ACG6295 - Ruth Ann McEwen, Ph.D., CPA

fishglugΛογισμικό & κατασκευή λογ/κού

13 Δεκ 2013 (πριν από 4 χρόνια και 4 μήνες)

71 εμφανίσεις


Please do not leave the classroom
while class is in session


Interviewed 50 partners in Miami and asked

What are the strengths and
weaknesses of the average FIU
MACC graduate?

Strength or Weakness?

Technical Competence

Work Ethic

Ability to prioritize

Communications skills

Know how to stay current

Involvement in ALFPA and Beta

Willingness to leave Miami

Positive attitude

Attention to detail

Spreadsheet skills

MACC Graduates



Ability to prioritize

Technical competence

Work Ethic

Positive attitude

Communications skills

Know how to stay current

Involvement in ALPHA and Beta

Willingness to leave Miami

Spreadsheet skills

Attention to detail

We will address currency

and communications

The objectives of this course include:

Evaluate current Exposure Drafts related to
financial reporting and explain, if fully
implemented, why they will affect financial

Explain and interpret changes to the Codification.

Assess the decision usefulness of technical
pronouncements under consideration for

Communicate technically advanced information

Financial Reporting

Our perspective is external financial reporting using
financial statements prepared under US GAAP

The primary objective of external financial reporting
under US GAAP is to provide information that is useful to
investors, creditors and others in making future decisions

We prepare the statements such that a reasonably
educated consumer exercising due diligence will
understand them

We should also consider the

transparency of
information we provide in the financial statements


Development of

Accounting Standards

Prior to the US stock market crash of 1933/34, little
financial reporting was required and regulation
concerning financial information was nonexistent

The SEC Act of 1934:

Formed the SEC and gave it the power to make the rules
for accounting and for financial reporting

Required most publicly held firms to undergo an audit by
independent CPAs


Who Sets the Standards?

The SEC (a public sector entity) delegated rule
making authority to the AICPA (a private sector

AICPA formed subcommittees called Committee on
Accounting Procedure (CAP) and later Accounting
Principles Board (APB) to write standards

When accounting issues became too complex for a part
time committee, the Financial Accounting Standards Board
(FASB) was established

The SEC maintains enforcement and provides Staff
Accounting Bulletins that interpret FASB standards


Who Sets the Standards?

Accounting standards are written in the private sector,
but the SEC provides public oversight for the standards

FASB, with SEC oversight, writes the standards for external
financial reporting

The SEC identifies areas in which additional information is
needed and may request additional information from

The SEC also sets standards for registrant filings such as the
10K, 10Q, and others

If individual firms submit statements with
“irregularities”, SEC issues deficiency letter with issues
that must be resolved


Who Sets the Standards?

In summary, many groups have been involved in
writing and interpreting standards

FASB, its governmental group GASB, and its Emerging Issues
Task Force (EITF)

AICPA created a group called the Accounting Standards
Executive Committee (AcSEC) to ensure a voice in the process.
They also provide information about regulatory matters (

) and CPA licensure

SEC provides oversight

Congress provides political pressure when FASB makes
unpopular rulings



US Generally Accepted Accounting
Principles (GAAP)

“GAAP” is a technical term that encompasses the conventions,
rules, and procedures necessary to define accepted accounting
practice at a particular time

It includes not only broad guidelines of general application, but
also detailed practices and procedures. Those conventions,
rules, and procedures provide a standard by which to measure
financial presentations

GAAP is presented as a hierarchy of guidance.

Sometimes, the guidance from one source contradicts guidance
from another source.


FAS 162

Issued May, 2008

The sources of accounting principles that are generally accepted are
categorized in descending order of authority as defined by Financial
Accounting Standard (FAS) 162:

Category A

Statements of Financial Accounting Standards (FAS) and
Interpretations (FIN)

AICPA Accounting Research Bulletins (ARB) and Accounting
Principles Board (APB) Opinions that are not superseded by action
of the FASB

Derivatives Implementation Group Issues (DIG)

FASB Staff Positions (FSP)

U.S. Securities and Exchange Commission Staff Accounting
Bulletins (SAB)


FAS 162


The sources of accounting principles that are generally
accepted are categorised in descending order of authority as

Category B

FASB Technical Bulletins

AICPA Industry Audit and Accounting Guides *

AICPA Statements of Position *

* If cleared by the FASB


FAS 162


Category C

AICPA Accounting Standards Executive Committee Practice
Bulletins that have been cleared by the FASB and

Consensus positions of the FASB Emerging Issues Task
Force (EITF)

often deal with issues not explicitly covered elsewhere


FAS 162

Category D

Implementation guides (Q&As) published by the FASB staff

AICPA accounting interpretations

Practices that are widely recognised and prevalent either
generally or in the industry



Applying the Hierarchy

Before July 1, 2009

Compliance with category A items is mandatory

Auditors may not express an unqualified opinion if there is a
material departure from category A

If a treatment is not specified in category A proceed to categories
B, C, or D using the treatment specified by the source in the
highest category

If a prescribed treatment in category B, C, or D is relevant to the
circumstances, that treatment must be followed unless there is
justification that another treatment is generally accepted

Applying Guidance after

July 1, 2009

Confusion about the hierarchy, along with the
presumed convergence of US GAAP and
International Financial Accounting Standards
(IFRS) led to a new system

FASB has codified all guidance.



