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Financial Reporting and Regulatory Update

Fourth Quarter 2019

From the AICPA

Practice aid on accounting for and auditing digital assets

The AICPA issued, on Dec. 16, 2019, a practice aid, “Accounting for and Auditing of Digital Assets,” which addresses nonauthoritative guidance on accounting for and auditing digital assets under GAAP and generally accepted auditing standards for financial statement preparers and auditors. The guidance currently includes accounting content, with auditing guidance to be added at a later date. Also, as additional accounting topics are identified and completed the practice aid will be updated.

According to the practice aid, although digital assets, which are defined broadly as digital records, made using cryptography for verification and security purposes, on a distributed ledger, may be described in various terms, the accounting treatment will be determined by the specific terms, form, underlying rights, and obligations of the specific digital asset.

The accounting guidance currently addresses the following areas:

  • Classification and measurement when an entity purchases crypto assets
  • Recognition and initial measurement when an entity receives digital assets that  are classified as indefinite-lived intangible assets
  • Accounting for digital assets classified as indefinite-lived intangible assets
  • Measurement of cost basis of digital assets that are classified as indefinite-lived intangible assets
  • Derecognition of digital asset holdings that are classified as indefinite-lived intangible assets
  • Recognition of digital assets when an entity uses a third-party hosted wallet service

Working drafts on credit losses standard implementation issues

The AICPA’s Financial Reporting Executive Committee on Dec. 9, 2019, exposed for public comment two new working drafts on implementing the CECL standard. The drafts relate primarily to the insurance industry. The final guidance will be included in the AICPA’s forthcoming Credit Losses Audit and Accounting Guide. Issues exposed for public comment include CECL considerations for reinsurance recoverables and premiums receivable.

Comments are due on Feb. 10, 2020.

Description of materiality

To eliminate inconsistencies, the AICPA’s Auditing Standards Board on Dec. 5, 2019, issued Statement on Auditing Standards No. 138, “Amendments to the Description of the Concept of Materiality,” and Statement on Standards for Attestation Engagements No. 20 of the same title, to more closely align the materiality concepts discussed in AICPA Professional Standards with the materiality descriptions used by the U.S. judicial system, the PCAOB, the SEC, and the FASB.

The standards are effective for audits of financial statements for periods ending on or after Dec. 15, 2020, and practitioners’ examination and review reports dated on or after Dec. 15, 2020.