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Fall 2016ACG 4101 Extra Credit Essay By completing the essay on the following topic, you can earn up to 2% extra credit. For example, if your grade from all class assignments and exams is 80% and receive full extra credit of 2%, your final grade will be 82% and your letter grade will be determined based on 82%. You can complete the essay by answering the following questions. The essay will be graded out of 100 points. Grading will be based on the completeness and clarity of your writeup.Note that even if you complete the essay, you may not receive any credit if you do it poorly. 1. 2. 3. 4. 5. Read ASU (Accounting Standard Update) 2015-11. Summarize main provisions of this update. (20 points) Why did FASB issue this update? (20 points) How is this update different from the previous standards? (20 points) What are the expected benefits of this update for financial statement preparers? (10 points) 6. Why are LIFO and retail inventory methods excluded from this update? (10 points) 7. Refer to earnings quality section (p.177) of Chapter 4 of the textbook. How does the textbook define earnings quality? How would you think this update affect earnings quality of income from continuing operations and bottom line net income? (20 points) AdditionalNotes: (1) No more than double-spaced 5 pages (1 margin for all sides) excluding cover page, appendix and reference list (2) Clearly write last name, first name and ID on cover page (3) 12-point Time New Roman (4) Due Nov 28th (Monday) Submit through Turn-it-in ONLYbefore class begins (No email, hard copy) (5) If you need to provide additional analyses or insights that are not relevant to the essay questions above, provide them in the appendix. (6) You should refer to and/or read other relevant materials and list them in the reference list following your essay (7) The sequence of your essay should be: 1. Cover page 2. Main essay 3. Appendix 4. Reference list (8) You should prepare the essay on your own without taking help from any other fellow students or another people. Hi am almost done with the paper. My email is starwaika at gmail.com The accounting standards have provided several updates which will be used in the accounting. The updates include the statements of cash flow which is in topic 230. The update will start being effective for business entities from December 2017. For other entities apart from business, the update will start in the year 2018. The update states that early adoption is permitted including adoption in the interim period. In case an entity adopts the amendments in an interim period, any adjustment should be reflected as of the beginning of the fiscal year that includes that interim period. There is also the update of consolidation where interest held through related parties that are under common control. The update was done October 2016. The update will be effective starting December 15 2016 including interims periods within that fiscal year. Also early adoption of this update is permitted including adoption in an interim period. Early adoption calls for adjustments which should be reflected as of the beginning of the fiscal year that includes the interim period. The income taxes update on topic 740 of intra-entity transfer of assets other than inventory. For public business entities, the amendments are effective for annual reporting period of December 2017. Early reporting is also permitted for all entities as of the beginning of annual reporting period for which financial statements have not being issued or made available for issuance. There is also an update on statement of cash flow. The update includes contingent's consideration payments after a business combination. Cash payment which is not made soon after the acquisition date of business combination by an acquirer to settle a contingent business consideration should be put separate and be grouped as cash flow for financing activities and operating activities. Cash payments made up to the contingent consideration liability recognized at the acquisition date should be classified as financial activities. In the cash flow updates there are also the amendments of proceed from the settlement of insurance claim. The amendments states that cash proceeds received from settlement of insurance claim should be grouped on the foundation of the related insurance coverage. If any insurance is settled in a huge amount an entity should be determine the classification on the basis of each lose included in the settlement. There is also amendment on corporate insurance. Where cash received from settlement of corporate owned life insurance policy should be classified as cash in-flows from investing activities. An amendment was also made on distributions received from equity methods investees. An election to classify distributions received from equity method investees should be carried out when a reporting entity applies the equity method. The following approaches should be used including cumulative approach earnings where distributions received are considered as returns on investments and grouped as cash flow from operating activities. There is also the nature of the distribution approach. Were distributions received should be classified on the basis of the nature of the activities of the investee that led to the generation of the distribution. An update was also made on the beneficial interest in securitization transactions. Where a beneficial interest from a transferor obtained from securitization of financial assets should be disclosed as non-cash activity. Separately identifiable cash flows and applications of the predominance principles was also update in the cash flow category where the classification of cash receipts and payments that have aspects of more than one class of cash flows