Newly effective pronouncements. (accounting principles and auditing standards)
Statements of the Financial Accounting Standards Board
SFAS 104, "Statement Cash Flows---Net Reporting of Certain Cash Payments and Classification from Hedging Transactions." This statement is an amendment to SFAS 95 and is effective for annual financial statements for fiscal years ending after June 15, 1990.
SFAS 105, "Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risks." This statement is effective for financial statements for fiscal years ending after June 15, 1990.
SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement would be effective for fiscal years beginning after December 15, 1992 (and for some entities for fiscal years beginning after December 15, 1994). However, the statement also amends APBO 12, "Omnibus Opinion--1967" to explicitly require that an employer's obligation under deferred compensation contracts be accrued, in accordance with the terms of the individual contract, over the require service period to the date the employee is fully eligible for the benefits. This amendment is effective for fiscal years beginning after March 15, 1991.
Technical Bulletins Issued by FASB
No. 90-1, "Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts." This bulletin is effective for contracts sold in fiscal years beginning after December 15, 1990.
Statements of Position of the Accounting Standards Division
SOP 90-3, "Definition of the Term Substantially the Same for Holders of Debt Instruments, as Used in Certain Audit Guides and a Statement of Position." The guidance of SOP 90-3 amends the AICPA industry audit guide "Audits of Banks," the audit and accounting guide "Audit of Brokers and Dealers in Securities," and SOP 85-2, "Accounting for Dollar Repurchase--Dollar Reverse Repurchasing Agreements by Sellers- Borrowers." SOP 90-3 is applicable to transactions entered into after March 30, 1990.
SOP 90-7, "Financial Reporting by Entities in Reoganization Under the Bankruptcy Code." This statement of position becomes effective for financial statements of enterprises that have filed petitions under the Bancruptcy Code after December 31, 1990. Additionally, certain sections of this SOP are applicable to enterprises that filed petitions prior to January 1, 1991, and have had the plans of reorganization confirmed after June 30, 1991. (See also The CPA Journal "Financial Reporting Under Chapter 11," December 1991.)
SOP 90-8, "Financial Accounting and Reporting by Continuing Care Retirement Communities." This SOP is effective for fiscal years beginning on or after December 15, 1990.
SOP 90-11, "Disclosure of Certain Information by Financial Institutions about Debt Securities Held as Assets." This SOP is effective for fiscal years ending after December 15, 1990.
Statements of the Governmental Accounting Standards Board
GASB 10, "Accounting and Financial Reporting for Risk Financing and Related Insurance Issues." This statement is effective for the financial reporting of public entity risk pools for periods beginning after June 15, 1990.
GASB 13, "Accounting for Operating Leases with Scheduled Rent Increases." For proprietary and similar trust funds this statement is effective for leases with terms beginning after June 15, 1990. For governmental and similar trust funds certain provisions of this statement are effective for leases with terms beginning after June 15, 1990; other provisions are effective for periods beginning after June 15, 1994.
Statements of the Auditing Standards Board of AICPA
SAS 65, "The Auditor's Consideration of the Internal Audit Function in an Audit of Financial Statements." This SAS is effective for audits of financial statements for periods ending after December 15, 1991. This SAS superseded SAS 9, "The Effect of an Internal Audit Function on the Scope of the Independent Audit."
SAS 66, "Communication of Matters About Interim Financial Information Filed or to be filed with Specified Regulatory Agencies--An Amendment to SAS 36, Review of Interim Financial Information." This SAS is effective for interim financial information filed or to be Filed for interim periods ending after September 15, 1991. An ED of an SAS issued in July 1991, "Review of or Performing Procedures on Interim Financial Information" proposes to combine and supersede SASs 36 and 66.
SAS 67, "The Confirmation Process." This SAS will provide practitioners with guidance when using confirmations in audits. It is expected that the SAS will have been issued by the end of 1991.
Standard Bank Confirmation Forms
A new form for confirming deposit and loan balances with financial institutions is to be used beginning march 31, 1991. A separate letter would also be sent to the financial institution's official responsible for or knowledgeable about its relationship with the client entity to confirm other transactions or arrangements.
Statements of Position of the AICPA Auditing Standards Board
SOP 90-1, "Accountant's Service on Prospective Financial Statements for Internal Use Only and Partial Presentations." The statement is effective for engagements beginning on or after July 1, 1990.
SOP 90-5, "Inquiries of Representatives of Financial Institution Regulatory Agencies." The conclusions in this statement are applicable to audits of financial statements for periods ending on or after September 30, 1992.
SOP 90-6, "Director's Examination of Banks." The recommendations in this statement are applicable to directors' examinations commenced after December 31, 1990.
