Download Our World at a Glance

Navigating the Current
Economic Crisis:
What It Means for
Businesses
March 2009
©2009 The American Institute of Certified Public Accountants
Introduction
• Our world at a glance
• Bolstering the economy
• Key considerations and risk factors in
a recessionary environment
• Resources
Our World at a Glance
• Global economic challenges and issues
• U.S. economic growth slowed – recession
• Changing regulatory environment
• Financial markets turmoil
• Scandals: Madoff, Satyam, etc.
• Social Security questions
• Public pensions at risk
• Shrinking workforce and massive layoffs
• Sustainability and environmental issues
Bolstering the Economy
The
Economy
Recovery
American Recovery and
Reinvestment Act of 2009
Where the money is going:
Education &
Training
Health Care
7%
8%
Energy
5%
Other
1%
Tax Relief
37%
Protecting the
Vulnerable
10%
Infrastructure &
Science
14%
State & Fiscal
Relief
18%
Overview of Financial
Stability Plan
Troubled Assets Relief
Program
Homeowner Affordability and
Stability Plan
• 10/3/2008 - $700 billion
• 3/4/2009 - $75 billion
Capital Assistance Program
• 2/25/2009 –“Stress Test”
Term Asset-Backed Lending
Facility
• 3/3/2009 - $1 trillion
American Recovery and
Reinvestment Act
Small Business and
Community Lending Initiative
• 2/17/2009 - $787 billion
• 3/16/2009 - $15 billion
Small Business & Community
Lending Initiative
Purchase AAArated SBA loans
Raise the SBA
guarantee on its
loans to 90%
Reduce 7(a) and
504 loan fees, and
increase oversight
and processing
funding
Regulatory Restructuring
Proposals
• Currently several proposals
recommending regulatory
restructuring.
• General consensus emerging for the
creation of a systemic risk
regulator.
• The Federal Reserve would be
natural place for this position.
Key Considerations and Risk
Factors During Economic Downturn
Risk
Management
Financial
Statement
Disclosures
Fair Value
Impairment
Complex
Financing
Arrangements
Pension Plans
Fraud
Liquidity and
Going
Concern
Internal
Controls and
Processes
Risk Management
• Review current risk management process
– Provide information on risk to the right people
at the right time
• Identify new areas of risk due to ongoing
economic turmoil
– Counterparty risk
– Amounts of recourse, non-recourse and
unlevered financings
– Liquidity requirements - renewing lines of
credits
Financial Statement Disclosures
• Transparency is important for investors and
other stakeholders
• Expanding disclosures in the financial
statement footnotes and discussion in
MD&A for:
– Liquidity and debt covenants
– Impairments
– Risk factors
– Relationships with distressed businesses
– Post-retirement plan assets and pension
funds
Fair Value
• Fair value measurement ... a debate
surrounds fair value in illiquid markets
– SEC mark-to-market study recommends
against the suspension of fair value
accounting standards
– FASB added new fair value projects to
agenda
• Related to the application guidance used to
determine fair values
• Disclosure of fair value estimates
Impairment
• Determining when an investment is impaired
• Factors to consider
– Whether the investor expects to collect all
amounts due according to the contractual terms
of a security
– If an adverse change in cash flows has occurred,
the investment is other than temporarily impaired
– The degree of decline in value, the time until
anticipated recovery of value, and period of time
a decline has existed
– Professional judgment is required
• Disclosure of impairments
Complex Financing Arrangements
• Complex financing arrangements
– Securitizations
– Other structured entities (SPEs)
– Recourse or non-recourse
• A thorough understanding of the
transaction and the underlying economics
of the transaction
• Identification of the risks associated with
the transaction
• Adequately disclosed in the financial
statements and discussed in the MD&A
Pension Plans
Internal Controls and Processes
• Review of internal controls and processes
during periods of change
– Company and organization changes
– Process controls for potential downside
– Impact on financial statements certification
– Increase potential for fraud
– Use monitoring guidance issued by COSO
Fraud
• “Tone at the Top” is important
• Fraud happens in companies of all
sizes
• Fraud happens globally
–Foreign Corrupt Practices Act still
applies
• Company’s fraud prevention plan
Liquidity and Going Concern
• Cash flows, ability to obtain cash and debt
covenants
– Tied in with “going concern”
• Many factors to consider during uncertain
economic times for “going concern”
– Geographic area
– Industry company operates in
– Financial health of customers and suppliers
– Financing sources
• Disclosures related to liquidity
Resources
• Online centers and publications
• Economic Crisis Resource Center
• CPA Straight Talk podcast series
Online Centers & Publications
• Online Centers → www.aicpa.org
–
–
–
–
Economic Crisis Resource Center
Financial Management Center
Audit Committee Effectiveness Center
360 Degrees of Financial Literacy
• Publications → www.cpa2biz.com
– Current Accounting Issues and Risks 2008:
Strengthening Financial Management and Reporting
– Not-for-Profit Organizations Accounting Issues and
Risks 2008: Strengthening Financial Management
and Reporting
Economic Crisis Resource Center
CPA Straight Talk Podcast Series
Questions?
©2009 The American Institute of Certified Public Accountants