should be determined by applying specific guidance in generally accepted accounting principles first before any other step. Non- profit entities was also updated. The update will help in dealing with complexities about the sue of currently required three classes of net assets that aims on the present or absence of donor -imposed restrictions and whether those restrictions are permanent or temporary. The update will also deal with inconsistency in the type of information provided about the expenses of the period. The update will affect the users of the general purpose financial statements and NFPs. Revenue from contracts on customers as also been updated. The areas of improvement includes assessing the collectability criterion and accounting for contracts that do not meet the criteria for step 1. The amendment clarifies the objectives of collectability criterion in step 1. The amendment will also add a new criterion to paragraph 606-10-25-7. The amendment will help in clarifying when revenue will be recognized for a contract that fails to meet the criteria in step 1. There will also be amendments of presentation of sale taxes and other similar taxes collected from customers. The amendment will allow an entity of any accounting policy election to exclude the amounts collected from customers for all sales. There will also be amendments on non-cash consideration. The update was issued by FASB to address certain issues identified by the TRG in the guidance on assessing collectability presentation of sales taxes and non-cash transactions consideration. The update will also help in the removing of inconsistencies in the current requirements and issue a more powerful framework for addressing revenue issues and problems. The update will also help in providing useful information to accountants through improved disclosure requirements and ultimately simplify the process of financial statement preparation. The update will also ensure that in the process of preparing financial statements, there are consideration made and accuracy and consistency is maintained. Through the update, it will be easy to audit accounts and hence integrity will be maintained in the accounting departments. The update will also reduce the workload assigned to accountants as the updates will various ways of conducting accounting. The update will also help in reducing the potential of diversity in practice of initial application as well as the cost and complexity of applying topic 606 both of transition and on an ongoing basis. The current update is different from the previous update as it will be focusing more on net assets classification. The three previous net classification categories which include unrestricted, restricted and temporary have been reduced to two categories which are unrestricted and donor restricted. Other new requirements will include providing qualitative and quantitative information which is related to organization management of resources and liquidity. While the new update provides an option for retaining of presentation of cash flow using either the direct or indirect method, the requirement to provide reconciliation when using the direct method has been terminated and will not be effective to use. The new financial accounting standards will favor both the clients and accountants. The new lensing update could benefit many companies. The new standards will ensure comparability between companies in different nations. The new standards will also ensure there is a central authoritative body which will reduce conflict between companies in different nations and a set of rules will be used. There will also be regulation in the market as a common law will apply. Small companies will also be allowed to expand as the new update will be used internationally. The new update is likely to reduce complexity for financial statements preparers and will be responsive to stakeholders' feedback. LIFO and retail inventory methods excluded from this update because they included a lot of calculations and businesses would no longer consider replacement cost or net realizable values lees a normal margin profit wen measuring inventory. The update of this two categories would increase complexity. Introduction The accounting standards have provided several updates which will be used in the accounting. The updates include the statements of cash flow which are in topic 230. The update will start being useful for business entities from December 2017. For other entities apart from business, the update will commence in the year 2018. The update states that prompt implementation is permitted including approval in the provisional dated. In case an entity adopts the amendments in a transitional period, any adjustment should be shown as of the start of the fiscal year that will include that interim period. There is also the update of consolidation where interest held through related parties that are under common control. The update was done October 2016. The update will be effective starting December 15, 2016, including interims periods within that fiscal year. Also, early adoption of this update is permitted including approval in a transitional period. Rapid adoption calls for adjustments which should be reflected as of the beginning of the fiscal year that includes the interim period. Main provisions of this update The income taxes update on topic 740 of intra-entity transfer of assets other than inventory. For public business entities, the amendments are effective for the annual reporting period of December 2017. Early reporting is also permitted for all entities as of the beginning of annual period covered by the report for which financial statements have not being issued or made available for issuance. There is also an update on the statement of cash flow. The update includes contingent's