Sign in to access the Codification

Look for the link to the Codification on the
right hand side of the page (blue arrow on
prior slide)

Click for free student access to the


You should then see:


Click on “Academic User”

We provide you with free access to the
Codification only while you are a student.

Your user name is:

Your password is:


You will see:


Go to the bottom

of the page to see:


Click on Registered User to see:


User Name and Password

Your user name is: AAA52091

Your password is: FvLxvv9

Click on the link for the Codification. You will
then see the screen on the next slide.


Codification Site


Navigating the Codification

Look at the list on the left side of the page

This is the navigation panel for all US GAAP
authoritative guidance

Go to Revenue Recognition, Codification
section 605


Codification Layout


Expanded Layout


Referencing US GAAP

Your text, your professors and your employers
will probably use some mix of the old way of
referencing (i.e., FAS 133) and the Codification
method of referencing

You can cross reference by using the cross
reference tool on the codification site


Note that FAS 133 cross references
with Cod topic 815



Codification Standard

Section Structure

Status (References to standards affecting the subtopic)

Overview and Background


Scope and Scope Exceptions

Topical Definitions / Glossary

XBRL Definitions


Initial Measurement

Subsequent Measurement


Presentation matters


Implementation guidance and illustrations


Transition and Open Effective Date Information

Links to Grandfathered Material


Example: Status of a Given



Oil and Gas


Property, Plant and Equipment



Affected by

Codification Update Instructions contained in:

.XX.XX paragraph 7 modified by FASB Statement YYY

.XX.XX paragraph 3 modified by Financial Staff

.XX.XX paragraph 9 modified by EITF Issue BB


Overview and Background

Overview and background will contain material generally considered
useful to a user in understanding typical situations required by the

Example from Oil and Gas topic:

This Subtopic establishes standards of financial accounting and
reporting for the oil and gas producing activities of a business entity.
Those activities involve the acquisition of mineral interest in
properties, exploration (including prospecting), development, and
production of crude oil, including condensate and natural gas liquids,
and natural gas.



The Objectives section will state the high
objectives that the subtopic is trying to
accomplish or attain.


Scope and Scope Exceptions

Below is an illustrative structure of a Scope section of the Overall
subtopic of Extractive Activities

Oil and Gas:

Overall guidance: “The Subtopics within Extractive Activities

Oil and
Gas Topic provide incremental industry guidance for the entities
defined in the Scope Section. Entities within the scope of this industry
shall also apply the applicable standards not included in this Topic.”

based scope: “This Topic applies only to entities with oil and gas
producing activities.”

Transactions: This will several types of transactions that are excluded
from the scope of this topic.


Topical Definitions / Glossary

This section contains a definition of the terms
specific to the topic and would include the
definitions of words like: proved oil and gas
reserves, reservoir, field, service well, and

The goal is to have one glossary for all of the



Extensible Business Reporting

XBRL taxonomy announced 2008.

A system of data tags, to enable the viewer to
rearrange, summarize financial data in alternative

Interactive XBRL viewer:



Recognition generally addresses when a
transaction is recorded

Cod 932
4 is an example of

“An enterprise’s oil and gas producing
activities involve certain special types of
assets. Costs of those assets shall be
when incurred


Initial Measurement

Initial Measurement addresses the criteria
and amounts used to measure a particular
item at date of recognition (tells us how much
is recognized).

Section 310
2 exemplifies initial
measurement… “when a note is received solely for
cash and no other right or privilege is exchanged, it is
presumed to have a present value at issuance
measured by the cash proceeds exchanged.


Subsequent Measurement

Subsequent Measurement relates almost exclusively to assets,
liabilities, and equity. It addresses the criteria and amounts used to
measure a particular asset, liability or equity item subsequent to the
date of recognition (e.g., impairment, FMV changes, depreciation,
amortization, etc.).

