Accounting & Auditing Update by Pat Piteo, CPA. Presented at Cohen & Company's Client CPE Day.

1. Accounting & AuditingAccounting & Auditing
Update
Pat Piteo, CPA
Cohen & CompanyCohen & Company

2. Objectives of Today’s Session
• Discuss accounting changes applicable to 2013Discuss accounting changes applicable to 2013
financial statements
• Understanding changes for private company• Understanding changes for private company
financial reporting
R i i d l h ’• Revenue recognition and leases – what’s on
the horizon
• Practical tips on preparing for this year’s
review or audit

3. Changes for 2013 Financial Statements
• Additional disclosure related to balance sheet• Additional disclosure related to balance sheet
offsetting
• Testing indefinite‐lived intangible assets for g g
impairment
‐ Option to use qualitative factors as a first pass to
determine if any impairment
• Additional detail in disclosure and presentation of
accumulated other comprehensive incomeaccumulated other comprehensive income
• New CPA rules about independence related to a client’s
affiliates

4. New Initiatives
• There are two new initiatives that affectThere are two new initiatives that affect
private companies:
Formation of the FASB’s Private Company‐ Formation of the FASB s Private Company
Council (PCC)
‐ AICPA’s financial reporting framework for
small‐ and medium‐sized entities

5. Private Company Council (PCC)
• Provides input to FASB on how standards will affect private p p
companies
• Initiates alternatives within nongovernmental U.S. GAAP for
private companiesprivate companies
‐ Based on criteria mutually agreed upon by
the PCC and FASB
R d ti bj t t FASB‐ Recommendations subject to FASB
endorsements process before being
incorporated into U.S. GAAPp
• Serves as primary advisory body to the FASB on appropriate
treatment for private companies for items under active
consideration on the FASB’s technical agendag

6. PCC: Recent Happenings
• Finalized three alternatives within U.S. GAAP to send to FASB for
endorsement as a final Accounting Standards Update
– Accounting for Certain Receive‐Variable, Pay‐Fixed Interest Rate
Swaps:
Gi i t i th ti t i lifi d h d ti• Give private companies the option to use a simplified hedge accounting
approach to account for certain types of interest rate swaps.
• Exemption extends to FV disclosures where swaps are the Company’s only
derivatives
A i f G d ill S b B i C bi i• Accounting for Goodwill Subsequent to a Business Combination:
– Permit a private company to amortize goodwill over a period of 10
years (or less under certain circumstances)
– Permit application of a simplified impairment model to goodwillPermit application of a simplified impairment model to goodwill
• Applying VIE guidance to common control leasing arrangements
– A private company could elect when certain conditions exist, not to
apply the VIE guidance for consolidating lessor entities under common
lcontrol

7. PCC: Future Items
• Accounting for Identifiable Intangible Assets in aAccounting for Identifiable Intangible Assets in a
Business Combination
‐ Modifies requirement for private
companies to separately recognize
intangible assets acquired in a business
combinationcombination
• FASB projects the PCC is providing input on:
‐ LeasesLeases
‐ Development Stage Entities
‐ Definition of a Nonpublic Entity

8. Financial Reporting Framework
for Smaller and Medium‐Sized Entities
• FRF for SMEs is available now as an alternative
for preparing financial statementsfor preparing financial statements
• Designed as an alternative to GAAP for small‐
d di i d titiand medium‐sized entities

9. Features of FRF for SMEs
• ConciseCo c se
• Accrual based
• Blend of traditional accounting and accrualBlend of traditional accounting and accrual
income tax methods
• Avoid excess narrative
• Only relevant reporting topics (no comprehensive
income, uses historical cost)
• Simplified principles (no VIEs, no complex hedge
or derivative accounting)

10. Is FRF for SMEs Right for My Company?
• Contact engagement team member to discuss
• Our approach right now is that it makes sense if you are preparing
income tax basis financial statements and looking to receive better
information or if you are struggling to deal with the following in y gg g g
your GAAP financial reporting:
‐ Deferred taxes
‐ Goodwill and other intangible impairmentGoodwill and other intangible impairment
‐ VIES
‐ Defined benefit plan reporting
‐ Interest rate swapsInterest rate swaps
‐ OCI
‐ Business combinations with issues valuing
intangiblesintangibles

11. On the Horizon: Revenue Recognition
• Approved this week to be issued in final form• Approved this week, to be issued in final form
in the first quarter of 2014
Eff i d f i i 2018• Effective date for private companies – 2018
• Creates a comprehensive framework for
revenue recognition to improve comparability

12. Revenue Recognition will
Encompass a Five Step Process
• Identify the contract with a customerIdentify the contract with a customer
• Identify the separate performance obligations
in the contractin the contract
• Determine the transaction price
• Allocate the transaction price to the separate
performance obligations in the contract
• Recognize revenue when (or as) the entity
satisfies the performance obligationsp g

13. On the Horizon: Leases
• Working on changes as a result of comment• Working on changes as a result of comment
letters now. Tentatively expect final next year.
E d ff i d• Expected same effective date as revenue
recognition – 2018 for private companies
• Total overhaul of lease accounting

14. Major Provisions
• Capitalize all leases except those with lessCapitalize all leases except those with less
than one year term
• Recognize expense using a dual approachRecognize expense using a dual approach
‐ For substantially all equipment/vehicle
leases and leases of real estate whichleases and leases of real estate which
would be considered capital now –
amortize the asset and recognize interestamortize the asset and recognize interest
expense on the liability
‐ Straight line expense for all other leasesStraight line expense for all other leases

15. What to do to Ensure your
Audit/Review Runs Smoothly
• Schedule a planning meetingSchedule a planning meeting
• Request a list of information required (and dates
required)required)
• Make sure all significant accounts have been
reconciled and analyzed Any adjustmentsreconciled and analyzed. Any adjustments
identified. All requested information prepared.
• Ensure books are closed final trial balance• Ensure books are closed, final trial balance
prepared with all adjusting entries posted prior to
audit start dateaudit start date

16. What to do to Ensure your
Audit/Review Runs Smoothly (cont’d)
• Communicate how you prefer to handle open y p p
items, follow up requests, etc.
• Schedule available time for when auditors are on
sitesite
• Communicate expectations as to timing of draft
and any meetings or bank or other user deadlinesand any meetings or bank or other user deadlines
• Identify and discuss any changes, new programs
and significant events with our accountant during
h f h l i ithe year or as part of the planning meeting
• Understand timing and review constraints on our
endend