consideration payments after a business combination. Cash payment which is not made soon after the acquisition date of the business combination by an acquirer to settle a contingent business consideration should be put separate and be grouped as cash flow from financing activities and operating activities. Cash payments made up to the contingent consideration liability recognized at the acquisition date should be classified as financial activities. In the cash flow updates, there are also the amendments of proceeding from the settlement of insurance claim. The amendments state that cash proceeds received from the settlement of insurance claim should be grouped on the foundation of the related insurance coverage. If any insurance is settled in a vast amount an entity should determine the classification by each, lose included in the settlement. There is also amendment on corporate insurance. Where cash received from the settlement of corporate owned life insurance policy should be classified as cash inflows from investing activities. An amendment was also made on distributions received from equity methods investees. An election to classify distributions received from equity method investees should be carried out when a reporting entity applies the equity method. The following approaches should be used including cumulative approach earnings where distributions received are considered as returns on investments and grouped as cash flow from operating activities. There is also the nature of the distribution approach. Were distributions received should be classified by the nature of the activities of the investee that led to the generation of the distribution. An update was also made on the beneficial interest in securitization transactions. Where a beneficial interest from a transferor obtained from the securitization of financial assets should be disclosed as the non-cash activity. Separately identifiable cash flows and applications of the predominance principles were also updated in the cash flow category where the classification of cash receipts and payments that have versions of more than one class of cash flows should be determined by applying the specific guidance in generally accepted accounting principles first before any other step. Non- profit entities was also updated. The update will help in dealing with complexities about the sum of currently required three classes of net assets that aim at the present or absence of donor -imposed restrictions and whether those restrictions are permanent or temporary. The update will also deal with inconsistency in the type of information provided about the expenses of the period. The update will affect the users of the general purpose financial statements and NFPs. Revenue from contracts on customers as also been updated. The areas of improvement include assessing the collectability criterion and accounting for contracts that do not meet the criteria for step 1. The amendment clarifies the objectives of collectability criterion in step 1. The change will also add a new criterion to paragraph 606-10-25-7. The amendment will help in clarifying when revenue will be recognized for a contract that fails to meet the criteria in step 1. There will also be changes to the presentation of sale taxes and other similar taxes collected from customers. The amendment will allow an entity of any accounting policy election to exclude the amounts received from customers for all sales. There will also be amendments on non-cash consideration. Reasons why FASB issued the update The update was issued by FASB to address certain issues identified by the TRG in the guidance on assessing collectability presentation of sales taxes and non-cash transactions consideration. The update will also help in the removing of inconsistencies in the current requirements and issue a more robust platform for addressing revenue issues and problems. The update will also assist in providing useful information to accountants through improved disclosure requirements and ultimately simplify the process of financial statement preparation. The update will also ensure that in the course of preparing financial statements, there are consideration made and accuracy and consistency are maintained. Through the update, it will be easy to audit accounts, and hence integrity will be established in the accounting departments. The update will also reduce the workload assigned to accountants as the updates will various ways of conducting the accounting. The update will also help in reducing the potential of diversity in practice of initial application as well as the cost and intricacy of applying topic 606 both of transition and on an ongoing basis. How is this update different from the previous standards? The current update is different from the previous update as it will be focusing more on net assets classification. The three previous net rating categories which include unrestricted, restricted and temporary have been reduced to two types which are unrestricted and donor restricted. Other new requirements will include providing qualitative and quantitative information which is related to organization management of resources and liquidity. While the new update provides an option for retaining of presentation of cash flow using either the direct or indirect method, the necessity to provide reconciliation when using the direct method has been terminated and will not be efficient to use. benefits of this update for financial statement preparers The new financial accounting standards will favor both the clients and accountants. The new lending update could benefit many companies. The new standards will ensure comparability between companies in different nations. The new standards will also ensure there is a central authoritative body which will reduce conflict