In the near term, your CPE options will include twelve-minute courses.
In the long-term, ponder how much of your audit work could be replaced by artificial intelligence. I can grasp the idea of automating a large portion of detail testing. I can’t see the possibility of replacing the entire audit function. Stretch your brain with two articles from Jim Peterson.
8/11 – Journal of Accountancy – CPE standards update accommodates new forms of learning – It will be a while before you see this in a CPE class, but the AICPA and NASBA changed the CPE rules to allow for nano-learning and blended learning.
Nano-learning is a short course, say 12 minutes that will allow CPE credit in 0.2 hour increments. Picture a 24 or 36 minute course on how to conduct an inventory observation. Or a 12 minute class on how to prepare the planning materiality worksheet.
Image courtesy of DollarPhotoClub before they merged into Adobe Stock.
(Cross-posted from my other blog, Nonprofit Update, since this discussion will be of interest to readers here.)
Gary L. Krausz, CPA, CFF, is an audit and accounting services partner in the Los Angeles accounting firm, Gursey | Schneider LLP. Mr. Krausz works with many not-for-profit agencies and private foundations in Southern California. The firm’s website is http://www.gursey.com. Mr. Krausz offers the following guest post as an overview to help the not-for-profit community understand the major changes about to take place in accounting and financial reporting for not-for-profit organizations.
This past Thursday, August 18, 2016, the Financial Accounting Standards Board (FASB) approved the long-awaited first step in changes to the financial reporting model for not-for-profit organizations by releasing Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. These changes, when effective, will result significant reporting improvements for most not-for-profit organizations including our clients with such diverse operations such as (1) schools, (2) community agencies, (3) private foundations, (4) associations, and (5) religious organizations. The proposed changes will be effective for years beginning after 12/15/2017 (which means calendar years ending on 12/31/2018 and fiscal years ending during the calendar year 2019). Early adoption is permitted.
To highlight just a few of the improvements in Phase I of FASB’s plan:
On 8/18, FASB published a massive overhaul to the accounting rules for not-for-profit organizations. The release is ASU No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, which you can find here.
ASU 16-14 will be effective for fiscal years beginning after December 15, 2017.
Let’s translate that… it will first be effective for calendar year December 31, 2018 financial statements. For NPOs with fiscal year ends, it will be effective for 6/30/19 or 9/30/19.
Since 6/30/16 audits are underway, for a rough ballpark figure three years from now for required implementation.
Consider this idea: perhaps GAAP-based accounting numbers aren’t giving stock investors all the information they need.
What is wrong with this picture?
In April, Netflix announced their earnings fell short of analysts’ expectations. Usually that would drop the stock price. What happened?
Nexflix stock jumped 18%.
Huh?
What could cause that? The market supposedly has incorporated the consensus into the price. Missing the expectation should drop the price.
Consider this: At the same time, Netflix announced their new-subscribers were 4.9 million instead of the expectation of 4.0M.
That means they will have stronger earnings for the next several quarters than was expected the day before the announcement. Thus, the stock price rose.
Investors looked at the new subscriber tally as a better indicator of future earnings and thus future stock price than this quarter’s GAAP net income. New subscribers is more important than EPS.
If you wonder are wondering why GAAP EPS isn’t the driving force in that story, here is a brain stretcher for you:
You can find the book at Amazon here. It is a bit steep, $32 in hardback and $26 in Kindle format, which is really high for an e-book. I already have a copy on my e-reader. Started reading it yesterday.
The professors suggest that reported earnings under GAAP are losing relevance for investors as we move further and further away from an industrial economy. When know-how, processes, patents, using the internet, and other intangibles are the source of income, GAAP doesn’t report useful information for figuring out future earnings.
By the way, keep in mind that providing historical information to readers of the financial statements to allow them to make estimates of future earnings and cash flows of the company is, like, sorta’, kinda’, the purpose of GAAP financial statements.
The problem with GAAP
Some drawbacks in looking at GAAP numbers, according to the professors:
Why was he fired? He merely cost the bank €4.9B back in 2008 after they unwound his unauthorized trades. That is only $5,530,000,000 at today’s exchange rate.
Image courtesy of DollarPhotoClub.com before they merged into Adobe Stock.
In about three years there will be a complete overhaul of the accounting rules for leases.
For a quick introduction to the changes, here are a few of the comments in a recent AICPA webinar. I will keep this nontechnical.
(Discussion cross-posted from my other blog, Nonprofit Update, because this discussion will be a good intro for CPAs.)
“Right of use” asset
The basic concept is that a lease contract gives you the right to control the use of property, equipment, office space, or some other identified asset for a specific period of time. The economic substance is that the asset is yours to use for the term of the lease.
By creating a “right of use”, the lease contract gives you an asset that needs to be reflected on the balance sheet. In addition the liability for future payments needs to be recognized.
The professors suggest the following premises for what a trade association would look like if the goal was to advance the profession and the interest of its members. I will quote their comments:
Got an email last evening which contained a link to the on-line ballot for the vote.
The AICPA has proposed combining their operations with the Chartered Institute of Management Accountants (CIMA). The new entity will be the Association of International Certified Professional Accountants. Yes, to confuse the market place there will be another AICPA.
We need to understand what those two comments mean and how to cope with the implications. Tom Hood’s article points toward those waves that are soon to crash down on our heads.
It’s a VUCA world
Major changes we are in can be summarized by that phrase: …
Here are a few recent articles of interest to auditors:
Charles Hall discusses common deficiencies in government audits. Issues also apply to single audits for NPOs and all pension audits.
FASB removes the effective dates from PCC alternatives, which means they can be applied at any time by a private company without going through the preferability analysis.
FASB starts to think about whether to record expenditures for intangible assets on the balance sheet.
First, the AICPA pulled in a selection of peer reviews performed on “must-select” engagements. The oversight was performed by highly experienced peer reviewers, meaning it is our calling CPAs who looked at the audit workpapers and peer review workpapers.
A ‘virus’ that can infect your quality control system.
How to quickly check if someone is licensed.
Risks of working for the Big 4.
Deep background on the Private Company Council.
2/10 – CPA-Scribo – How Internal Viruses Affect Accounting Firms – No, not the kind of viruses you were thinking. This is caused by staff doing a quick search on the ‘net to find a sample note and pull down an erroneous example, which spreads to most financial statements issued over the next year.
Charles Hall provides a frighteningly real illustration how such a virus could hit a firm.
The rules describing how to account for all leases were drastically revised on February 25, 2016. That is when the accounting rule setters, FASB, issued their document called Accounting Standards Update 2016-02 – Leases (Topic 842).
You will be hearing a lot more about these changes over the next few years.
(Cross post from my other blog, Nonprofit Update. Although written for an audience of charity finance staff and senior leadership, this is a helpful headsup notice for CPAs.)
Highlights
In extremely brief summary, the new rules require all entities preparing financial statements (including nonprofit organizations) to record all leases as an asset and liability. The assets will be called right to use assets and will be amortized over the life of the lease. An offsetting liability will be recorded. Whether the asset will be reported at the sum of total future payments or at the discounted present value of future payments would depend on the nature of the lease.
Prosecutors in England failed in their efforts to convict six brokers of fixing Libor rates.
1/27 – Wall Street Journal – Six Ex-Brokers Acquitted of LIBOR Rigging in London – One key person was convicted at trial a while back and is now in prison. The six brokers just acquitted are the people he was supposedly conspiring with. Only the 6 weren’t conspiring with anyone about anything, according to the jury.
