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Hot Topics in the Accounting World

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Hot Topics in the Accounting World 2009 Telergee CFO & Controller s Conference October 14 16, 2009 Newcastle, New Hampshire www.telergee.com – PowerPoint PPT presentation

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Title: Hot Topics in the Accounting World


1
Hot Topics in the Accounting World
2009 Telergee CFO Controllers
Conference October 14 16, 2009 Newcastle, New
Hampshire www.telergee.com
Presented by Julie Keim
2
Todays Goals
  • Discuss new accounting pronouncements that you
    might not have been aware of.
  • A brief explanation of the pronouncement.
  • An example of how each pronouncement might affect
    your company.

3
Hot Topics
  • FASB ASC 810, Consolidation (SFAS No. 160,
    Noncontrolling Interests in Consolidated
    Financial Statements)
  • FASB ASC 855, Subsequent Events (SFAS No. 165,
    Subsequent Events)
  • SAS 115
  • IFRS

4
Common Abbreviations
  • Financial Accounting Standards Board (FASB)
  • Accounting Standards Codification (ASC)
  • U.S. Generally Accepted Accounting Principals
    (GAAP)
  • Statement of Financial Accounting Standards
    (SFAS)
  • Statements on Auditing Standards (SAS)
  • International Accounting Standards Boards (IASB)
  • International Financial Reporting Standards (IFRS)

5
FASB ASC 810, Consolidation
  • SFAS No. 160, Noncontrolling Interests in
    Consolidated Financial Statements, issued
    December 2007.
  • It is effective for fiscal years beginning on or
    after December 31, 2008.
  • Applies to all entities that prepare consolidated
    financial statements, except for not-for-profit
    organizations (should continue to apply FASB ASC
    810 (ARB No. 51).

6
FASB ASC 810, Consolidation What Are the
Differences?
  • It establishes
  • accounting and reporting standards for the
    noncontrolling interest in a subsidiary.
  • accounting and reporting standards for the
    deconsolidation of a subsidiary.
  • and it amends previous consolidation procedures
    in FASB ASC 810 to be consistent with the
    requirements of FASB ASC 805, Business
    Combinations (SFAS No. 141(R)).

7
What is a Noncontrolling Interest?
  • A noncontrolling interest is the portion of the
    equity (net assets) in a subsidiary not
    attributable, directly or indirectly, to a
    parent.
  • Noncontrolling interests have been called
    minority interests.

8
Noncontrolling Interest Presentation
  • Balance Sheet
  • The noncontrolling interest should be clearly
    identified and labeled, and classified as equity
    in the parents consolidated financial
    statements.
  • Income Statement
  • All intercompany income or loss must be
    eliminated in the consolidated financial
    statements.

9
What else should you know aboutSFAS No. 160,
Noncontrolling Interests? (continued)
  • It must be applied retrospectively to the
    financial statement footnotes for all periods
    presented, including
  • The controlling interest should be reclassified
    to equity.
  • Consolidated net income should be adjusted to
    include the net income attributed to the
    noncontrolling interest.
  • Consolidated comprehensive income should be
    adjusted to include the comprehensive income
    attributed to the noncontrolling interest.
  • Additional disclosures for deconsolidation or
    changes in a parent companys ownership interest.

10
How does SFAS No. 160, Noncontrolling Interests,
affect my Company?
  • For most Companies, this pronouncement will
    primarily be a change in presentation and
    disclosure, however it could impact a Company
    with an equity debt covenant.

11
 FASB ASC 855, Subsequent Events
  • SFAS No. 165, Subsequent Events, issued May
    2009, applies to entities with interim or annual
    financial periods ending after June 15, 2009.

12
SFAS No. 165, Subsequent Events, Objective
  • The objective to establish accounting and
    reporting standards for events that occur after
    the financial statement reporting period, but
    before the financial statements are issued, or
    are available to be issued.

