2016 A&A Update November 14, 2016

Transcription

1 2016 A&A Update November 14, 2016

2 Agenda Simplification Initiative Convergence Projects Financial Instruments Leases Revenue Recognition Attestation Update

3 Simplification Initiative

4 What is a simplification initiative? tightly-focused initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects Two goals Reduce cost & complexity Improve or maintain usefulness

5 ASU Extraordinary Items Issued January 2015 Background FASB heard from stakeholders that the concept of extraordinary items causes uncertainty because it is unclear when an item should be considered both unusual and infrequent It was extremely rare for a transaction or event to meet the requirements to be presented as an extraordinary item

6 ASU Cont d Update Eliminates the concept of extraordinary items from GAAP A material event or transaction that is unusual or infrequent or both should be reported as a separate component of income from continuing operations

7 ASU Cont d The nature and financial effects should be presented as a separate component of income from continuing operations or disclosed in notes to financial statements

8 ASU Cont d Effective Dates For fiscal years beginning after December 15, 2015, and interim periods within those fiscal years Applied on a prospective basis or retrospectively Early adoption is allowed

9 ASU Presentation of Debt Issuance Costs Issued April 2015 Background FASB received feedback that having different treatment for debt issuance costs and debt discount and premium created unnecessary complexity Recognizing debt issuance costs as assets conflicts with IFRS and FASB Concept Statement 6 Debt issuance costs cannot be an asset because they provide no future economic benefit

10 ASU Cont d Update Requires that debt issuance costs be presented as a direct deduction from the carrying amount of that debt liability Similar to a debt discount

11 ASU Cont d

12 ASU Cont d Effective Public business entities For fiscal years beginning after December 15, 2015, and interim periods within those years For all other entities For fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016 Early adoption permitted for financial statements that have not been previously issued Retrospective Application

13 ASU Simplifying the Measurement of Inventory Issued July 2015 Background Stakeholders found the guidance on the subsequent measurement of inventory unnecessarily complex because there are several potential outcomes. GAAP currently requires an entity to measure inventory at the lower of cost or market Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin

14 ASU Cont d Update Inventory measured using any method other than LIFO or the retail inventory method shall be valued at the lower of cost and net realizable value i.e. first-in, first-out (FIFO) or average cost methods

15 Net Realizable Value The estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation

16 ASU Cont d When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs Does not impact LIFO or retail inventory Continues to be lower of cost or market

17 ASU Cont d Effective: For public business entities For fiscal years beginning after December 15, 2016, including interim periods within those fiscal years For all other entities For fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017 Prospectively applied Earlier application permitted as of the beginning of an interim or annual reporting period

18 ASU Simplifying the Accounting for Measurement-Period Adjustments Issued September 2015 Background GAAP requires that during the measurement period, the acquirer retrospectively adjust the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill The acquirer also must revise comparative information for prior periods presented, including depreciation, amortization, or other income effects as a result of changes made to provisional amounts

19 ASU Cont d Update Requires an acquirer to recognize any adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined Record the effect on earnings of changes in depreciation, amortization, or other income effects, as a result of the change, calculated as if the accounting had been completed at the acquisition date in the period the adjustments are determined

20 ASU Cont d Present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date

21 ASU Cont d Effective For public business entities - For fiscal years beginning after December 15, 2015, including interim periods within those fiscal years For all other entities - For fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017 Applied prospectively to adjustments to provisional amounts that occur after the effective date Earlier application permitted for financial statements that have not yet been made available for issuance

22 ASU Accounting for Income Taxes, Balance Sheet Classification of Deferred Taxes Issued November 2015 Background Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position FASB heard that this was not useful because the classification does not generally align with the time period when the recognized deferred tax amounts are expected to be recovered or settled

23 ASU Cont d Update Deferred tax liabilities and assets should be classified as noncurrent in a classified statement of financial position The requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected

24 ASU Cont d Effective For public business entities For financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods For all other entities - For financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018 Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period May be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented

25 ASU Equity Method of Accounting Issued March 2016 Background When an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held Feedback - costly and time consuming with no clear benefit to the users

26 ASU Cont d Update Requires the equity method investor to add the cost of acquiring the additional interest in the investee to the current basis of the investor s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method No retroactive adjustment

27 ASU Cont d An entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting will recognize through earnings the unrealized holding gain or loss in AOCI at the date the investment becomes qualified for use of the equity method

28 ASU Cont d Effective For all entities - for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 Applied prospectively Earlier application is permitted

29 Financial Instruments

30 Definition of Financial Instruments Financial Instruments Cash, evidence of an ownership interest in an entity [equity], or a contract that both: Imposes on one entity a contractual obligation [financial liability] either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity.

