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Audit & Accounting Alert - December 2020 (Issue 11)
 

 

AT-A-GLANCE 

One of the benefits of participation in the Integra International family is collaboration and interaction with practicing accountants from all over the world. Several times a year, Integra’s Audit & Accounting Committee meets via Zoom to discuss and share ideas arising from topics of current interest. Recently, the focus was Revenue Recognition Revisited. A diverse group of members from Asia, Africa, Europe and North America took part. This issue highlights the meeting.
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.

 


Gerald Herter - Editor

Revenue Recognition Revisited


Standardization of revenue accounting comes with complexity
 
When Integra’s Audit & Accounting Committee met in November to discuss the recently adopted revenue accounting pronouncement, a common theme among the globally represented group was that the complexities of the standard demanded considerable attention from public accountants and their clients to assure accurate implementation. Since private companies were generally required to employ the new provisions as of the 2019 calendar year, this meeting was timed to allow those present to reflect on their experiences and share issues encountered during the rollout. Jim Rose, CPA, partner with Integra member firm, Abeles and Hoffman, P.C. in Saint Louis, Missouri, USA, ably led the discussion, and also provided a  Revenue Recognition Analysis Tool that his firm uses to facilitate the process.

First on the agenda was a quick review of the five-step revenue recognition process that, basically, is designed to determine “an amount that reflects the transfer of goods and services to customers that corresponds to the consideration it expects to be entitled to in exchange for those goods and services.”

The five steps that must be met are:
  1. Identify the contract with a customer - A contract must be approved and have identifiable rights, payment terms, commercial substance, and probability of collecting payment.
  1. Identify performance obligations of the contract - distinctive goods or services must be identified.
  2. Determine the transaction price - A calculation must be made of consideration to be given, allowing for estimates of variable amounts, time value of money, non-cash items, and customer allowances.  
  3. Allocate the transaction price to the appropriate performance obligations of the contract - Apportionment of the consideration must take into account individual characteristics of each performance obligation.
  1. Recognize revenue when (or as) the performance obligations are satisfied - Determination must be made of when control has passed, considering indicators such as a point in time versus over a time period, and progress towards completion.

A key, but challenging aspect for auditors is the importance of maintaining an appearance of independence from their audit clients regarding the new revenue accounting standard. With the wide-ranging changes, the task of preserving appropriate objectivity requires thoughtful planning and preparation. Jim Rose spent time in the meeting reviewing the Revenue Recognition Analysis Tool that enables his firm to communicate the requirements to clients, while also requesting that they fill out a template describing their process of recognizing revenue that can be adapted to the new provisions. The completed template can then be kept in the auditor’s file as documentation of the client’s understanding and compliance.

Rounding out the independence discussion, a proposed addition to the client representation letter was presented that has the client affirming that all contracts have been properly reported and disclosed in accordance with the provisions of the Revenue from Contracts with Customers standard. The group noted that the accounting and disclosures are required regardless of whether the financial statements are compiled, reviewed or audited. 
Finally, audit missteps that have come to light thus far were covered. This part of the discussion referred to a Journal of Accountancy article from July 1, 2020, titled Challenges to consider in auditing revenue recognition, authored by several staff members of the Association of International Certified Professional Accountants. In addition to independence concerns, the article warned of the following missteps:
  1. Risk assessment – failing to “consider the client’s processes and controls related to the revenue transaction cycle,” and not obtaining “an understanding of the procedures implemented by the client to meet the requirements” of the standard.
  2. Substantive testing – “insufficient test procedures relative to recognizing revenue where significant estimates are involved.”
  3. Documentation - failure to follow the audit standard that requires sufficient documentation so that an auditor not connected to the audit can understand what was done, the results, and the conclusions reached.
Members of Integra’s Audit & Accounting Committee and the Integra staff can be contacted through the Integra International website.  
 
Further details can be found at Challenges to consider in auditing revenue recognition.
(https://www.journalofaccountancy.com/issues/2020/jul/auditing-revenue-recognition-challenges-to-consider.html).
 
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.  
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. Space to grow: new models of business support, professional insight report, published December 9, 2020, “examines how alternative business support models, such as accelerators and incubators, are being used to allow more small to medium-sized enterprises (SMEs) and start-ups to achieve rapid growth and support their recovery post Covid-19. It also highlights the growing importance of small business support ecosystems and provides information for accountants and small and medium-sized practices (SMPs) looking to collaborate with these new support models.”