13
SFAS No. 165, Subsequent Events, Objective
  • Definition of when financial statements are
    issued and when financial statements are
    available to be issued.
  • Stating management should evaluate events or
    transactions that occur during this time period
    for recognition or disclosure in the financial
    statements.
  • Defining events or transactions that an entity
    should recognize or disclose in the financial
    statements.

14
Subsequent Events Financials are issued
  • When financial statements are issued
    financial statements are considered to be issued
    when they are widely distributed to shareholders
    and other financial statement users for general
    use and reliance in a form and format that
    complies with GAAP.

15
Subsequent Events - Financials are available to
be issued
  • When financial statements are available to be
    issued financial statements are considered to
    be available to be issued when they are complete
    in a form and format that complies with GAAP and
    all approvals necessary for issuance have been
    obtained, for example, from management, the board
    of directors, and/or significant shareholders.

16
Two Types of Subsequent Events
  • Subsequent events are events or transactions
    that occur after the balance sheet date but
    before financial statements are issued or are
    available to be issued. The two types are
  • 1.) Events or transactions that provide
    additional evidence about conditions that existed
    at the date of the balance sheet, including the
    estimates inherent in the process of preparing
    financial statements (referred to as recognized
    subsequent events).
  • 2.) Events that provide evidence about
    conditions that did not exist at the date of the
    balance sheet but arose after that date (referred
    to as nonrecognized subsequent events).

17
Examples of Recognized Subsequent Events
  • An entity is required to recognize events or
    transactions that take place from the period
    ending date until the issuance (either available
    or issued) date that impact conditions that
    existed at the balance sheet date.
  • Common examples of events or transactions to be
    recognized
  • -Litigation
  • -Accounts Receivable

18
Examples of Nonrecognized Subsequent Events
  • An entity would not be required to recognize
    events or transactions that take place from the
    period ending date until the issuance (either
    available or issued) date that impact conditions
    that did not exist at the balance sheet date.
    Common examples of events or transactions that
    took place after the balance sheet that should be
    disclosed
  • Business combinations
  • Litigation
  • Natural disasters
  • Commitments

19
How does SFAS No. 165, Subsequent Events, affect
my Company?
  • It should not result in significant changes in
    subsequent events that an entity reports. It
    introduces the concept of financial statements
    being available to be issued and requires
    disclosure of the date which an entity has
    evaluated subsequent events. This allows users of
    the financial statements to be aware of the date
    which an entity has evaluated through.

20
SFAS No. 165, Subsequent Events, Additional
Disclosures
  • As part of the financial statement footnotes, the
    Company will disclose date through which
    subsequent events have been evaluated. An example
    of the disclosure could be
  • Management has reviewed the events occurring
    through XXX, XX, 2010, the date the financial
    statements were available to be issued, and no
    subsequent events occurred requiring accrual or
    disclosure (or reference note if events have
    occurred).

21
Communication of Internal Control Related Matters
Identified in an Audit
  • Statement on Auditing Standards No. 115 (SAS 115)
  • supersedes SAS No. 112 and
  • Defines the terms deficiency in internal control,
    significant deficiency, and material weakness.
  • Provides guidance on evaluating the severity of
    control deficiencies.
  • Requires the auditor to communicate in writing to
    Those Charged with Governance significant
    deficiencies and material weaknesses.

22
SAS No. 115
  • Deficiency in Internal Control exists when the
    design or operation of a control does not allow
    management or employees, in the normal course of
    performing their assigned functions, to prevent,
    or detect and correct misstatements on a timely
    basis.

23
SAS No. 115
  • Significant Deficiency is a deficiency, or a
    combination of deficiencies, in internal control
    that is less severe than a material weakness, yet
    important enough to bring to the attention of
    Those Charged with Governance.

24
SAS No. 115
  • Material Weakness is a significant deficiency,
    or combination of significant deficiencies, that
    results in a more than a remote likelihood that a
    material misstatement of the financial statements
    will not be prevented or detected.