31 Definition Cont d Conveys to that second entity a contractual right [financial asset] either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity.

32 Examples of Financial Instruments Financial Assets Investments in shares Investments in bonds Accounts receivables Financial Liabilities Accounts payable Bonds issued by an entity Equity Shares issued Derivative instruments Swaps Options

33 ASU Recognition and Measurement of Financial Assets and Financial Liabilities Issued January 2016 Background Began as a joint project with the IASB Recognition & Measurement Impairment Hedging Response to the 2008 financial crisis Improve the accounting models for financial instruments Complex economic environment

34 Final Results Only addresses recognition & measurement Impairment & Hedging will be separate ASUs Did not achieve convergence with IFRS Determined the cost and complexity introduced by the IASB model was not justified by the benefits FASB decided to make only targeted improvements and retain the current framework for accounting for financial instruments Equity method investments not in scope

35 Investments Investments (ASC 320 & 321) Changes to the Codification Renames Topic 320 to Investments Debt Securities Formerly Investments Debt and Equity Securities Creates Topic Investments Equity Securities

36 Debt Securities Debt securities will retain current GAAP classification Trading Measured subsequently at fair value Unrealized holding gains and losses run through earnings Available for Sale Measured subsequently at fair value Unrealized holding gains and losses run through OCI Exception - All or a portion of the unrealized holding gain and loss that is designated as being hedged in a fair value hedge runs through earnings Held to Maturity Measured subsequently at amortized cost

37 Equity Securities Equity securities Includes other ownership interests in an entity, including investments in partnerships, unincorporated joint ventures, and limited liability companies All investments are measured at fair value No longer categorized as trading or AFS Nonmarketable equity securities no longer measured at cost

38 Equity Securities Cont d All unrealized holding gains & losses run through earnings Nothing runs through OCI Exception - An entity can elect to measure an equity security without a readily determinable fair value that does not qualify for using NAV as a practical expedient to estimate fair value at cost minus impairment +/- changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer Continue to use until security no longer qualifies (i.e. becomes equity method or FV can be determined)

39 Other Comprehensive Income Other Comprehensive Income (ASC 220) Only unrealized holding gains and losses on available-forsale debt securities Equity securities would now only run through net income Subsequent decreases or increases in the fair value of available-for-sale debt securities previously written down as impaired Excludes other-than-temporary impairment Changes in fair value attributable to instrument-specific credit risk of liabilities for which the fair value option is elected New OCI Item

40 Effective Date For public business entities - For fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities including not-for-profit entities and employee benefit plans - For fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, Early adoption is permitted for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.

41 ASU Measurement of Credit Losses on Financial Instruments Issued June 2016 Background Phase 2 of Financial Instruments Project Phase 1 Recognition & Measurement Phase 2 Credit Losses Phase 3 Hedging

42 Background Global Financial Crisis in 2008 Financial Crisis Advisory Group (FCAG) Current incurred loss model Delays recognition until it is probable a loss has been incurred

43 Amortized Cost Financial assets measured at amortized cost are to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted asset account to present the net carrying value at the amount

44 Current Expected Credit Loss Income statement reflects the measurement of credit losses for newly recognized financial assets PLUS expected changes in expected credit losses that have taken place during the period Based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability Use professional judgment!

45 Allowance Methods The allowance may be determined using a variety of methods Discounted cash flow methods Loss-rate methods Roll-rate methods Probability-of-default methods Methods that utilize an aging schedule.