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. Budgeting for Recovery and a Long-Term Economic Future for the UK, report published November 23, 2020, providing a comprehensive plan “to support the country’s post-pandemic recovery, help pay back the cost of the pandemic, and build a more robust, reimagined economy. CIMA’s proposals include a range of short-term actions and long-term proposals designed to invest in people, stimulate business innovation and shift to a greener economy.”

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

No new developments

WORLD ECONOMIC FORUM
(www.weforum.org)
  1. 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. FRC guidance for companies and auditors during COVID-19 crisis – link - https://www.frc.org.uk/covid-19-guidance-and-advice.
  2. Developments in Audit 2020, report published November 12, 2020, considers “What is driving inconsistent audit quality and how are we responding? What impact is Covid-19 having on audit? [and] How do we achieve a healthy and resilient audit market?”

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. 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. 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)                                
  1. PCAOB Response to COVID-19 – link -  https://pcaobus.org/Pages/response-to-COVID-19.aspx
  2. Staff Observations and Reminders during the COVID-19 Pandemic, published December 2, 2020, “to provide insights from recent PCAOB inspections of reviews of interim financial information and audits.”

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

CAANZ– Charted Accountants Australia New Zealand (https://www.charteredaccountantsanz.com/)
  1. Financial Reporting and Audit Guide: Financial reporting and audit issues stemming from COVID-19 – link - https://www.charteredaccountantsanz.com/tools-and-resources/client-service-essentials/reporting/financial-reporting-and-audit-guide-financial-reporting-and-audit-issues-stemming-from-covid19     
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. Exposure Draft - Lease Liability in a Sale and Leaseback, issued November 27, 2020, proposes “to amend IFRS 16 Leases by specifying how a company measures the lease liability in a sale and leaseback transaction.” Comment period ends March 29, 2021.

IFAC
International Federation of Accountants (www.ifac.org)
  1. International Auditing and Assurance Standards Board (IAASB) – Non-Authoritative Support Material Related to Technology: Frequently Asked Questions (FAQ) – The Use of Automated Tools and Techniques [ATT] When Identifying and Assessing Risks of Material Misstatement in Accordance with ISA 315 (Revised 2019), published November 18, 2020, to assist auditors with the use of ATT’s.
  2. International Public Sector Accounting Standards Board (IPSASB) - Non-Authoritative Amendments to IPSAS 41, Financial Instruments, published December 10, 2020, “to clarify the requirements for classifying, recognizing, and measuring a range of important public sector specific financial instruments.” Effective January 1, 2023 with early adoption encouraged.
ACCA
Association of Chartered Certified Accountants (www.accaglobal.com)
 
  1. Professional accountants changing business for the planet: A guide to natural capital management, published November 26, 2020. “The accountant’s role in managing natural capital – resources like water, land, minerals, and oceans – is explained by ACCA (the Association of Chartered Certified Accountants) in a new video and accompanying guides for business leaders, performance managers, corporate reporters and auditors and assurers.”  

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

No new developments

IIRC
International Integrated Reporting Council
(www.theiirc.org)
 
  1. Closing the gap: The role of integrated reporting in communicating a company’s value creation to investors, study published November 30, 2020, in conjunction with Kirchhoff Consult AG, “shows a clear interest and appreciation by investors of all kinds for non-financial information that ultimately translates into financial impact and metrics. This applies to non-financial information in various areas, including business models, governance, strategy and market trends, but also to natural, human and social capital.”  

WORLD ECONOMIC FORUM
(www.weforum.org)
  1. “Ethics by Design” – An Organizational Approach to Responsible Use of Technology, report published December 10, 2020, “integrates psychology and behavioural economics findings from interviews and surveys with international business leaders. It aims to shape decisions to prompt better and more ethical behaviours. The report promotes an approach that focuses less on individual “bad apples” and more on the “barrel”, the environments that can lead people to engage in behaviours contrary to their moral compass. The report outlines steps and makes recommendations that have proven more effective than conventional incentives such as compliance training, financial compensation or penalties.”
Africa, Europe, India and the Middle East (AEIME)

FRC– Financial Reporting Council of the UK(www.frc.org.uk)
  1. Audit Committee Chairs’ views on, and approach to, audit quality, research report published on December 2, 2020, in conjunction with YouGov, “has shown that the development of standards for audit committees would support a more consistent approach to promoting audit quality.”

