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PwC - Quarter Close - Fourth Quarter 2012


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  • 1. . The quarter close A look at this quarter’s financial reporting issuesDecember 12, 2012What’s insideFront and center .............. 2Accounting hot topics .......5Hot off the press .............. 12SEC matters .................... 15IFRS developments ......... 17Audit reporter ................. 19On the horizon ............... 20Corporate governance .. 25Appendix ........................ 26
  • 2. What you need to know—Q4–2012Welcome to the final 2012 edition of The quarter close. Accounting hot topics. We’re sending you into theAs an eventful quarter winds down, it’s full speed new year armed with insights on a number of hotahead toward another year-end financial reporting topics, including fair value, asset impairments,season. We’ve got the latest updates and some timely pensions, valuation allowances, and more. And, withreminders to help you navigate the path ahead. no resolution in sight to the Eurozone debt crisis, we explore how the uncertainty could affect you.Here’s a preview of the topics you’ll find in this edition: Hot off the press. Quick action from the FASB hasFront and center. It’s the premier event for the narrowed the scope of next year’s offsetting reporting community: the annual AICPA Get the details here. We also summarize the EITF’sNational Conference on Current SEC and PCAOB latest solution to a complex foreign currency issue andDevelopments. Read our highlights to find out what’s check in on COSO’s internal control framework for the standard setters and regulators.Next, if you haven’t been following the FASB’s project Lots more. We discuss what’s on the horizon foron disclosure effectiveness, here’s your chance to get standard setting, provide timely advice on MD&A, takecaught up. While the project is still in its early stages, stock of the global audit policy debate, and’ll want to get involved in the dialogue. National Professional Services Group | CFOdirect Network – The quarter close 1
  • 3. Front and center Highlights from the AICPA conference Last week, representatives from the SEC, PCAOB, FASB, and IASB gathered in Washington, D.C. for the annual AICPA National Conference on Current SEC and PCAOB Developments (AICPA conference). Speakers reflected on a busy 2012 and gave some insights into what to expect next year. Our soon-to-be-issued Dataline will give you the full scoop. Until then, here are some key themes and highlights. IFRS in the United States—“Stay tuned” That was the advice coming from the SEC when addressing the timeline for a decision on whether, when, and how to incorporate IFRS into the U.S. financial reporting system. While there was plenty of discussion on the topic, SEC speakers didn’t drop any hints about the path forward, other than noting they will continue to work with the Commissioners, including incoming Chairman Elisse Walter, on next steps. The consideration of incorporating IFRS may be the single most important accounting determination for the Commission since …the 1930’s. Source: Paul A. Beswick, SEC Acting Chief Accountant, December 3, 2012 U.S. GAAP and IFRS convergence—what’s next? With convergence efforts winding down, much of the conversation focused on the future role of the United States in international standard setting. Another issue raised was whether differences could emerge in how the converged standards (for example, revenue and leases) are implemented and interpreted in the United States and internationally. …even though the relationship is bound to change, that does not mean we think convergence is over or that divergence will occur…we look forward to new ways of working together toward the goal of comparable financial reporting for investors around the world. Source: Leslie F. Seidman, FASB Chairman, December 4, 2012 I believe the United States should remain an important participant in our institutions and activities. But obviously, U.S. influence will be commensurate with its commitment to our standards. Source: Hans Hoogervorst, IASB Chairman, December 4, 2012 National Professional Services Group | CFOdirect Network – The quarter close 2
  • 4. In his prepared remarks, IASB Chairman Hans Hoogervorst commented on theimportance of U.S. involvement in international standard setting, but he also continuedto urge the SEC to provide a tangible sign of a commitment to international accountingstandards.FASB Chairman Leslie Seidman focused on the unique needs of U.S. stakeholders,including the need for “clear and unambiguous” standards and a robust interpretationprocess. Looking forward, however, she was optimistic about future cooperationbetween the FASB and international standard setters. Ten years after her firstappointment to the FASB, Seidman will end her final term in June 2013. Stay tuned formore on this leadership change next year.Financial reporting—blurring the lines?Noting a theme in feedback on recent FASB projects, SEC Acting Chief Accountant PaulBeswick brought-up the topic of the “dividing line” between the financial statementfootnotes and the broader financial reporting package. The issue has arisen inconnection with the FASB’s disclosure framework project (see our discussion below) andproposed liquidity and interest rate disclosures. Beswick indicated that the SEC plans tohold a roundtable in the upcoming months to discuss the topic.SEC covers familiar groundSegments, loss contingencies, income taxes, revenue recognition, goodwill, non-GAAPmeasures, MD&A…consistent with prior years, these topics were all highlighted by SECspeakers as frequent areas of comment. A recurring theme was that the SEC is lookingfor companies to provide the “full story,” not boilerplate disclosures, particularly in areaswhere significant judgment is applied. Get more details in our AICPA conferenceDataline.PCAOB shares observations and future agendaAuditing topics, particularly audit quality, continue to be front and center at the AICPAconference. Speakers reflected on PCAOB inspection trends, the PCAOB’s recentlyadopted strategic plan, and the PCAOB’s collaboration with regulators around the world.Chairman James Doty also announced that the PCAOB is undertaking a project toidentify audit quality measures, with a long-term goal of tracking these measures overtime.Changing of the guard—Elisse Walter named new SECChairmanAfter months of speculation, SEC Chairman Mary Schapiro announced she will leave theSEC effective December 14. This announcement was not unexpected as she has spentnearly four years in the role. Current SEC Commissioner Elisse Walter will step in as thenew Chairman. Until another Commissioner is named, Schapiro’s departure leaves theSEC with two Commissioners from each major political party. This dynamic could createchallenges for rulemaking in the near term.In other SEC news, Meredith Cross will step down as Director of the SEC’s Division ofCorporation Finance at the end of the year. No replacement for Cross has beenannounced, leaving both the Director and Chief Accountant positions unfilled in thisdivision heading into 2013. In the meantime, Craig Olinger continues to serve as ActingChief Accountant.National Professional Services Group | CFOdirect Network – The quarter close 3
