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Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
Financial Reporting (PowerPoint, 785 KB)
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Financial Reporting (PowerPoint, 785 KB)


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  • Let’s start with some background on the Statements. The first phase of the FASB’s business combinations project culminated in June 2001 with the issuance of Statement 141, Business Combinations, and Statement 142, Goodwill and Other Intangible Assets. The major accounting changes that resulted from the first phase were the elimination of pooling of interest accounting, except for certain not-for-profit business combinations and for mutual enterprises such as credit unions, the elimination of amortization of goodwill and the creation of a new category called indefinite-lived intangible assets. Since that time, the FASB and the IASB have been working on Phase Two of the project. Phase Two is a joint project with the IASB. Why is that important? Well, I am sure you have heard a lot about the SEC’s efforts to allow registrants to use IFRS, and to allow foreign issuers to file with the SEC using IFRS. Convergence across the world is the wave of the future and this is the first glimpse into that process. This phase was designed to reconsider the purchase accounting guidance that was carried forward in Phase One of the project, as well as the accounting for noncontrolling interests, covered by ARB 51. As you can see, the Boards received a significant number of comment letters on the Phase Two topics, indicating that there is global interest in the project. Statement 141(R) will not have any impact on transactions accounted for as leveraged recapitalizations. However, it nullified the accounting guidance on leveraged buyouts (EITF 88-16).
  • The FASB effective date for the new standards will be for fiscal years beginning after December 15, 2008, so effectively January 1, 2009 for calendar year end companies. The IASB, however, will have an effective date of the first annual reporting period beginning on or after July 1, 2009. There will be no retrospective application. The standard will only apply to transactions that are consummated after the effective date of the standard. There is one exception to this related to income taxes which we will cover shortly. One other note. The IASB will allow early adoption of the standard, whereas the FASB will not.
  • Based on the guidance in Statement 141(R), a business combination can occur in situations where a purchase does not occur, such as when an entity repurchases a sufficient number of its own shares for an existing investor to obtain control or when minority veto rights that previously kept the acquirer from controlling an acquiree may lapse. Therefore, the FASB changed the terminology for the method of accounting for a business combination from the purchase method to the acquisition method because it believes that the term acquisition method is more representative of the types of transactions that result in a business combination. So what are the main principles behind applying the acquisition method? First, the recognition principle. This principle requires that the acquirer recognize 100% of the assets acquired and liabilities assumed in a business combination, as well as any noncontrolling interest remaining at the date of acquisition. This is a significant change from prior practice which will be discussed further in a few minutes. The FASB here essentially decided that once a company obtains a controlling interest in another entity, say 60%, it doesn't utilize 60% of an individual asset. Therefore, the full value of the asset controlled should be recorded on the books of the acquirer, with an offset in equity for the noncontrolling interest, another significant practice change. Note that the identifiable assets acquired and liabilities assumed must meet the definitions of assets and liabilities in FASB Concepts Statement #6. The next principle is the measurement principle. It states that each asset acquired, liability assumed, and any noncontrolling interest that exists should be measured at their acquisition date fair value. This is also a significant change from prior practice. Previously, not all assets and liabilities were measured at fair value. Therefore, keep in mind the guidance of Statement 157. One more reminder, the FASB recently deferred the effective date of Statement 157 for nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008. So, Statement 157 will be effective when entities begin to apply the guidance of Statement 141(R).
  • Risks Reduced flexibility in local reporting environment Risk of being out of compliance with key IFRS requirements Consistent use of IFRS among countries allows for more stringent centralized regulation in the future As IFRS becomes global statutory standard, difficult to unwind inconsistent accounting
  • Risks Reduced flexibility in local reporting environment Risk of being out of compliance with key IFRS requirements Consistent use of IFRS among countries allows for more stringent centralized regulation in the future As IFRS becomes global statutory standard, difficult to unwind inconsistent accounting
  • Transcript

    • 1. GAAP, SEC, and IFRS Update Ed Crater September 2008
    • 2. Agenda Principles – the “P” in GAAP Statement 141(R), Business Combinations Financial Instruments Hot Topics Revenue Recognition Issues SEC & IFRS Update
    • 3. G A A R Getting back to “P”rinciples… How difficult can it be?
