McKonly & Asbury Webinar - A&A Technical Update (February 2013)

Accounting and Auditing
Technical Update
Janice Snyder, CPA
February 21, 2013

Disclaimer
The information contained in this
presentation, both that contained in the
slides and that expressed by the
presenter, is not intended to be complete
and comprehensive. To obtain a more
detailed understanding of technical
literature mentioned, please consult the
full standards and interpretations.

Today’s Agenda
• FASB Update
– Accounting Standards Updates (ASUs)
– Exposure Drafts (EDs)
• AICPA Update
• Private Company Council
• SEC & IFRS
• FASB / IASB Joint Projects Update

FASB Update
Accounting Standard Update Transition
(ASU) # Method Effective Date
Balance Sheet Offsetting 2011-11 & Retrospective Period after 1/1/13
2013-01
Intangible Asset Impairment 2012-02 Prospective Period after 9/15/12
Early adoption permitted

Comprehensive Income 2013-02 Prospective Periods beginning
after 12/15/12
Potential
Exposure Draft (ED) Comment Deadline Effective Date
Disclosure Framework November 30, 2012 N/A
Foreign Currency December 10, 2012 To be determined
Liquidation Basis of Accounting October 1, 2012 To be determined
Investment Property Entities February 15, 2012 To be determined

FASB Update
Balance Sheet Offsetting
– ASU 2011-11 & ASU 2013-11(Dec 2011 & Jan 2013)
• Effective for annual reporting periods beginning on or after
January 1, 2013. Retrospective presentation required.
• Scope includes:
– Derivatives
– Sale and repurchase agreements
– Reverse sale and repurchase agreements
– Securities borrowing and securities lending arrangements
• Limited to financial assets and financial liabilities
• Scope excludes: Loans & customer deposits netted on
statement of financial position

FASB Update
Balance Sheet Offsetting
– New disclosures
• Recognize financial instruments and derivative instruments
that are offset against one another
• Recognize financial instruments and derivative instruments
that are subject to an enforceable master netting
arrangement or similar agreement
• Information to enable users to evaluate the effect or potential
effect of netting arrangements on its financial position
• Gross and net amounts must be disclosed with a
reconciliation to the statement of financial position (table
format is suggested)

FASB Update
Testing Indefinite-Lived Intangible Assets for
Impairment - ASU 2012-02 (July 2012)
– Effective for fiscal years beginning after 9/15/12 (Early adoption
permitted)
– Similar guidance to goodwill impairment - Qualitative
assessment of fair value to carrying value before the quantitative
impairment test.
– Factors to consider include:
1) cost factors,
2) financial performance,
3) legal and regulatory matters,
4) entity-specific events,
5) industry and market conditions, and
6) macroeconomic conditions.

FASB Update
Comprehensive Income – Reporting Amounts
Reclassified Out of AOCI – ASU 2013-02 (02/2013)
– Potentially effective for annual reporting periods beginning after
12/15/12 (public entity) and 12/15/13 (nonpublic entity).
– Do not change the current requirements for reporting net income
or other comprehensive income in financial statements.
– Requires an entity to provide enhanced disclosures to present
separately by component significant reclassifications out of
accumulated other comprehensive income. Choice of disclosure:
• On the face of the statement where net income is presented; or
• As a separate disclosure in the notes to the financial statements.
– Not-for-Profit entities are excluded from the scope.

FASB Update
ED - Disclosure Framework (7/12/12)
– FASB seeks ways to improve effectiveness of disclosures in
notes to financial statements of public, private, and not-for-profit
organizations.
– A decision process that could aid the Board in establishing
disclosure requirements that address relevant information and
only relevant information.
– Flexible disclosure requirements that could be adapted by each
reporting organization.
– A judgment framework that could help each reporting
organization determine which disclosures are relevant in its
specific circumstances
– Organization and formatting techniques that could make the
information users need easier to find and understand.

FASB Update
ED – Foreign Currency Matters(10/11/12)
– Parent’s Accounting for the Cumulative Translation Adjustment
upon Derecognition of Certain Subsidiaries or Groups of Assets
within a Foreign Entity or of an Investment in a Foreign Entity
– Affects entities that cease to hold a controlling financial interest in a
subsidiary or group of assets within a consolidated foreign entity
when:
(1) The subsidiary or group of assets is a nonprofit activity or a
business and
(2) There is a cumulative translation adjustment balance
associated with that consolidated foreign entity.
– Requires a parent to release any cumulative translation adjustment
into net income only if the sale or transfer results in the complete
or substantial liquidation of the foreign entity in which the
subsidiary or group of assets had resided.