  • 5. Disclosure effectiveness—continuing the dialogue Last quarter, the FASB’s discussion paper kicked-off the debate on a challenging and multifaceted topic: how to make financial statement disclosures more effective. Click here to watchFASB member Marc Comment letters are supportive, but reveal diverse viewsSiegel and CAQExecutive Director Comment letters overwhelmingly expressed support for a project on improvingCynthia Fornelli disclosure effectiveness. But views on the best approach varied. For example, there werediscuss disclosure mixed views on whether and how management should exercise judgment in makingeffectiveness relevant disclosures. Some pointed out the challenges of defining “relevance” as a threshold to assess disclosures. Other feedback included requests for a clearer definition of the purpose and boundaries of the financial statements footnotes. This stemmed from concerns that certain suggestions in the discussion paper might be viewed as “blurring the line” between the footnotes and MD&A. Dialogue continues during outreach sessions To promote discussion of the topic and obtain additional feedback, the FASB and the Center for Audit Quality (CAQ) co-hosted two private outreach sessions this quarter. Participants explored a variety of views and approaches toward an end goal of improved financial reporting. A particularly important theme was that behaviors and mindsets—of standard setters, preparers, auditors, regulators, and legal counsel—may need to change to achieve the desired outcome. A summary of observations from the outreach sessions is available on the FASB’s website. A holistic approach—can it be achieved? Many have also encouraged the FASB to work collaboratively with the SEC and the PCAOB to take a holistic approach—that is, an approach that goes beyond just the financial statement footnotes to more broadly address financial reporting. There is no specific mechanism that exists today for the FASB and the regulators to jointly pursue a project. However, action from multiple parties may be necessary to achieve the ultimate goal of more effective, streamlined financial reporting. International groups explore similar themes The topic of disclosure effectiveness is also being explored outside the United States. The European Financial Reporting Advisory Group (an advisor to the European Commission), Autorité des Normes Comptables (French Accounting Standard Authority), and Financial Reporting Council (a U.K. regulator) have jointly issued a discussion paper on a disclosure framework with comments due December 31. And just recently, the IASB announced it will hold a public meeting on “disclosure overload” in January. Whats next? The FASB will continue to digest the feedback, and then meet to discuss next steps, including the possibility of a proposal. Stay tuned for more on this topic next year. National Professional Services Group | CFOdirect Network – The quarter close 4
  • 6. Accounting hot topics Before heading out for the holidays, check out these new resources available now. First, our Guide to Accounting for Financing Need to get in the right Transactions provides a helpful roadmap to accounting for common debt and equity transactions. The guide explains what frame of mind for year end? you need to know when issuing or modifying debt, equity, and Click here to watch our hybrid securities, and other related topics. It also provides useful countdown of the “Top 5” examples along the way. Click here to see the authors discuss the new guide. themes for the 2012 financial reporting season. We’ve also brought back our popular year-end round-up of key accounting and financial reporting issues. You’ll want to reference Dataline 2012-20, 2012 year-end accounting and reporting considerations, before finalizing your annual financial statements. As a result of Hurricane Sandy, the topic of accounting for natural disasters surfaced once again this quarter. Dataline 2012-17, Accounting and disclosure implications of Hurricane Sandy, provides reminders of financial reporting issues that can arise because of a natural disaster. Topics include expense classification, impairments, disclosures, and more. This quarter’s hot topics  Eurozone uncertainty  Fair value measurement  Long-lived asset impairment  Software vs. service arrangements  Pensions: year-end reminders  Stock-based compensation: nonrecurring large dividends  Deferred tax asset valuation allowances  Medical device excise tax National Professional Services Group | CFOdirect Network – The quarter close 5
  • 7. Preparing for the unknown—Eurozone uncertainty continues The Eurozone debt crisis is still making headlines, with ongoing speculation about how events will unfold. In today’s global economy, most companies will likely be affected in Click here to one way or another, whether it’s their operations, investments, customer or vendorwatch our experts relationships, or the competitive environment.share insights intothe actions U.S. How does the crisis affect your year-end financials?companies aretaking in response to U.S. companies aren’t insulated from economic difficulties in Europe. Financialrisks arising from statements could be affected in a number of ways. Examples include revenue recognitionthe Eurozone crisis related to European customers, collectability of accounts receivable, asset impairments, realizability of deferred tax assets, and more. To the extent the effects are, or could be, material to your operations, you may need to enhance your MD&A disclosures as well. Planning for the potential outcomes While it’s not possible to predict the final outcome of the Eurozone debt crisis, many companies are incorporating various scenarios into their strategic planning processes. For example, some believe the crisis could result in one or more countries exiting the Eurozone and adopting a new local currency. In addition to wide-ranging political and business implications, this scenario would also have a number of financial reporting implications. A new currency could affect, among other things, functional currency determinations, Euro-denominated contracts, and hedge accounting. For more information For more discussion of the crisis and how it affects U.S. companies, check out 10Minutes on the Eurozone sovereign debt crisis. For a deeper dive into the potential accounting implications should a country exit the Eurozone, see Dataline 2012-19, Eurozone uncertainties—Financial reporting considerations of a country’s exit from the Eurozone. We also highlighted several financial reporting implications earlier this year in In brief 2012-01, Increased focus on implications of European economic environment. Fair value measurements—don’t rely on the status quo Continued fluctuations in the economic environment, coupled with new disclosure requirements, have once again put the spotlight on fair value measurements this year end. New disclosures in this year’s annual filings Public companies should now be familiar with the new fair value disclosure requirements effective earlier this year. However, take note of the SEC’s early observations in this area as you prepare your year-end footnotes. The feedback can also be useful for private companies adopting the guidance for the first time. For example, the SEC has asked for additional information when registrants disclose wide ranges of significant unobservable inputs. Another recurring observation is the need for enhanced discussion about valuation methods (particularly when more than one method is disclosed) and how changes in one unobservable input could affect another input for specific instruments. We expect the SEC to continue to focus on these disclosures in future financial statement reviews. National Professional Services Group | CFOdirect Network – The quarter close 6