    • 4. Principles – the “P” in GAAP
      • What’s the buzz?
        • SEC initiated a “complexity project”
        • FASB & IASB convergence
      • Why now?
        • “Today's rules can produce financial statements that virtually no one understands.”, Global Capital Markets and the Global Economy, November 2006
        • 800 pages of implementation guidance on FAS 133
        • Statement 159 transition issues
    • 5. Principles – the “P” in GAAP
      • Clamping down
      • Benefits
        • Enhance consistency & comparability
        • Eliminate complexity
        • Professional judgment
      • Challenges
        • Agreement on what “principles” look like
        • Limited exceptions (a.k.a. rules)
        • Implementation guidance balance
        • Structuring: “show me where it says…”
        • Professional judgment
    • 6. Statements 141(R) : An Overview of New Guidance on Accounting for Business Combinations
    • 7. Content
      • Statement 141(R) – Business Combinations
        • Background
        • What’s Really Changing?
    • 8. Statement 141(R) - Background
      • Multi-phase project
        • Phase One
          • Resulted in Statements 141 and 142 in 2001
          • Eliminated poolings (except for certain not-for-profit combinations and mutual enterprises)
          • Eliminated amortization of goodwill
          • Created new category called indefinite-lived intangibles
        • Phase Two – Joint Phase with the IASB
          • Reconsideration of purchase accounting guidance that Statement 141 and IFRS 3 carried forward
          • Reconsideration of accounting for non-controlling interests
          • FASB and IASB received 282 comment letters on Business Combinations and 144 comment letters on Non-controlling Interests
    • 9. Statement 141(R) – Effective Date and Transition
      • Effective date
        • Fiscal years beginning after December 15, 2008
        • Early adoption is prohibited
      • Transition
        • Prospective application for transactions consummated after the effective date, with one exception for income taxes
    • 10. Fundamental Principles of Statement 141(R)
      • Main Principles for Applying the Acquisition Method
        • Recognition Principle : The acquirer recognizes all of the assets acquired and all of the liabilities assumed
        • Measurement Principle : The acquirer measures each recognized asset acquired and each liability assumed and any noncontrolling interest at its acquisition date fair value
      • Definition of a Business
        • An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits
        • The entity does not have to be producing units; it just has to be capable of producing outputs (i.e. developmental stage entities)
    • 11. Areas of Significant Changes in Practice
      • Scope
      • Definition of a Business
      • Measurement Date for Equity Securities
      • Measurement Period
      • Income Taxes
      • Acquisition Costs
      • Assets Acquired and Liabilities Assumed
      • Restructuring Costs
      • Reacquired Rights
      • IPR&D
      • Contingencies
      • Contingent Consideration
      • Indemnification Assets
    • 12. Financial Instruments - HOT TOPICS
    • 13. Financial Instrument Hot Topics
      • SFAS 157/159
      • On the horizon - FASB:
        • FAS 133 Hedge Accounting Reconsideration
        • FAS 140 Overhaul: Possible Extinction of QSPE
    • 14. SFAS 157
      • Not just applicable to financial instruments
      • Fair value = exit price
      • Transaction costs expensed as incurred
      • Day 1 Gains:
        • EITF 02-3 prohibition on day 1 gains rescinded
        • SEC Staff: “Not open season”
        • Paragraph 17 criteria for day one P&L
      • Significant new disclosure requirements
    • 15. SFAS 157
      • Alternative investments
      • Limited or no market activities – Auction Rate Securities
      • Levels 1, 2, and 3 inputs need to be documented
      • Level 3 is not a default category
    • 16. SFAS 159
      • Fair Value Option – instrument by instrument
      • Adoption strategies inconsistent with principle – no significant ongoing MTM through earnings
      • Restrictions on when fair value may be elected
    • 17. On the Horizon - FASB
      • FAS 133 Hedge Accounting
        • Hedge Accounting Clarification Project
        • Scope may increase to reconsideration of hedge accounting model
        • Stay tuned!
