 Hello, and welcome to the session. This is Professor Farhad in the session. I will go over the expected 2020 CPA FAR exam changes. As always, I would like to remind you to connect with me on LinkedIn if you haven't done so. YouTube is where I house all my 1,500 plus accounting, auditing, tax, and finance lectures. And this is a list of all the courses that I cover, including CPA topics. Please connect with me on Instagram as well as Facebook. Also on my website, I do have additional resources in addition to my lectures. I have resources such as notes, PowerPoint slides, multiple choice questions, true, false exercises, 2,000 plus CPA questions. So the first thing I'm gonna go over is the topics. And I'm gonna go over each topic briefly, starting with the financial instrument credit losses, ASU 2613, simplifying the test for goodwill impairment. So some of them are easier, make an hour life easier or your life easier, my life easier as well. Others may not be. Changes to the disclosure requirement of fair value, the how to account for the implementation costs when it comes to cloud computing and the target improvement to related party guidance for VIEs, valuable interest entities. Now, any topic that I have a recording for, I'm gonna tell you I have a recording for this, I'll put the link in the description. Starting with the financial instrument credit losses. This accounting standard is in response to the financial crisis because banks suddenly incurred huge amount of losses. And before they used to record the losses as they incur. Now we're gonna be moving to a new system called current expected credit losses or CESL, current expected credit losses. So simply put, we have to be proactive in the loss recognition. So simply put, especially banks and financial institution, they have to look in advance, not about incurred losses now, about expected. And you will see, it's very interesting. So this represents a significant change in the allowance for credit losses when it comes to accounting module requiring immediate recognition of management estimate of current expected. So notice it's expected credit losses and how do you project your expected credit losses? It's not as easy. I do have a link in the description covering this topic, the current expected credit losses. You can look at the link. It's very interesting because in implementation, it's very difficult for companies to implement. So under the prior model, losses were recognized only as they were occurred, okay? Which fast be stated that there is a delay in the recognition of expected losses because after the financial crisis, banks were booking billions with a B of losses, okay? So that's why they implemented this. The new model is applicable to all financial instrument that are not accounted for at fair value through net income. So why they don't care about the fair value net income? Because the fair value net income financial instruments are already accounted in net income. So there's nothing to worry about. We want to worry about the fair value that are not accounted for in net income, okay? Thereby bringing consistency and accounting treatment across different type of financial instrument. And they require consideration of broader range of variable when forming loss estimate. So now you have to look at many factors, industry factor, macroeconomic, microeconomic, company factors, customer factors, so on and so forth, okay? So simply put these changes will mostly affect financial service companies and any companies that have a lot of financial instrument they're gonna be at the most exposure from this. So this is kind of, this is little bit, I would say more difficult, but we'll get the handle of it. See my recording and I'll have more recording about this topic. The second topic actually it's good news, simplifying the test for goodwill, the test for goodwill impairment. We have the old model, now we have a new model which is this is good. Like we like stuff like this simpler. So let's see what it used to be. The old models, you'd have two step process to test goodwill for impairment. The first step, we'd look at the fair value, see if it's less than the carrying value, then perform the second step if there is any impairment. And here we include in goodwill in the first step. In the second step, we determine the fair value of the goodwill, which is we have to find the implied fair value of the goodwill, then compare that to the carrying amount. This was the old. Now if you're interested in looking at the old module, I'm gonna put the description also in the link if you want to look at this. Well, look at the new module. The new method, step one only. So the new method simply put, we look at the difference between the carrying value and the fair value of the reporting unit. Remember the goodwill happened at the reporting unit. And simply put, we're done. There's no two. We don't have to find the implied value of goodwill. The difference, the excess, now the EE excess, the excess of the carrying value. Okay, so simply put, just look at my old module and don't go through step two. And that will be your loss, the amount of loss of goodwill. So this is easy. This is good stuff. This is easy. The third one is the changes into the disclosure requirement of the fair value measurement. Now, if you don't know what level one, level two, level three fair value, I have a description below. You can look at and look at the description just to see what they are. So now what we're gonna do, they remove the amount. Again, this is some simplification here. Remove the amount of and reasons for transfer between level one and level two. And also the policy for timing of transfer between levels. So they make it a little bit simplified. Now the disclosure is only required for level three valuation. And level three is the most involved anyhow. Again, if you don't know what level one, two, and three look in the description. Now the disclosure valuation method for level three, the method is no longer required. All what you have to do now is to disclose the significant unobservable input. So basically, tell us what's the risk and uncertainty in determining level three fair market value. So they're trying to simplify it. Also for non-public, which is private company, they no longer require the changes and unrealized gain and losses for the period included in earning for reoccurring level three fair value measurement held at the end of the reporting period. So again, little bit of simplification or less burden for private companies. Okay. The fourth topic is customers accounting for the implementation cost incurred in cloud computing arrangement. That's a contract. So the previous gap, the current gap did not specifically address the accounting for implementation cost. Not for cloud computing. Cloud computing, pretty much we have it either a software or a service, but the implementation cost of those hosting arrangement. That's which service contract. So what's a cloud computing? It's basically an arrangement between you and a cloud service where you can either have a software or a service. For example, if you use Google, you store your document. That's basically a service, but companies, sometimes they use a software on the cloud. So if they have a software versus a service, well, if it's a software versus a service, for a software, they capitalize the cost of the software because it's simply a software. Now the implementation cost, now they have specific procedure, any implementation cost is added to the software cost. So the implementation cost, if you're hosting a software, it's basically a software cost and that cost is amortized. If it's a service arrangement, a service arrangement basically if you're storing your files, it's you'll treat it as an expense. That's the cost of the service. However, the implementation cost is treated as a prepaid. And what do you do with the prepaid? You're gonna amortize the prepaid over the term of the hosting arrangement. Now, what is the term of the hosting arrangement? Fastly, they have a lot of details. I didn't include them because I don't believe it's necessary for me to include them. The last but not least is guidance for variable interest entities. Here we're simplifying the rules again for non-public, non-public, which is private companies. Now, you have to understand, so what we're gonna be talking about here only applies of both the parent and the subsidiaries are private companies, are private companies, which is non-public. So what happened is now private companies can elect not to apply the variable interest entity guidance under common control. So what is the variable interest entity guidance? It's the process to determine whether an entity, we are the primary beneficiary of the entity. And if we are, then we need to consolidate that entity. Now, bear in mind, the VIE came after Enron. So if both companies are private, it's not really necessary to implement those VIE rules. Now, if you don't know what the VIE rules are, well, I'm gonna also put the VIE link in my description. So this way you would say, okay, now those rules don't apply to non-public companies. Also this is easy, so this is simplification. From the topics themselves, the only thing I see challenging that's coming up challenging, I would say the CESUL, which is I do have a couple of recording about CESUL. I'm gonna put more, but that's the only thing that I believe it's challenging in a sense that it's a difficult, not difficult, but it's a topic that you would require significant amount or a decent amount of time to follow. Now, if you have any questions, you can email me, please visit my website. I do provide the help for students, accounting students, students who are going for the CPA exam. I have a lot of resources on my website. Check it out and good luck.