  • 8. Take a fresh look at valuation methods and assumptionsBeyond the new disclosures, don’t forget that valuation methods and assumptions arenot static. Even if market participants haven’t changed from year to year, utilizing thesame methods and assumptions might not be appropriate. One example is the increasinguse of an overnight index swap (OIS) rate as opposed to the London Interbank OfferedRate (LIBOR) for discounting cash flows of certain types of derivatives. These types ofchanges often occur gradually, so it’s important to have processes in place to regularlyreassess valuation methods and assumptions. Also keep in mind that these judgmentsare management’s responsibility even when a third-party valuation service is used.For more informationFor more reminders about fair value, see Dataline 2012-20, 2012 year-end accountingand reporting considerations. You may also want to revisit our observations on the newdisclosures from earlier this year in Dataline 2012-05, New fair value measurementstandard—Adoption of the new guidance: First quarter 2012 measurement anddisclosure observations.Impairment of long-lived assets—it starts with “asset group”Eurozone debt crisis, economic volatility, natural disasters…against this backdrop, it’sno surprise we’re talking about asset impairments. The guidance for assessingimpairment of long-lived assets hasn’t changed. However, while cash flow forecasts oftenreceive much of the focus in an impairment analysis, it’s important not to skip the firststep: identifying the appropriate asset groups.What is an “asset group”?Determining the appropriate asset group is critical to ensuring impairment testing isperformed at the right level. In simple terms, assets used together create an asset group.More specifically, an asset group is the unit of accounting for “held and used” assets thatrepresents the lowest level for which identifiable cash flows are largely independent ofcash flows from other groups of assets and liabilities. Yes, it’s a mouthful, but if you’reincorrectly grouping assets, you could be reaching the wrong impairment conclusions.Grouping assetsFor example, consider a brand name intangible asset (subject to amortization) obtainedas part of a business combination. A brand name asset, itself, often does not haveseparately identifiable cash flows. Rather, it is used together with a broader group ofassets that has identifiable cash flows largely independent of other assets. As a result, thebrand name asset likely would not be individually tested for impairment, but insteadwould be tested as part of the larger asset group.Identifying asset groups should be completed even before an impairment test istriggered. It’s a highly subjective assessment, based on a company’s specific facts andcircumstances, that requires thoughtful analysis and documentation.For more informationFor additional reminders about impairment testing, see Dataline 2012-20, 2012 year-end accounting and reporting considerations.National Professional Services Group | CFOdirect Network – The quarter close 7
  • 9. Software or a service—why it mattersOne noticeable trend over the past few years is a move away from a traditional shrink-wrap software sale model to a “software as a service” model. Customers now accessvarious software solutions online, without the need to host and support the softwarethemselves. When it comes to the accounting, the two models couldn’t be more different.One is the sale (and purchase) of an asset, while the other is a service. This distinctionmatters for both vendors and customers.Software sale vs. software as a serviceIt might seem obvious, but it’s not always clear when a customer has purchased softwareor a hosted service. An important factor is whether the customer has the right to takepossession of the software, without significant penalty, and can run the software on itsown. If so, it’s a software sale. Otherwise, the arrangement is viewed as a service.Typically, the customer’s right to take possession is outlined in the contract, butjudgment can be required in assessing whether that right is without “significant penalty.”The vendor’s perspectiveFirst and foremost, the distinction between a software sale and a service arrangementwill determine how and when the vendor records revenue. The vendor will either be 1subject to software revenue guidance or revenue guidance for services. In many cases,this could mean the difference between upfront revenue and revenue recorded over time.But don’t stop there. Another key consideration is how to account for software 2development costs (that is, whether to capitalize or expense). The guidance differsdepending on whether the vendor is developing software for sale to customers or for itsinternal use (such as in a service arrangement). Vendors should regularly revisit thisassessment based on their current “go to market” strategies.The customer’s perspectiveThis issue also affects the customer in the transaction. A software purchase typicallycreates a software asset. In contrast, the cost of buying a service is an operating expense,although upfront payments can create a prepaid asset that is amortized over the periodof benefit. Additionally, fees paid to the vendor for professional services need to beevaluated to determine whether to record a capital asset, expense, or prepaid asset. Thisdetermination could also affect whether payments are classified as operating orinvesting cash flows in the cash flow statement.Pension plan assumptions—checking them twiceWhen making your list of year-end to-do’s, there are several pension plan assumptionsthat warrant a closer look. Also, if you’ve made any changes to your benefit plans, you’llneed to play close attention to the financial reporting implications.Key assumptions—from discount rates to mortalityThe economic landscape continues to put pressure on the assumptions used in pensionplan measurements. Long-term interest rates dropped again this year, likely translating1 Refer to ASC 985-605, Software Revenue Recognition, and ASC 605, Revenue Recognition.2 Refer to ASC 985-20, Costs of Software to Be Sold, Leased, or Marketed, and ASC 350-40, Internal-UseSoftware.National Professional Services Group | CFOdirect Network – The quarter close 8
