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice.  Please refer to your advisors forspecific advice.


Editor Gerald E. Herter ~ HMWC CPAs & Business Advisors, 17501 E. 17th Street, Suite 100, Tustin CA
email:  gerry.herter@integra-international.net
     
Integra International is registered in London at 1st Floor Sackville House, 143-149 Fenchurch Street, London, EC3M 6BN, United Kingdom
 
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