What factors other than financial reporting and investor relations are affected by a firm’s financial reporting decisions?
What important decisions must be made in determining what to report?
Top Acc_12_book.indb TOP ACCOUNTING ISSUES FOR 2012 CPE COURSE CCH Editorial Staff Publication ii TOP ACCOUNTING ISSUES FOR 2012 CPE COURSE Contributors Editor .................................................... Colleen Neuharth McClain, CPA Contributing Editors ............................................ Steven C. Fustolo, CPA Technical Review ............................................ Sharon Brooks, CPA, MBA Production Coordinator ................................................... Gabriel Santana Production ......................................................................... Lynn J. Brown Layout and Design ...............................................................Laila Gaidulis This publication is designed to provide accurate and authoritative informa- tion in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. ISBN 978-0-8080-2740-9 © 2011 CCH. All Rights Reserved. 4025 W. Peterson Ave. Chicago, IL 60646-6085 1 800 344 3734 www.CCHGroup.com No claim is made to original government works; however, within this Prod- uct or Publication, the following are subject to CCH’s copyright: (1) the gathering, compilation, and arrangement of such government materials; (2) the magnetic translation and digital conversion of data, if applicable; (3) the historical, statutory and other notes and references; and (4) the commentary and other materials. Printed in the United States of America iii TOP ACCOUNTING ISSUES FOR 2012 CPE COURSE Introduction CCH’s Top Accounting Issues for 2012 CPE Course helps CPAs stay abreast of the most significant new accounting standards and important projects. It does so by identifying the events of the past year that have developed into hot issues and reviewing the opportunities and pitfalls presented by these changes. The topics reviewed in this course were selected because of their impact on financial reporting and because of the role they play in under- standing the accounting landscape in the year ahead. Module 1 of this course reviews ongoing issues. Chapter 1 focuses on the long-awaited Report to the Board of Trustees of the Financial Accounting Foundation issued in January 2011 by the Blue Rib- bon Panel on Standard Setting for Private Companies. This Report provides recommendations on how to deal with accounting standards for private com- panies. This chapter distills the recommendations into a digestible source that is designed to assist accounting practitioners in putting these proposed principles into practice. Chapter 2 discusses ASC 740, Income Taxes (formerly FAS 109), which has been around for almost two decades. Yet, there are several key issues related to deferred income taxes that exist because of the recent economic climate and changes proposed by health care reform. This chapter addresses those issues which consist of deferred income tax assets from net operating losses (NOLs) and the need for valuation accounts, and deferred income taxes due to the change in the Patient Protection and Affordable Care Act (PPACA). Chapter 3 covers the Statement of Cash Flows, which over the past decade, has come under scrutiny by investors and other third parties. Once focusing on the statement of income as the primary course of assessing financial performance, greater emphasis has been placed on cash flow. This chapter explains some of the most common complaints and what the problem is with existing practice when reporting the Statement of Cash Flows. Chapter 4 distills the proposed changes to loss contingency disclosures, climate change disclosures and the overall politics regarding disclosures and is designed to assist accounting practitioners in putting these principles into practice. Module 2 of this course reviews financial statement reporting. Chapter 5 discusses the recently proposed authoritative literature regarding financial performance reporting and is designed to assist accounting practitioners in putting these proposed principles into practice. Chapter 6 focuses on the authoritative literature on the fair value option for financial assets and financial liabilities and is designed to assist accounting practitioners in putting these principles into practice. iv TOP ACCOUNTING ISSUES FOR 2012 CPE COURSE Chapter 7 reviews the recently proposed authoritative literature regarding lease accounting to assist accounting practitioners in putting these proposed principles into practice. Module 3 of this course covers current developments. Chapter 8 distills an analysis of selected ASUs issued in 2009-2011 and is designed to assist accounting practitioners in putting these principles into practice. Chapter 9 reviews how since 1980, there has been a significant shift away from defined benefit plans with a drop to less than 20 percent