      • FAS 140 – QSPEs
        • Going the way of the dinosaur?
        • Maybe replaced with linked presentation
    • 18. Revenue
    • 19. Revenue Time for a New Model?
    • 20. Sources of Revenue Recognition Guidance
      • There are many sources of revenue recognition guidance – over 200
      • but
      • We do not have a comprehensive revenue recognition model
    • 21. Multiple Element Transactions
      • EITF 00-21
        • Identify “Deliverables” (par. 8)
        • Determine Units of Accounting (par. 4 and 9)
        • Determine Appropriate Revenue Recognition Model to Follow for Each Unit of Accounting
    • 22. Revenue Recognition Model
      • For each Unit of Accounting
        • Determine Revenue Recognition Model to Follow
        • May be Difficult in Situations the Unit of Accounting includes Deliverables that would use different revenue recognition models if sold separately
          • Last deliverable?
          • Predominate deliverable?
          • Default to SAB 104?
    • 23. Accounting Outcomes That Do Not Make Friends
      • Recognition over Life of Arrangement or Expected Customer Relationship
      • Recognition Deferred until Final Deliverable
        • Over remaining term of final deliverable, or
        • Upon completion of last act
    • 24. FASB Codification
    • 25. FASB Codification
      • Does NOT change GAAP
      • Will reorganize pronouncements into roughly 90 accounting topics
      • SEC guidance will follow a similar topical structure
      • New structure designed to:
        • Reduce the amount of time and effort required to solve an accounting research issue
        • Improve usability of the literature, thereby mitigating the risk of noncompliance with standards
        • Provide real-time updates as new standards are released
        • Assist the FASB with the research and convergence efforts required during the standard-setting process
        • Become the authoritative source of literature for the completed XBRL taxonomy
    • 26. FASB Codification
      • One-year verification phase complete
      • After addressing issues raised during the verification phase, the FASB is expected to formally approve the Codification as the single source of authoritative U.S. GAAP, other than guidance issued by the SEC
      • FASB expects to approve and make authoritative in April 2009
      • To improve useability, the Codification will include:
        • Authoritative content issued by the SEC
        • Selected SEC staff interpretations
    • 27. FASB Codification
      • All accounting standards (other than the SEC guidance) used to populate the Codification will be superseded
      • With the exception of any SEC or grandfathered guidance, all other accounting literature not included in the Codification will become nonauthoritative
    • 28. Most Frequently Issued SEC Comments
    • 29. Most Frequently Issued SEC Comments
      • Financial statement classification
      • Revenue
      • Reserves-Impairments, Loss Contingencies, Income Taxes
      • Financial instruments
      • Segments
      • Stock Compensation
      • Business Combinations / Intangible Assets
      • Discontinued Operations
      • Asset Retirement Obligations
      • Fair Value Measurements
      • MD&A (Non-GAAP measures)
      • Disclosure Controls
    • 30. Classification
      • Income Statement
        • Revenues
          • Components
          • Products versus services
        • Components of cost of sales
          • Inclusion of depreciation and amortization
        • Gross profit
          • Disclosure in quarterly summarized information
        • Operating versus non-operating
          • Equity earnings
          • Gains / losses on sale of assets
      • Statement of Cash flows
