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Changes to Accounting Principles

||Changes to Accounting Principles

Planning Should Continue Despite FASB’s New Revenue Recognition Standard Delay

April 2015 The Financial Accounting Standards Board (“FASB”) has announced a proposal to delay by one year the effective date of implementation of the new revenue recognition standard under Generally Accepted Accounting Principles (“GAAP”), making the new date of change for public companies those reporting periods beginning after December 15, 2017.  Private companies would have [...]

FASB Says There’s Nothing Extraordinary About Your Financials

January 2015 The Financial Accounting Standards Board (“FASB”) has issued its first accounting standards update of 2015.  Simply put, FASB wishes to inform preparers of financial statements that there is nothing special about the results they are reporting, i.e., the end of the concept of “Extraordinary Items” on Income Statements. Accounting Standards Update No. 2015-01, Income Statement—Extraordinary [...]

Auditing Standards Board Provides Guidance for Reliance on Internal Auditors

February 2014 The Auditing Standards Board (“ASB”) has issued its Statement on Auditing Standards (SAS) No. 128, “Using the Work of Internal Auditors”.  SAS 128 defines the external auditor’s responsibilities in situations where they are (a) using the work of the internal audit function to obtain audit evidence or (b) using internal auditors to provide [...]

New Standard For Revenue Recognition Standards Is Coming

January 2014 The final touches are being put on the new single, principles-based standard that will update and converge revenue recognition under the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board.  The change will impact entities that use US generally accepted accounting principles (“GAAP”) or International Financial Reporting Standards (“IFRS”).  FASB describes the [...]

Proposed Changes To Litigation Accounting And Disclosures Are Dropped

July 2012 In July 2012, the Financial Accounting Standards Board (FASB) voted to drop a controversial project that would have required companies to disclose more about contingent losses, including most notably those arising from litigation. The now-withdrawn proposal would have required significant additional disclosure of litigation. The vast majority of those commenting on the proposal [...]

SEC Staff Report A Big Disappointment To Those Seeking Rapid IFRS Adoption

July 2012 On July 13, 2012, the staff of the Securities and Exchange Commission (SEC) issued a long-awaited report regarding adoption of International Financial Reporting Standards (IFRS) in the United States. Currently, Generally Accepted Accounting Principles (GAAP) in the U.S. is determined by the Financial Accounting standards Board (FASB), with support of the SEC. The [...]

Accounting Standard Will Require Significantly More Leases To Be Put On The Balance Sheet

June 2012 On June 13, 2012, after more than a year of deliberation, the International Accounting Standards Board (IASB) and U.S. Financial Accounting Standards Board (FASB) agreed on an approach for accounting for leases that generally will be simpler to implement than some of their earlier and more controversial proposals. The Boards plan to release [...]

Private Company Accounting May Become Simpler

May 2012 On May 23, the Financial Accounting Foundation (FAF) Board of Trustees established a new body to improve the process of setting accounting standards for private companies.  The need for such a group has been debated for decades.  The new group, the Private Company Council (PCC), will determine whether exceptions or modifications to existing [...]

Revised Contingency Accounting Rules Delayed Again

November 2010   Significant negative feedback from legal executives and groups caused the Financial Accounting Standards Board (FASB) to delay implementing expanded financial statement disclosures of lawsuits and other loss contingencies. The FASB received 347 comment letters, including criticism from the American Bar Association, large collections of general counsel from major corporations organized by the [...]

U.S. Private Companies Now Have Additional Accounting Alternatives

July 2009 Although there has often been a call for simplified accounting principles for smaller or non-public enterprises, U.S. generally accepted accounting principles (GAAP) do not have a separate financial reporting standard for smaller companies. This changed last week, when the International Accounting Standards Board (IASB) approved a new and simplified set of accounting rules [...]

FASB Proposes New Revenue Rules As Part Of Dramatic Change To Principles-Based Worldwide Standards

June 2009 In accounting, revenue recognition refers to the point when one is able to record a sale in the financial statements. In a typical retail environment, sales timing is straightforward because there is a clear point when a buyer makes a selection, makes a payment, and takes the merchandise. But, in many commercial environments, [...]

FASB Toughens Off-Balance-Sheet Accounting

June 2009 Existing accounting guidance permits companies to report transfers of portions of financial assets as sales. The off-balance-sheet entities that enabled banks to keep securitized assets and other activities off their financial statements will now need to be included on their sponsor’s consolidated financial statements. An important accounting change which will be finalized this [...]

GAAP Reorganization Will Cause Short-Term Frustration, But Should Improve Research Capabilities

May 2009  On July 1, 2009, the Financial Accounting Standards Board (FASB) is expected to issue their “Accounting Standards Codification” (ASC) as the sole authoritative accounting guidance for U.S. generally accepted accounting principles (GAAP). The ASC will not change GAAP, but nevertheless represents a major shift in its organization and presentation. It is intended to [...]

M&A Accounting For Lawsuit Contingencies Revoked

April 2009 An accounting pronouncement highly criticized by the legal profession was formally revoked this month.   The Financial Accounting Standards Board (FASB) issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”.  As described in our previous article, the “old” rule (which was effective starting in [...]

Significant New Litigation Disclosures Proposed

June 2008 The Financial Accounting Standards Board (FASB) proposed expanded disclosures regarding contingencies, most notably those arising from litigation. Unless delayed or altered, litigators and in-house lawyers will be asked for significant additional information for 2009 fiscal periods (including interim financial statements). FASB Statement 5 is the current pronouncement for addressing contingencies. SFAS 5 requires [...]

GAO Admits The Big 4 Audit Competition Problem, But Fails To Suggest Any Remedies

January 2008 The U.S. Government Accountability Office (GAO) survey released last week found that the concentration within the audit firms was a problem, but then failed to suggest a single suggestion to deal with the problem. The GAO’s conclusion (report GAO-08-163) conflicts with other reports by private-sector groups (including the U.S. Chamber of Commerce), and [...]

SEC Allows Foreign Reporting Standards in the U.S.

November 2007 Last week, the Securities and Exchange Commission (SEC) eliminated its requirement for international companies to reconcile financial statements prepared under the International Financial Reporting Standards (IFRS) to generally accepted accounting principles in the United States. This creates an unprecedented situation of two co-existing financial reporting standards in the U.S. The move is likely [...]

New Accounting Rule Requires Lawyer Input

June 2005 Lawyers issuing legal confirmation letters to their client's auditor will have one more item to consider.  No later than December 31, 2005, companies with future environmental cleanup obligations may (depending upon the practices previously adopted) face a major change.  Because the new rule requires complex judgments and estimates, lawyers and their clients should [...]

How Principles-Based Accounting Affects Lawyers

August 2003 In late July 2003, the Securities and Exchange Commission (SEC) released a staff study required by Section 108(d) of the Sarbanes-Oxley Act.  The study strongly recommends that accounting standards be developed using a principles-based approach.  In several prior articles, we encouraged this change.  Although the full impact will take years to occur, the [...]