ACG6295

1. ACG6295 Please do not leave the classroom while class is in session.

2. ACG6295 Interviewed 50 partners in Miami and asked What are the strengths and weaknesses of the average FIU MACC graduate?

3. Strength or Weakness? • Technical Competence • Work Ethic • Ability to prioritize • Communications skills • Know how to stay current • Involvement in ALFPA and Beta • Willingness to leave Miami • Positive attitude • Attention to detail • Spreadsheet skills

4. MACC Graduates Strengths Weaknesses Ability to prioritize Communications skills Technical competence Know how to stay current Work Ethic Involvement in ALPHA and Beta Willingness to leave Miami Positive attitude Attention to detail Spreadsheet skills

5. We will address currency and communications • The objectives of this course include: • Evaluate current Exposure Drafts related to financial reporting and explain, if fully implemented, why they will affect financial transparency. • Explain and interpret changes to the Codification. • Assess the decision usefulness of technical pronouncements under consideration for adoption. • Communicate technically advanced information

6. Financial Reporting • Our perspective is external financial reporting using financial statements prepared under US GAAP • The primary objective of external financial reporting under US GAAP is to provide information that is useful to investors, creditors and others in making future decisions • We prepare the statements such that a reasonably educated consumer exercising due diligence will understand them • We should also consider the transparency of the information we provide in the financial statements

7. Development of Accounting Standards • Prior to the US stock market crash of 1933/34, little financial reporting was required and regulation concerning financial information was nonexistent • The SEC Act of 1934: • Formed the SEC and gave it the power to make the rules for accounting and for financial reporting • Required most publicly held firms to undergo an audit by independent CPAs

8. Who Sets the Standards? • The SEC (a public sector entity) delegated rule making authority to the AICPA (a private sector entity). • AICPA formed subcommittees called Committee on Accounting Procedure (CAP) and later Accounting Principles Board (APB) to write standards • When accounting issues became too complex for a part time committee, the Financial Accounting Standards Board (FASB) was established • The SEC maintains enforcement and provides Staff Accounting Bulletins that interpret FASB standards

9. Who Sets the Standards? • Accounting standards are written in the private sector, but the SEC provides public oversight for the standards • FASB, with SEC oversight, writes the standards for external financial reporting • The SEC identifies areas in which additional information is needed and may request additional information from registrants • The SEC also sets standards for registrant filings such as the 10K, 10Q, and others • If individual firms submit statements with “irregularities”, SEC issues deficiency letter with issues that must be resolved

10. Who Sets the Standards? • In summary, many groups have been involved in writing and interpreting standards • FASB, its governmental group GASB, and its Emerging Issues Task Force (EITF) • AICPA created a group called the Accounting Standards Executive Committee (AcSEC) to ensure a voice in the process. They also provide information about regulatory matters ( http://www.aicpa.org/sarbanes/index.asp ) and CPA licensure • SEC provides oversight (http://www.sec.gov/about/offices/oca.htm) • Congress provides political pressure when FASB makes unpopular rulings

11. US Generally Accepted Accounting Principles (GAAP) • “GAAP” is a technical term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time • It includes not only broad guidelines of general application, but also detailed practices and procedures. Those conventions, rules, and procedures provide a standard by which to measure financial presentations • GAAP is presented as a hierarchy of guidance. • Sometimes, the guidance from one source contradicts guidance from another source.

12. FAS 162 – Issued May, 2008 • The sources of accounting principles that are generally accepted are categorized in descending order of authority as defined by Financial Accounting Standard (FAS) 162: • Category A • Statements of Financial Accounting Standards (FAS) and Interpretations (FIN) • AICPA Accounting Research Bulletins (ARB) and Accounting Principles Board (APB) Opinions that are not superseded by action of the FASB • Derivatives Implementation Group Issues (DIG) • FASB Staff Positions (FSP) • U.S. Securities and Exchange Commission Staff Accounting Bulletins (SAB)

13. FAS 162 - continued • The sources of accounting principles that are generally accepted are categorised in descending order of authority as follows: • Category B • FASB Technical Bulletins • AICPA Industry Audit and Accounting Guides * • AICPA Statements of Position * * If cleared by the FASB

14. FAS 162 - continued • Category C • AICPA Accounting Standards Executive Committee Practice Bulletins that have been cleared by the FASB and • Consensus positions of the FASB Emerging Issues Task Force (EITF) • often deal with issues not explicitly covered elsewhere

15. FAS 162 • Category D • Implementation guides (Q&As) published by the FASB staff • AICPA accounting interpretations • Practices that are widely recognised and prevalent either generally or in the industry

17. Applying the Hierarchy Before July 1, 2009 • Compliance with category A items is mandatory • Auditors may not express an unqualified opinion if there is a material departure from category A • If a treatment is not specified in category A proceed to categories B, C, or D using the treatment specified by the source in the highest category • If a prescribed treatment in category B, C, or D is relevant to the circumstances, that treatment must be followed unless there is justification that another treatment is generally accepted

18. Applying Guidance after July 1, 2009 • Confusion about the hierarchy, along with the presumed convergence of US GAAP and International Financial Accounting Standards (IFRS) led to a new system • FASB has codified all guidance.

19. www.fasb.org

20. Sign in to access the Codification • Look for the link to the Codification on the right hand side of the page (blue arrow on prior slide) • Click for free student access to the Codification.

21. You should then see:

22. Click on “Academic User” • We provide you with free access to the Codification only while you are a student. • Your user name is: • Your password is:

23. You will see:

24. Go to the bottom of the page to see:

25. Click on Registered User to see:

26. User Name and Password • Your user name is: AAA52091 • Your password is: FvLxvv9 • Click on the link for the Codification. You will then see the screen on the next slide.