FASB Update
ED - Liquidation Basis of Accounting (7/2/12)
– Required when liquidation is “imminent”
• Approved liquidation plan
• Likelihood of plan being blocked is remote
– Measured on a liquidation basis, not accrual basis
• Measure assets and liabilities at the amount of cash the
entity expects to collect or the amount of cash that the entity
expects to pay during the course of liquidation.
– Two statements under liquidation basis
• Statement of Net Assets in Liquidation
• Statement of Changes in Net Assets in Liquidation

FASB Update
ED - Investment Property Entities (10/21/11)
– Investment property is defined as property held by the owner or
held in a finance lease to earn rentals or for capital appreciation,
or both.
– Measurement at fair value through net income for:
• Investment properties acquired by an investment property entity
would initially be measured at transaction price and subsequently
measured at FVNI.
• An investment property entity would measure all other investments
that would otherwise qualify for the equity method of accounting at
fair value with all changes in fair value recognized in net income.
– The effect of adoption recorded to opening retained earnings.
– Comment letters focused on a desire not to develop a separate
investment property entity concept; however, they agree with the
fair value concept.

Today’s Agenda
• FASB Update
• AICPA Update
– Auditing Standards Board Clarity Project
• SEC & IFRS

U.S. Auditing Standards (Clarified)
Auditing Standards Board Clarity Project
• Began after the creation of the Public Company Accounting
Oversight Board (“PCAOB”).
• Issued in August 2012.
• ASB aligned its projects with the International Auditing and
Assurance Standards Board (“IAASB”) and also determined to
minimize differences with the PCAOB.
• Redraft all of the auditing standards into a standardized
structure, which had been developed by the IAASB.
• Effective for audits of entities with years ending on or after
December 15, 2012.

Consideration of laws and regulations
– AU-C Section 250.12 – 250.16
.13 Auditor must understand the legal and regulatory framework
applicable to the entity and the industry and how the entity
complies with that framework.
.14 Sufficient audit evidence of material amounts and
disclosures.
.15 Auditor should perform the following:
(a) Inquire of management and others charged with
governance.
(b)Inspect correspondence with relevant licensing
agencies or regulatory authorities.
.16 Obtain written representation from management.

– Reporting Noncompliance in the Auditor's Report
on the Financial Statements
• Opinion may need to be modified.
– Reporting Noncompliance to Regulatory and
Enforcement Authorities
Section AU-C 250.27
• If the auditor has identified or suspects noncompliance with
laws and regulations, the auditor should determine whether
the auditor has a responsibility to report the identified or
suspected noncompliance to parties outside the entity.

– Auditor external reporting requirements for violations.
• To a funding agency or other specified agency in accordance
with requirements for the audits of entities that receive
financial assistance from a government agency.
• In response to a subpoena.
• To a successor auditor when the successor makes inquiries in
accordance with section 315, Communications Between
Predecessor and Successor Auditors.
– Because potential conflicts with the auditor's ethical
and legal obligations for confidentiality may be
complex, the auditor may wish to consult with legal
counsel before discussing illegal acts with parties
outside the client.

AICPA Update
Communicating internal control matters
– Now must communicate with management all deficiencies
noted, not just significant deficiencies or material
weaknesses.
• Very low threshold for “deficiency”.
• Many more items will be communicated.
– Must communicate the potential effects of the significant
deficiencies and material weaknesses to those charged
with governance.
– Auditors may now include specific matters in a written
communication stating that no material weaknesses were
identified.

Communicating internal control matters
– AU-C Section 265.12b
• Auditors are still required to communicate all material
weaknesses and significant deficiencies to those charged
with governance in writing.
• Other deficiencies in internal control should be
communicated to management if they are deemed to be
of sufficient importance to merit management’s
attention.
• If the auditor has communicated deficiencies in internal
control to management previously, other than significant
deficiencies and material weaknesses, and management
has chosen not to remedy the deficiency, the auditor does
not need to repeat the communication in the current year.