46 AFS Debt Securities AFS recognize value through either Sale of asset Collection of cash flow

47 AFS Debt Securities Available for Sale Debt Securities will use an allowance for credit loss Limited to difference between fair value and amortized cost Fair value = present value future cash flows Estimate expected future cash flows is the entity s best estimate based on past events, current conditions, and on reasonable and supportable forecasts

48 AFS Debt Cont d If an entity intends to sell the debt security, or will more likely than not be required to sell the security before recovery of its amortized cost basis Any allowance for credit losses is written off and the security written down to the its fair value at the reporting date Any incremental impairment reported in earnings Once written down to new basis can not recover

49 Purchased Financial Assets Purchased Financial Assets with Credit Deterioration If purchased assets do not have a more-thaninsignificant deterioration in credit quality since origination same as originated financial assets If purchased assets have a more-than-insignificant deterioration in credit quality since origination Calculate allowance following same accounting as amortized cost basis Add the allowance for credit losses at the date of acquisition to the purchase price to determine the initial amortized cost basis

50 Effective Date SEC filers - Fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities - Fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities - Fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, Early adoption No earlier than fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

51 Revenue Recognition

52 ASU Revenue from Contracts with Customers (Topic 606) Issued May 2014 Original Effective Date Public entity - For annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. All other entities - For annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, Early application permitted but no earlier than effective date for public entities

53 Five Step Process Step 1 Identify the Contract Step 2 Identify Performance Obligations (POs) Step 3 Determine the Transaction Price Step 4 Allocate the Transaction Price to the Pos Step 5 Recognize Revenue

54 ASU Revenue from Contracts with Customers (Topic 606)-Deferral of the Effective Date Issued August 2015 Background Entities did not feel they had adequate time Delay in original issuance

55 Update Defers the effective date of ASU for all entities by one year Public business entities, certain not-for-profit entities, and certain employee benefit plans extended to periods beginning after December 15, 2017, including interim reporting periods within that reporting period All other entities deferred to periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019 Earlier application is permitted as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period

56 ASU ASU , Principal versus Agent Considerations (Reporting Revenue Gross versus Net) Issued March 2016 Effective The effective date and transition requirements are the same as the effective date and transition requirements of ASU

57 ASU Cont d Background The FASB-IASB Joint Transition Resource Group for Revenue Recognition (TRG) identified a potential implementation issue related to the identification of the unit of account at which an entity should assess whether it is a principal or an agent When another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (principal) or to arrange for that good or service to be provided by the other party (agent).

58 ASU Cont d When principals satisfy a performance obligation, the entity recognizes revenue in the gross amount of consideration When agents satisfy a performance obligation, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled (net).

59 ASU Cont d Update The core principles of Topic 606 is NOT impacted An entity determines whether it is a principal or an agent for each specified good or service promised to the customer. If a contract with a customer includes more than one specified good or service, an entity could be a principal for some specified goods or services and an agent for others.

60 ASU Cont d Considering one or more of the indicators often will be helpful in determining whether the entity controls the specified good or service before it is transferred to the customer. The indicators may be more or less relevant to the assessment of control. Some may be more persuasive than others

61 ASU ASU , Identifying Performance Obligations and Licensing Issued April 2016 Effective The effective date and transition requirements are the same as the effective date and transition requirements in Topic 606

62 ASU Background The TRG informed the Board about a few issues in the guidance on identifying performance obligations and licensing Identifying POs Is it necessary to assess whether promised goods or services are POs if they are immaterial in the context of the contract Licenses Over time or point in time

63 ASU Update Core principles of ASC 606 is NOT changes An entity is not required to assess whether promised goods or services are POs if they are immaterial in the context of the contract with the customer. An entity is permitted, as an accounting policy election, to account for shipping and handling activities that occur after the customer has obtained control of a good as an activity to fulfill the promise to transfer the good rather than as an additional promised service.

64 ASU An entity s promise to grant a customer a license to intellectual property that has significant standalone functionality does not include supporting or maintaining that intellectual property during the license period. The nature of the entity s promise is to provide a right to use the entity s IP Satisfied at the point in time

65 ASU An entity s promise to grant a customer a license to symbolic intellectual property includes supporting or maintaining that IP during the license period. Satisfied over time

66 ASU ASU , Narrow-Scope Improvements and Practical Expedients Issued May 2016 Effective Same as the effective date and transition requirements for Topic 606

67 ASU Cont d Background Issues identified by the TRG in the guidance on assessing collectability presentation of sales taxes noncash consideration completed contracts and contract modifications at transition

68 ASU Cont d Update Clarifies the objective of the collectability criterion in Step 1 Objective of this assessment is to determine whether the contract is valid Permits an entity, as an accounting policy election, to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price

69 ASU Cont d Clarifies when revenue would be recognized for a contract that fails to meet the criteria in Step 1 Recognize revenue in the amount of consideration received when the entity has transferred control of the goods or services, and has no obligation to transfer additional goods or services, and the consideration received from the customer is nonrefundable.

