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North Carolina Association of CPAs Employee Benefit Plans Conference
Accounting & Auditing Update
Tricia A. Van Vliet, CPA Elliott Group CPAs, PLLC
What We Have Lined Up for You
• Current developments from our standard setters
– FASB
– AICPA
– PCAOB
• Changes impacting your audits in 2014 and looking forward
• Important reminders…before you “check the box”
– Revisiting your risk assessment & audit plans that respond to risks identified
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Current developments from our standard setters - FASB
Very narrow scope…however, some confusion caused by title
Intended to address issues associated with private company ESOPs
Relief for sponsors of private
company ESOPs; quantitative information
regarding significant unobservable inputs used in
determining fair value of sponsor’s nonpublic equity
securities categorized within Level 3 of the hierarchy
Disclosures required by
ASC 820-10-50-2(bbb)(2)
Deferred Indefinitely
FASB ASU No. 2013-09 – Fair Value Measurement (Topic
820): Deferral of the Effective Date of Certain Disclosures
for Nonpublic Employee Benefit Plans in Update
2011-04
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Current developments from our standard setters - FASB
Intended to improve comparability between entities reporting under GAAP and IFRS; enhance disclosure and provide converged disclosures for certain financial and derivative instruments
Effective date: Fiscal years beginning on or after
January 1, 2013, and related interim periods within that fiscal year; retrospective
implementation for all comparative periods presented
Expectation that many defined Benefit and health & welfare plans or master trusts, as well as certain defined contribution plans with more diverse & complex portfolios hold contracts that include master netting arrangements within the scope of this ASU
Terms of contracts can be very complex and may require legal
interpretation to determine enforceability of netting provisions…expect information
gathering, coordination of expertise & conclusions take time…plan ahead!
FASB ASU No. 2011-11 as amended by ASU No. 2013-
01 – Disclosures About Offsetting Assets & Liabilities
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Current developments from our standard setters - FASB
The following quantitative information for assets & liabilities (within the scope of the ASU), disclosed in a table at the end of the reporting period:
(a) Gross amounts of recognized assets & recognized liabilities
(b) Amounts offset in the statement of net assets available for benefits
(c) Net amount presenting in the statement of net assets available for benefits
(d) Amounts subject to master netting arrangement or similar agreement: amounts related to recognized financial or other derivative instruments; amounts related to financial collateral
(e) Net amount after deducting amounts in items (d) & (c)
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A Closer Look at the Offsetting Asset & Liability Disclosure
Requirements
Current developments from our standard setters - FASB Offsetting disclosure example
($ in millions) Financial Assets and Derivative Assets, as of December 31, 20XX
Description (i) (ii) (iii) = (i) – (ii) (iv) (v) = (iii) – (iv)
Gross Amounts Not Offset in Statement of Financial Position
Gross Amounts of Recognized Assets
Gross Amounts Offset in the Statement of Financial Position
Net Amounts of Assets Presented in the Statement of Financial Position
Financial Instruments
Cash Collateral Received Net Amount
Derivatives $ 100 $ (90) $ 10 - - $ 10
Reverse Repurchase, securities borrowing, and similar arrangements
90 - 90 (90) - -
TOTAL $ 190 $ (90) $ 100 $ (90) - $ 10
Source: ASU 2011-11 Application of ASC 210-20-50-3(a)-(e) by type of financial asset instrument. Refer to ASU 2011-11 for more detail.
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AICPA Audit & Accounting Guide – Employee Benefit Plans
(Updated as of January 1, 2014) includes additional examples
Current developments from our standard setters - FASB
Prepare financial statements using liquidation basis of accounting when liquidation is imminent; plan for liquidation is approved or is being enforced by other forces (e.g., involuntary plan termination)
Effective date: For entities that determine liquidation is imminent
during annual reporting periods beginning after December 15, 2013 and interim reporting periods
therein; applied prospectively from day that liquidation becomes imminent; early adoption
permitted
Present relevant information about plan’s expected resources in liquidation; generally measuring & presenting assets at amount of expected cash proceeds; recognize & measure liabilities in accordance with applicable GAAP; accrue & separately present costs expected to be incurred & income expected to be earned during liquidation
If a plan is already on the liquidation basis of accounting at effective date of ASU, plan would
continue to apply current guidance in ASC 960-40, 962-40 and 965-40 until liquidation is complete
FASB ASU No. 2013-07, Presentation of Financial Statements (Topic 205):
Liquidation Basis of Accounting
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Current developments from our standard setters - FASB • Special considerations for defined benefit
pension plans
– Looking ahead to implementation
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Liq
uid
atio
n Im
min
ent
Board vs. PBGC approvals
Imp
lem
enta
tio
n
Beginning vs. end of year presentation
Act
uar
ial E
stim
ates
Settlement liability & required contributions
Key Plan Accounting Guidance
FASB Accounting Standards
Codification
THIS is GAAP
Required Accounting
What about specialized
nature of plan financial
statements?