Going Concern
– Paragraph 14 of the clarified SAS requires the auditors to
obtain written representations from management if
conditions or events have been identified that indicate there
could be substantial doubt about the entity's ability to continue
as a going concern. These representations are based on the
representation required by paragraph 16(e) of ISA 570, Going
Concern, and the illustrative going concern representation in
appendix B, "Additional Illustrative representations," of extant
AU section 333 currently requires such representations.

Related Parties
– Must consider risk of material misstatement, regardless of
financial reporting framework.
– Adds more specific requirements as to procedures and
documentation.
– The ASB considers this to be a high-risk, fraud risk area.
– Examination of additional documents from management.
– Additional representations regarding related parties.
– Additional disclosures may be required (upon discovery of
related party transactions).

Related Parties
AU-C Section 550.04, “Because related parties are not
independent of each other…the auditor has a responsibility to
perform audit procedures to identify, assess, and respond to
the risks of material misstatement arising from the entity's failure
to appropriately account for or disclose related party
relationships, transactions, or balances.”
AU-C Section 550.05, “In addition, an understanding of the entity's
related party relationships and transactions is relevant to the
auditor's evaluation of whether one or more fraud risk factors are
present, as required by section 240, because fraud may be
more easily committed through related parties.”
AU-C Section 550.06, “Related party relationships may present a
greater opportunity for collusion, concealment, or manipulation
by management.”

Related Parties
AU-C Section 550.A22, “The auditor may inspect records or documents
that indicate the existence of a related party relationships.. .Records or
documents include the following:
– Third party confirmations obtained by the auditor (bank, legal, other).
– Income tax returns.
– Information supplied by the entity to regulatory authorities.
– Shareholder registers to identify the entity's principal shareholders.
– Statements of conflicts of interest.
– Records of the entity's investments and those of its benefit plans.
– Contracts and agreements with key management or those charged with
governance.
– Significant contracts and agreements.
– Specific invoices and correspondence from the entity's professional advisors.
– Life insurance policies acquired by the entity.
– Significant contracts renegotiated by the entity during the period.
– Capital financing arrangements.
– Economic development arrangements for capital additions.

Clarifications on external confirmations
– AU-C Section 505.A25
• Oral responses are not confirmations.
– Access to a website may or may not be
considered an external confirmation.
• AU-C Section 505.A1
– External confirmation is defined as audit evidence
obtained as a direct written response to the auditor
from the third party (the confirming party), either in paper
form or by electronic or other medium (for example,
through the auditor’s direct access to information held by
a third party).

Clarifications on external confirmations
• The auditor's direct access to information held by a third party (the
confirming party) may meet the definition of an external confirmation
when, for example, the auditor is provided by the confirming party
with the electronic access codes or information necessary to access
a secure website where data that addresses the subject matter of
the confirmation is held. The auditor's access to information held by
the confirming party may also be facilitated by a third-party service
provider.

• When access codes or information necessary to access the
confirming party's data is provided to the auditor by
management, evidence obtained by the auditor from access to such
information does not meet the definition of an external confirmation.

Group audits
– The definition of “group” is quite broad and may
scope in many more situations.
– Will likely be applicable within a firm when one office
is lead auditor and another office works on a
component.
– Will be applicable for entities that have equity method
investees.
– Will be applicable when using other firms for inventory
observations.

Group audits
– Group auditor must consider their ability to be
involved with the component auditors and the
sufficiency of the evidence obtained through that
process.
• Eliminates “coverage” concept.
– Materiality and performance materiality must be
determined for the group, then pushed down to
components, including those audited by others being
referred to in the report.
– Materiality levels will be communicated from the
group auditor.

Special Purpose Framework
– The clarified SAS requires the auditors to
obtain an understanding of:
(a)the purpose for which the financial statements are
prepared,
(b)the intended users, and
(c)the steps taken by management to determine that the
special purpose framework is acceptable in the
circumstances;

Special Purpose Framework
– The clarified SAS requires the auditors to
obtain an understanding of:
• In the case of financial statements prepared in
accordance with regulatory or contractual basis of
accounting, the auditor's report to describe the purpose
for which the financial statements are prepared or refer
to a note in the special purpose financial statements
that contains that information.
• The auditor's report to include specific elements if the
auditor is required by law or regulation to use a specific
layout, form, or wording of the auditor's report.

