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Comprehensive coverage of recent FASB, AcSEC, IASB and EITF pronouncements is provided in this auditing course geared to the specific interests of CPAs in corporate management.
Objectives:
Prerequisite: Experience in financial reporting
Table of contents from previous edition. Please check back for updates.
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Excerpt from previous edition. Please check back for updates.
Chapter 0 - Overview
Pronouncements issued by the Financial Accounting Standards Board (FASB) establish preferred financial accounting and reporting practice. Many of these pronouncements have an important effect on the financial reporting practices followed by companies. As a result, accounting personnel, such as controllers, chief accountants, internal auditors, and other manager-level staff, need to be fully aware of the meaning and application of these pronouncements. CPAs in industry must have a thorough understanding of them if they want to be certain that their company's accounting and financial reporting practices are being conducted in conformity with generally accepted accounting principles.
This course fills these important needs by providing a practical explanation of selected Statements of Financial Accounting Standards (SFASs), Interpretations of SFASs, FASB Technical Bulletins, and the related Accounting Principles Board Opinions (APB Opinions), Emerging Issues Task Force (EITF) consensus opinions, Statements of Position (SOP), and Accounting Practice Bulletins issued by the American Institute of Certified Public Accountants. The course emphasizes recent pronouncements that have broad effect on industrial companies. In developing the course, a decision was made not to include certain pronouncements on the basis that they are not relevant to the typical industrial company.
Detailed examples of the application of selected pronouncements are provided along with examples of the related disclosures made by actual companies. You will learn about recent pronouncements for topics such as impairment of long-lived assets, restructuring costs, stockbased compensation, transfers of financial assets, derivatives, and disclosures for financial instruments.
The course goes beyond a discussion of existing pronouncements by describing the major projects underway at the FASB that affect industrial companies. The discussion manual includes Exposure Drafts of proposed SFASs and Discussion Memoranda that outline the major issues being considered in each project. This information is useful to managers who want to anticipate the effects of proposed pronouncements. In addition, it is relevant to companies that want to influence the FASB's deliberations. Because the FASB follows a well-defined due process procedure before issuing a new accounting standard, it is relatively easy for individuals and companies to participate in the standard setting process.
In addition to our primary focus on recent FASB pronouncements, the course contains an overview of the international accounting environment. The likelihood that corporate managers and accountants need expertise in international accounting is increasing because of factors such as the rapid growth of multinational companies, cross-border securities offerings, and cooperative trade agreements such as those between the U.S. and Canada and among the nations of the European Community (EC). The movement toward harmonization of accounting standards has gained substantial momentum, and both the Securities and Exchange Commission (SEC) and the FASB increased their involvement in the activities of the International Accounting Standards Board (IASB). It is likely that the IASB's International Financial Reporting Standards (IFRS) will have increasing influence on the FASB's pronouncements.
The participant's manual uses a modular approach. Each chapter is divided into modules. When suitable, the material in each module is illustrated with a practical application, providing you with a complete understanding of the material in that module before you proceed to the next module. When appropriate, each module refers you to applicable paragraphs of the original pronouncement.
The participant's manual can serve as a reference document because of its detailed presentation of each topic and the extensive references to the original pronouncements. Nonetheless, the material in this manual is the author's interpretation and application of the pronouncements. This manual should always be used in conjunction with the original pronouncements of the FASB, the APB, and the AICPA; and the original standards should always be consulted as the final authority on accounting and disclosure matters.
Any quotations from FASB publications in this manual are covered by the following attribution/ permission statement: "Copyrighted by the Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut, 0656-5116, U.S.A. Reprinted with permission. Copies of the complete documents are available from the FASB." Any quotations in this manual from APB Opinions and other documents are copyrighted by the AICPA and reprinted with permission.
Chapter 1 - The Financial Reporting Environment
Learning Objectives
As a result of this chapter you should
In the past few years there have been three important changes in how accounting standards are set or, more specifically, by whom they are set. The first change is a relatively subtle one. Over the last 10 years the prominence of the role played by the SEC in setting accounting standards has varied over time, with some administrations taking a very active role, and others taking more of an oversight role.
The Sarbanes-Oxley Act of 2002 required the SEC to designate an organization as having the authority to promulgate accounting standards for public companies in the United States, which it did in April 2003 when it reaffirmed the FASB as the designated private-sector standard setter for public companies. The FASB has established a working protocol with the SEC for its staff to first refer issues it identifies that may have accounting standard setting implications to the FASB for consideration, with the understanding that the SEC staff reserves the right to exercise its legislative authority to deal with any issues it identifies.
The second important change in standard setting began in the fall of 2002 when the FASB and the AICPA agreed that, after a transition period, the AICPA and AcSEC would no longer issue authoritative accounting guidance. Previously, SOPs and Industry Accounting and Audit Guides were cleared by the FASB and were placed in level B under the GAAP hierarchy. Going forward, the FASB will no longer clear any AICPA or AcSEC documents; consequently, any such documents now fall under level D in the current GAAP hierarchy.
And third, beginning in 2003, the operation of the EITF has been fundamentally changed. In an effort to provide greater direction to the EITF in terms of the issues addressed by that group, two FASB members were added to the EITF Agenda Committee. The FASB also took greater direct ownership of GAAP established by the EITF by requiring that consensus positions be ratified by the Board.
The objective of those changes was to simplify the accounting standard-setting process by eliminating the various organizations that might potentially deal with an accounting issue and giving constituents the ability to do "one-stop shopping" at the FASB. Consistent with this notion, the FASB also examined how they have historically issued accounting guidance and acknowledged that they had contributed to the complexity of GAAP by issuing accounting guidance in a variety of forms.
For example, in 2002, the FASB introduced a new form of guidance, FASB Staff Positions (FSPs). The original reason for introducing FSPs was to eliminate further use of other forms of guidance. Another reason was to have a means to solicit constituent comments on proposed staff guidance, which had not been standard practice with some of the prior forms of guidance. Observers of the FASB process may have noticed that the use of FSPs has evolved rapidly over their short history such that they are not only being used to provide interpretive guidance, but also to make minor amendments to existing standards.
Regardless of the form of the final guidance (e.g., a Statement or an FSP), the FASB staff will study the issue, the FASB will deliberate the issue and expose it for public comment, the staff will analyze the comments, and the FASB will redeliberate the issue before the guidance is finalized. The ultimate vision for simplification of standard setting is one process and one form of guidance.
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