        • Operating, investing or financing
    • 31. SEC Reporting Issues
    • 32. SEC Reporting Issues
      • Retrospective accounting changes
        • SFAS 154, Discontinued operations, Segments
        • Restatement of a prior Form 10-K for an error when there is a discontinued operations in the subsequent interim period
      • Equity investees
        • Failure to file required financial statements
        • Impact of gain / loss on sale and impairments in the significance test
        • Requirement to re-perform significance test if a subsequent discontinued operations
    • 33. SEC Reporting Issues
      • Businesses acquired
        • Acquisition of a business or assets
          • EITF 98-3 versus Article 11 of S-X
        • Significance tests
        • Probable acquisitions
        • Inability to obtain audited financial statements
      • Pro forma financial statements
        • Factually supportable adjustments
        • Elimination of infrequent or nonrecurring items
        • Three years pro forma income statements for a discontinued operations
    • 34. SEC Reporting Issues
      • Financial statements of guarantors of public debt (Rule 3-10 of S-X)
        • http:// /Rule_3- 10_Document.pdf
      • Financial statements of affiliates whose securities collateralize a security registered or being registered (Rule 3-16 of S-X)
        • http:// /Rule_3-16 16_Document.pdf
      • Financial statements of entities under common control
    • 35. Recent SEC Guidance
    • 36. Recent Guidance
      • Final Rules and Guidance
        • SOX 404
        • XBRL
        • Backdating of Stock Options
        • Materiality (SAB No. 108)
        • Executive Compensation
      • Proposed Rules
        • Small Business
        • IFRS
    • 37. Proposed Modernization of Smaller Company Rules
      • On May 23 rd , proposed 6 measures to improve smaller company capital raising and reporting requirements
        • Smaller reporting company relief and simplification
        • Revisions to eligibility requirements for offerings on Forms S-3 and F-3
        • Exemption of Compensatory Employee Stock Options from registration under Section 12(g) of the Exchange Act
        • New Regulation D limited offering exemption
        • Electronic filing of Form D
        • Revisions to Securities Act Rules 144 and 145
      • Comments on the above proposals will be due 60 days after publication in the Federal Register
    • 38. SEC and IFRS
      • Targeted toward foreign private issuers
      • Eliminates the US GAAP reconciliation requirement for foreign companies using IFRS
    • 39. SEC IFRS Concept Release
      • Targeted toward U.S. companies
      • Possible optional IFRS application for Form 10-K in December 2009
      • Rule change targeted to mandate IFRS for December 2014
      • “ It may be a very long time indeed before the world’s 6.5 billion people can all speak in the same tongue. Fortunately, we won’t have to wait nearly as long for the language of business and finance to converge.”
        • — SEC Chairman Christopher Cox
    • 40. IFRS Implementation Considerations
    • 41. A Perspective on IFRS Implementation
        • Will require a change in mindset
          • More of a focus on “thinking” about the answer versus researching the answer
        • Less detailed guidance to consider
          • More of a focus on the “substance” of transactions
          • Evaluate whether the accounting presentation reflects the “economic reality”
        • Greater use of professional judgment
          • More of a focus on the “process” around making judgments
          • CIFR recommendations
        • Impact on risk
          • Possibility of “second-guessing” by regulators?
          • Will litigation increase?