between companies in different nations and a set of rules will be used. There will also be regulation in the market as a common law will apply. Small businesses will also be allowed to expand as the new update will be used internationally. The new update is likely to reduce complexity for financial statements preparers and will be responsive to stakeholders' feedback. Why are LIFO and retail inventory methods excluded from this update LIFO and retail inventory methods excluded from this update because they included a lot of calculations and businesses would no longer consider replacement cost or net realizable values less an average margin profit when measuring inventory. The update of these two categories would increase complexity. Quality earning Earning quality refers to the amount attributed to higher sales or lower cost rather than artificial profits. The artificial profits may be from accounting anomalies such as inflation of inventories. Quality earning is the most common used tool to predict a company performance and expected changes in earning per share and expected return on equity. Net income is a fundamental component of both measures. Net income includes revenues, expenses, gains, and losses in business. A corporate income statement may, therefore, contain many line items and subtotals. Appearing below that are non-operating items, such as discontinued activities, abnormal gains and losses, and the write-off of goodwill that has been made ineffective. Earnings per share data appear at the bottom of the statement. Fall 2016ACG 4101 Extra Credit Essay By completing the essay on the following topic, you can earn up to 2% extra credit. For example, if your grade from all class assignments and exams is 80% and receive full extra credit of 2%, your final grade will be 82% and your letter grade will be determined based on 82%. You can complete the essay by answering the following questions. The essay will be graded out of 100 points. Grading will be based on the completeness and clarity of your writeup.Note that even if you complete the essay, you may not receive any credit if you do it poorly. complexity 1. 2. 3. 4. 5. Read ASU (Accounting Standard Update) 2015-11. Summarize main provisions of this update. (20 points) Why did FASB issue this update? (20 points) How is this update different from the previous standards? (20 points) What are the expected benefits of this update for financial statement preparers? (10 points) 6. Why are LIFO and retail inventory methods excluded from this update? (10 points) 7. Refer to earnings quality section (p.177) of Chapter 4 of the textbook. How does the textbook define earnings quality? How would you think this update affect earnings quality of income from continuing operations and bottom line net income? (20 points) AdditionalNotes: (1) No more than double-spaced 5 pages (1 margin for all sides) excluding cover page, appendix and reference list (2) Clearly write last name, first name and ID on cover page (3) 12-point Time New Roman (4) Due Nov 28th (Monday) Submit through Turn-it-in ONLYbefore class begins (No email, hard copy) (5) If you need to provide additional analyses or insights that are not relevant to the essay questions above, provide them in the appendix. (6) You should refer to and/or read other relevant materials and list them in the reference list following your essay (7) The sequence of your essay should be: 1. Cover page 2. Main essay 3. Appendix 4. Reference list (8) You should prepare the essay on your own without taking help from any other fellow students or another people. Object 1 Main provisions of this update Amendments were made on sub-topic 330-10 which is the overall inventory. The amendments were based on subsequent measurements of inventory which after the update will have different cost methods. The update provides that inventory measured from other methods other than LIFO or other retail inventory method which may include inventories measured using first -in first out method or average cost method shall me measured at the lower of the cost and the net realizable value. The update also provides that when evidence exists that the net realizable value is lower than its cost, the difference of the two shall be identified as a loss in earning in the period in which it occurs. There will also be amendments on the sub-topic 275-10 on risk and uncertainties. Estimate inherent is the current financial reporting process which involves assumptions about future events. It includes estimating the constraining estimate of variable consideration to be included in the transaction price for a contract with a customer in accordance with paragraphs 606-10-32-5. Subtopic 360-10 will also undergo the update which involved property, plant and equipment overall. The update will deal with impairment or disposal of long-lived assets. There will also be update on agricultural inventories which will be based on subsequent measurements. Under the new amendments, the cost of growing crops shall be accumulated until the time of harvest. The growing of crops shall be measured using the guidance in sub-topic 330-10. On animals, developing animals that are to be held for sale shall be measured using the guidance in the subtopic 330-10 excluding the valued of the lowered cost or the market. Additionally, animals held for sale shall be valued on either the amount determined using the measurement guidance in subtopic 330-10 but excluding lower of cost or market or be determined through net realizable value which will apply the following conditions which include the product having reliable , market price which can be determined easily and realizable market price. The product should also have relative insignificance and cost of disposal should be easily predicted. The product should that is the animal