The costs shown above are based on a budgeted volume of 80, units produced and sold each year. Gonzalez uses cost-plus pricing methods to set its target This material is also available under the Auditors often earn considerable fees from a company for examining auditing its financial statements. Required: 1.
Which party has primary We need a corporate goal for SCR that refers to our new training activity. Prepare a draft to Data for Barry Computer Co. Calculate the indicated ratios for How would that information affect the validity of your ratio analysis? Hint: Think about averages and the effects of Go to www. What is the thesis of this video? Which body language indicators from this chapter were demonstrated in the video? Those provisions require that an entity use either of the following transition methods: 1 apply the guidance to existing leases retrospectively with the cumulative-effect adjustment from transition recognized at the beginning of the earliest period presented or 2 apply the guidance to existing leases on a modified retrospective basis with the cumulative-effect adjustment from transition recognized in the opening balance of retained earnings at the beginning of the period of adoption.
For entities that had adopted ASC as of November 11, , the amendments in this ASU are effective for fiscal years beginning after December 15, , and interim periods within fiscal years beginning after December 15, Earlier application is permitted. Entities are required to apply the amendments on a modified retrospective basis to leases that exist at the beginning of the fiscal year of adoption.
The adoption of the amendments should not be considered an event that would cause remeasurement and reallocation of the consideration in the contract including lease payments or reassessment of lease term or classification. This guidance creates an exception to the general recognition and measurement principle in ASC As a result of the amendments made by the ASU, companies will generally recognize contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before acquisition date.
For public business entities, the guidance is effective for fiscal years beginning after December 15, and interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, and interim periods within those fiscal years.
Early adoption is permitted. In November, the FASB issued ASU , Government Assistance Topic : Disclosures by Business Entities about Government Assistance, which is expected to increase transparency in financial reporting by requiring business entities to disclose, in notes to their financial statements, information about certain types of government assistance they receive.
Examples of such government assistance include cash grants and grants of other assets. The amendments in ASU require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance such as a grant model within ASC , Not-for-Profit Entities , or International Accounting Standards IAS 20, Accounting for Government Grants and Disclosure of Government Assistance :.
The amendments in ASU are effective for all entities within their scope, which excludes not-for-profit entities and employee benefit plans, for financial statements issued for annual periods beginning after December 15, Early application is permitted.
A spring-loaded award is when a company grants stock options shortly before announcing market-moving information such as better-than-expected financial results or a significant transaction. SEC staff believes that as companies measure compensation actually paid to executives, they must consider the impact that the material nonpublic information will have upon release. In other words, companies should not grant spring-loaded awards believing that they do not have to reflect any of the additional value conveyed to the recipients from the anticipated announcement of material information when recognizing compensation cost for the awards.
The guidance, Staff Accounting Bulletin SAB , provides the staff views related to the fair value estimates of share-based payment transactions in ASC , Compensation—Stock Compensation , when a company has material non-public information.
It was issued on November 24 and becomes effective upon publication in the Federal Register. SAB provides explanations with illustrations of certain facts and circumstances. It is in a question and interpretive answer format. Senator Jack Reed proposed an amendment to a defense authorization bill that mirrors the text of his Cybersecurity Disclosure Act. The measure directs the SEC to issue rules requiring public companies to disclose the cybersecurity expertise on their boards of directors.
The proposed amendment to the Fiscal National Defense Authorization Act NDAA comes as lawmakers and regulators are paying increasing attention to the information public companies disclose to their investors on cyber issues, especially breaches that compromise customer data.
Democratic lawmakers for years sought to advance the measure both as standalone bills and as part of broader legislative packages. In June, the House passed a broad environmental, social, and governance ESG disclosure package that included the language. That bill, H. The NDAA amendment would amend the Securities Exchange Act of giving the SEC about a year to finalize rules requiring companies to disclose, in annual or proxy filings, whether any member of its governing body—such as the board or general partner—possesses cyber expertise or experience, along with an accompanying description.
The amendment directs the commission, consulting with the National Institute of Standards and Technology NIST , to define what constitutes expertise or experience. The SEC said it filed enforcement actions during the fiscal year. The remainder were either so-called follow-on administrative actions in which the commission sought civil injunctions, bars, or other orders, or actions related to delinquent filings The commission, in announcing the results, detailed enforcement actions across auditors, attorneys, public companies and their executives, fund managers, investments advisers, broker dealers, and others for a range of violations.
