Hot Topics in Accounting

This course is designed to qualify for 8 hours of CPE credit that may be applied to the A & A requirement. It can be reduced to a 4-hour program.

Certain topics remain important when preparing financial statements, regardless of whether or not they have been subjected to recent changes. In today's business environment, three topics that remain particularly important are:

• Variable Interest Entities (VIEs)
• Goodwill
• Interest Rate Swaps

While large entities may establish separate entities for the purpose of transferring assets or hiding liabilities, closely-held entities more frequently use them for the potential tax benefits they may provide or for tax or estate planning purposes. In general, such relationships are required to be evaluated to determine if the reporting entity has a controlling financial interest in another, making it a VIE and requiring that it be included in consolidated financial statements.

Recently, the Private Company Council (PCC) of the FASB has developed an alternative accounting approach that may be applied to certain relationships between nonpublic entities and other entities with which they are involved. In many cases, it eliminates the need to perform a costly evaluation and allows a simpler approach to accounting for the relationship.

This course covers the principles associated with VIEs, providing an efficient approach for performing an analysis, when required. It also describes the alternative accounting approach available to nonpublic entities, including the process for adopting it and how it will be applied.

Goodwill may be obtained whenever an entity is involved in a business combination and, in some cases, when an acquired entity has multiple components, one combination could result in two or more goodwill amounts. In general, each goodwill amount is required to be tested for impairment at least annually, using a two-step process. This evaluation can be time-consuming and costly.

The FASB has recently issued guidance, applicable to all entities, that provides some potential relief from the costly process of testing goodwill for impairment. In addition, the PCC has provided an alternative accounting alternative for nonpublic entities that could eliminate the need for testing goodwill for impairment in its entirety.

This course provides an understanding of existing requirements for recognizing goodwill and for testing it for impairment, including recent changes that apply to all entities. The course also describes the alternative accounting approach available to nonpublic entities, including the process for adopting it and how it will be applied.

As many entities obtain loans from their financial institutions, it is becoming quite common for companies to find themselves involved in two transactions, executed simultaneously. The primary transaction is a loan bearing interest at a variable rate, providing the borrower, in many cases, a lower rate than would have been obtained in a fixed rate arrangement.

At the same time, many are entering into an interest rate swap, under which they receive payments at a variable rate and make payments at a fixed rate, virtually converting the loan from a variable rate instrument into one bearing interest at a fixed rate.

In general, an entity has the choice of accounting for this interest rate swap as a derivative, following one set of principles, or as a hedge, following another. Although hedge reporting often provides more meaningful information on the financial statements, the requirements to apply it are severe and often difficult to comply with, particularly for smaller entities. The PCC has developed an alternative accounting approach that is available to nonpublic entities, making it easier to qualify to use hedge accounting for certain interest rate swaps as well as a simpler approach for applying it.

This course provides an understanding of the existing accounting for derivatives and hedges, including interest rate swaps. This course also describes the alternative accounting approach available to nonpublic entities, including the process for adopting it and how it will be applied.

What makes an accounting topic "hot" is how it affects individual participants. As a result, the topics included in this session are flexible. Topics may be added or deleted, and any topic may be covered in more or less detail. For example, one area that has recently received significant attention is the development of a separate financial reporting framework for nonpublic entities to reduce the cost and complexity of financial reporting. Several alternatives have been developed and are being promoted:

• The FASB has established the PCC and is reviewing all of GAAP to determine where efficiencies may be achieved by nonpublic entities.
• The International Accounting Standards Board has developed International Financial Reporting Standards for Small to Medium-Sized Enterprises (IFRS for SMEs).
• The AICPA has developed a complete new financial reporting framework (FRF) referred to as FRF for SME's

If desired, this course can provide an overview of each alternative along with specific guidelines for FRF for SMEs.