  • 10. into lower discount rates. Lower discount rates, in turn, mean higher plan obligations.Also, some previously high-quality corporate bonds have been downgraded, so ensurebonds used to develop discount rate estimates are still appropriate. And, it continues tobe important to revisit expected rates of return on plan assets in light of the sloweconomic recovery.While it might seem grim, another key assumption is expected mortality. Companies andactuaries may be re-examining this assumption this year as a result of new mortalitydata (called Scale BB) recently developed by the Society of Actuaries. The good news ispeople are living longer, but that also means pension obligations could be increasing. Putthis assumption on your list for a fresh look this year end.A bit of relief on pension fundingRecent efforts by the Federal Reserve to stimulate the economy by keeping interest rateslow have increased pension funding requirements. In response, Congress recentlypassed the Moving Ahead for Progress in the 21st Century Act (MAP-21), which willenable many companies to contribute less to their pension plans over the next few years.Although MAP-21 doesn’t have any significant accounting implications, it could affectdisclosures about expected future contributions and cash flows.Plan amendments, curtailments, and settlementsCompanies continue to explore ways to reduce operating costs, as well as the risk andvolatility of their benefit plans. Actions include amending plans to reduce or eliminatebenefits, buying-out plan participants in a lump-sum payment, or transferringresponsibility for benefit payments to an insurance company.These actions all have unique accounting consequences. Some may result in therecognition of gains or losses that were previously deferred. Considerations includewhether actions are irrevocable, benefits are significantly reduced, and/or the risksrelated to the plan are significantly eliminated. Keep in mind that these types of actionsusually trigger a remeasurement of the plan obligations and assets, which should bebased on current assumptions as of the remeasurement date.For more informationFor additional pension accounting reminders, see Dataline 2012-20, 2012 year-endaccounting and reporting considerations.Nonrecurring dividends—actions that can create compensationAmid concerns about increasing tax rates, companies may be planning to pay out largeror one-time dividends this year end. In connection with a large dividend, it’s commonfor companies to take steps to keep employees that hold stock options or other equityawards “whole.” Avoid an unwelcome surprise by understanding when these actionscould trigger a compensation charge.When compensation charges occurDiscretionary actions, such as modifying stock options or making cash payments toemployees, are typically taken to avoid dilution of employee awards as a result of anonrecurring large dividend. However, if these actions aren’t required by the company’sstock-based compensation plan, the employees received a benefit…and that meansadditional compensation cost.National Professional Services Group | CFOdirect Network – The quarter close 9
  • 11. Many plans include “antidilution” provisions that require certain actions when an equityrestructuring, such as a nonrecurring large dividend, occurs. If the company’s actionsare required by the plan and designed to keep employees “whole,” generally noadditional compensation cost is triggered. But this would not be the case if theantidilution provision is discretionary, giving the board of directors or compensationcommittee the option to take action.Review your planThe bottom line? It’s a good idea to revisit your stock-based compensation plans now.Legal counsel may also need to weigh-in on what is and isn’t required as part of anequity restructuring event, such as a nonrecurring large dividend. Once an equityrestructuring event is on the horizon, it might be too late to change your plan withoutincurring a compensation charge.For more informationFor further discussion of this issue, see HRS Insight 12/27, Companies are announcingspecial dividends—consider impact on stock compensation accounting.Valuation allowances—don’t “defer” your assessmentLike other assets, deferred tax assets require ongoing assessment for potentialimpairment. But that’s where the similarities end. Both the trigger for impairment andthe assessment itself can differ significantly from other asset impairment models.The “more likely than not” thresholdThe time to record a valuation allowance is when it is more likely than not (that is, alikelihood greater than 50%) deferred tax assets will not be realized. This threshold islower than the probable threshold often used when assessing whether to record a loss inother circumstances. The lower threshold means it’s possible the need for a valuationallowance will arise before other assets (for example, long-lived assets, investments, andaccounts receivable) are impaired.Past versus future resultsWhile other impairment assessments rely heavily on projected cash flows, history plays agreater role in valuation allowance assessments. That’s because the valuation allowancemodel gives more weight to results that have already been demonstrated (or “objectivelyverifiable” information).Projections used for the assessment should be consistent with projections used in otherareas of accounting. However, the weight given to those projections when performingthe valuation allowance assessment will depend on the extent to which the majorassumptions can be objectively verified or independently supported. Additionally, keepin mind that cumulative losses in recent years represent significant negative evidencethat can be difficult to overcome. This point was reiterated once again by the SEC at lastweek’s AICPA conference.A focus on jurisdictionsThe valuation allowance assessment is performed on a jurisdiction-by-jurisdiction basis.This could be different than the level at which management typically analyzes financialinformation. For example, management often reviews financial results at a moreNational Professional Services Group | CFOdirect Network – The quarter close 10
  • 12. aggregated level instead of analyzing each individual jurisdiction. However, whenassessing whether or not a jurisdiction’s deferred tax assets are realizable, only thetaxable income for that particular jurisdiction should be considered.Disclosure, disclosure, disclosureAs a general rule, the more judgment required, the greater the need for transparentdisclosures. The SEC frequently requests enhanced disclosures about evidenceconsidered, including the level of reliance on projections. “Foreshadowing” typedisclosures are also critical when there could be significant near-term changes.For more informationFind further insights on valuation allowance assessments in our upcoming TaxAccounting Services publication, Accounting for income taxes: 2012 year-end hot topics.Healthcare reform—new year brings new tax on medicaldevicesWith the Supreme Court’s ruling last spring and President Obama’s re-election, all signs 3indicate that healthcare reform is here to stay. The law’s implications continue to unfoldas its many provisions go into effect. One example is the new medical device excise taxeffective January 1, 2013.When is the tax imposed?Beginning next year, medical device manufacturers will pay a tax equal to 2.3% of thesales price upon first sale of a medical device in the United States. The first sale could bea direct sale to a customer or an intercompany sale to an affiliated distribution entity.Assessing what represents