MHM Executive Education Series:
AICPA Private Company Accounting
Presented by: Mike Loritz
July 16, 2013
2
#MHMwebinar
 To view this webinar in full screen mode, click on view
options in the upper right hand corner.
 Click th...
3
#MHMwebinar
 This webinar is eligible
for CPE credit. To receive
credit, you will need to
answer periodic polling
quest...
4
#MHMwebinar
Mike Loritz, CPA
Shareholder
913.234.1226 | mloritz@cbiz.com
Mike has 17 years of experience in public accou...
5
#MHMwebinar
The information in this Executive Education Series
course is a brief summary and may not include all the
det...
PROJECT UPDATE
7
#MHMwebinar
S pecial Purpos e Frameworks (OCB OA):
US GAAP Not R equired
GAAP not required and not the best solution for...
8
#MHMwebinar
An Additional Non-GAAP Framework
9
#MHMwebinar
 GAAP
 Modify GAAP for private
companies
 Not GAAP – Special
Purpose Framework
 Complementary to efforts...
10
#MHMwebinar
 Approximately 200 pages
 Self-contained
 Excess narrative avoided
 Avoidance of bright lines
 Use of ...
11
#MHMwebinar
AICPA Framework for SMEs
 Developed for smaller- to medium-sized, owner-managed,
for-profit entities where...
12
#MHMwebinar
 Owners-Managers
Depend on reliable financial statements to:
 Confirm assessments of performance
 Determ...
13
#MHMwebinar
 Entity does not operate in an industry that has highly
specialized accounting guidance
 Such as financia...
14
#MHMwebinar
Controversy
Public statements critical of the framework:
 FAF President – Teresa Polley
 National Associa...
PRINCIPLES OF REPORTING
16
#MHMwebinar
 Chapter 1 introduces the financial statement concepts
 Similar to the FASB Concept Statements
 Discusse...
17
#MHMwebinar
Historical Cost = Primary Measurement Basis
 Framework primarily uses historical cost basis, steering away...
18
#MHMwebinar
Chapter 2
 Establishes specifics of financial statements and comparative
information
 Provides guidance o...
19
#MHMwebinar
Chapter 3 - Transition
 Requires an entity to prepare an opening statement of financial
position at the da...
20
#MHMwebinar
Chapter 10 – Risks and Uncertainties
 Requires a description of the major products or services the entity ...
21
#MHMwebinar
Chapter 11 - Investments
 Historical cost approach
 Market value measurement required only for
investment...
22
#MHMwebinar
 Investor that is able to exercise significant influence
over an investee that is not a subsidiary follows...
23
#MHMwebinar
Chapter 13 – Intangible Assets
 Goodwill is not tested for impairment.
 Goodwill should be amortized:
 O...
24
#MHMwebinar
Chapter 14 – PP&E
 Depreciation should be recognized in a rational and
systematic manner appropriate to th...
25
#MHMwebinar
Revenue — Performance
Chapter 19 - Revenue
 For goods: Performance is achieved when
the entity transfers t...
26
#MHMwebinar
Chapter 20 – Retirement Plans
Accounting Policy Election
 An entity should make a policy election to accou...
27
#MHMwebinar
Chapter 21 – Income Taxes
Accounting Policy Election
 An entity should make an accounting policy election ...
28
#MHMwebinar
Chapter 22 - Subsidiaries
Recognition and Presentation
 Does not require consolidation (No VIE concept)
 ...
29
#MHMwebinar
Chapter 25 - Leases
 Criteria for capitalizing a
lease for tax purposes
generally matches criteria in
FRF ...
30
#MHMwebinar
Chapter 28 – Business Combinations
 Requires the acquisition method in accounting for a
business combinati...
31
#MHMwebinar
 Face or contract amount (or notional principal amount)
 Nature and terms
 Discussion of the credit and ...
32
#MHMwebinar
 Income tax accounting: taxes payable method or
deferred income taxes method
 Subsidiary accounting: cons...
33
#MHMwebinar
 Internally-generated intangible assets: expenditures
during development phase, either expense or
capitali...
34
#MHMwebinar
 Long-term contracts and service contracts:
percentage of completion method or the completed
contract meth...
35
#MHMwebinar
 General Requirements
 Disclosure requirements for each area are included in the
respective Chapter withi...
36
#MHMwebinar
Accounting Policies (Chapter 2)
The accompanying financial statements have been prepared in
accordance with...
Learning Center S lide No. 68
38
#MHMwebinar
Questions?
39
#MHMwebinar
 Join us for these future webinars
 8/22: Private Company Framework - Comparing AICPA vs.
IFRS Standards
...
40
#MHMwebinar
Mike Loritz, CPA
Shareholder
913.234.1226 | mloritz@cbiz.com
Mike has 17 years of experience in public acco...
41
#MHMwebinar
Connect with Mayer Hoffman McCann
linkedin.com/company/
mayer-hoffman-mccann-p.c.
@mhm_pc
youtube.com/
maye...
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Webinar Slides: Is a Simpler Accounting Framework in the Future for Private Companies?