35 states: “The Subsequent Measurement Section
provides guidance on an entity’s subsequent measurement
and subsequent recognition of an item. Situations that may
result in subsequent changes to carrying amount include
impairment, fair value adjustments, depreciation and
amortization, and so forth.”



recognition relates almost exclusively to assets, liabilities,
and equity. It addresses: (1) the criteria, (2) the basis to be
relieved (i.e., dollar amount), and (3) the timing to be used
when derecognizing a particular asset, liability or equity item
for purposes of determining gain or loss, if any



This section will include presentation matters
related to the subtopic. Some examples

Specific balance sheet classification requirements
for a derivative

Specific cash flow requirements for stock

Specific effect on EPS related to stock
compensation guidance



Disclosure includes specific disclosure
requirements for a subtopic, but excludes
general disclosure requirements.

Readers will be referred to other sections of
the codification for relevant disclosure
guidance for related subtopics.


Implementation guidance and illustrations

This section will contain implementation guidance and
illustrations of the standards.

The primary sources for the implementation guidance and
illustrations section include:

(1) Implementation guidance and illustrations contained in
appendices of various standards,

(2) FASB Staff Question & Answer documents,

(3) FASB Staff Positions, and

(4) EITF Abstracts.



Relationships include references to other
subtopics that may contain guidance related
to the subtopic.

This section is intended to provide a simple
reference to the relevant sections and will not
include a complete description of the


Transition and Open Effective Date

This section is intended to contain guidance
and references to paragraphs within the
subtopic that have open transition guidance.

Modified paragraphs will appear in the
relevant section of the codification with some
form of emphasis (e.g., boxed).


Links to Grandfathered Materials

Grandfathered material will contain
descriptions, references, and transition
periods for grandfathered standards.

Why are some sections missing?


Why is there no Implementation
Guidance for Equity?

Codification authors did not write new GAAP.

Since there was no Implementation Guidance
under the standards
based system, there is
none under the Codification.


What about convergence

with IFRS?

IFRS does not follow the Codification system.
References in IFRS are much like the old
system under GAAP.

While many standards are virtually identical,
FASB and IASB have yet to agree on how
converged standards will be referenced.



GAAP Hierarchy in


If there is no specific guidance in a Standard or Interpretation, an
enterprise should:

apply by analogy other Standards that deal with similar or related

apply the definitions and criteria set out in the IASB Framework

apply pronouncements of national standard setters and accepted
industry practices, providing that these are consistent with other
Standards, other Interpretations, and the Conceptual Framework

Entities may use any GAAP that has a Conceptual Framework
consistent with IFRS

FASB’s Due Process Procedure

Topic added to FASB’s agenda

Issues may arise from EITF, Financial Accounting Standards
Advisory Council (FASB), Research Staff of FASB, SEC,
industry or other groups

Task force and FASB researchers write a discussion
memorandum that is then released to the public

Hearings are held

Task force revises and prepares
exposure draft

Hearings are held


FASB’s Due Process Procedure

Task force evaluates and revises as necessary

Full FASB board (7 full
time members serving
year terms) votes on draft.

If 4 of 7 approve, a Standards Statement is

Process can take years….


We will focus on Exposure Drafts

For each topic we address this term, you will
focus on financial transparency and whether it
is enhanced or diminished by the proposed
accounting guidance.

For example, next class, I will give a
presentation on the Leasing exposure draft
and we will discuss whether the draft, if fully
implemented, will enhance or diminish
transparency and why

What is financial transparency?

After banking crisis, much talk of financial

Reforms were proposed that would increase

Is there a common definition?

Transparent financial reports

“… are clear, accurate reports that reflect the
economic substance of transactions in a
straightforward manner, even in times of great
uncertainty.” [McEwen, 2009]

Transparent reports are useful in making


Would publishing an aging schedule of
receivables enhance transparency?


Would forcing off balance sheet debt onto the
balance sheet enhance transparency?

If the disclosure already is in the footnotes,
why would adding it to the balance sheet
enhance transparency?


of the General Topic Area

Treatment under Current GAAP

Treatment if Exposure Draft fully adopted

Summary of Major Differences

The Effect on Financial Transparency if
Exposure Draft fully adopted

focus on why

Presentation requirements

for presenters

Presenters are required to turn in a PowerPoint

Assume that you are explaining the new guidance
to a client

Dress professionally for your clients

Be ready to answer questions and to engage your
clients in a discussion

Provide examples.

Cite your sources.

Introduce yourself.

Presentation requirements for clients

Write a one
page, three paragraph paper on how
the exposure draft, if fully implemented, will
affect transparency.

Paragraph one should introduce the topic.

The second paragraph should summarize the
major differences between the old and new

The last paragraph should state your ideas about
whether transparency will be enhanced or
diminished and why.


Is encouraged…

Except for the one
page write up.

Discuss as much as you wish with your team,
but write your own paper.


to submit the paper

The similarity index cannot exceed 20%