Additional AICPA Relief Due to COVID-19 Challenges
PEEC On May 5, the AICPA’s Professional Ethics Executive Committee (PEEC) postponed the effective dates for three ethics interpretations in the AICPA Code of Professional Conduct for one year. PEEC made this decision to provide accountants and their clients help during COVID-19, recognizing it would be more difficult for them to implement these interpretations in the current environment.
Standard Setters Defer Standards in Response to COVID-19 Challenges
To address challenges relating to the coronavirus pandemic, on April 21, 2020, the FASB issued a proposed one-year deferral for the effective dates of ASC 606, Revenue from Contracts with Customers, and ASC 842, Leases, for certain nonpublic companies and certain nonprofit organizations that have not already adopted them. Early adoption is still permitted.
Updated Exempt Organization Procedural Guidance
The IRS has updated guidance regarding the application process for tax exempt status. Revenue Procedure 2020- 8 (2020-8 IRB 447) modifies certain previous guidance as highlighted in this article.
Mandatory Electronic Filing for Form 1023
Applications for tax-exempt status under IRC Sec. 501(c)(3) filed after April 30, 2020, on Form 1023 must be submitted electronically. The electronic
filing requirement also applies to organi- zations seeking a determination described in Section 501(e), (f), (k), (n), (q), or (r).
Substantive Procedures Required in Every Audit
Because of the judgmental nature of the auditor’s risk assessments and the inherent limitations of internal control, particularly the risk of management override, the auditing standards prescribe certain substantive procedures that should be performed in every audit. The additional substantive procedures that are needed in particular circumstances depend on the auditor’s judgment about the sufficiency and appropriateness of audit evidence in the circumstances.
Revised CPE Standards Allow New Self-Study Option
In December 2019, the National Association of State Boards of Accountancy (NASBA) and the AICPA published a revised Statement on Standards for Continuing Professional Education (CPE) Programs (CPE Standards), effective as of December 31, 2019. The CPE Standards govern the development, presentation, measurement, and reporting of CPE programs. Accordingly, firms need to be aware of the requirements of the CPE Standards to ensure that CPE programs developed by the firm and CPE taken by professional staff satisfy those requirements. (Because adopting the CPE Standards is discretionary by each state board of accountancy, not every state strictly follows the CPE Standards as developed by NASBA and the AICPA.)
New 2020 Form W-4 Issued
On December 5, 2019, the IRS issued a redesigned 2020 Form W-4 (Employee’s Withholding Certificate). The new form no longer uses withholding allowances. Instead, there is a fivestep process and a new Publication 15-T (Federal Income Tax Withholding Methods) for determining employee withholding. The form was redesigned to conform with changes made by the Tax Cuts and Jobs Act (TCJA). Because personal exemptions are suspended for tax years 2018–2025, the revised Form W-4 bases the amount of income tax withholding on an employee’s projected taxable income instead of the number of withholding allowances claimed by an employee.
Department of Labor (DOL) Issues Final Overtime Rule
In September 2019, the DOL issued the final overtime rule, effective January 1, 2020. The final rule, among other things, updates the earnings thresholds necessary to exempt executive, administrative, and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements, and allows employers to count a portion of certain bonuses (and commissions) towards meeting that salary level.
PCAOB Adopts New Standard on Estimates
On December 20, 2018, the PCAOB issued Release 2018-005, Auditing Accounting Estimates, Including Fair Value Measurements, and Amendments to PCAOB Auditing Standards. The revised standard and related amendments, which were approved by the SEC on July 1, 2019, will be effective for audits of financial statements for fiscal years ending on or after December 15, 2020.
AICPA Issues Another New SAS
SAS 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports, supersedes AU-C 720, Other Information in Documents Containing Audited Financial Statements. The superseded standard is now codified in AU-C 720A and SAS 137 is codified in AUC 720. In accordance with the ASB’s strategic objective to converge its standards with those of the International Auditing and Assurance Standards Board (IAASB), the new SAS is modeled after International Standard on Auditing (ISA) 720 (Revised), The Auditor’s Responsibilities Relating to Other Information. The revised standard clarifies, but doesn’t significantly change, existing guidance on the auditor’s responsibility for other information.
FASB Proposes Delaying Effective Dates for Three Major Standards
On August 15, 2019, the FASB issued a proposal that would defer the effective dates for certain entities for several of its major accounting standards, including ASU 2016-02, Leases (Topic 842); ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments; and ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The delays will provide smaller reporting companies, private companies, and not-for-profit entities well-needed relief from implementation burdens to adopt some of the most significant new accounting rules to be introduced in decades.
PEEC Revises Two Ethics Interpretations
The AICPA Professional Ethics Executive Committee (PEEC) recently revised two ethics interpretations, “State and Local Government Client Affiliates” and “Information System Services.”
State and Local Government Client Affiliates
PEEC issued revised ethics interpretation, “State and Local Government Client Affiliates,” previously titled, “Entities Included in State and Local Government Financial Statements” (ET 1.224.020). It is effective for years beginning after December 15, 2020.
FASB Issues Improvements for Financial Instruments
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which provides amendments to the financial instruments guidance introduced a few years ago, through three ASUs [ASU 2016-01, Financial Instruments— Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities]. This article provides a summary of the ASU 2019-04 amendments applicable to hedging and recognition and measurement. A future article will discuss the ASU 2019-04 amendments applicable to credit losses.