WHAT DOES ACCOUNTING RESEARCH ENTAIL?
Is it logging into Checkpoint, or dare I say Google, and merely printing something out, highlighting it, and "bam", sticking that puppy in the file? Surely I have been guilty of that before myself - you pick up PY File and are wondering "What the heck is this?". Fortunately, I had the opportunity to work side-by-side with a Managing Partner on an out-of-town engagement (or perhaps, not so fortunately, as that can be very intimidating!) .
PEYTON MANNING V. 2.0
It appeared as if the Managing Partner was literally version 2.0 of Peyton Manning, calling every play from the line of scrimmage as an audible (1. COVER 2. CAVR 3. ARC 4.SOD & 5 CAKE ). I can probably list 10 more. One day, we are headed out to lunch, and all I hear was "Ron, we need an "IRAC" on the bond issuance costs".
"That's a new one", I thought to myself, as typically the conversations on the way to lunch were about basic items "Did you receive the TB, that's IMM, post any JE's, any WP's I can review or you complete the SFUL?".
NEW AUDIBLE "ACRONOYM"
If there are two things I vaguely remember from contract law, then it is the following acronyms: 1. COLA & 2. IRAC. To think I wanted to be an attorney one day, a light bulb went off: The Managing Partner is looking for an IRAC memorandum - Issue, Ruling, Analysis and Conclusion!!
1st and 10 Ever since then, I have presented my accounting research in that manner, as it guided me through formulating a conclusion. Now while the conclusion may be incorrect, as least the reviewer can follow your thought process and arrive at that determination without asking you to explain some random highlights on a print out from Checkpoint or Google (please see below for an example of an IRAC memorandum).
IRAC (ISSUE, RULING, ANALYSIS AND CONCLUSION)
This is probably the most important step as Stephen Covey once wrote "1st seek to understand than to be understood". Hence, if you do not understand the issue than you are SOL. After some follow-up questions with the client, I noted the following ISSUE:
How to properly account for bonds issuance costs, as the underlying bonds were repurchased and new bonds were issued: should they 1) be amortized over the life of the new bonds or 2) be expensed?
Now the fun part! Here is where some of us apply the old, paper school method of CPA "cut, paste and assemble", or nowadays "cut, paste and apply" highlighter. But already having been down this path in the past, and knowing the Managing Partner despised any W/P that could not stand on their own, I continued with "the play IRAC". - After reviewing ASC 470, I documented the following in the RULING:
The two relevant ASCs are as follows:
1) ASC 470-50-40-4 "Derecognition": The entity no longer has an obligation and the following occurred: delivery of cash, other financial assets, goods & service or reacquisition by the debtor.
2) ASC 470-50-40-10 "New Instrument Test": Are the new bonds "substantially different" or the "same" (factors to consider are the carrying value, NPV and intent)?
Once the ISSUE was appropriately identified, the easier it became to document, which RULINGS (ASC) section were applicable. - I am a (KISS) type of auditor: if you cannot present a clear, short and concise analysis, then it is a sign that you do not understand the issue or ruling in the first place! The analysis is noted below:
The treatment of the bond issuance costs depends on whether it is considered an 1) Extinguishment of Debt or a 2) Modification of Debt.
In this particular transaction, "delivery of cash" in the amount of $X,XXX,XXX occurred, thereby removing the bond obligation debt from the books.
The "intent" of this transaction in "form" was to refinance the bonds at a lower interest rate, as no concessions were made. However, in "substance" it was a bond extinguishment per ASC 470-40-4 "Derecognition", hence, ASC 470-40-10 is not applicable. SEE BELOW
Now the reviewer has insight to your thought process and you have a sound basis for a W/P that can stand on its own. The conclusion should be CAKE and it won't be SALY.
Based on the aforementioned, the bond issuance costs of the "old" bonds should be expensed in the current year.