Miles CPA Review: FAR - 2015 Updates [Update date Jan 4, 2015]

Going Concern Doubt [study with FAR-1.4]

Going concern doubt - Substantial doubt about an entitys ability to continue as a going concern exists

when conditions and events, considered in aggregate, indicate that it is probable that the entity will be

unable to meet obligations as they become due within one year after the date the F/S are issued or

available to be issued

If the conditions and events in aggregate identified (within one year after the date of F/S are issued or

available to be issued) do NOT indicate any uncertainties - No disclosures are required

If the conditions and events in aggregate identified (within one year after the date of F/S are issued or

available to be issued) indicate any uncertainties Need to disclose

Principal Conditions or events that raised substantial doubt

Management's evaluation of those significant events

Management's plans that alleviate significant doubt

If Management's plan of action is not probable and may not mitigate uncertainties, notes need to

include statement indicating that there is substantial doubt regarding the entity's ability to

continue as a going concern

Liquidation Basis of Accounting [study with FAR-1.13]

Even when there is substantial doubt as to the ability of an entity to continue as a going concern, the

entity will still apply US GAAP for preparation of F/S and disclose going concern doubts in notes

However, need to use Liquidation Basis of Accounting if the entity has concluded that it is no longer a

going concern and that it needs to liquidate its assets, settle its liabilities, and distribute any remaining

resources to owners

Used when liquidation is imminent, possible in the following two conditions:

An approved liquidation plan with remote likelihood of being blocked

Imposed Plan (by an outside force)

Measurement

Assets Present at expected cash proceeds

Include items which are sellable but may not have been previously recognized under US GAAP

(e.g., trademarks)

Liabilities - Follow US GAAP guidance

Accrual of expected liquidation period costs and income

Disclosure

Liquidation Plan

Methods & assumptions used

Expected liquidation period costs & income

Expected liquidation time frame

Private Company Standards [study with FAR-1.13]

Private Company Council (PCC) - Established in May 2012 to improve accounting standards for private

companies; first standard issued in Jan 2014

Private Co. - Entity other than public business entity, not -for-profit or employee benefit plan

PCC pronouncements are incorporated into the FASB ASC [therefore, it is still US GAAP!]

Major purpose - Reduce cost of financial reporting for private companies, and to bring it more in line

with the benefits derived by users of F/S

Private Company Decision Making Framework - Establishes guidelines for the use of alternative

standards for private companies on account of differences in information needs between public and

private companies

Key differential factors between public & private companies

Number of primary users & their access to management

Investment strategies of primary users

Ownership & capital structure

Accounting resources

Learning about new financial reporting guidance

Key guidelines to determine the need of a differential guidance for private companies

Recognition and Measurement

Disclosures

Display

Effective Date

Transition Method

Major differences in private company standards:

Public Business Entity Private Company

Financial Investments

- Simplified hedge accounting not

allowed

- Swaps measured at fair value

- Hedges must be designated at

inception date

- Simplified hedge accounting allowed for swaps that convert

a variable-rate borrowing to a fixed-rate borrowing

- Qualifying swaps may be measured at settlement value

- May use the annual report to be issued date to designate a

hedge (instead of hedge inception date)

Intangible Assets

- Goodwill is NOT amortized; only

tested for impairment using a 2-step

approach

- Goodwill may be amortized using the straight-line basis

over 10 years (or less); test for impairment using a 1-step

approach

Consolidated Financial Statements

- VIE (Variable Interest Entity) must

be applied to all arrangements

- VIE accounting may be ignored in a leasing arrangement if

all of the following conditions exist:

(i) lessee (private co.) & lessor under common control,

(ii) lease arrangement between lessee & lessor,

(iii) lessee & lessor mainly engaged in leasing activities only,

(iv) lessees guarantees/collaterals are lesser in value then

the asset leased by the lessee.

[disclosures are required]

Development Stage Enterprises [updates on pg F3-44]

Development Stage Enterprises (DSE) Start-ups in which principal operations have not yet

commenced OR have generated only an insignificant amount of revenue (or loss)

Earlier guidance (effective upto Dec 14, 2014)

Prepare F/S as per GAAP. Therefore, no special treatment allowed relating to capitalization or

deferral of costs

Additional presentation/disclosure requirements:

- B/S - describe cumulative losses as deficit accumulated during development stage

- I/S - apart from the periods presented, also present a cumulative amount of revenues,

expenses and losses from the companys inception

- C/F - apart from the periods presented, also present a cumulative amount of cash inflows and

outflows from the companys inception

Disclose in the first fiscal year after development stage that the entity was previously in the

development stage

Effective Dec 15, 2014, FASB has eliminated the concept of a development stage entity (DSE) in its

entirety from current accounting guidance. Amendments to the consolidation guidance may result

in more DSEs being considered variable interest entities (VIEs)