FASB Proposes Historic Change to Effective Dates Philosophy
FASB has proposed a change to its philosophy for establishing effective dates for major new accounting standards, a significant shift in its standards setting approach. The board proposed the change in an effort to extend and simplify how effective dates are staggered between larger public companies and other companies, following broad outcry from its constituents that they need more time to adopt new standards on credit losses, leases, hedging, and long-term insurance contracts. The potential change comes amid the board’s effort to help companies implement new accounting rules, many of which require the gathering of new, hard-to-get data and implementation help from software vendors. Rules for reporting credit losses on loans, for example, were developed in response to the 2007/08 global financial crisis, the biggest financial meltdown since the Great Depression. The standard is a fundamental change for reporting losses from soured loans. Companies have until September 16 and September 20, respectively, to submit comments on the matter, the main text of the proposals states.
Comments Sought on Proposed Auditing Standard on Accounting Estimates
On August 22, the AICPA’s Auditing Standards Board (ASB) issued a proposal intended to improve audits of accounting estimates and encourage auditors to exercise professional skepticism. The AICPA wants auditors to focus on factors driving estimate uncertainty and potential management bias. The ASB’s proposed standard would enhance auditors’ risk assessment by providing requirements that are more specific to estimates. “This proposed standard breaks down the various aspects of management estimates, thus addressing one of the biggest challenges auditors face and allowing auditors to focus their efforts on unique aspects like subjectivity and estimation uncertainty,” AICPA Chief Auditor Robert Dohrer said in a statement. “The focus on unique aspects is intended to enhance the effectiveness of the auditor’s procedures as they relate to management estimates in general.” Comments are due by November 22.
PCAOB Issues Implementation Guidance for Revised Requirements for Accounting Estimates, Use of Specialists
On August 22, the PCAOB published four staff guides to help auditors implement two related audit standards—accounting estimates and use of specialists’ work—that the board revised in December 2018. The four documents are as follows:
- Auditing Accounting Estimates
- Auditing the Fair Value of Financial Instruments
- Supervising or Using the Work of an Auditor’s Specialist
- Using the Work of a Company’s Specialist.
The audit regulatory board amended the standards because the use of estimates in financial reporting has become more widespread and the reliance upon valuation specialists has also grown at the same time. “Accounting estimates and using the work of specialists are both prevalent areas of the audit,” PCAOB Chairman William Duhnke said in a statement. “As auditors begin to plan and perform work on audits subject to new requirements in these areas, we are committed to proactively providing resources to them and supporting effective implementation.”