the “first sale” could affect both the recognition andclassification of the tax.Direct sales to a customerFor a sale to a customer, the tax is recognized upon sale of the device. Presentation of thetax, however, is an accounting policy election. A company can choose to either record thetax on a gross basis (that is, include in both revenues and costs) or on a net basis (that is,exclude from revenues). The elected policy should be consistently applied and disclosed.Intercompany salesIf the first sale is an intercompany sale, the tax is based on the intercompany sales price.In this fact pattern, the tax could be viewed as an “inventoriable” cost (that is, a cost tobring the product to its existing condition and location for sale). In that case, the tax isrecorded in inventory at the time of the intercompany sale and then recognized as a costof sale when the device is sold externally. It might also be acceptable to expense the taxwhen incurred, depending on a company’s accounting policy for similar assessments.For more informationFor more on this topic, see our Pharmaceutical and life sciences industry alert 2012-3,Medical Device Excise Tax.3 President Obama signed the Patient Protection and Affordable Care Act and the Health Care and EducationReconciliation Act into law in March 2010.National Professional Services Group | CFOdirect Network – The quarter close 11
  • 13. Hot off the press New releases may have been limited so far this quarter, but the Don’t risk missing an year’s not over yet. Two additional proposals—financial asset important development. impairment and repurchase transactions—are imminent. See “On Visit our newly enhanced the horizon” for discussion of key developments on the FASB’s standard-setting projects. CFOdirect website at Below we provide an important update on the balance sheet for the latest updates and offsetting disclosures effective next year. In short, the FASB has proposed limiting the scope of guidance. We also highlight a sign-up for weekly proposal from the EITF and a new release on internal controls. newsletters and alerts. National Professional Services Group | CFOdirect Network – The quarter close 12
  • 14. FASB narrows scope of upcoming offsetting disclosuresThe FASB took quick action this quarter to respond to concerns raised about thepotentially broad scope of new offsetting disclosures required next year. In a proposedamendment to the standard, the FASB plans to limit these disclosures to specific types ofinstruments and transactions.The disclosure requirementsThe existing standard leaves the current balance sheet offsetting guidance under U.S.GAAP unchanged, but requires a number of disclosures beginning in 2013. Thedisclosures include gross and net information about instruments and transactionseligible for offset in the balance sheet, as well as instruments and transactions subject toa master netting arrangement or similar agreement (irrespective of whether they areoffset in the balance sheet).Concerns about the scope language, as originally written, arose because “master nettingarrangement” and “similar agreement” are not defined. It’s not uncommon for contractsto include standard commercial provisions allowing either party to “net settle” in theevent of default. As a result, many questioned whether arrangements between twoparties that buy and sell goods or services to each other could get scoped in.FASB agrees to amend scopeThe FASB responded by proposing that the disclosures include only derivatives,repurchase agreements, and securities lending transactions. That means corporatereceivables and payables, as well as broker dealer trade date receivables and payables,will not be subject to the disclosure requirements.For more informationComments on the proposal are due by December 21. We expect the amendments to befinalized early next year. For more on this topic, refer to In brief 2012-48, FASB amendsand clarifies scope of balance sheet offsetting disclosures.EITF offers up another solution to foreign currency challengeBack for round two. The EITF issued a revised proposal this quarter in an attempt tofind a workable solution to a complicated foreign currency issue.Deconsolidation vs. foreign currency guidanceThe issue at hand is when to release the cumulative translation adjustment, and howmuch, in various scenarios. Some believe existing deconsolidation guidance should beapplied, requiring release of the cumulative translation adjustment when a parent losescontrol of a business. Others believe that the foreign currency guidance should govern,and therefore the cumulative translation adjustment should only be released uponcomplete or substantially complete liquidation of a foreign entity.Searching for a compromiseAfter some back and forth, the EITF worked out an approach that appears to strike acompromise. It differentiates between transactions occurring within a foreign entity andthose affecting an investment in a foreign entity. This distinction will significantly affectto what extent the cumulative translation adjustment, if any, is released to net income.National Professional Services Group | CFOdirect Network – The quarter close 13
  • 15. The EITF decided that transactions occurring within a foreign entity should followexisting foreign currency guidance. In other words, if a group of assets or business is soldthat doesn’t constitute the entire foreign entity, the cumulative translation adjustmentwill not be released until there is a complete or substantially complete liquidation of theforeign entity.Transactions affecting an investment in a foreign entity will follow an approach moreconsistent with the gain and loss recognition principles in the deconsolidation guidance.That means a sale or other event resulting in loss of control of the entity will triggerrelease of the cumulative translation adjustment in full to earnings. The EITF alsodecided that acquisitions completed in stages (aka “step acquisitions”) will triggerrelease of the cumulative translation adjustment associated with an equity methodinvestment at the point a controlling interest in the entity is obtained.What’s next?The comment period for the proposal ended on December 10. Look for the EITF todiscuss the feedback at its January meeting. For more background on this topic, refer tothe September EITF observer.Update on internal controls—COSO refresh coming soonLast December, the Committee of Sponsoring Organizations of the TreadwayCommission (COSO) issued a proposed update to its popular internal controlsframework. Now, COSO has released a compendium of approaches and examples, alongwith an updated version of the framework and illustrative tools.These three documents are part of COSO’s effort to update its more than twenty-year-oldguidance on internal controls, which is widely used by companies today. COSOdeveloped the new compendium as an additional resource for companies to illustratehow to apply the principles in the internal controls framework.What’s next?The comment period ended earlier this month. We expect COSO to issue the finaldocuments in the first quarter. We also expect COSO to provide guidance at that time fortransitioning to the updated framework. For additional insight, see Dataline 2012-18,COSO’s proposed Internal Control Compendium, updated Framework, and IllustrativeTools.National Professional Services Group | CFOdirect Network – The quarter close 14