70 ASU Cont d Specifies that the measurement date for noncash consideration is contract inception Provides a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied POs, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied POs.

71 ASU Cont d Clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application. Accounting for elements of a contract that do not affect revenue under legacy GAAP are irrelevant to the assessment of whether a contract is complete. Permits an entity to apply the modified retrospective transition method either to all contracts or only to contracts that are not completed contracts.

72 ASU Cont d Clarifies that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. Still required to disclose the effect of the changes on any prior periods retrospectively adjusted.

73 Leases

74 ASU Leases (Topic 842) Issued February 2016 Background $1.25 TRILLION of off-balance sheet operating lease commitments for SEC registrants 2005 SEC report Criticized for failing to meet the needs of users of financial statements 1 FASB. ASU , Leases. February Accessed March

75 Definition A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Control means that the customer has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. 1 FASB. ASU , Leases. February Accessed March

76 Lease Classification Lessee Accounting Finance Lease A lease that meets any of the following criteria at lease commencement The lease transfers ownership of the underlying asset to the lessee by the end of the lease term. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise. 1 FASB. ASU , Leases. February Accessed March

77 Lease Classification The lease term is for the major part of the remaining economic life of the underlying asset.» If the commencement date falls at or near the end of the economic life, this criterion shouldn t be used The present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. 1 FASB. ASU , Leases. February Accessed March

78 Lease Classification Operating Lease Any lease other than a finance lease

79 Measurement A lessee should recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. 1 FASB. ASU , Leases. February Accessed March

80 Lease Liability Measure the lease liability at the PV of lease payments Include fixed payments, including in substance fixed payments, less any lease incentives paid or payable to the lessee Include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. Exclude most variable lease payments in measuring lease assets and lease liabilities, other than those that depend on an index or a rate or are in substance fixed payments. 1 FASB. ASU , Leases. February Accessed March

81 Discount Rate The discount rate initially used to determine the present value is calculated on the basis of information available at the commencement date. A lessee should use the rate implicit in the lease whenever that rate is readily determinable. If the rate implicit in the lease is not readily determinable, use its incremental borrowing rate. 1 FASB. ASU , Leases. February Accessed March

82 Discount Rate Private company exception Permitted to use a risk-free discount rate, determined using a period comparable with that of the lease term, as an accounting policy election for all leases.

83 Short Term Lease Exception Leases with a term of 12 months or less - a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Recognize lease expense for such leases on a straight-line basis over the lease term. 1 FASB. ASU , Leases. February Accessed March

84 IS Impact Operating lease Recognize a single lease cost, calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis unless another systematic and rational basis is more representative Expense variable lease payments not included in the lease liability in the period in which the obligation for those payments is incurred Expense any impairment of the right-of-use asset 1 FASB. ASU , Leases. February Accessed March

85 IS Impact Finance Lease Amortization of the right-of-use asset Interest on the lease liability Determine the interest on the lease liability in each period during the lease term as the amount that produces a constant periodic discount rate on the remaining balance of the liability 1 FASB. ASU , Leases. February Accessed March

86 BS Impact Finance lease Increasing the carrying amount of the lease liability to reflect interest on the lease liability and reducing the carrying amount to reflect the lease payments made during the period. The right-of-use asset at cost less any accumulated amortization and any accumulated impairment losses 1 FASB. ASU , Leases. February Accessed March

87 Effective Dates Public companies - For fiscal years, and interim periods within those fiscal years, beginning after December 15, A public business organization A not-for-profit organization that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market An employee benefit plan that files or furnishes financial statements to the SEC. All other organizations - For fiscal years beginning after Dec. 15, 2019, and for interim periods beginning after Dec 15, 2020 Early application is permitted for all organizations.