Opening balances on initial audits
– Specifically makes clear that reviewing predecessor auditors’
workpapers is not sufficient audit evidence.
– More audit procedures to be performed when changing auditors.
– AU-C Section 510-08(c), “c. evaluating whether audit
procedures performed in the current period provide evidence
relevant to the opening balances and performing one or both of
the following:
i. When the prior year financial statements were audited,
reviewing the predecessor auditor's audit documentation to
obtain evidence regarding the opening balances.
ii. Performing specific audit procedures to obtain evidence
regarding the opening balances.

Auditor’s report
• AU-C Section 700
– Improved language as to management’s responsibility.
• Clarified format with specific headings:
– Report on the Financial Statements
– Management’s Responsibility for the Financial
Statements
– Auditor’s Responsibility
– Opinion

Report on the Financial Statements
We have audited the accompanying consolidated financial statements of ABC Company and its subsidiaries, which
comprise the consolidated balance sheets as of December 31, 20X1 and 20X0, and the related consolidated statements
of income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the
financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of ABC Company and its subsidiaries as of December 31, 20X1 and 20X0, and the results of their operations
and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United
States of America.

Today’s Agenda
• FASB Update
• AICPA Update
– Background
– Defining a “Nonpublic” Entity
• SEC & IFRS

Private Company Council
• For the past several years, there have been concerns over
U.S. GAAP as it applies to public versus nonpublic entities.
• There previously existed the AICPA’s Blue Ribbon Panel
and the FASB’s Private Company Financial Reporting
Committee.
• The Private Company Council (PCC) is a newly-created
body under the Financial Accounting Foundation (FAF)
• Designed to identify issues in U.S. GAAP related to private
companies.
• Will vote on proposed changes to U.S. GAAP for private
companies which will be subject to endorsement by the
FASB.

“The 10 members of the PCC are eager to begin
addressing the critical issues facing users,
preparers, and auditors of private company financial
statements,” said PCC chairman Billy M. Atkinson,
who formerly chaired NASBA and was a member of
the Blue-Ribbon Panel. “Our success will be based
on collaboration and mutual respect for and
between the PCC and the FASB, which I am
confident we will achieve, and our ability to obtain
meaningful feedback on all issues from private
company stakeholders.”

Initial public meetings were held in December 2012
and February 2013.

• Help identify the needs of users of private company
financial statements and improve the relevance.
• Is not intended to be a separate framework.
• Defining a “Nonpublic Entity”
– Six major factors to consider:
1. Types & number of financial statement users
2. Access to management
3. Investment strategies
4. Ownership and capital structures
5. Accounting resources
6. Learning about new financial reporting guidance

• Preliminary staff recommendations that would
distinguish U.S. GAAP for private (nonpublic)
companies:
– Recognition and measurement guidance (allows for differences)
– Disclosure requirements (focuses on relevant information)
– Display requirements (financial statement presentation)
– Effective date (additional year for implementation date)
– Transition method (alternative approach to adoption)

Exposure draft expected in June 2013.

Key projects identified by the PCC
1. Consolidation (Formerly FIN 46R and FAS 167) –
focusing on variable interest entities.
2. Interest Rate Swaps
3. Intangible Assets – Recognizing and measuring
intangible assets acquired in a business
combination.
4. Income Taxes (Formerly FIN 48) – focusing on
uncertain tax positions.

Today’s Agenda
• FASB Update
• AICPA Update
• SEC & IFRS

SEC & IFRS
123 of 195 Countries Permit or Require the use of IFRS

Copyright: PICPA from November 14, 2011 webcast

SEC & IFRS
• Status of IFRS in the US
– The long road of convergence
• FASB continues to focus on its convergence efforts.
• The IASB and other international entities focus on pushing
the US to adopt IFRS.
– July 13, 2012, the SEC issues the Final Staff Report on the
Work Plan for the Consideration of Incorporating International
Financial Reporting Standards into the Financial Reporting
System for U.S. Issuers. Not yet approved by the
Commission.