  • 16. SEC matters At last week’s AICPA conference, representatives from the SEC recapped the many activities that kept the regulator busy in 2012, namely the continued implementation of 4 Dodd-Frank and the JOBS Act. Next up for Dodd-Frank includes highly anticipated proposals on executive compensation clawbacks and the so-called CEO pay-ratio disclosure. Division of Corporation Finance Director Meredith Cross noted that work on open rulemaking is ongoing, but she did not provide a specific timeline for these proposals. Speaking of rulemaking, two new SEC rules mandated by Dodd-Frank stirred up plenty of controversy last quarter: disclosures about conflict minerals and payments made by resource extraction issuers. While the rules were expected, they are highly contentious with registrants. Thus, it came as no surprise that both rules have since been challenged in court. As of yet, however, the effective dates remain the same, so stay tuned for updates. MD&A—looking for a good new year’s resolution? According to the SEC, MD&A came in first place for volume of SEC comments last year. That alone is a good reason to take a fresh look at MD&A this reporting season. We’ll get you started with some high-level reminders and insight into a few areas that could warrant extra attention. MD&A do’s and don’ts MD&A is an opportunity to provide investors a view of the company through the eyes of management. Here are a few do’s and don’ts to keep in mind: Do’s:  Provide an executive overview of the period’s results and follow a principles- based disclosure model  Discuss cash flow trends and drivers of changes in cash flows from operations  Quantify cash held overseas and discuss material future cash requirements  Focus on trends and uncertainties that may have a material impact on future operating results and liquidity Don’ts:  Simply repeat information provided elsewhere; MD&A should analyze, quantify changes, and explain the “whys” and implications  Provide generic or boilerplate disclosure; MD&A should tell the company’s story 4 The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and Jumpstart Our Business Startups (JOBS) Act were signed into law in July 2010 and April 2012, respectively. National Professional Services Group | CFOdirect Network – The quarter close 15
  • 17. Non-GAAP measures—use them, but don’t abuse themNon-GAAP measures can be a useful way to communicate with investors, if usedproperly. The SEC continues to focus on these measures, particularly when they could beviewed as misleading, such as those that exclude recurring operating expenses. Othertakeaways on non-GAAP measures include: Ensure that non-GAAP measures are not shown with undue prominence (for example, do not present a full non-GAAP income statement) Describe why non-GAAP measures are useful to investors and how, if at all, management uses them Disclose the limitations of non-GAAP measures, such as the lack of comparability (for example, the definition of “adjusted EBITDA” is not the same for all companies)Contractual obligations—are you providing the full picture?One area of MD&A recently getting more attention is the contractual obligations table.Specifically, the SEC has been focusing on items not included in the table. Examplesinclude interest payments, unrecognized tax benefits, and expected payments orcontributions related to pension plans. Determining whether these items should beincluded in the table can require judgment—it depends on the level of certainty of thetiming and amounts. However, if an item is excluded due to uncertainties, use thefootnotes to the table to describe the timing and amount of the obligation, and clarifywhat has been excluded.Cybersecurity risks—beyond “boilerplate”Cyber attacks are an unfortunate reality for many companies today. In comment lettersand speeches (including last week’s AICPA conference), the SEC continues to re- 5emphasize the messages in its disclosure guidance on cybersecurity risks issued lastyear. Urging registrants to go beyond generic disclosures, the SEC expects MD&A todiscuss cyber attacks that have affected—or could materially affect—products, services,customer or supplier relationships, or competitive conditions. Additionally, if the threatof such attacks has prompted companies to increase cybersecurity protection, theseincreased expenditures may also warrant disclosure.Are you (or an affiliate) doing business with Iran? New lawushers in new disclosuresLast summer, President Obama signed the Iran Threat Reduction and Syrian HumanRights Act of 2012 into law. Among other things, the new law requires companies todisclose whether they or their affiliates engage in certain business activities related toIran. Examples include transactions with the government of Iran that have not beenspecifically authorized by the United States and activities that facilitate Iran’sdevelopment, production, and exportation of petroleum.The first disclosures under the law are required in interim and annual reports due afterFebruary 6, 2013. That means 2012 Form 10-Ks for calendar year-end companies willneed to comply with the new requirements whether filed before or after February 6.5 Refer to CF Disclosure Guidance: Topic No. 2, Cybersecurity.National Professional Services Group | CFOdirect Network – The quarter close 16
  • 18. IFRS developments Point, counterpoint…IFRS Foundation volleys back on SEC’s IFRS report As you’ll recall from last quarter, the SEC’s final staff report on IFRS left many disappointed—especially those in the international community—because it did not include an action plan or next steps toward an SEC decision on IFRS in the United States. This quarter, the IFRS Foundation had its say on the topic by releasing a response to the SEC’s report. In its response, the IFRS Foundation staff challenges a number of the SEC staff’s observations, often pointing to the experience of other territories as evidence. The response concludes that the United States can successfully transition to IFRS if there is sufficient political commitment to a single set of global standards. The report also expands on the benefits of IFRS, which were not a focus of the SEC’s report. While acknowledging the challenges, the analysis conducted by the IFRS Foundation staff shows that there are no insurmountable obstacles for adoption of IFRSs by the United States… Source: Michel Prada, Chairman of the Trustees of the IFRS Foundation, October 23, 2012 What’s next? That’s a good question. The SEC did not tip its hand at last week’s AICPA conference regarding any next steps (see “Front and center”). For more information on the IFRS Foundation staff’s response, see In brief 2012-47, IFRS Foundation responds to SEC’s final report on IFRS Work Plan. Proposal to bring national standard setters to the IFRS table In November, the IFRS Foundation issued a proposal for a new advisory group to the IASB that would include representatives from standard setters around the world. The proposal was prompted by recommendations that the IASB strengthen and formalize its relationships with national standard setters. With this advisory group, the IASB hopes to move from bilateral relationships (such as the FASB and IASB convergence efforts) to a more streamlined, collective relationship with national standard setters. According to the proposal, participants would be required, among other things, to make a formal commitment to a single set of globally accepted financial reporting standards, and make their best efforts to promote the endorsement or adoption of IFRSs in full without modification over time. At last week’s AICPA conference, IASB Chairman Hans Hoogervorst expressed his expectation that the FASB will be an active participant in the new advisory group. What’s next? Comments on the IFRS Foundation’s proposal are due December 17. The proposal can be found on the IFRS Foundation’s website. National Professional Services Group | CFOdirect Network – The quarter close 17
