Archive for the ‘Financial Statements’ Category

Big GAAP (Generally Accepted Accounting Principles) vs. Little GAAP

Thursday, January 2nd, 2014

Authored By: Dustin Wood, CPA. Dustin has been with the firm 9 years and is the audit manager here at Cook Martin Poulson, PC. He specializes in financial statement services.

There has been a significant amount of debate in the financial accounting world related to the concept of Big GAAP (Generally Accepted Accounting Principles) vs. Little GAAP. The debate focuses on whether there should be one set of professional accounting standards for public companies and a separate set of standards for private companies. The driving force behind this debate is the belief by many accountants and their small business clients that GAAP is too complex and burdensome for private companies to comply with. The needs of users of private company financial statements may also differ from those of public companies.

Currently, it doesn’t appear as if there will be two completely separate sets of accounting standards, but accounting standard setting bodies have established a Private Company Council which may help carve out some existing accounting standards that would be applied differently by public and private companies. The Council’s main purpose is to determine what changes may be needed to address the needs of users of private company financial statements. Projects currently on their agenda or that they are considering, include:
• Amortization of goodwill – Goodwill is not amortized under existing accounting standards, but it is tested for impairment annually. The Council is considering whether goodwill should be amortized for private companies.

• Variable interest entities – Entities with similar ownership that have economic reliance between them are currently required to be consolidated in financial statements, but the Council is considering whether consolidation should be required for private companies.

• Lease accounting – There is a convergence project between U.S. and international accounting standards that would significantly change the accounting for leases, but the Council may consider whether private companies should follow the potential new accounting treatment.
We will continue to monitor the status of this debate and the Private Company Council’s recommendations and provide updates once final private company accounting standards have been issued.

Hot Topics for Financial Accounting

Thursday, August 29th, 2013

Authored By: Dustin Wood, CPA. Dustin has been with the firm 8 years and is the audit manager here at Cook Martin Poulson, PC. He specializes in financial statement services.

The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have been working on converging standards between generally accepted accounting principles in the United States of America (U.S. GAAP) and international accounting standards. Two of the projects they have been working on, and that continue to move forward, are related to revenue recognition and accounting for leases. U.S. GAAP has provided industry-specific and “bright line” guidance in these areas in an effort to make the standards easier to apply. The proposed standards, as part of the convergence project, would move away from that guidance making it more difficult to determine when revenue should be recognized and how to account for leases.

Revenue Recognition
Current practice differs from the proposal in the following four ways: 1) Under the proposal revenue would be recognized only upon transfer of goods or services (i.e. percentage-of-completion recognition could only be used if the customer owns the work-in-progress being built or developed), 2) All distinct goods or services would need to be separately identified, 3) Collectability would affect the amount of revenue recognized, and 4) Estimates would be required to determine the allocation of revenue and the basis for the allocation.
The revised revenue recognition model being proposed centers around revenue being recognized when promised goods or services are transferred to customers in an amount the company expects to be entitled to. The five steps included in the model are as follows:

1. Identify the contract with a customer.
2. Identify separate performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the separate performance obligations in the contract.
5. Recognize revenue when (or as) the company satisfies a performance obligation.

While applying the steps may seem like a simple process that isn’t always the case. The proposed standard and model appear to add complexity and require additional interpretation to determine when or how revenue is recorded. The final standard is expected to be issued by the end of 2013 and companies need to be aware of this development and assess how it will impact their financial accounting policies and procedures.

Accounting for Leases
Potential changes to lease accounting (particularly accounting by the lessee) would do away with current accounting requirements, which provide a “bright line” test to determine whether a lease is an operating lease or a capital lease for the lessee. Operating lease payments are currently expensed as rent and lease payments while capital leases require the recording of an asset and a liability, as if the asset were being purchased. Based on current discussions, changes to lease accounting would require recording assets and accompanying liabilities for all leases, and would require adjusting lease accounting for leases already in place. The proposed changes are currently still in the discussion and proposal stage, and a final standard is not expected until 2014 and would likely not require implementation until 2017, but companies should be prepared for the changes and be aware of what adjustments may be necessary.

We will continue to monitor the status of these standards and provide updates once the final standards have been issued.

New Financial Reporting Framework

Wednesday, June 5th, 2013

Authored By: Dustin Wood, CPA. Dustin has been with the firm 8 years and is the audit manager here at Cook Martin Poulson, PC. He specializes in financial statement services and preparation of tax-exempt information returns.

Generally accepted accounting principles in the United States of America (U.S. GAAP) are complex and can be difficult and costly for smaller, privately owned businesses to understand and apply. The American Institute of Certified Public Accountants (AICPA) has established a financial reporting framework for small and medium-sized entities (FRF for SMEs) that may simplify financial reporting for small and medium-sized, privately owned, owner-managed, for-profit businesses that are not required to issue financial statements in accordance with U.S. GAAP. An exposure draft for the framework was released on November 1, 2012, and according to the AICPA the final framework is expected to be issued in the first half of 2013. We will continue to monitor the status of this framework and provide an update once the final framework has been issued.