of the workforce currently covered by such plans. The move was gradual until two significant changes occurred that have motivated companies to eliminate or freeze their defined benefit plans. This chapter distills these changes into a digestible source that is designed to assist accounting practitioners in better understanding the demise of defined benefit pension plans. Chapter 10 discusses how the FASB is suggesting that the historical cost model no longer works and needs to be replaced or repaired with a fair value model whenever assets and liabilities can be reliably measured at fair value. How- ever, there are arguments for and against a fair value system. This chapter distills an analysis of those arguments and is designed to assist accounting practitioners in understanding this controversy. Throughout this course you will find Examples and Observations to illustrate the topics covered and assist you with comprehension of the course material, as well as Study Questions to help you test your knowledge. Answers to the Study Questions, with feedback on both correct and incorrect responses, are provided in a special section beginning on page 271. To assist you in your later reference and research, a detailed topical index has been included for this course, begin- ning on page 295. This course is divided into three Modules. Take your time and review each course Module. When you feel confident that you thoroughly understand the material, turn to the CPE Quizzer. Complete one or all Module Quizzers for Continuing Professional Education credit. You can complete and return the Quizzers to CCH for grading at an additional charge. If you receive a grade of 70 percent or higher on the Quizzers, you will receive CPE credit for the Modules graded. Further information is provided in the CPE Quizzer Instruc- tions on page 305. August 2011 v COURSE OBJECTIVES This course provides an overview of important accounting developments. At the completion of the course, the reader will be able to: Compare the arguments in favor of and against Big GAAP-Little GAAP and the Blue Ribbon Panel Report Discuss deferred income tax assets from NOLs and the need for valuation ac- counts, and Describe the impact on accounting for deferred income taxes due to the change in the Patient Protection and Affordable Care Act (PPACA). Describe the difference between using the direct and the indirect method List some of the more common criticisms regarding existing cash fl ow report- ing practices Discuss some of the most common abuses in the statement of cash fl ows Discuss the presentation of cash from operations versus working capital fl ow Describe the proposed changes to loss contingency disclosures List and discuss the 12 recommended principles for the Comprehensive Busi- ness Reporting Model Identify the formula used to compute free cash fl ow Compute the four key ratios used to analyze working capital Compute days sales outstanding (DSO) and average days delinquent (ADD) Describe how core earnings is computed List ways in which companies recognize revenue prematurely Describe the three-level fair value hierarchy for valuation Describe the general rules of the fair value measurement option Identify the disclosure requirements for fair value measurements Describe the effect of the proposed new lease standard on fi nancial statements Explain how a lessee must account for initial direct costs incurred in connection with a lease under the proposed standards Explain how the proposed new lease standard may affect fi nancial ratios Describe the accounting for fair value measurements and disclosures for invest- ments in certain entities that calculate net asset value per share Recite the requirements of the selected ASUs in this course including the ac- counting for revenue recognition with multiple-deliverable revenue arrange- ments, revenue arrangements that contain tangible products and software, noncontrolling interests and changes in ownership interests of a subsidiary, subsequent events, loans to participants by defi ned contribution pension plans and disclosure requirements related to fair value measurements. Discuss the U.S. shift away from company pensions toward IRAs Discuss the status of the FASB fair value project Argue for and against fair value measurement vi TOP ACCOUNTING ISSUES FOR 2012 CPE COURSE CCH’S PLEDGE TO QUALITY Thank you for choosing this CCH Continuing Education product. We will continue to produce high quality products that challenge your intellect and give you the best option for your Continuing Education requirements. Should you have a concern about this or any other CCH CPE product, please call our Customer Service Department at 1-800-248-3248. NEW ONLINE GRADING gives you immediate 24/7 grading with instant results and no Express Grading Fee. The CCH Testing Center website gives you and others in your firm easy, free access to CCH print Courses and allows you to