  • 19. IFRS standard-setting updateHighlights of the IASB’s standard-setting activities this quarter include new releases ontwo joint projects with the FASB: investment entities and financial instruments. To keepup with the latest IASB activities, check out our monthly IFRS news publication.IASB finalizes definition of “investment entity”At the end of October, the IASB issued its final guidance on the definition of an“investment entity.” Entities meeting the definition are not required to consolidatecertain subsidiaries and, instead, will report all investments at fair value. While theFASB and IASB have been working jointly on this project, the approaches are notidentical. For example, parent entities with investment company subsidiaries will retainthe “specialized accounting” of the investment company subsidiary under U.S. GAAP,but not under IFRS. Look for the FASB’s final standard in the first half of 2013.Proposal on debt investments takes steps toward convergenceLast year, the FASB and IASB agreed to jointly discuss certain aspects of the financialinstruments classification and measurement guidance. This quarter, the IASB proposedlimited amendments to its existing guidance that, among other things, reduce thedifferences between IFRS and the FASB’s proposed approach. Notably, the proposalincludes a third measurement category for debt investments: fair value with changes infair value recognized in other comprehensive income. As discussed in “On the horizon,”the FASB plans to issue its proposal on classification and measurement in early 2013.For more informationRefer to In brief 2012-49, IASB finalizes definition of an “investment entity,” and Inbrief 2012-55, IASB proposes limited amendments to its financial instruments guidanceunder IFRS 9, for more details.National Professional Services Group | CFOdirect Network – The quarter close 18
  • 20. Audit reporter PCAOB shares its 2013 resolutions At last week’s AICPA conference, representatives from the PCAOB continued to drive home the importance of performing high-quality audits. They also provided a preview of what’s coming down the road from the PCAOB. Upcoming standard setting The PCAOB’s new standard on audit committee communications is expected to be approved by the SEC this month. If approved, it will be effective for audits of fiscal years beginning on or after December 15, 2012. In the first half of 2013, expect to see a proposal on the auditor’s reporting model. The PCAOB also plans to issue a proposal on the auditor’s responsibility for assessing “going concern” in coordination with the FASB’s efforts (see “On the horizon”). What’s next for audit firm rotation? The PCAOB has collected a significant amount of feedback on mandatory audit firm rotation, as well as other possible alternatives to increase auditor objectivity and professional skepticism. In October, the PCAOB held a third public meeting on the topic. However, the PCAOB has not yet indicated whether it intends to move forward with a proposal. PCAOB member Jeanette Franzel commented at the AICPA conference that she expects the PCAOB to consider possible next steps in 2013. In the meantime, she emphasized that the PCAOB is taking action based on the feedback it has received, including enhancing its communications with audit committees. PCAOB member Jay Hanson also shared his perspectives, including some of the obstacles he sees to mandating audit firm rotation. Momentum continues outside the United States Audit policy matters also continue to be debated outside the United States. For example, in the United Kingdom, the Financial Reporting Council finalized changes that require the largest 350 companies on the London Stock Exchange to retender audits at least 6 every ten years under a “comply or explain” approach. Meanwhile, the European Commission’s proposals released last year—ranging from audit firm rotation to audit- only firms—are still under discussion. The International Auditing and Assurance Standards Board (IAASB) has been working on an auditor’s reporting model project with similarities to the PCAOB’s 2011 concept release. Like the PCAOB, the IAASB expects to issue a proposal in the first half of 2013. For more information For more regulatory developments, see our latest Regulatory and standard-setting developments publication. 6 Under this approach, companies are required to retender their audit engagements (that is, request proposals), or explain why they did not. National Professional Services Group | CFOdirect Network – The quarter close 19
  • 21. On the horizon With only weeks left in 2012, the FASB could still push through two additional exposure drafts before we ring in the new year. The first is the highly anticipated proposal on financial asset Looking for more impairment, discussed further below. A proposal on repurchase standard-setting news? transactions is also imminent. Check out our upcoming Looking forward to 2013, expect efforts on the remaining joint edition of Setting the FASB and IASB projects to continue. Proposals on leases and standard for the latest insurance contracts, as well as classification and measurement of financial instruments, are all slated for next year. The boards also updates on many of the plan to wrap-up discussions on revenue recognition early in 2013 FASB’s and IASB’s active and release a final standard later in the year. standard-setting projects. With activity on the joint projects beginning to wind down, there’s still plenty of standard-setting action to follow. Below we highlight a “revived” going concern project—now on the fast track—and the latest on private company standard setting. National Professional Services Group | CFOdirect Network – The quarter close 20