Auditing and Financial Statement Standards Update

Tuesday, February 5th, 2013

Authored By: Dustin Wood, CPA. Dustin has been with the firm 8 years and is the audit manager here at Cook Martin Poulson, PC. He specializes in financial statement services and preparation of tax-exempt information returns.

Clarified Auditing Standards
Clarified Auditing Standards have been issued by the AICPA Auditing Standards Board (ASB). There were only three standards issued that replace all existing auditing standards, but they contain a significant amount of detail in each standard. The standards are effective for periods ending after December 15, 2012. The most significant change stemming from issuance of the standards is revised wording for audit reports, engagement letters, and representation letters. Audit reports will now have sub-headings for each section of the report. The standards issued also require more communication between auditors in a group audit setting where auditors of a group use the work of other auditors.

Legal Representation Letters
Based on revisions to audit standards, there will not be as much emphasis placed on legal representation letters unless there is risk for an audit client (such as legal fees paid or litigation issues).

Comprehensive Income Presentation
According to Accounting Standards Update (ASU) No. 2011-12, details for changes in comprehensive income can no longer be presented as part of an equity statement and must be shown in a separate statement or as part of an income statement. This change is effective for periods ending after December 15, 2012.

Yellow Book Audits (subject to Government Auditing Standards)
Organizations must have management who can take responsibility for financial statements for auditors to maintain their independence. Management must also have the skills, knowledge, and experience to be able to accept the financial statements.

Financial Statement Service Levels

Monday, September 19th, 2011

Authored By:  Dustin Wood, CPA.  Dustin has been with the firm 7 years and is the audit manager here at Cook Martin Poulson, PC.  He specializes in financial statement services.

There are three basic service levels that CPAs perform with regard to financial statements.  In order from the lowest level to the highest level of assurance they are:  compilation, review, and audit engagements.

Compilation – No assurance  is provided in the accountant’s report as to whether the financial statements are presented in accordance with Generally Accepted Accounting Principles (GAAP), however, known departures from GAAP require a modification to the accountant’s report.  Accountants are required to obtain knowledge of the accounting principles and practices of the client’s industry and a general understanding of the client’s business.  Note disclosures to the financial statements may be omitted and the accountant does not have to be independent of the client, but a lack of independence must be disclosed in the accountant’s report.  An engagement letter must be signed by the client as a written communication of the services to be performed.

Review – Limited assurance is provided in the accountant’s report as to whether the financial statements are presented in accordance with Generally Accepted Accounting Principles (GAAP) and known departures from GAAP require a modification to the accountant’s report.  Accountants are required to obtain the same knowledge of the client’s industry and business as in a compilation, but are also required to obtain an increased understanding of the client’s business.  Performance of inquiries and analytical procedures is required as well as additional procedures if questions arise in performing the review.  Note disclosures to the financial statements are required and accountants must be independent of the client.  An engagement letter and management representation letter must be signed by the client.

Audit – An auditor’s opinion is provided stating that the financial statements are fairly presented in accordance with GAAP and inadequate disclosure and/or departures from GAAP require a modification of the auditor’s opinion.  The auditor must obtain an extensive knowledge of the economy, relevant industry, and the client’s business.  Inquiry, analytical procedures, obtaining an understanding of internal control, and other audit procedures are required.  Accountants must be independent to perform an audit of financial statements.  An engagement letter and management representation letter must be signed by the client.

Costs for the services vary based on the work required to be performed and the time necessary to complete the services, with compilations being the least costly and audits being the most expensive level of service.  Please contact us to obtain more information regarding these services or if you need a price quote for services to be performed.

 

quoteCook Martin saved us over a hundred thousand dollars in taxes.quote

Paul Merrill
Fat Boy Ice Cream

Utah Accountant and CPA

Cook Martin Poulson – Utah CPA Firm with Accounting Awesomeness.

Cook Martin Poulson is a full-service Utah CPA and business development firm with locations serving Logan, Salt Lake City and their surrounding areas.

CMP is comprised of a team of awesomely experienced CPAs, Staff Accountants and Paraprofessionals—offering a wide range of professional services, including Accountant Expertise, Payroll, Bookkeeping Services, Financial Statements, CFO Outsourced Solutions and Estate and Succession Planning.

CMP’s Logan Accountants conveniently provide Proactive Income Tax and other services for individuals living in Northern Utah and Southern Idaho, and our Salt Lake City Accountants also specialize in Income Tax and Business Bookkeeping in Salt Lake City and the Greater Wasatch Front.

Cook Martin Poulson offers excellent customer service, creating long-lasting relationships with its clients, which has earned it the reputation of the place to go for awesome, friendly and caring business and financial expertise.