27. Codification Site

28. Navigating the Codification • Look at the list on the left side of the page • This is the navigation panel for all US GAAP authoritative guidance • Go to Revenue Recognition, Codification section 605

29. Codification Layout

30. Expanded Layout

31. Referencing US GAAP • Your text, your professors and your employers will probably use some mix of the old way of referencing (i.e., FAS 133) and the Codification method of referencing • You can cross reference by using the cross reference tool on the codification site

32. Note that FAS 133 cross references with Cod topic 815

33. Codification Standard Section Structure • Status (References to standards affecting the subtopic) • Overview and Background • Objectives • Scope and Scope Exceptions • Topical Definitions / Glossary • XBRL Definitions • Recognition • Initial Measurement • Subsequent Measurement • De-recognition • Presentation matters • Disclosure • Implementation guidance and illustrations • Relationships • Transition and Open Effective Date Information • Links to Grandfathered Material

34. Example: Status of a Given Pronouncement Topic: Extractive Activities – Oil and Gas Subtopic: Property, Plant and Equipment Section: Status Affected by Codification Update Instructions contained in: XXX.XX.XX paragraph 7 modified by FASB Statement YYY XXX.XX.XX paragraph 3 modified by Financial Staff Position XXX.XX.XX paragraph 9 modified by EITF Issue BB-CC

35. Overview and Background • Overview and background will contain material generally considered useful to a user in understanding typical situations required by the standard. • Example from Oil and Gas topic: • This Subtopic establishes standards of financial accounting and reporting for the oil and gas producing activities of a business entity. Those activities involve the acquisition of mineral interest in properties, exploration (including prospecting), development, and production of crude oil, including condensate and natural gas liquids, and natural gas.

36. Objectives • The Objectives section will state the high-level objectives that the subtopic is trying to accomplish or attain.

37. Scope and Scope Exceptions • Below is an illustrative structure of a Scope section of the Overall subtopic of Extractive Activities — Oil and Gas: • Overall guidance: “The Subtopics within Extractive Activities—Oil and Gas Topic provide incremental industry guidance for the entities defined in the Scope Section. Entities within the scope of this industry shall also apply the applicable standards not included in this Topic.” • Entity-based scope: “This Topic applies only to entities with oil and gas producing activities.” • Transactions: This will several types of transactions that are excluded from the scope of this topic.

38. Topical Definitions / Glossary • This section contains a definition of the terms specific to the topic and would include the definitions of words like: proved oil and gas reserves, reservoir, field, service well, and others. • The goal is to have one glossary for all of the codification

39. XBRL – Extensible Business Reporting Language • XBRL taxonomy announced 2008. • A system of data tags, to enable the viewer to rearrange, summarize financial data in alternative formats. • Interactive XBRL viewer: • www.sec.gov/xbrl

40. Recognition • Recognition generally addresses when a transaction is recorded • Cod 932-360-25-4 is an example of recognition. • “An enterprise’s oil and gas producing activities involve certain special types of assets. Costs of those assets shall be capitalized when incurred…”

41. Initial Measurement • Initial Measurement addresses the criteria and amounts used to measure a particular item at date of recognition (tells us how much is recognized). • Section 310-10-30-2 exemplifies initial measurement… “when a note is received solely for cash and no other right or privilege is exchanged, it is presumed to have a present value at issuance measured by the cash proceeds exchanged.”

42. Subsequent Measurement • Subsequent Measurement relates almost exclusively to assets, liabilities, and equity. It addresses the criteria and amounts used to measure a particular asset, liability or equity item subsequent to the date of recognition (e.g., impairment, FMV changes, depreciation, amortization, etc.). • 360-10-35 states: “The Subsequent Measurement Section provides guidance on an entity’s subsequent measurement and subsequent recognition of an item. Situations that may result in subsequent changes to carrying amount include impairment, fair value adjustments, depreciation and amortization, and so forth.”

43. Derecognition • De-recognition relates almost exclusively to assets, liabilities, and equity. It addresses: (1) the criteria, (2) the basis to be relieved (i.e., dollar amount), and (3) the timing to be used when derecognizing a particular asset, liability or equity item for purposes of determining gain or loss, if any

44. Presentation • This section will include presentation matters related to the subtopic. Some examples include: • Specific balance sheet classification requirements for a derivative • Specific cash flow requirements for stock compensation • Specific effect on EPS related to stock compensation guidance

45. Disclosure • Disclosure includes specific disclosure requirements for a subtopic, but excludes general disclosure requirements. • Readers will be referred to other sections of the codification for relevant disclosure guidance for related subtopics.

46. Implementation guidance and illustrations • This section will contain implementation guidance and illustrations of the standards. • The primary sources for the implementation guidance and illustrations section include: • (1) Implementation guidance and illustrations contained in appendices of various standards, • (2) FASB Staff Question & Answer documents, • (3) FASB Staff Positions, and • (4) EITF Abstracts.

47. Relationships • Relationships include references to other subtopics that may contain guidance related to the subtopic. • This section is intended to provide a simple reference to the relevant sections and will not include a complete description of the relationship.

48. Transition and Open Effective Date Information • This section is intended to contain guidance and references to paragraphs within the subtopic that have open transition guidance. • Modified paragraphs will appear in the relevant section of the codification with some form of emphasis (e.g., boxed).

49. Links to Grandfathered Materials • Grandfathered material will contain descriptions, references, and transition periods for grandfathered standards.

50. Why are some sections missing?