The commission staff has two work-streams on disclosure rules related to climate change. One is for public operating companies and the other is for funds. The TCFD, which investment management company BlackRock has urged public companies to use in providing voluntary sustainability information, is an industry-led task force set up by the Financial Stability Board FSB in The board said at the time that global warming poses serious risks to the global economy and will affect many economic sectors.
In June , the task force issued a set of recommendations to help companies disclose the potential financial effects of climate change. The FSB is a global body of financial regulators, central bankers, and finance ministries, and its U. The other work-stream involves funds that market themselves as carbon neutral or environmental, social, and governance ESG funds.
These could be exclusionary funds, which means that they exclude some things in their investments. Conversely, they could be inclusionary funds, which mean that they include certain types of funds, like impact funds or integration funds. The TCFD Recommendations, a page report issued in , contains four recommendations tied to governance, strategy, risk management, and metrics and targets. For governance, the report recommends that companies disclose their assessments and management of climate risks.
The task force also recommends that companies describe the resilience of their strategy, taking into consideration different scenarios, including a temperature increase of 2 degrees Celsius or lower.
The report noted that it is widely recognized that global warming above 2 degrees Celsius, relative to the pre-industrial period, could lead to an unprecedented economic catastrophe. For risk management, companies should describe their processes for identifying, assessing, and managing climate risks.
Companies should also describe how this fits into their overall risk management. The report also recommended that companies disclose the metrics they use to assess climate risks as part of their risk management. They should also disclose greenhouse gas emissions and related risks. Companies should describe the targets they use to manage climate risks and their performance against the targets.
On October 7, , the Public Company Accounting Oversight Board PCAOB released staff guidance on considerations regarding the relevance and reliability of information from external sources that the auditor plans to use as audit evidence. The guidance also addresses the relationship between the quality and quantity of audit evidence.
This guidance comes as there have been advances in technology, which auditors increasingly use, and the expanded use of external data as audit evidence. Information from this report may be beneficial for audit committees when engaging with their auditors. Areas of common deficiencies noted in the report include internal control over financial reporting ICFR ; revenue and related accounts; accounting estimates; inventory; critical audit matters CAMs ; and independence.
While there were noted improvements in auditing accounting estimates, the publication emphasized a continued number of deficiencies in auditing the allowance for loan losses. Federal bank regulatory agencies have issued a joint final rule to establish computer-security incident notification requirements for banking organizations and their bank service providers. The rule requires a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after the banking organization determines that a cyber incident has occurred.
In addition, the final rule requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours.
The rule defines computer-security incident as an occurrence that results in actual harm to the confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits. The final rule takes effect on April 1, , with full compliance extended to May 1, On October 21, , the FDIC Board of Directors adopted a final rule to amend the Interagency Guidelines for Real Estate Lending Policies to incorporate consideration of the capital framework established in the community bank leverage ratio CBLR rule into the method for calculating the ratio of loans in excess of the supervisory loan-to-value limits LTV limits.
The amendment provides a consistent approach for calculating the ratio of loans in excess of the supervisory LTV limits at all FDIC-supervised institutions without requiring the computation of total capital. The final rule was adopted without any changes from the notice of proposed rulemaking published on June 25, The final rule will be effective 30 days after publication in the Federal Register.
In October , five federal financial institution regulatory agencies, in conjunction with the state bank and state credit union regulators, jointly issued a statement to emphasize the expectation that supervised institutions with LIBOR exposure continue to progress toward an orderly transition away from LIBOR. Additionally, the statement included clarification regarding new LIBOR contracts, considerations when assessing appropriateness of alternative reference rates, and expectations for fallback language.
A draw on an existing agreement that is legally enforceable e. As part of their due diligence, supervised institutions should understand how their chosen reference rate is constructed and be aware of any fragilities associated with that rate and the markets that underlie it. Supervised institutions are advised to identify all contracts that reference LIBOR, lack adequate fallback language, and will mature after the relevant tenor ceases.
Going forward, supervised institutions are encouraged to include fallback language in new or updated contracts that provides for using a strong and clearly defined fallback rate when the initial reference rate is discontinued.
On October 15, , the OCC released its bank supervision operating plan for fiscal year The plan provides banks with great insight as to what the OCC plans to focus on over the next year October 1, through September 30, This is a great starting point for banks to use in their own risk assessments to prioritize risk management work.
In its Semiannual Risk Perspective for Fall , the OCC highlighted operational, credit, compliance, and strategic risks, among the key risk themes in the report. Operational risk is elevated as banks respond to an evolving and increasingly complex operating environment and cyber risks. Credit risk is moderate as widespread government programs and appropriate risk management limited the potential credit impact, though some areas warrant continued attention.
