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From the accounting issue co-editors.

This Special Accounting Issue of the Review of Business contains eight significant articles discussing recent important developments in financial accounting, reporting, auditing, and accounting education.

The first article, Summary of the New FASB and IASB Revenue Recognition Standards, explains the accounting profession's new guidance on how entities should recognize revenue from contracts. The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) finalized its project to develop a joint revenue recognition standard in May 2014, when the FASB and IASB issued Accounting Standards Update (ASU) 2014-09 and IFRS 15, respectively. The new guidance moves away from the current risks and rewards model, and adopts a contract- and control-based approach. Now, an entity would be required to identify whether a contract with a customer exists, and allocate the estimated transaction price to the separate performance obligations embedded in the contract. Revenue can only be recognized by an entity when (or as) a performance obligation is satisfied by transferring the control of promised goods or services to the customer.

This article provides a detailed explanation of the new revenue recognition requirements, and points out that the impact on entities of changes in the amount and timing of revenue recognition as a result of adopting the new standard may be significant. However, the impact will vary based on the performance obligations identified in the contract by an entity and the allocation of the transaction price to those performance obligations.

Lease Accounting Change: It's Not Over Yet is the second article. It discusses the inadequacies of the accounting profession's existing rules for lease accounting, and the steps the FASB and IASB are taking to rectify them. For one class of lease, for example, neither the liability for future rent payments nor the leased asset appears on the lessee's balance sheet. This type of transaction has been often criticized since it allows lessee companies to keep assets and liabilities "off balance sheet" and does not represent the economic substance of the transaction. It also reduces the transparency and comparability of financial statements among companies.

Therefore, in 2006 the IASB and the FASB initiated a joint project to revise leasing rules. Subsequently in November 2013, after considering the vast amount of feedback from various proposals, the boards discussed and tentatively decided on its re-deliberations plan. This plan focuses on most key aspects of the lease accounting proposal, including the lessee accounting model, lessor accounting model, lease classification, lease term and other matters. This article explains the tentative decisions to revise lease accounting rules that have occurred through early 2014.

The third article, Statement of Comprehensive Income: New Reporting and Disclosure Requirements, explains the new financial reporting and disclosure requirements for comprehensive income (CI), which resulted from the joint efforts of the FASB and IASB. An entity's comprehensive income (CI) for a period, which includes its current period net income plus or minus changes in the components of other comprehensive income (OCI), provides extremely important financial information that assists investors and creditors to more fully understand the changes in owners' equity and the future cash-flow generating ability of the entity.

The changes in the components of OCI (as discussed in detail in the article), are not reported directly in the income statement until such amounts are realized, even though they can have a profound effect on an entity's equity, and hence, the wealth of its stockholders. However, because of the way entities previously reported changes in the components of OCI, this important financial information was often overlooked and not sufficiently understood. Therefore, both the FASB and IASB revised their guidance to enhance the transparency in the way entities should report and disclose CI and changes in OCI. This article describes and illustrates the FASB's new presentation and disclosure requirements for the statement of CI and its components and highlights some important implementation considerations.

The Private Company Council: Financial Reporting Standard Setting for Private Companies, the forth article, offers a comprehensive look at the creation, responsibilities, membership, agenda, and accomplishments of the Private Company Council (PCC). This 10-mamber body was established by the Financial Accounting Foundation (FAF) in May 2012 to assess reporting needs of U.S. private companies and to help develop guidance addressing these needs.

The article provides a timeline of events leading to the creation of the PCC and explains its advisory role in standard setting for private entities. During the short period of time since its inception, the PCC has been able to convince the standard setter, FASB, to simplify standards for private companies in three different areas: (1) accounting for goodwill; (2) consolidation of lessors in certain common control leasing arrangements; and (3) hedge accounting for certain types of swaps. Future PCC agenda is also addressed in the paper.

New Consolidation Requirements under IFRS, the fifth article, explains key provisions of the new international standard IFRS 10, Consolidated Financial Statements, issued by the IASB. The standard, effective for most entities in 2013, introduced the new single control model used to determine which investee should be consolidated. The new approach combines the concept of power and exposure to variable returns to determine whether control exists.

Control exists under IFRS 10 when the investor has power, exposure to variable returns, and the ability to use that power to affect its returns from the investee. The article discusses a due process leading to this standard, including an attempt to converge international standards with U.S. GAAP. Eventually the IASB and the FASB did not agree upon a single consolidation standard. Consequently, U.S. GAAP maintains two consolidation models: the voting interest model and the variable interest entity model. The paper explains the differences on consolidation between the two sets of standards.

The PCAOB's Proposed Changes to the Auditor Reporting Model: an In-depth Overview for the Classroom and Beyond, is the sixth article. It overviews the audit standard setting process, as it applies to an auditor report. Written from the historical perspective, the article explains the current PCAOB's proposal for changes to the existing auditor reporting model. The most significant change would involve documenting and reporting the critical matters encountered during the audit.

The article also discusses the new basic elements and clarifying language under the proposed standard, as well as expended responsibilities for other information included in the auditor report. Discussion of the proposed changes is enhanced by an illustrative sample of the new audit report. The authors then explain in two appendices how their paper can be used in the classroom as a case project.

Cloud Computing and the Cloud Service User's Auditor, the seventh article, deals with the implications of increasingly popular Cloud computing for the service user audit function. Cloud computing is defined and service delivery models, as well as development models, are described. Because Cloud computing is a large scale outsourcing of IT operations, the service user remains accountable for these operations, and the auditor of the service user needs assurances about the controls at the Cloud service provider.

The article provides details about the attestation standard and evaluates available reporting choices under this standard, dealing with risks associated with Cloud computing. Furthermore, possible questions for the Cloud computing user's auditor are addressed. These issues are very important as in increasingly common Cloud computing arrangements the risks associated with the information technology are an integral part of the financial reporting risk.

The last article, Strategic Planning for Metropolitan and Regionally-Focused Accounting Programs, details the challenges facing educational institutions and individual academic units, such as overcapacity, increased competition, rising costs, a declining population of prospective traditional students who face a difficult job market when they graduate, etc. How universities and academic programs respond to these challenges will largely determine their future relevance and viability.

Using input gathered from participants at American Accounting Association meetings, the authors explain how metropolitan and regionally-focused accounting programs can remain competitive, maintain their enrollments, and even be successful. Academic institutions and accounting programs must understand and evaluate their environments and then plan curricula, courses, and related activities to best prepare students for careers in a highly competitive job market. This article explains the specifics of how this may be achieved.

This volume would not be possible without the support and collaboration of people involved in the publication process. First of all, as the guest co-editors of this special accounting issue, we would like to thank Dr. Igor Tomic, Editor of the Review of Business, for his support and encouragement. In addition, we would like to thank all the reviewers for their expertise and insightful comments. All manuscripts were blind reviewed by academic and professional experts, and each manuscript was revised at least twice before final acceptance.


The Peter J. Tobin College of Business, St. John's University, New York


The Peter J. Tobin College of Business, St. John's University, New York
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Article Details
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Author:Casabona, Patrick A.; Gornik-Tomaszewski, Sylwia
Publication:Review of Business
Article Type:Editorial
Geographic Code:1USA
Date:Jun 22, 2014
Previous Article:From the editor.
Next Article:Summary of the new FASB and IASB revenue recognition standards.

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