Various thoughts from continuing education classes this year, part 3. Not so good news on audit and peer review quality.

October 5, 2017, 9:35 am

The road we CPAs need to be on, but not all of us are…
Image courtesy of Adobe Stock.

As I’ve mentioned here and here, I have reread my notes from several continuing education classes this year. Thought I would share a variety of stray ideas.

Probably need to note again that I have not gone back and read the original pronouncements supporting each idea and therefore I do not have a specific citation for you. (Reading three of the documents is the next step for  my writing project.)

I should probably throw in a disclaimer. All of the comments I’m mentioning were the opinion of the presenter, not the agency from whom the person was drawing a paycheck. That is why I’m not mentioning the names of the presenters, or even the CPE event. In addition, the rephrasing of their comments is my interpretation, not their words.

Here are some tidbits you might enjoy:

More interest in Financial Reporting Framework for Small- and Medium-sized Entities (FRF-SME)?

The FRF-SME framework is a non-GAAP alternative to GAAP. It is dramatically less complicated with the promise it will not be revised more often every three years.

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Various thoughts from continuing education classes this year, part 2

October 4, 2017, 9:10 am

As mentioned in the previous post, I’ve reread my notes from several continuing education classes this year. Thought I would share a variety of stray ideas.

For what it is worth here are some tidbits you might enjoy:

Presentation of not-for-profit financials – ASU 2016-14

Presenter said that if an organization wanted to break out the with restriction column into more detail there is nothing to resented been broken into two or three columns. Perhaps it could be columns for:

  • donor endowment
  • other with restriction contributions
  • time restrictions
  • total with donor restriction
  • without donor restriction
  • total (total column is not required, but total change in net assets is)

Another possibility to present more detail would be to present multiple lines within the with donor restriction column, such as contributions to donor endowment, various purpose restrictions, time restriction, and a subtotal.

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Various thoughts from continuing education classes this year, part 1

October 3, 2017, 8:33 am

Image courtesy of Adobe Stock.

As part of working on a big writing project, I’ve reread my notes from several continuing education classes this year. (More details later and a link to the published material much later.) Thought I would share a variety of stray ideas. Here are a few tidbits from the classes.

Probably need to note that I have not gone back and read the original pronouncements supporting each idea and therefore I do not have a specific citation for you. (Reading three of the documents is the next step for my writing project.)

For what it is worth here are some tidbits you might enjoy:

Leases – ASU 2016-02.

One of the key on/off switches is whether a particular transaction or document is a lease. That will require an assessment of each transaction.

Right of use assets (the new description) resulting from operating and financing leases need to be listed separately on the statement of financial position. Those two categories (operating right of use and financing right of use) will be presented separately from fixed assets.

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Not-for-profit risk alert for 2017 is available

May 25, 2017, 8:59 pm

Cover of 2017 risk alert from the AICPA, used under fair use since I’m urging you to buy their product.

The 2017 risk alert for non-profits is available from the AICPA.

Highlighted updates this year include:

  • AUS 2016-14 – New financial statement presentation
  • ASU 2016-02 – Leases
  • SAS 132 – Going concern

If you don’t feel overwhelmed, you haven’t been paying close enough attention to recent pronouncements. If so, the risk alert will help you catch up.

If you are feeling overwhelmed, the risk alert is a great first step in getting comfortable.


Overtime rules on hold after federal judge issues nationwide injunction

November 28, 2016, 7:13 am
Image courtesy of Adobe Stock.

Image courtesy of Adobe Stock.

…places a hold on the new rules regarding…

Image courtesy of Adobe Stock.

Image courtesy of Adobe Stock.

 

A federal judge in Texas issued an injunction putting on hold the new Department of Labor rule increasing the threshold for paying overtime. The judge concluded there was a reasonable likelihood (I don’t quite appreciate the technical description so will use casual wording) that the lawsuit by 21 states and a lot of businesses would succeed. He also concluded the rule could cause irreparable financial harm. Thus, he issued the injunction, which applies nationwide.

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Perhaps reporting under GAAP is not reporting the numbers investors need

July 25, 2016, 9:51 am
Image courtesy DollarPhotoClub

Image courtesy DollarPhotoClub

(Cross post from my other blog, Attestation Update. I usually post comments on accounting theory there. This issues carries over directly to the nonprofit community. Consider the ongoing discussion on the mis-focus on ‘overhead’ and the need for some sort of outcome measures for the charity world and you can see how this applies.)

Consider this idea: perhaps GAAP-based accounting numbers aren’t giving stock investors all the information they need.

What is wrong with this picture?

In April, Netflix announced their earnings fell short of analysts’ expectations. Usually that would drop the stock price. What happened?

Nexflix stock jumped 18%.

Huh?

What could cause that? The market supposedly has incorporated the consensus into the price. Missing the expectation should drop the price.

Consider this: At the same time, Netflix announced their new-subscribers were 4.9 million instead of the expectation of 4.0M.

That means they will have stronger earnings for the next several quarters than was expected the day before the announcement. Thus, the stock price rose.

Investors looked at the new subscriber tally as a better indicator of future earnings and thus future stock price than this quarter’s GAAP net income. New subscribers is more important than EPS.

If you wonder are wondering why GAAP EPS isn’t the driving force in that story, here is a brain stretcher for you:

“The End of Accounting”

Professors Baruch Lev and Feng Gu point to The End of Accounting and the Path Forward for Investors and Managers in their June 21 Wall Street Journal article.

You can find the book at Amazon here. It is a bit steep, $32 in hardback and $26 in Kindle format, which is really high for an e-book. I already have a copy on my e-reader. Started reading it yesterday.

The professors suggest that reported earnings under GAAP are losing relevance for investors as we move further and further away from an industrial economy. When know-how, processes, patents, using the internet, and other intangibles are the source of income, GAAP doesn’t report useful information for figuring out future earnings.

By the way, keep in mind that providing historical information to readers of the financial statements to allow them to make estimates of future earnings and cash flows of the company is, like, sorta’, kinda’, the purpose of GAAP financial statements.

The problem with GAAP

Some drawbacks in looking at GAAP numbers, according to the professors:

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July 25, 2016, 9:26 am
Image courtesy DollarPhotoClub

Image courtesy DollarPhotoClub

 

Oops. Sorry. I posted this without a title.

Reposted it, but with a title. You can find the article here. Sorry for the confusion.