SEC & IFRS
Status of IFRS in the US
– Key Findings of the Staff Report
1. Development of IFRS
 Standards are generally perceived to be high quality.
 There continues to be areas that are underdeveloped.
 US constituents perceive that the underdeveloped areas
in IFRS are greater than in US GAAP.
2. Interpretive Process
 The IFRS Interpretations Committee should do more to
address issues on a timely basis.
 Changes were made to this process, but it is unknown at
this point whether they will be effective.

SEC & IFRS
3. IASB’s Use of National Standard Setters
 IASB should consider greater reliance on the use of
national standard setters.
4. Global Application and Enforcement
 Global application and consistency could be improved to
narrow diversity.
 The SEC may be a constructive influence on the
consistent application and enforcement of IFRS.
5. Governance of the IASB
 The US should maintain an active FASB to endorse
IFRS.

SEC & IFRS
6.Status of Funding
 Currently funded by fewer than 30 countries.
 The US portion of the IASB budget is currently
underfunded.
 Funding approach relies upon large public accounting
firms.
7. Investor Understanding
 Investor education is not uniform.
 Need to improve investor engagement and education.
Summary: Significant progress has been made, but there is much
more to be done.

SEC & IFRS
With the transition from Mary Shapiro, former SEC
Chairman, to Elisse Walter in December 2012, there will
be an adjustment period. Shapiro held one of the seats
on the IFRS Foundation Monitoring. Elisse Walter has
also taken over this position.

The SEC continues to review the Staff Report and has not taken any
definitive position regarding IFRS in the US. Although the staff report
is constructive and an important contribution, the Work Plan did not
set out to answer the fundamental question of whether transitioning
to IFRS is in the best interests of the U.S. securities markets
generally and U.S. investors specifically.

FASB / IASB Joint Projects
Project Transition Expected Expected
Method Final Effective
Standard Date
Financial Instruments Retrospective ED’s in To be
(Impairment, Measurement, Hedging)
2013 determined

Revenue Recognition Retrospective Q2 2013 2015
Leases Simplified ED – Q2 To be
Retrospective 2013 determined

Insurance Contracts To be ED– Q2 To be
determined 2013 determined

Consolidation Prospective Q2 2013 To be
determined
Investment Companies To be Q1 2013 December
determined 15, 2013

Financial Instruments - 3 Elements
1. Impairment
• Exposure document issued on December 20, 2012.
• Comment deadline on April 30, 2013.

2. Classification and Measurement
• Exposure draft expected in Q1 2013.

3. Hedging
• Timing is to be determined

Financial Instruments
1. Impairment
• The Board decided to re-expose the credit impairment model.
• Affects all entities with financial assets not accounted for at
Fair Value Through Net Income and are exposed to potential
credit risk, including:
– Loans
– Debt securities
– Trade receivables
– Lease receivables
– Loan commitments
– Reinsurance receivables
– Any other receivables

1. Impairment
• Current Expected Credit Loss (CECL) Model:
– An entity recognizes a credit impairment allowance for
its current estimate of the expected credit losses held at
the reporting date.
– The estimate of expected credit losses reflects the
contractual cash flows that the entity does not expect to
collect.
– Removes the existing “probable” threshold and “most
likely outcome”
• Significant additional disclosures will be required.

– Includes: all financial instruments, with specific exclusions.
– Excludes: derivative instruments, leases, loan commitments
and letters of credit, financial guarantee contracts, all
insurance items, benefit plans and various other items.
– Financial assets to be measured at fair value through net
income, with limited exceptions.
– Financial liabilities may be measured at amortized cost
unless they are short sales or subsequently transacted at fair
value.

3 Measurement Options for Financial Assets
– Amortized Cost - if the assets are held within a business
model whose objective is to hold the assets in order to collect
contractual cash flows.
– Fair Value Through OCI – if managed within a business
model whose objective is both to hold the financial assets to
collect contractual cash flows and to sell the financial assets.
– Fair Value through Net Income – All remaining financial
assets.

3. Hedging
– Project has been ongoing since 2008.
– Initial exposure draft issued in 2010.
– FASB discussion paper issued in 2011.
– Goal is to improve and simplify hedge accounting.
– The Board has not begun redeliberations on this topic.
– There is no potential date for the new exposure draft.