25
Example - Deficiency in Internal Control
  • Payroll Department - Segregation of Duties
  •  
  • We noted internal control deficiencies resulting
    from the lack of segregation of duties in certain
    accounting areas. For example, a sole employee is
    responsible for numerous payroll functions,
    including the review of time cards, the
    preparation of the payroll data for submission to
    the data processing service bureau, the
    reconciliation of the payroll bank account and
    the distribution of payroll checks.
  • To improve internal controls over payroll,
    we recommend the payroll duties be segregated
    between two or more employees, as follows (a)
    departmental supervisors should be responsible
    for reviewing and approving employee time cards,
    (b) payroll records should be reviewed by a
    member of management, who is independent of the
    payroll function and (c) payroll checks should be
    distributed by an employee independent of the
    payroll function.
  •  

26
Example - Significant Deficiency
  • Authorized Signers
  •  
  • During our review of the cash confirmations
    received from local banks, we noted
    inconsistencies in the authorized signers for
    certain accounts of the Company. In some
    instances, there were signers listed that were no
    longer employed by the Company. The
    inconsistencies were noted primarily on accounts
    that are used infrequently.
  • Although there are compensating controls in
    place to help identify unauthorized access to
    these funds, we recommend that a review of
    authorized signers be performed for all accounts
    of the Company and its subsidiaries and that a
    current list of signers for all accounts be
    developed. We also recommend that this list
    should be approved by the Board of Directors.

27
Example - Material Weakness
  • Financial Reporting
  • As part of our audit of financial statements, we
    assist management in the preparation of the
    financial statements in accordance with U.S.
    generally accepted accounting principles (GAAP).
    Although management reviews and approves the
    financial statements, there is not a system of
    internal control in place at the Company to
    assure that the financial statements comply with
    GAAP in all material respects. This is because
    there is not a trained accountant with the skills
    needed for this function employed at the Company.
  • Based on discussions with the president of the
    Company, we understand management and the Board
    of Directors are aware of this issue, and believe
    it is not economically feasible to have an
    employee with the necessary skills for this
    function. While our assistance in the preparation
    of financial statements complies with GAAP, those
    standards also require that we report this
    material weakness in control over financial
    reporting to those with governance
    responsibilities.

28
What is IFRS?
  • International Financial Reporting Standards
    (IFRS) are a set of accounting standards
    developed by the International Accounting
    Standards Board (IASB) that is becoming the
    global standard for the preparation of public
    company financial statements.

29
Who is the IASB?
  • The IASB is an independent accounting
    standard-setting body, based in London. It
    consists of 14 members from nine countries,
    including the United States. The IASB began
    operations in 2001, when it succeeded the
    International Accounting Standards Committee,
    established in 1973.
  • www.iasb.org

30
How many countries have adopted IFRS? Is the
U.S. one of them?
  • Over 100 countries have adopted IFRS, including
    27 member states of the European Union.
  • Other countries scheduled to follow include
    Argentina, Brazil, Canada, Chile, Korea,
    Singapore, Mexico and Japan.

31
GAAP and IFRS - What Are the Differences?
  • Examples (not meant to be all-inclusive)
  • IFRS does not permit Last In, First Out (LIFO).
  • IFRS uses a single-step method for impairment
    write-downs rather than the two-step method used
    in U.S. GAAP, making write-downs more likely.
  • IFRS has a different probability threshold and
    measurement objective for contingencies.
  • IFRS does not permit debt for which a covenant
    violation has occurred to be classified as
    non-current unless a lender waiver is obtained
    before the balance sheet date.

32
IFRS Update
  • On September 14, 2009 SEC chief accountant,
    James Kroeker, said that unifying U.S. GAAP with
    IFRS will be a priority for regulators in the
    coming weeks and months.

33
Conclusion
  • Enjoy the Fall in New England!

Thank you!
Questions? jkeim_at_bdmp.com (207) 541-2282
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