should be easily available at disposal. On harvested crops, inventories on harvested crops value shall be determined using the same criteria as animals held for sale. Inventories for pooling cooperatives shall be accounted for either the amount determined using the measurement guidance in sub-topic 330-10 or through net realizable value. There will also be an update on agriculture-liabilities where on pooling cooperatives, where if the board of directors of agricultural marketing corporative operating on a pooling basis without any duty to pay patrons fixed prices assign amounts that approximately estimated net realizable value to unprocessed product received from patrons. The assigned amounts shall be credited to amounts due patron. There will also be amendments on foreign currency matters overall which will be specific on implementation guidelines and illustrations where on implementation guidance the focus will be on re-measuring inventory not recorded in the functional currency. This amendment will require special application when the books of record are not stored in the functional currency. Inventories carried at cost in the books of record in another currency should be first be done re-measuring to cost in the functional currency using historical exchange rates. Reasons why FASB issued the update FASB is issuing this update as part of it initiative simplification. The main aim of the simplification initiative is to identify, improve, and evaluate areas of generally accepted accounting principles where the complication and charge can be minimized. The reduction can be done while still maintaining or improving the usefulness of the information provided to the users of financial statements. The board also issued the update because they heard from the shareholders that the guidance on the subsequent measurement on inventories had complexities which were not important because they had potential outcomes. How is this update different from the previous standards? The current update is different from the previous update as it will be focusing more on net assets classification. The three previous net rating categories which include unrestricted, restricted and temporary have been reduced to two types which are unrestricted and donor restricted. Other new requirements will include providing qualitative and quantitative information which is related to organization management of resources and liquidity. While the new update provides an option for retaining of presentation of cash flow using either the direct or indirect method, the necessity to provide reconciliation when using the direct method has been terminated and will not be efficient to use. benefits of this update for financial statement preparers The new financial accounting standards will favor both the clients and accountants. The new update will provide information that is useful to present to potential investors, donors, creditors, and other capital market participants in making rational investments credits and similar resource allocation. The amendments in this update will also play a role in reducing the cost of measuring inventories within this update scope because the recent guidance on inventories measurements involves estimating replacement cost, and net realizable value. The update should also not increase cost and complexity of any other entities because estimating net realizable value is not necessary to apply the current guidance. The update may also appear to decrease comparability by requiring different subsequent measurements models for inventory measured using different methods. The update will also increase the frequency of the measurement of inventory within its scope. This is because at present, the application of the subsequent measurements guidance can result in three different measures of market. Why are LIFO and retail inventory methods excluded from this update LIFO and retail inventory methods excluded from this update because the proposed amendments would result to a lot of potential cost mainly upon transition. Additionally, the amendments of the two would not simplify their subsequent measurement of inventories also some entities that applied LIFO in their accounting and previously recognized lower of cost or market adjustments indicated that the proposed amendments could lead to a significant increase in their inventory balances upon transition unless the board was involved in the clarification that any previously recognized written down of inventories should be included or form part of the cost basis upon transition. Also, the board did not want also entities that measure inventory suing LIFO or the retail inventory to experience potentially significant transition cost because the amendments may not result in to more important information to the users of financial statements. The amendments might also not simplify the accounting for those entities because of the inherent complexity involved in estimating cost under the use of LIFO and the retail inventory method. Quality earning Earning quality refers to the amount attributed to higher sales or lower cost rather than artificial profits. The artificial profits may be from accounting anomalies such as inflation of inventories. Quality earning is the most common used tool to predict a company performance and expected changes in earning per share and expected return on equity. Net income is a fundamental component of both measures. Net income includes revenues, expenses, gains, and losses in business. A corporate income statement may, therefore, contain many line items and subtotals. Appearing below that are non-operating items, such as discontinued activities, abnormal gains and losses, and the write-off of goodwill that has been made ineffective. Earnings per share data appear at the bottom of the statement