Authoritative
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AICPA & FASB Dialogue
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Could mean much need Relief for
“Square Peg/Round Hole”
syndrome that continues to
plague the plan financial reporting
world
Employee Benefit Plan Specific Outreach to FASB
•AICPA Employee Benefit Plans Expert Panel & AICPA Employee Benefit Plan Audit Quality Center Executive Committee
FASB responds with planned
research project on accounting issues in plan
financial statements
Taking a closer look at current
accounting matters that cause ongoing issues for
plan financial reporting
Acknowledging specialized nature of the employee
benefit plan environment
Encouraging & exciting…stay
tuned!!!
AICPA & FASB Dialogue (continued)
www.aicpa.org/InterestAreas/EmployeeBenefitPlanAuditQuality/Resources/TestimonyandCmtLtrs/DownloadableDocuments/EBP-Discussion-Memo-Observations-About-Current-EBP-Accounting.pdf
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Further details can be found by accessing the full discussion
memorandum as follows:
Current Developments –Regulatory Matters to Consider in 2014 Audits
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Defense of Marriage Act (DOMA)
• Primarily inquiry considerations to evaluate sponsor entity’s attention to and understanding of ongoing regulatory requirements in connection with overall risk assessment
Affordable Care Act (ACA) • Medial loss ratio rebates
• Notice requirements
• Changes that may impact certain healthcare arrangements; consider stand-alone features that may now be require association with a health plan (certain HRAs and FSAs)
• Employer Shared Responsibility Payment
• Delays: 1/1/2015 for employers with >= 100 FTEs; 1/1/2016 for employers with 50-99 FTEs; certain conditions apply
• Transition rules can be complex – communication is key
• Consider responses to inquiries & findings to evaluate sponsor entity’s attention to and understanding of ongoing regulatory requirements in connection with overall risk assessment
Current Developments - AICPA
February 2014 – ASB finalized redrafting of last pre-clarity AU section; completed the Clarity Project relating to SASs
Supersedes SAS No. 65, The Auditor’s Consideration of the Internal Audit Function
in an Audit of Financial Statements; also amends AU-C Sec. 315, among others
Addresses auditor responsibilities when using work of internal auditors: in obtaining audit evidence; using internal auditors to provide direct assistance under direction, supervision & review of the external auditor
Effective Date: audits of financial statements for periods ending on or after
December 15, 2014
SAS No. 128, Using the Work of Internal Auditors
(AU-C Sec. 610)
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Current Developments - PCAOB
Applicable to plan’s considered to be SEC registrants and subject to SEC filing requirements (Form 11-K)
Intended to enhance relevance & timeliness of communications; facilitate dialogue regarding
significant audit and financial reporting matters
Requirements are similar to those of AICPA Professional Standards AU-C Section 260, The Auditor’s Communication with Those Charged with Governance; differences do exist; auditors of plan’s subject to 11-K filing must comply with requirements of both standards
Effective Date: audits of SEC registrant financial statements of fiscal periods beginning
on or after December 15, 2012
Auditing Standard (AS) No. 16, Communications with
Audit Committees
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Looking Ahead
PCAOB AS 17 – Auditing Supplemental Information
Accompanying Audited Financial Statements
(effective for financial statements of fiscal years ending on or after
June 1, 2014)
PCAOB and IAASB Reporting Proposals
Clarified Attestation Standards
Interpretation No. 101-18, Application of Independence Rules
to Affiliates
(effective for engagements covering periods beginning on or after
January 1, 2014)
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Important Reminders…before you “check the box”
• Numerous factors impact your client’s employees and plan operations…and should be considered in your ongoing risk assessment and planned audit response
Stay informed
• FASB, AICPA, PCAOB, DOL, IRS, PBGC, etc.
Standard setting and regulatory bodies
• Economic conditions can significantly influence decisions made by plan sponsor
The economy
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Important Reminders…before you “check the box” (continued)
• AICPA Employee Benefit Plan Audit Quality Center: www.aicpa.org/InterestAreas/EmployeeBenefitPlanAuditQuality/Pages/EBPAQhomepage.asp
• US Department of Labor Employee Benefits Security Administration: www.dol.gov/ebsa
• Internal Revenue Service Retirement Plans: www.irs.gov/Retirement-Plans
• Pension Benefit Guaranty Corporation Practitioners: www.pbgc.gov/prac/index.html
Resources Available to Assist Are Just a Click Away
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Tricia A Van Vliet, CPA
Elliott Group CPAs, PLLC
(616) 258-8519
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