88 Attestation Update

89 SAS 130 An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements Issued: October 2015 Effective: for integrated audits for periods ending on or after December 15, 2016 Result of its Attestation Clarity Project

90 Results Moves AT 501 (An Examination of an Entity s Internal Control Over Financial Reporting That Is Integrated With an Audit of Its Financial Statements) to the SASes Goal Maintain concepts of AT 501, align with PCAOB AS No. 5 and current GAAS Framework neutral

91 Changes Required to examine and directly report on internal control over financial reporting (ICFR) effectiveness Not permitted to opine on management s assertion Uses term significant class of transactions, account balance, or disclosure to align with GAAS Allows the use of internal auditors and others in obtaining evidence regarding internal controls over financial reporting effectiveness Analogize AU-C 610

92 In the Future Consider developing an attestation standard addressing examinations of internal control other than ICFR that is integrated with an audit of financial statements

93 SAS 131 Statement on Auditing Standards (SAS) No. 131: Amendment to Statement on Auditing Standards No. 122 Section 700, Forming an Opinion and Reporting on Financial Statements Issued January 2016 Effective for audits of financial statements for periods ending on or after June 15, 2016, with earlier application permitted

94 Examples Examples of entities not within the jurisdiction of the PCAOB Clearing agencies and futures commission merchants registered with the U.S. Commodities Futures Trading Commission (CFTC), Other entities registered with the CFTC Audits of financial statements included in certain securities offering documents pursuant to Regulation A When a nonissuer company desires, or is required by contractual agreement, to obtain an audit of its financial statements in accordance with the standards of the PCAOB.

95 Update When an auditor conducts an audit of financial statements in accordance with the standards of the PCAOB and the audit is not within the jurisdiction of the PCAOB, the auditor is required to also conduct the audit in accordance with GAAS

96 Update When the auditor refers to the standards of the PCAOB in addition to GAAS in the auditor s report, the auditor should use the form of report required by the standards of the PCAOB, amended to state that the audit was also conducted in accordance with GAAS

97 SSARS 22 Compilation of Pro Forma Financial Information Issued: September 2016 Effective: for compilation reports on pro forma financial information dated on or after May 1, 2017 Codified as AR-C section 120

98 Pro Forma Financial Information A presentation that shows what the significant effects on historical financial information might have been had a consummated or proposed transaction (or event) occurred at an earlier date

99 Objective To apply accounting and financial reporting expertise to assist management in the presentation of pro forma financial information and report without undertaking to obtain or provide any assurance

100 SSAE 18 Attestation Standards-Clarification and Recodification Issued April 2016 Effective For reports issued on or after May 1, 2017

101 Update Supersedes SSAE Nos. 10 through 17, except for SSAE No. 15, An Examination of an Entity s Internal Control Over Financial Reporting That Is Integrated With an Audit of Its Financial Statements; Interpretation No. 1 of AT Section 9501, Reporting Under Section 112 of the Federal Deposit Insurance Corporation Improvement Act (AT Section 501 and AT Section 9501); Chapter 7, Management s Discussion and Analysis, of SSAE No. 10, Attestation Standards: Revision and Recodification (AT Section 701).

102 Update Result of Clarity Project Uses the AT-C to differentiate the clarified standards from prior guidance New organization Guidance that apply to all engagements Guidance by type of service (examination, review, AUP) Guidance by subject matter (prospective financial statements, pro forma financial statements, compliance attestation etc.)

103 Purpose To provide users with an opinion, conclusion, or findings regarding the reliability of subject matter or an assertion about the subject matter, as measured against suitable and available criteria

104 Responsibilities The Responsible Party is responsible for the subject matter in accordance with (or based on) the criteria its assertion about the subject matter; measuring, evaluating, and, when applicable, presenting subject matter that is free from material misstatement, whether due to fraud or error; and providing the practitioner with access to information and persons

105 Level of Assurance Examination Reasonable Assurance Obtains evidence, Risk Assessment Similar to an Audit Provides an Opinion Review Limited Assurance Inquiry, Analytical Procedures or other appropriate procedures Similar to a Review under SSARS Expresses a Conclusion

106 Level of Assurance (Cont d) Agreed Upon Procedures (AUP) No Assurance Applies procedures determined by the specified parties Not responsible for the sufficiency of the procedures Describes procedures and results of procedures

107 Update Requires CPAs request a written assertion from the responsible party about whether the subject matter is measured or evaluated in accordance with the criteria Requires a written representation letter in all attestation engagements Increases the understanding required in an examination regarding the subject matter

108 Enhancing Audit Quality Six Point Plan Pre-Licensure Standards & Ethics CPA Learning & Support Peer Review Practice Monitoring of the Future Ethics Enforcement & NASBA collaboration

109