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Get ready to fast track your knowledge of the auditing and accounting issues significant to the depository and lending institutions industry. Whether you're preparing your company's financial statements or preparing for an auditing engagement, this Audit and Accounting Guide provides you with the latest information on accounting and auditing issues affecting the depository and lending industry and related regulatory and financial statement considerations.
Have you used the FASB Accounting Standards Codification™ (ASC) to maneuver through the new structure of GAAP? You'll find the helpful guidance you're accustomed to now fully conformed to the ASC, along with a clear explanation of the ASC's significance to the profession, numerical referencing system, and Internet-based research system.
Updated with conforming changes as of June 1, 2009, the guide includes relevant guidance contained in official pronouncements issued through that date, supplemented with specific “how-to” recommendations. The following new pronouncements are particularly significant to this guide and have been reflected in this edition:
You'll also want to check out the new developments related to the heavily debated fair value issue addressed in FASB Statement No. 157, Fair Value Measurements. With all these must-have features, this guide is an essential reference for firms, small practitioners, and professionals in business and industry.
For a topical listing of subject matter by chapter, click on the Table of Contents tab.
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Preface
Purpose and Applicability
This AICPA Audit and Accounting Guide has been prepared to assist financial institutions in preparing financial statements in conformity with generally accepted accounting principles (GAAP) and to assist independent accountants in reporting on financial statements (and, as discussed in appendix A, other written management assertions) of those entities.
Chapters of the guide are generally organized by financial statement line item into four sections:
| a. | An Introduction that describes the general transactions and risks associated with the area. (The introduction does not address all possible transactions in each area.) |
| b. | Regulatory Matters that may be of relevance in the preparation and audit of financial statements. Other regulatory matters may exist that require attention in the preparation and audit of financial statements following the general guidance on regulatory matters. Further, the guide does not address regulations that are not relevant to the preparation and audit of financial statements and certain of the regulatory requirements discussed may not be applicable to uninsured institutions. |
| c. | Accounting and Financial Reporting guidance that addresses accounting and financial reporting issues AU section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles (AICPA, Professional Standards, vol. 1), establishes the hierarchy of GAAP.1,* |
| d. | Auditing guidance that includes objectives, planning, internal control over financial reporting and possible tests of controls, and substantive tests. |
Scope
This guide applies to all banks, savings institutions, credit unions, finance companies, and other entities (including entities with trade receivables). That population includes the following:
| a. | Finance companies, including finance company subsidiaries |
| b. | Entities that do not consider themselves to be finance companies that engage in transactions that involve lending to or financing the activities of others (including trade receivables and independent and captive financing activities of all kinds of entities2) |
| c. | Depository institutions insured by the Federal Deposit Insurance Corporation's Deposit Insurance Fund or the National Credit Union Administration's National Credit Union Share Insurance Fund |
| d. | Bank holding companies |
| e. | Savings and loan association holding companies |
| f. | Branches and agencies of foreign banks regulated by U.S. federal banking regulatory agencies |
| g. | State chartered banks, credit unions, and savings institutions that are not federally insured |
| h. | Foreign financial institutions whose financial statements are purported to be prepared in conformity with accounting principles generally accepted in the United States |
| i. | Mortgage companies |
| j. | Entities that do not consider themselves to be mortgage companies that engage in transactions that involve mortgage activities or transactions |
| k. | Corporate credit unions |
| l. | Financing and lending activities of insurance companies |
This guide does not apply to the following:
| a. | Investment companies, broker dealers in securities, employee benefit plans and similar entities that carry loans and trade receivables at fair value with the unrealized gains and losses included in earnings |
| b. | Governmental or federal entities that follow the principles of the Governmental Accounting Standards Board (GASB) or the Federal Accounting Standards Advisory Board (FASAB) |
| c. | Financing and lending transactions that are subject to category (a) of GAAP in the hierarchy established by AU section 411 if the category (a) guidance differs from the guidance in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 942, Financial Services—Depository and Lending. |
As used in this guide, the term depository institution means a bank, credit union, and savings institution. The terms financial institutions or institutions refer to all entities covered by this guide. The table at the end of this preface shows how individual chapters apply to the entities covered by this guide.
As stated in the previous list, this guide applies to the financing activities of all kinds of enterprises. Certain entities may have financing activities but are not otherwise covered by this guide—for example, the financing subsidiary, unit, or division of a manufacturing company or retailer. Only those sections and chapters of this guide related to financing activities are intended to apply to such entities. The remaining portions are not intended to apply to such entities, but may otherwise be useful to financial statement preparers and auditors.
Certain terms are used interchangeably throughout the guide as follows:
| • | Credit unions often refer to shares, dividends on shares, and members, which are equivalent to deposits, interest on deposits, and customers for banks and savings institutions. |
| • | Finance companies often refer to finance receivables, which are equivalent to loans or loans receivable for other entities. A credit officer of a finance company is the same as a loan officer. |
| • | A supervisory committee of a credit union is the functional equivalent of an audit committee of other entities. |
1 Footnote 3 to AU section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles (AICPA, Professional Standards, vol. 1), states, in part, that, for Securities and Exchange Commission (SEC) registrants, rules and interpretive releases of the SEC have an authority similar to category (a) pronouncements for SEC registrants. Those rules and interpretive releases, including SEC Staff Accounting Bulletins, are not presented in the guide; however, readers should consult the applicable requirements as necessary.
* By July 1, 2009, the Financial Accounting Standards Board (FASB) is expected to issue a final standard to flatten the generally accepted accounting principles (GAAP) hierarchy and replace FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles. The standard's effective date is expected to be July 1, 2009, to coincide with the release of FASB Accounting Standards Codification™ (ASC) as authoritative. The new standard, which will apply to nongovernmental entities, will essentially reduce the GAAP hierarchy to two levels, one that is authoritative (in FASB ASC) and one that is not (not in FASB ASC).
Exceptions include all rules and interpretive releases of the SEC under authority of federal securities laws—which are sources of authoritative GAAP for SEC registrants—and certain grandfathered guidance having an effective date before March 15, 1992. The proposed standard is expected to create a new topic, Generally Accepted Accounting Principles, in FASB ASC. One piece of the grandfathered guidance relates to AICPA software revenue recognition Technical Practice Aid Questions and Answers (TIS) sections 5100.38–.76, which were elevated into the authoritative literature during development of FASB ASC. Nonpublic entities would be required to apply this guidance prospectively for revenue agreements entered into or materially modified in annual periods beginning on or after December 15, 2009, and interim periods within those years. This transition provision would only be applicable for nonpublic entities that had not previously applied this guidance. Public entities should have already been applying guidance in TIS sections 5100.38–.76. Readers can monitor the status of the proposed statement at www.fasb.org/draft/index.shtml.
2 The term entity is used in practice as a business entity organized for profit. To the extent that a not-for-profit entity, as defined in the FASB ASC glossary, conducts activities equivalent to the activities performed by entities within the scope of FASB ASC 942 should apply the guidance in FASB ASC 942. The AICPA Audit and Accounting Guide Not-for-Profit Entities provides such guidance in chapter 1 as follows: "Some not-for-profit organizations conduct activities in some of those industries and should apply the guidance concerning recognition and measurement of assets, liabilities, revenues, expenses, gains and losses to the transactions unique to those industries."
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