Revenue Recognition
• Original exposure draft issued November 14, 2011 and
January 4, 2012 (revised)
• Final standard expected in Q2 2013
– New revenue recognition model that could significantly
change the way entities recognize revenue.
– Based on a single, contract based model that would be
applied to all contracts with customers (with limited
exceptions).
– Entities would recognize revenue upon satisfaction of
performance obligations, which occurs when control of an
asset transfers to the customer.

Revenue Recognition
– Under the proposal, a company would be required
to retrospectively adopt the new standard.
• Applies to all contracts in existence in any of the periods
presented, even if those contracts were completed before
the year of adoption.
• An effective date of no earlier than 2015 is expected to
allow companies adequate time to prepare for and
implement the new standard.

Revenue Recognition
– Major concerns noted by respondents:
• Concept of control and indicators of control for service
contracts and work in process type contract.
• Principle of distinct goods and services for identifying
performance obligations.
– Key decisions to date:
• Adjustment to be made to input methods, such as costs
incurred, for measuring progress towards completion.
• Contract modification would be approved when the
modification creates or changes the enforceable rights and
obligations of the parties to the contract (oral, written or
customary business practice).

Leases
• Original exposure draft issued August 17, 2010
• New exposure draft expected in Q2 2013
– Proposing a right-of-use approach for lessee accounting.
– Would require the reporting of the rights and obligations
conveyed by all leases on the balance sheet.
– Companies would need to record all existing operating
leases upon adoption of the new standard using a simplified
retrospective approach.
– Transition adjustments would be recorded directly to equity.

Leases
– Balance Sheet Impact:
• A new asset is recorded representing the right to use the
leased item for the lease term.
• A liability is recorded representing the obligation to pay
rentals based on the present value of lease payments.
– Income Statement Impact – Two Options:
• I&A Approach - Straight-line rent expense would be
replaced by amortization and interest expense for lessees
with current operating lease treatment. Must reflect a
systematic pattern of consumption.
• SLE Approach - Single Lease Expense may be used to
recognize total lease expense on a straight-line basis.

Leases
– FASB Decisions since 2010 Exposure Draft
• Exclusion of short-term leases
• Concept of a Single Lease Expense (SLE) or Interest &
Amortization (I&A) on the income statement.
• SLE would be recorded as operating cash flow.
• I&A would be financing cash flow.
• Must be significant economic incentive to extend the
lease term to consider this in the original asset and
obligation.
• Lease term should only be reassessed when there is a
significant change.

Insurance contracts
– Project began in 2009 - FASB and IASB currently
disagree on several important technical issues.
– Decisions to date:
• Standard will address accounting for insurance contracts
from the perspective of the insurer.
• Insurance contracts create a “bundle of rights and
obligations”.
• Measure insurance contracts at portfolio level.
• Scope includes: Financial Guarantee Contracts and Title
Insurance Contracts.

Consolidation – Principal versus Agent Analysis
– Tentative decisions reached to date:
• The Control Model - A reporting entity has the power to direct
the activities of another entity when it has the ability to direct
the activities of the entity that significantly affect the returns.
• Primary Beneficiary - a decision maker that is determined to
be the principal of a VIE to be automatically considered to be
the primary beneficiary of the VIE.
• Structured Entities - The guidance established in this project is
anticipated to produce consolidation results consistent with
those reached under the Variable Interest Entities Subsections
of Topic 810, as amend by Statement 167.

Investment Companies
– Effective for fiscal years beginning after December 15, 2013.
– An entity regulated under the SEC’s Investment Company Act of
1940 would be an investment company for accounting purposes.
– Entities not regulated under the Act would consider its purpose
and design to make the assessment.
– Amends the definition of an investment company in Topic 946.
• Obtains funds from an investor or investors and provides the
investor(s) with professional investment management services
• Commits to its investor(s) that its business purpose and only
substantive activities are investing the funds for returns from
capital appreciation, investment income, or both.

Investment Companies
– Requires consolidation if control exists over another investment
company or an investment property entity.
– Prohibits equity method accounting if there is significant influence.
– Mortgage Real Estate Investment Trusts (REITs) that meet the
requirements of an investment company would follow this
guidance.
– Retrospective application of the standard is expected.

Questions?
Janice Snyder, CPA
Principal
jsnyder@macpas.com
717-761-7910

McKonly & Asbury Webinar - A&A Technical Update (February 2013)

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