ICAEW- Institute of Chartered Accountants in England and Wales (https://www.icaew.com/)
  1. Audit Manifesto, published on December 2, 2020, proposes five principles for audit reform covering the areas of purpose, identity, community, education, and mindset. “ICAEW said the Manifesto was an opportunity for auditors to take full and appropriate responsibility for modernizing their profession, re-affirming the centrality of acting in the public interest and enhancing trust in the audit process and in business generally.”

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. Auditing Standards Board (ASB) – Statement on Standards for Attestation Engagements (SSAE) No. 22, Review Engagements, issued December 3, 2020, supersedes SSAE No. 18, Attestation Standards: Clarification and Recodification, as amended, section 210. “SSAE No. 22 describes the types of procedures a practitioner may perform in a review engagement and: 1) clarifies for practitioners that the objective of a review engagement is to obtain limited assurance – as opposed to it being an exercise in performing analytical procedures and inquiries; 2) results in more transparent reporting by requiring that the practitioner disclose, in the review report, the procedures performed in order to obtain limited assurance; [and] 3) allows the practitioner to issue a report containing an adverse review conclusion when the subject matter is materially and pervasively misstated.” Effective for review reports dated on or after June 15, 2022.
FASB Financial Accounting Standards Board (www.fasb.org)

No New Developments

GASB– Governmental Accounting Standards Board(www.gasb.org)
  1. Exposure Draft - Implementation Guidance Update—2021, issued November 17, 2020, “contains proposed new questions and answers that address application of GASB standards on leases, fiduciary activities, and other topics. The Exposure Draft also proposes amendments to previously issued implementation guidance.” Comment period endsFebruary15, 2021.

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

No New Developments

PCAOB– Public Company Accounting Oversight Board(www.pcaob.org)                                
  1. Amendments to PCAOB Interim Independence Standards and PCAOB Rules to Align with Amendments to Rule 2-01 of Regulation S-X, PCAOB Release No. 2020-003, published November 19, 2020. “The amendments are intended to eliminate differences and duplicative requirements that would otherwise exist between the independence requirements of the Board and the SEC following the effective date of the SEC’s 2020 amendments to Rule 2-01.” Effective 180 days after publication of the related SEC amendment in the Federal Register.
SASB– Sustainability Accounting Standards Board(www.sasb.org)                               
  1. No New Developments
SEC– Securities and Exchange Commission(www.sec.gov)                      
  1. Amendments to Management's Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, 2020-290, issued November 19, 2020, “to enhance the focus of financial disclosures on material information for the benefit of investors, while simplifying compliance efforts for registrants.” Effective generally for years ending on or after 210 days after publication in the Federal Register


ADDITIONAL
A&A NEWS


Auditing fraud risk during a pandemic
(https://www.journalofaccountancy.com/news/2020/dec/auditing-fraud-risk-during-coronavirus-pandemic.html)

Tips for auditing in a COVID-19 environment
(https://www.journalofaccountancy.com/news/2020/dec/auditing-tips-in-coronavirus-environment.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=10Dec2020)

FASB chair outlines ‘the case for change’
(https://www.accountingtoday.com/news/fasb-chair-outlines-the-case-for-change?position=editorial_3&campaignname=ACT%20Daily-12102020&utm_source=newsletter&utm_medium=email&utm_campaign=ACT_Daily_Daily%2B%27-%27%2B12102020&bt_ee=h7BHoCj3e2fBJXH4fU7Z4siwTkvgUwkr5evXXZ%2BhO97pmHO5fauFSUGsOg5sk3%2F%2F&bt_ts=1607598075038)

How to audit during a pandemic? You asked. We answered.
(https://blog.aicpa.org/2020/12/how-to-audit-during-a-pandemic-you-asked-we-answered.html#sthash.vxIWlKUX.aWDKSJsd.dpbs /)

Green economy risk reporting: a catalyst for change
(https://www.accountancyage.com/2020/11/23/green-economy-risk-reporting-a-catalyst-for-change/)

The future of auditing is coming faster than you think
(https://www.accountingtoday.com/opinion/the-future-of-auditing-is-coming-faster-than-you-think)    

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 
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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