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Original air date:
July 16, 2013

Last fall, the Private Company Council (PCC) was established by the Financial Accounting Foundation to explore a more relevant and less complex accounting framework for private companies.

The Council has also discussed a number of areas of accounting that may involve unnecessary costs and complexities for private companies, and it has agreed to proceed with several projects that may result in improvements in the near future.

Join the experts from Mayer Hoffman McCann as we cover recent deliberations and actions of the PCC — including the identification of certain areas within US GAAP which will be the areas of initial focus. We will also discuss related issues that could be on the horizon for private companies.

Published in: Business, Economy & Finance
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Webinar Slides: Is a Simpler Accounting Framework in the Future for Private Companies?

  1. 1. MHM Executive Education Series: AICPA Private Company Accounting Presented by: Mike Loritz July 16, 2013
  2. 2. 2 #MHMwebinar  To view this webinar in full screen mode, click on view options in the upper right hand corner.  Click the Support tab for technical assistance.  If you have a question during the presentation, please use the Q&A feature at the bottom of your screen. Before We Get Started…
  3. 3. 3 #MHMwebinar  This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic polling questions throughout the webinar.  External participants will receive their CPE certificate via email immediately following the webinar. CPE Credit
  4. 4. 4 #MHMwebinar Mike Loritz, CPA Shareholder 913.234.1226 | mloritz@cbiz.com Mike has 17 years of experience in public accounting with diversified financial companies and other service based companies, including banking, broker/dealer, investment companies, and other diversified companies ranging from audits of public entities in the Fortune 100 to small private entities. He is a member of MHM's Professional Standards Group, providing accounting knowledge leadership in the areas of derivative financial instruments, investment securities, share-based compensation, fair value, revenue recognition and others. ‹#› Today’s Presenter
  5. 5. 5 #MHMwebinar The information in this Executive Education Series course is a brief summary and may not include all the details relevant to your situation. Please contact your MHM service provider to further discuss the impact on your financial statements. Disclaimer
  6. 6. PROJECT UPDATE
  7. 7. 7 #MHMwebinar S pecial Purpos e Frameworks (OCB OA): US GAAP Not R equired GAAP not required and not the best solution for many small- and medium-sized entities IFR S for S ME s Lack of familiarity, higher learning curve, not US-centric, form of GAAP Other S pecial Purpos e Frameworks Tax or modified cash basis may be inappropriate or insufficient for some SMEs/users Why was the Framework Developed?
  8. 8. 8 #MHMwebinar An Additional Non-GAAP Framework
  9. 9. 9 #MHMwebinar  GAAP  Modify GAAP for private companies  Not GAAP – Special Purpose Framework  Complementary to efforts by FAF’s PCC – AICPA fully Supports the work of the PCC, FAF and FASB to address the private company environment FRF for SMEs Private Company Council Framework is Separate from FAF and PCC
  10. 10. 10 #MHMwebinar  Approximately 200 pages  Self-contained  Excess narrative avoided  Avoidance of bright lines  Use of professional judgment Principles-based, Standalone, Compact Principles- based Standalone Compact
  11. 11. 11 #MHMwebinar AICPA Framework for SMEs  Developed for smaller- to medium-sized, owner-managed, for-profit entities where internal or external users have direct access to the owner-manager and GAAP financial statements are not required.  The AICPA has no authority to require the use of the FRF for SMEs for any entity. Therefore:  Issued June 10, 2013 - The FRF for SMEs has no effective date  An owner-manager can decide to use the FRF for SMEs at any time  An owner-manager should make that decision in conjunction with those who may use the entity’s financial statements.
  12. 12. 12 #MHMwebinar  Owners-Managers Depend on reliable financial statements to:  Confirm assessments of performance  Determine what they owe/own  Understand cash flows  Users External financial statement users who have direct access to management  Non-issuers No intent of going public Who Is It Designed For?
  13. 13. 13 #MHMwebinar  Entity does not operate in an industry that has highly specialized accounting guidance  Such as financial institutions and governmental entities  The entity does not engage in overly complicated transactions  The entity does not have significant foreign operations  Financial statement users may have greater interest in cash flows, liquidity, statement of financial position strength and interest coverage Characteristics of Typical Entities
  14. 14. 14 #MHMwebinar Controversy Public statements critical of the framework:  FAF President – Teresa Polley  National Association of State Boards of Accountancy (NASBA Tells Private Companies: Don’t Use AICPA Financial Reporting Framework)  Institute of Management Accountants (IMA)  Risk Management Association (RMA)
  15. 15. PRINCIPLES OF REPORTING
  16. 16. 16 #MHMwebinar  Chapter 1 introduces the financial statement concepts  Similar to the FASB Concept Statements  Discusses concepts including the following:  Benefit vs. cost  Materiality  Measurement  Qualitative characteristics  Understandability  Relevance  Reliability  Comparability Financial Statement Concepts