    • 42. Overview of IFRS Implementation Challenges Best Practices
      • Meeting consistency requirements
      • Cultural bias in application of principle based standards
      • Timely data capture for opening balance sheet
      • Cooperation from non-controlled entities to adopt IFRS
      • Capture interdependencies with other FT initiatives
      • Considering ongoing changes to standards
      • Steering committee to oversee IFRS activities
      • Full-time dedicated PMO to carry out IFRS implementation
      • Early training and awareness building
      • Replicate learning from early conversions
      • “ Business as usual implementation”
      • Ready by Transition Date
      • Multidisciplinary strategic approach
      • Regular communication with auditor
    • 43. Key Impacts of IFRS Implementation
      • Tax structures
      • Treasury and cash management
      • Legal and debt covenants
      • People issues, including education and training, compensation structures
      • Internal communications
      • External and shareholder communications
      Organizational Issues Technology Infrastructure
      • General ledger and chart of account structure, including performance metrics
      • Global consolidation
      • Sub-system issues related to configuration and data capture
      • Capabilities to manage multiple GAAP accounting during transition
      Process and Statutory Reporting
      • Internal controls and processes, including documentation and testing
      • Management and internal reporting packages
      • Global reporting packages
      • Statutory reporting, including “opportunities” around IFRS adoption
      Technical Accounting
      • Overall approach to IFRS implementation
      • First time adoption policy considerations, including reporting dates and use of exemptions
      • Ongoing policy considerations, including alternatives and approach to “principles”
    • 44. Illustrative IFRS Adoption Strategy Reporting Date Transition Date 2009 2008 2012 2011 2010
      • Statutory
      • Implementation
      • Select Exemption
      • Preparation IFRS
      • Opening BS
      • “ Dry Runs”
      • US GAAP & IFRS
      • opening balance
      • Quarterly IFRS
      • Investor
      • Communications
      • Audit Procedures
      • Change Standards
      • Transition to IFRS
      • Quarterly Reporting
      • Investor
      • Communications
      • SOX 404 IFRS
      • Convert Systems
      Rationalization and standardization of statutory reporting IFRS Competence Alignment with other initiatives and training for appropriate personnel
      • Targeted Statutory
      • Implementation
      • Systems Implementation
      • Impact Analysis
      • Assessment
        • Strategic
        • Implementation
        • Roadmap
        • Technical Accounting
        • Technology & Processes
        • Organizational Issues
    • 45. Thoughts on the EU Experience Observations Lessons Learned
      • Overall approach was to minimize differences from local GAAP
      • Increased disclosure in financial statements (e.g., judgments made and assumptions used)
      • Variety of performance measures
      • Areas of significant impact
        • Asset impairment
        • “ Components” approach
        • Deferred income taxes
        • “ Split accounting”
        • Derivatives
        • More leases on balance sheet
      • Effort was often underestimated
      • Often a lack of a holistic approach, taking collateral effects into consideration
      • Late start often result in escalation of costs, especially after transition date
      • Many companies did not achieve “business as usual” state for IFRS reporting
      • Was hard to get it right the first time
      • Several companies are only now starting to explore benefits from IFRS implementation
    • 46. IFRS Complexity -- Tax Considerations
        • Tax accounting issues
          • No FIN 48 under IFRS
        • Tax costs and benefits of conversions
          • LIFO
          • Distributable reserve computation
        • Starting point for many tax adjustments will change
          • Is IFRS method permissible? Is it optimal? Is a tax method change required?
          • Has a new adjustment been created?
          • Has data supporting current adjustment changed?
        • Catalyst for global tax planning
        • Tax department processes and systems must adapt
    • 47. Illustrative IFRS Implementation Roadmap Illustrative Implementation Roadmap Technical Accounting Process and Statutory Reporting Technology Infrastructure
      • Develop and plan delivery of a detailed training program for deployment
      • Consider executive briefing sessions, workshops and other means to build awareness and consensus
      • Develop and execute a stakeholder communication program
      Organizational Issues
      • Identify implications to the general ledger and chart of account structure
      • Identify sub-system issues related to configuration, data issues or other causes
      • Assess system capabilities to manage multiple GAAP accounting during transition
      • Understand current reporting of statutory entities by country
      • Harmonize accounting policies where IFRS is already adopted
      • Identify options to adopt IFRS at statutory locations
      • Identify process improvement options
      • Assess impact on controls
      • Evaluate appropriate IFRS accounting and consider alternatives
      • Evaluate the extent and scope of technical accounting differences on a consolidated basis and at key statutory locations
      • Determine likely differences related to income tax accounting
      • Determine likely impacts on treasury
      • IFRS Financial Reporting Country Road Map
      • Implementation Options Analysis
      • Timeline
      • Contingency plan
      • Technical Accounting and Tax Impact Analysis
      • Recommendations for Reporting Process Changes
      • Evaluation of Technical Architecture Issues
      • Organization readiness/training plan
      • Communication plan
    • 48. Copyright © 2007 Deloitte Development LLC. All rights reserved.