Garrett Gleim sends CPA candidates informative emails concerning different aspects of the CPA exam. Candidates can see the most recent email and all the archives here on the CPA Candidate Forum.
You may have heard about two major pronouncement changes, affecting the AUD and FAR sections, respectively, that occurred recently: (1) the AICPA has released a new Code of Professional Conduct, and (2) the FASB and the IASB together have issued a converged standard on Revenue from Contracts with Customers, ASU 2014-09 (Topic 606) and IFRS 15. Remember that the CPA Exam’s Policy on New Pronouncements states that “Accounting and auditing pronouncements are eligible to be tested on the Uniform CPA Examination in the testing window beginning six months after a pronouncement’s effective date, unless early application is permitted. When early application is permitted, the new pronouncement is eligible to be tested in the window beginning six months after the issuance date.
Regarding the new Code of Professional Conduct: We have reviewed the new Code and find that substantive changes to the rules and interpretations are minimal. Rather, this revision focuses more on reorganizing the Code to make it more topical and easier to use. How does this affect you, the CPA candidate? The new Code, affecting the AUD section of the CPA Exam, has an effective date of December 15, 2014, with early implementation permitted. This means that the new Code will not be testable until January 1, 2015, so 2014 candidates need not worry about it at all. And, since this revision does not materially change the rules of the Code, the impact on CPA exam questions after January 1, 2015, will be minimal.
Regarding the new Revenue Recognition standard: This converged new standard on recognition of revenue from contracts with customers is large and reflects many changes to the current codification, which will affect the FAR section of the CPA Exam. Issued as ASU 2014-09 (Topic 606) by the FASB and as IFRS 15 by the IASB, Revenue from Contracts with Customers provides a single principles-based revenue recognition model that can be applied to all transaction-specific fact patterns. Thus, most of the current industry-specific guidance will be eliminated.
The core principle of the new standard is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the standard requires an entity to apply the following five steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
This five-step approach helps to determine the amount and the timing of revenue recognized.
How does this affect you? Not at all until 2017! For a public entity, the new standard is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted; therefore, the new standard will not be testable until 2017.
Finally, as if this Hot Topics didn’t already contain enough good news (i.e., that these new pronouncements won’t trouble you until next year at the earliest), I have another exciting announcement: The CPA FAR Gleim Instruct video series is now complete! All 20 study units have videos that total over 30 hours of lectures, multiple-choice question discussions, and illustrative examples.
Do you have any questions or comments about this week’s Hot Topics article or the CPA Exam? Email me at email@example.com. Gleim Personal Counselors are available to help you develop a manageable study schedule and help you pass the CPA exam. Contact them at 800.874.5346, ext 498 or firstname.lastname@example.org. Take advantage of the opportunity to get help from our extraordinary team!
Sign up now for the Gleim CPA Hot Topic’s Email Subscription.
Click here if you know someone who would be interested in signing up for Gleim CPA Hot Topics.