Issue Information ‐ TOC

• Published date: 01 March 2017
• Date: 01 March 2017
• DOI: http://doi.org/10.1002/jcaf.22224

VOLUME 28, NUMBER 3 • March/April 2017

The Journal of

Letter From the Editor

James B. Edwards

Features

Accounting for Private Company Interest Rate Swaps: An Overview With Planning

Strategies

Danny P. Hollingsworth and John M. Trussel

The Financial Accounting Standard Board’s (FASB) Private Company Council (PCC) was

created in 2012 to improve the accounting standard-setting process for private companies.

Due to influence from PCC, the FASB issued Accounting Standards Update No. 2014-03 in

January 2014 to address accounting for interest rate swaps for cer tain private companies.

The issue addressed was the complexity of complying with ASC 815 rules that are highly

detailed and difficult to implement. The FASB Update provides an alternative, simplified hedge

accounting, for receive-variable, pay-fixed interest rate swaps if certain criteria are met. This

accounting method allows private companies to more easily classify these interest rate swaps

as cash flow hedges, which will reduce income volatility and aid in compliance. This article

provides an overview of the provisions of this update and offers planning strategies for maxi-

mizing the benefits and minimizing the costs of receive-variable, pay-fixed interest rate swaps.

An Analysis of Auditors’ Perceptions Related to Fair Value Estimates

Susan D. Hermanson, William A. Kerler III, and Julian D. Rojas

This study investigates auditors’ understanding of Level 1, 2, and 3 fair value estimates (FVEs)

and their perceptions of the adequacy of the associated auditing standards and internal firm

guidance. The results indicate that Level 1 and Level 2 FVEs are encountered more frequently

than Level 3 FVEs, and that auditors perceive themselves to have the greatest knowledge and

comfort related to Level 1 FVEs followed by Levels 2 and 3, respectively. Auditors believe

Level 3 FVEs are the most difficult to audit, while Level 1 FVEs are the least difficult to audit.

While still overall confident, auditors are the least confident opining on financial statements

with significant Level 3 FVEs, followed by financial statements with Level 2 and Level 1 FVEs,

respectively. Auditors believe professional auditing standards, internal firm guidance, and

required disclosures related to FVEs are all adequate. Finally, auditors believe determining

7

10

18