  17. 17. 17 #MHMwebinar Historical Cost = Primary Measurement Basis  Framework primarily uses historical cost basis, steering away from complicated fair value measurements  Uses the term “market value”  Considered by AICPA to be the most relevant and reliable measurement basis for small businesses financial reporting needs  Designed to be well-suited as a metric for evaluating an entity’s cash flow Financial Statement Concepts
  18. 18. 18 #MHMwebinar Chapter 2  Establishes specifics of financial statements and comparative information  Provides guidance on the disclosure of accounting policies  Requires an entity to state prominently in the notes to the financial statements that the FRF for SME’s is the basis for the presentation General Principles
  19. 19. 19 #MHMwebinar Chapter 3 - Transition  Requires an entity to prepare an opening statement of financial position at the date of transition to the FRF for SMEs framework  Requires an entity to:  Recognize all assets and liabilities whose recognition is required  Not recognize items as assets or liabilities if the framework does not permit recognition  Reclassify items that it recognized previously as one type of asset, liability, or component of equity but are now recognized as a different type of asset, liability, or component of equity under the framework  Apply the framework when measuring all recognized assets and liabilities  Requires certain disclosures including the amount of each charge or credit to equity at the date of transition Transition
  20. 20. 20 #MHMwebinar Chapter 10 – Risks and Uncertainties  Requires a description of the major products or services the entity sells or provides and its principal markets, including the locations of those markets  Requires an explanation that the preparation of financial statements in conformity with the FRF for SMEs requires the use of management’s estimates  Requires an entity to disclose certain concentrations if, based on information known to management before the financial statements are available to be issued, certain criteria are met Risks & Uncertainties
  21. 21. 21 #MHMwebinar Chapter 11 - Investments  Historical cost approach  Market value measurement required only for investments being held for sale  Changes in market value are recorded in net income  No specific definition or guidance on what constitutes “held for sale” Investment Securities
  22. 22. 22 #MHMwebinar  Investor that is able to exercise significant influence over an investee that is not a subsidiary follows the equity method.  Not able to exercise significant influence — follow the cost method  If the investor holds 20 percent or more of the voting interest in the investee, there is a rebuttable presumption that the investor has the ability to exercise significant influence. Equity Method Investments
  23. 23. 23 #MHMwebinar Chapter 13 – Intangible Assets  Goodwill is not tested for impairment.  Goodwill should be amortized:  Over the same period as that used for federal income tax purposes or  if not amortized for federal income tax purposes then a period of 15 years. Goodwill
  24. 24. 24 #MHMwebinar Chapter 14 – PP&E  Depreciation should be recognized in a rational and systematic manner appropriate to the nature of the item with a limited life and its use by the entity. Depreciation recognized is the greater of:  the cost, less salvage value over the life of the asset or  the cost, less residual value over the useful life of the asset  No assessments of impairment for long-lived assets. Assets no longer used are written off. Property, Plant & Equipment
  25. 25. 25 #MHMwebinar Revenue — Performance Chapter 19 - Revenue  For goods: Performance is achieved when the entity transfers the risks and rewards associated with the goods to a customer  For Services: In the case of rendering of services and long-term contracts and modifications to those contracts, performance should be determined using either the percentage of completion method or the completed contract method, whichever relates the revenue to the work accomplished.  Performance achieved when reasonable assurance exists regarding the measurement of the consideration that will be derived from rendering the service
  26. 26. 26 #MHMwebinar Chapter 20 – Retirement Plans Accounting Policy Election  An entity should make a policy election to account for defined benefit plans  Current contribution payable method  One of the accrued benefit obligation methods Current Contribution Payable Method  Only the contribution attributable to the current year is expensed Accrued Benefit Obligation Methods  Immediate recognition approach  Deferral and amortization approach Defined Benefit Plans
  27. 27. 27 #MHMwebinar Chapter 21 – Income Taxes Accounting Policy Election  An entity should make an accounting policy election to account for income taxes using either  the taxes payable method or  the deferred income taxes method Taxes Payable Method  Under the taxes payable method, only current income tax assets and liabilities are recognized  Current income taxes, to the extent unpaid or refundable, should be recognized as a liability or asset  The liability for current income taxes included in the balance sheet is the cost (benefit) or current income taxes for current and prior periods less amounts already paid in respect of these income taxes FIN 48  No evaluation or accrual for uncertain tax positions Income Taxes