Compliance risk is heightened, driven by regulatory changes and policy initiatives that continue to challenge risk management. Strategic actions taken by banks to offset earnings impacts of low yields and NIM compression remain a risk. The OCC noted banks are weathering the COVID crisis with resilience and satisfactory credit quality and strong earnings, but weak loan demand and low net interest margins NIM continue to weigh on performance.
In November , federal bank regulatory agencies issued a joint statement to summarize the work undertaken during the interagency policy sprints focused on crypto-assets, and to provide a roadmap of future planned work. The agencies recognize that the emerging crypto-asset sector presents potential opportunities and risks for banking organizations, their customers, and the overall financial system. The statement describes the focus of the preliminary work conducted through the sprints undertaken by the agencies.
In this letter, the OCC said banks should seek permission before offering any services in crypto. The letter provides a roadmap for banks to engage with their regulators to provide written notification of their proposed activities and outlines the criteria that the OCC will follow to evaluate the proposed activity and provide a supervisory non-objection.
If the bank receives a supervisory non-objection, the OCC will review these activities as part of its ordinary supervisory processes. Stablecoins are digital assets that are designed to maintain a stable value relative to a national currency or other reference assets. Stablecoins, unlike Bitcoin, are backed by assets like gold or fiat currency. This application will allow certain employees at Company XYZ to view employee contact information in one central online location.
The agreement does not include a license to use any software. The capitalization of costs depends on the nature of the costs and the phase of development in which the costs are incurred. Specific details of the work performed and the costs incurred in each phase of the project is described below.
The explanation of each phase is followed by a determination of whether the fees are capitalizable. Company XYZ hires a consultant to assist with the preliminary selection of a software. Also, the management team at Company XYZ creates a committee to help with determining the list of the requirements and functionality needed for the software solution. To begin development of the new application, Company XYZ authorizes a team of internal software developers to create a software to convert old data from the existing system to the new system.
Company XYZ also incurs costs to manually purge existing data from the current system i. Company XYZ implements the software and, after transition, incurs costs for additional training of employees.
After employees are trained and onboarded with the new application, Company XYZ continues to incur its ongoing software maintenance and customer support costs. However, after a few months of use the management team decides to allocate resources for the internal software development team to provide an upgraded user interface for the employees at Company XYZ.
Please note this upgraded interface will enhance the functionality of the software. This article provides a summary and example of accounting for cloud computing arrangements under ASC Specifically, the article covered in depth which costs are capitalized vs. The issuance of updates to ASC in provided much needed clarity to entities in regard to the accounting treatment for cloud computing arrangements.
This clarification was necessary, considering the higher rate at which entities are reviewing and entering into cloud computing agreements and also considering the fact many employees are working remotely prompting additional need for cloud computing capabilities. Your email address will not be published.
Customer Center Login. FASB internal-use software standard 2. Effective date of ASC 3. The need for clarity Capitalizable vs. Updates to ASC Capitalizable vs. Initial measurement and subsequent measurement Initial measurement Subsequent measurement 6.
Internal-use software under ASC An example Preliminary project phase Application development phase Post-implementation phase Upgrades and enhancements 7. Summary 8. Related articles.
FASB internal-use software standard The increase in accounting and finance professionals working remotely has made cloud-based software solutions more attractive to businesses and organizations. The need for clarity Accounting Standards Update Intangibles—Goodwill and Other—Internal-Use Software amended ASC to provide more clarity and visibility to certain fees paid for cloud computing arrangements that do not include a license for use.
Capitalizable vs. Preliminary project phase The preliminary project phase is the period in which an entity determines the system requirements for the internal use software. Application development phase An entity enters the application development phase after it makes the decision to move forward with a software project and has express approval of management. Post-implementation phase Once the software is ready to be used by the entity, the post-implementation phase begins.
Upgrades and enhancements Costs incurred in this phase include changes to the software that go beyond routine maintenance. This includes, but is not limited to: Software and software license purchases Third party software development fees Costs for coding and testing, directly related to the software Purchases of external materials, directly related to the software Non-capitalizable costs On the other hand, costs that cannot be capitalized are, in general terms, ongoing software costs after implementation.
This includes, but is not limited to: Training fees Manual data conversion costs Maintenance and support costs This table provides a summary of the treatment of costs for cloud-based software: Initial measurement and subsequent measurement Initial measurement For a cloud computing arrangement, a prepaid asset is recognized for the total amount of costs determined to be capitalizable.
Subsequent measurement The intangible asset is amortized over the life of the cloud computing arrangement.
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