SOP 90-9, "The Auditor's Considerationof the Internal Control Structure Used in Administering Federal Financial Assistance Programs Under the Single Audit-Act." This statement is effective for audits done in accordance with the Single Audit Act for fiscal periods beginning on or after January 1, 1991.
SOP 90-10, "Reports on Audited Financial Statements of Property and Liability Insurance Companies." This statement is effective for periods ended after December 15, 1990.
Proposed SAS, Likely to be Effective no Later than Early 1992
The ASB is revising the GAAP hierarchy with respect to "the meaning of present fairly in conformity with generally accepted accounting principles." it is expected that an SAS will be issued by January 1, 1992 that would change the relative authority in the GAAP hierarchy of AcSEC Statements of Position (SOPs), AICPA Accounting and Audit Guides and Practice Bulletins, and the FASB Emerging Issues Task Force (EITF) consensus positions. (Those EITF matters on which consensus has been reached are listed in the status listing in Appendix D of Vol. II of the FASB Accounting Standards Current Text.) The proposed revisions would establish on hierarchy for state and local governmental entities and one for non-governmental entities. Since consensus positions of the EITF would have greater authority than in the existing GAAP hierarchy, non- governmental entities would be required to change their current accounting practices to follow EITF guidance. The ED provides that the elevation of EITF guidance would be on a prospective basis from the effective date of the statement.
AICPA AUDIT AND ACCOUNTING GUIDES
Common Interest Realty Associations
This guide, issued in 1991, is effective for financial statements for periods beginning on or after September 15, 1991, with earlier application encouraged. It is designed to assist independent public accountants in conducting compilations, reviews, and audits of financial statements of common interest realty associations (CIRAs).
Audits of Employee Benefit Plans
This guide, issued in 1991, is effective for audits of financial statements for plan years beginning after December 15, 1990, with earlier application encouraged. It is designed to assist the practitioner in preparing, auditing, and reporting on financial statements of employee benefit plans, including defined benefit pension plans, defined contribution plans, and employee health and welfare benefit plans. It applies to audits of financial statements of employee benefit plans that are subject to the financial reporting requirements of the Employee Retirement Income Security Act of 1974 (ERISA), as well as those that are not.
Audits of Property and Liability Insurance Companies
The audit provisions of this guide are effective for audits of financial statements of property and liability insurance companies for periods beginning on or after December 15, 1990. It is designed to assist the independent auditor in auditing and reporting on financial statements of property and liability insurance companies. It describes operating conditions and auditing procedures unique to the industry.
Audits of Savings Institutions
The auditing provisions of this guide, issued in 1991, shall be applied prospectively to audits of financial statements of savings institutions for fiscal years beginning after December 31, 1990.
Audits of Federal Government Contractors
The guide applies to audits of financial statements of entities that provide goods and services to the federal government or to prime contractors or subcontractors for which such transactions are material to its financial statements. The accounting and financial reporting provisions apply to contracts entered into after December 31, 1990. The auditing provisions are effective for audits of financial statements for periods beginning on or after December 15, 1990.
SPECIALIZED INDUSTRY MATTERS
In planning the engagement of a client in a specialized industry, the accountant needs to consider the developments and practices in that industry as well as the effect of current economic, legislative, and regulatory developments on that industry.
Practical constraints preclude coverage here of the details of these specialized industry considerations. However, the AICPA Auditing Standards Division has issued Current Industry Development or Industry Audit Risk Alerts in eighteen specialized industries. These industry alerts are designed to advise accountants of current economic, industry, regulatory, and professional developments that they should be aware of as they perform year-end audits. The following industries are now covered in the series.
There are eight industry alerts that cover finance-related industries. Included are: banking, credit unions, finance companies, investment companies, savings institutions, securities institutions, and insurance companies--both life and health and property and liability. All of these industries involve unique audit considerations because of the highly regulated environment, specialized accounting practices, and importance of subjective accounting estimates.
Nonprofit and Government
The following four industry alerts cover nonprofit or government organizations: employee benefit plans, health care, not-for-profit organizations, and state and local governments. In these industries there is increased concern with compliance with laws and regulations and internal control because of government agency requirements.
There are industry alerts for both construction contractors and federal government contractors. In planning the audit of a contractor, the auditor needs to be particularly aware of the importance of the reliability of the client's estimating process. The accountant needs to consider how economic and industry developments may affect the client's estimates and carefully evaluate the risk of material misstatement in planning tests to corroborate such estimates.
There are three industry alerts that do not fit into a broad category- -airline, agribusiness, and casino.
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