US Week in Review - Week ending 13 December 2012
The US Week in Review highlights this week’s developments and emerging issues in the financial reporting world and gives you direct access to relevant technical accounting guidance and thought leadership produced by Ernst & Young.
Ernst & Young publications
We have issued the general and industry-specific December 2012 editions of Financial reporting briefs. These publications provide you with a snapshot of the major accounting and regulatory developments that have occurred during the quarter. The Reference library at the end of each document lists the publications we issued during the quarter, along with the links to them on our AccountingLink website.
The general Financial reporting briefs and the industry-specific editions are available online.
Our compendium summarizes comments of officials of the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) at last week's 2012 AICPA National Conference on Current SEC and PCAOB Developments in Washington, D.C. Highlights included (1) views from the SEC staff on considerations for incorporating IFRS into the US financial reporting system, (2) discussions on the progress of the FASB's and the IASB's joint projects, (3) observations from SEC and PCAOB officials related to audit quality and (4) considerations from the SEC staff for year-end financial reporting.
In its initial meeting in December, the Private Company Council asked the FASB staff to research four issues that the Council may consider in its review of whether and when to make accommodations for private companies. Our To the Point publication summarizes those issues and other matters discussed at the meeting.
Several new accounting pronouncements are effective for 2012 interim or annual periods for calendar-year entities. We have listed those pronouncements, along with a description of the related Ernst & Young resources. All entities should carefully evaluate which accounting requirements apply to them for the first time in 2012.
Standard Setter updates
Financial Accounting Standards Board (FASB)
Summary of observations on disclosure effectiveness forums
The FASB and the Center for Audit Quality issued a summary of observations from two October forums on financial statement disclosure effectiveness.
12 December 2012 FASB meeting
The FASB discussed the following projects:
- Accounting for financial instruments: classification and measurement
- Investment companies
- Liquidation basis of accounting
- Reporting discontinued operations
- Transfers and servicing: repurchase agreements and similar transactions
For details, see the FASB Action Alert.
Upcoming meetings and webcasts
17 December 2012 joint FASB-IASB videoconference meeting
The Boards are scheduled to discuss the revenue recognition project.
19 December 2012 FASB meeting
The Board is scheduled to discuss its project on Presentation of comprehensive income: reclassification out of accumulated other comprehensive income.
For additional details, see the FASB calendar.
See the FASB calendar for upcoming education sessions. No decisions are made at these sessions.
Public Company Accounting Oversight Board (PCAOB)
PCAOB issues report on deficiencies in audits of ICFR
The PCAOB issued a report (referred to as a 4010 report) summarizing deficiencies in audits of internal control over financial reporting (ICFR) it detected in its 2010 inspections of the eight largest domestic registered audit firms.
The PCAOB said in the report that 15% of 309 audits it inspected failed to obtain sufficient audit evidence to support the opinion on ICFR. According to the report, 85% of the audits that failed to support the opinion on ICFR also failed to obtain sufficient audit evidence to support the opinion on the financial statements, largely because the deficiencies in testing internal controls can result in an inappropriate reliance on internal controls and, consequently, an inappropriate reduction of substantive tests in the audit of the financial statements. The report also emphasizes that, in many cases, the inspections staff did not identify significant audit deficiencies in the audits of ICFR that were reviewed in 2010 and 2011, an encouraging fact that reflects well on the firms' ability to implement AS No. 5 appropriately when audit teams approach the issues properly.
The deficiencies include the following:
- Identifying and testing controls to address risks of material misstatement
- Testing design and operating effectiveness of management review controls
- Performing update procedures
- Testing electronic audit evidence that supports controls
- Using the work of internal auditors or others
- Evaluating deficiencies
The report said potential root causes include improper application of the "top-down approach" under PCAOB Auditing Standard No. 5, resource constraints and related workload pressures, insufficient training and guidance and ineffective communication with IT specialists.
Upcoming Thought center webcasts and podcasts
Accounting for income taxes: a quarterly perspective
18 December 2012, 11:00 a.m. Eastern time