  28. 28. 28 #MHMwebinar Chapter 22 - Subsidiaries Recognition and Presentation  Does not require consolidation (No VIE concept)  An entity should make an accounting policy choice to either: a. Consolidate its subsidiaries or b. Account for its subsidiaries using the equity method Parent-only (unconsolidated) financial statements are permitted. Subsidiaries & Consolidation
  29. 29. 29 #MHMwebinar Chapter 25 - Leases  Criteria for capitalizing a lease for tax purposes generally matches criteria in FRF for SMEs  Classifies leases as follows:  From the point of view of the lessee — capital and operating leases  From the point of view of the lessor — sales- type, direct financing, and operating leases  Reduction of book/tax differences Lease Accounting
  30. 30. 30 #MHMwebinar Chapter 28 – Business Combinations  Requires the acquisition method in accounting for a business combination and provides guidance on identifying a business combination, the acquirer, and the acquisition date  An entity should make an accounting policy election to account for an intangible asset acquired either separately from goodwill or by not recognizing the intangible assets separately from goodwill (subsuming into goodwill the value of the intangible asset)  All intangible assets are considered to have a finite useful life and are amortized over that estimated useful life Business Combinations
  31. 31. 31 #MHMwebinar  Face or contract amount (or notional principal amount)  Nature and terms  Discussion of the credit and market risk and cash requirements  Description of objectives  Net settlement amount R ecognized at s ettlement — net cas h paid or received Dis clos e pertinent information Derivatives
  32. 32. 32 #MHMwebinar  Income tax accounting: taxes payable method or deferred income taxes method  Subsidiary accounting: consolidate or equity method  Joint venture accounting: equity method or proportionate consolidation (only applicable to unincorporated entities when it is an established industry practice)  Intangible assets acquired in a business combination: separately recognize or subsume into goodwill Primary Accounting Policy Options
  33. 33. 33 #MHMwebinar  Internally-generated intangible assets: expenditures during development phase, either expense or capitalize  Certain Interest costs: expense or capitalize interest costs related to certain items of inventories, internally- generated intangible assets and PP&E  Defined benefit plans: current contribution payable method or one of the accrued benefit obligation (ABO) methods Primary Accounting Policy Options
  34. 34. 34 #MHMwebinar  Long-term contracts and service contracts: percentage of completion method or the completed contract method  Completed contract method is used when the entity cannot reasonably estimate the extent of progress toward completion.  Completed contract method may also be used if both of these conditions are met: a) Used for income tax reporting purposes b) Financial position and results of operations would not vary materially from those resulting from the use of the percentage of completion Primary Accounting Policy Options
  35. 35. 35 #MHMwebinar  General Requirements  Disclosure requirements for each area are included in the respective Chapter within the Framework  Prescriptive requirements are included, however, are generally significantly less than US GAAP:  Investment Securities  Debt/Equity  Derivatives/Share-Based Compensation  Disclosure Checklist – 27 pages Disclosures
  36. 36. 36 #MHMwebinar Accounting Policies (Chapter 2) The accompanying financial statements have been prepared in accordance with the Financial R eporting Framework for S mall- and Medium-S ized E ntities issued by the American Institute of Certified Public Accountants. This special purpose framework, unlike generally accepted accounting principles (GAAP) in the United States of America, does not require the recognition of deferred taxes. We have chosen the option to recognize only current income tax assets and liabilities. Other primary differences would be described as necessary. Disclosures
  37. 37. Learning Center S lide No. 68
  38. 38. 38 #MHMwebinar Questions?
  39. 39. 39 #MHMwebinar  Join us for these future webinars  8/22: Private Company Framework - Comparing AICPA vs. IFRS Standards  9/5: Third Quarter Accounting and Financial Reporting Issues Update  Read these related MHM Messengers  6-13: AICPA's Special-Purpose Framework Proves Controversial  5-13: Progress on Standard-Setting for Private Companies If You Enjoyed This Webinar…
  40. 40. 40 #MHMwebinar Mike Loritz, CPA Shareholder 913.234.1226 | mloritz@cbiz.com Mike has 17 years of experience in public accounting with diversified financial companies and other service based companies, including banking, broker/dealer, investment companies, and other diversified companies ranging from audits of public entities in the Fortune 100 to small private entities. He is a member of MHM's Professional Standards Group, providing accounting knowledge leadership in the areas of derivative financial instruments, investment securities, share-based compensation, fair value, revenue recognition and others. ‹#› Today’s Presenter
  41. 41. 41 #MHMwebinar Connect with Mayer Hoffman McCann linkedin.com/company/ mayer-hoffman-mccann-p.c. @mhm_pc youtube.com/ mayerhoffmanmccann gplus.to/mhmpc blog.mhm-pc.com slideshare.net/mhmpc facebook.com/mhmpc

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