In January 2020, the following new concepts will be testable on the CPA Exam:
Regulation (REG) Updates
Bankruptcy Code Updates (R8 Modules 1 and 2)
On April 1 every third year after 1998, certain dollar amounts under the Bankruptcy Code are adjusted for inflation based on the Consumer Price Index for All Urban Consumers published by the Department of Labor. This year was an adjustment year, and the adjustment was a 6.218 percent increase. Not every dollar threshold in the Code is adjusted. The most significant dollar amounts that were adjusted are:
- The high and low thresholds for means-testing under Chapter 13 ($8,175 and $13,650; formerly $7,700 and $12,850)
- The amount needed to involuntarily petition a person into bankruptcy ($16,750; formerly $15,775)
- Wages and/or benefits due an employee that may be claimed by each employee as a priority claim ($13,650; formerly $12,850)
Regulation Crowdfunding (R8 Module 3)
Dollar amounts were adjusted under Regulation Crowdfunding, which provides a securities registration exemption for widespread internet solicitations of small amounts from numerous investors. Investors with income or net worth of less than $107,000 (formerly $100,000) may invest the greater of $2,200 (formerly $100,000) or 5 percent of the lesser of the investor’s annual income or net worth. Dollar figures relating to financial disclosures under the Regulation also were adjusted ($100,000 was changed to $107,000 and $500,000 was changed to $535,000).
FICA (R8 Module 4)
Finally, an employee’s income that is subject to FICA also was adjusted for inflation, rising from $128,400 to $132,900.
Financial Accounting and Reporting (FAR) Updates
ASU 2017-14, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment (F4 Module 8)
ASU 2017-14 simplifies goodwill impairment testing by eliminating step two of the goodwill impairment test. Goodwill impairment is now calculated simply by comparing the carrying value of a reporting unit including goodwill to the fair value of the reporting unit including goodwill. If the fair value exceeds the carrying value, there is no impairment. If the fair value is less than the carrying value, there will be an impairment charge equal to the difference between the fair value and carrying value.
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements (F4 Module 1)
The objective of ASU 2016-13 is to provide financial statement users with better information about expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13 requires the use of the current expected credit loss model (CECL). Under CECL, the measurement of credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability.
ASU 2016-13 requires available-for-sale debt securities and held-to-maturity debt securities to be reported at the net amount expected to be collected using an allowance for expected credit losses. Credit losses are recorded as a current period expense on the income statement and an offsetting allowance on the balance sheet. Increases and decreases in expected credit losses are reflected on the income statement in the period incurred when the estimate of expected credit losses changes.
- Held-to-Maturity Debt Securities
- If it is probable that all amounts due (principal and interest) will not be collected on a debt investment reported at amortized cost, the investment should be reported at the present value of the principal and interest that is expected to be collected. The credit loss is the difference between the present value and the amortized cost.
- Available-for-Sale Debt Securities
- Credit losses for available-for-sale debt securities are calculated in the same way as credit losses for held-to-maturity debt securities. However, because the investor has the option to sell an available-for-sale debt security if the loss on the sale will be less than any expected credit loss, the credit loss reported in net income is limited to the amount by which fair value is below amortized cost. Any additional loss is reported as an unrealized loss in other comprehensive income.
GASB 87, Leases (F9 Modules 3 – 6, F10 Module 1)
GASB Statement 87 addresses the adaptation of lease accounting and reporting to the unique characteristics of government. Although terms differ between commercial and governmental accounting, the character of the three types of lease transactions remain the same. In government accounting, lease accounting is made more complex by the existence of two different basis of accounting. The three types of leases under GASB 87 are:
- Short term leases, defined as less than one year. Short-term leases are accounted for in a manner similar to operating leases in commercial accounting.
- Contracts that transfer ownership, similar finance leases in commercial accounting. Contracts that transfer ownership are accounted for as an asset and liability in government wide financial statements and funds using accrual accounting or as a capital outlay expenditure and other financing source in governmental funds consistent with the modified accrual basis of accounting.
- Leases other than contracts that transfer ownership and short term leases are accounted for in a manner similar to operating leases in a commercial setting. Lessees recognize a right of use asset and liability in government wide financial statements and funds using accrual accounting or as a capital outlay expenditure and other financing source in governmental funds consistent with the modified accrual basis of accounting.
Two parties, three types of leases, and two basis of accounting produce twelve distinct but very logical accounting treatments depending on the perspective of the party (lessor or lessee) and the fund type in which the lease occurs.
GASB 89, Accounting for Interest Cost Incurred before the End of a Construction Period (F10 Module 4)
GASB Statement 89 simplifies the treatment of construction period interest and eliminates a nuance in governmental accounting and reporting. Construction period interest is now consistently treated as a period cost, either as an expenditure or expense, in the period incurred for both governmental and business-type activities.
