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Update on the current board issues: October 2013

Audit committee issues

 

Cash flows deserve top billing

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Financial statement users often find the statement of cash flows the most informative statement among the financial statements. So it's important that companies get it right. In fact, the inaugural PwC 2013 Investor Survey results indicate that institutional investors place reported operating cash flows at the top of their list of variables that impact their investment decisions.

Attention to detail is critical when it comes to preparing the statement of cash flows. For example, cash payments made to acquire property, plant, and equipment are classified as investing activities. However, if the acquired asset was not paid for at the reporting period end, the asset purchase should be disclosed as a noncash activity, not reflected in the cash flow statement. Other common noncash activities include obtaining an asset by entering into a capital lease and acquiring a business using stock as payment. Infrequent transactions can also pose presentation challenges in the statement of cash flows.

Companies need to have a robust process for gathering and assessing the data necessary to prepare the statement of cash flows. The process may include the use of questionnaires that capture information like non-recurring transactions, or identify items that should be disclosed as noncash. [For more information on cash flows, read PwC’s The quarter close Directors’ edition Q3 2013.]

 

Private Company Council sends US GAAP alternatives for FASB approval

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The Private Company Council (PCC) earlier this month issued what could become the first two departures from existing US GAAP permitted for private companies. The proposals relate to interest rate swaps and goodwill in a business combination.

At the same time, the FASB is discussing an exposure draft on the definition of a public business entity, which essentially creates a de facto definition of a private entity. This definition will be used to determine which entities are eligible to apply PCC accounting standards. The proposed definition will result in more companies being “public entities” than under today’s GAAP.

Under the PCC’s proposals, private companies would be permitted to amortize goodwill over a period of 10 years, or less under certain circumstances, and have the option to use hedge accounting to account for certain types of interest rate swaps.

The FASB Board will consider the proposals “in the coming weeks” and consider whether these alternatives may also be appropriate for all public companies and not-for-profit entities, according to a PCC press release. If endorsed by the Board, the proposals will be issued as final accounting standards updates.

“We look forward to receiving the FASB’s endorsement on the alternatives in the coming weeks so that 2013 implementation is possible,” PCC Chairman Billy M. Atkinson said.

For more information on the PCC’s actions, read PwC’s Private company reporter (September 30 and October 1, 2013)