  • 22. Financial instruments—two proposals poised for releaseWith redeliberations wrapped-up, the FASB is putting the final touches on revisedproposals on financial instruments. First up, the FASB could get a proposal on financialasset impairment out the door yet this year. We expect a proposal on classification andmeasurement of financial instruments to follow shortly thereafter.Impairment—getting closer?In the aftermath of the financial crisis, the current model for impairment was widelycriticized as “too little, too late.” The FASB and IASB joined forces to reconsider theaccounting and were jointly exploring an approach known as the “three-bucket” modelearlier this year. Feedback on the “three-bucket” model, however, caused the FASB toabandon this approach in favor of a less complex model.Now, the FASB is poised to propose an alternative approach (known as the “currentexpected credit loss” model). The IASB, on the other hand, is sticking with the “three-bucket” approach (now called the “credit deterioration” model) and plans to issue aproposal early next year. At a high level, a key difference in the FASB’s approach ascompared to the IASB’s model—and current practice—is that it does not require a“threshold” to be met before recording a credit loss. Companies will determine theircredit impairment allowances based on expected losses over the full life of the loan ateach reporting date.Classification and measurement—moving toward convergenceFor classification and measurement, the FASB and IASB have agreed on broadlyconsistent approaches for debt investments and financial liabilities. This includes athree-category approach for debt investments: (1) amortized cost, (2) fair value withchanges in fair value recognized in other comprehensive income, and (3) fair value withchanges in fair value recognized in net income. However, in other areas, the FASB’s andIASB’s guidance is expected to differ, such as accounting for certain equity instruments.The IASB has already released for public comment proposed limited amendments to its 7existing guidance, while the FASB plans to issue its proposal in the first quarter.For more informationFor more on this project, see our upcoming edition of Setting the standard and Dataline2012-21, Financial instruments classification and measurement–An update on theFASB’s tentative approach to be exposed in Q1 2013.Revenue recognition—countdown to completionThe FASB and IASB continue to check off remaining open items on the revenue project.Meeting frequently to revisit key aspects of the model, the boards are getting closer to afinal standard.Key decisions on variable consideration and collectibilityAccounting for variable consideration (that is, amounts that could change in the future)has been a challenging aspect of the standard. Reconsidering the proposed “reasonablyassured” threshold, the boards decided to clarify that the overall objective is to recognize7 IFRS 9 (2010), Financial instrumentsNational Professional Services Group | CFOdirect Network – The quarter close 21
  • 23. revenue at an amount that should not be subject to significant revenue reversals in thefuture. This will be a qualitative assessment based on the entity’s historical experience.The boards also decided to change course on the presentation of uncollectible amounts.In the proposal, the boards had concluded these amounts should be shown in a line itemadjacent to revenue. Based on the feedback received, the boards decided uncollectableamounts should be an expense presented as a separate line item below gross margin.A compromise on licenses?The boards continue to struggle with opposing views on the appropriate timing ofrevenue from licenses. After much discussion, they concluded there may not be a “onesize fits all” approach. The boards tentatively outlined two “types” of licenses: (1) apromise to provide a right, which transfers to the customer at a point in time, and (2) apromise to provide access to intellectual property, which transfers benefits to thecustomer over time. Acknowledging the potential complexities of a dual model, theboards agreed to provide indicators to help determine the appropriate accounting basedon the nature of the license and the commercial substance of the agreement.What’s next?Coming up, the boards will tackle disclosures and transition. The boards have yet topublicly revisit these topics, but discussion has continued behind the scenes. Throughoutthe fourth quarter, the FASB met with representatives from the preparer and usercommunities in hopes of finding middle ground on these issues. We’ll learn whetherthese meetings have produced any new solutions in the upcoming months.For more information on the boards’ recent discussions, see Dataline 2012-15, Revenuefrom contracts with customers—The redeliberations continue, and In brief 2012-54,Boards make decisions on several major outstanding revenue issues. Also, check outthe archive of our recent webcast on the revenue project.Going concern—FASB outlines model for upcoming proposalAfter much back and forth, the FASB appears to have settled on an approach for “goingconcern”—and is now moving the ball forward. At its meeting in November, the FASBmade a number of decisions, providing a preview of a proposal that could be issued asearly as next quarter.Where is the FASB headed?The FASB decided management should perform a “going concern” assessment eachreporting period. That assessment will focus on the company’s ability to meet itsobligations in the ordinary course of business for a reasonable time period. A reasonabletime period will be defined as twelve months after the balance sheet date, butmanagement will also consider events probable of occurring beyond twelve months.Thresholds for “going concern” disclosuresThe FASB tentatively agreed on two key thresholds. First, if it’s more likely than not thata company can’t meet its obligations, certain early warning disclosures will be required.A company will disclose there is substantial doubt about its ability to continue as a goingconcern when it’s probable it can’t meet its obligations. The upcoming proposal isexpected to include guidance on how the thresholds should be applied.National Professional Services Group | CFOdirect Network – The quarter close 22
  • 24. What’s next? The FASB plans to move quickly, targeting a proposal in the first quarter of 2013. We expect the PCAOB to begin reassessing the guidance for auditors on this topic next year. For more information, see In brief 2012-50, FASB moving forward on “going concern” standard. OCI—FASB puts a bow on revised disclosures Last quarter, the FASB proposed new disclosures of reclassifications from accumulated other comprehensive income into net income. After some fine-tuning, the FASB is now ready to move forward with a final standard, but it won’t be finalized in time for 2012. What are the new requirements? As a refresher, the FASB decided last year to defer the requirement to present reclassifications from accumulated other comprehensive income by line item on the face of the financial statements. Last quarter’s proposal took an alternative approach, moving disclosure of reclassifications to the footnotes. In response to feedback on the proposal, the FASB decided not to require a prescriptive tabular footnote disclosure. Instead, the FASB will give companies the flexibility to present the information either in the notes or parenthetically on the face of the financial statements. The key objective, however, is to present all of the required information in a single location. For public companies, the disclosures will be required both in interim and year-end financial statements. Nonpublic companies are only required to include the disclosures in year-end financial statements. What’s next? The FASB plans to make the disclosures effective for public companies beginning in the first quarter of 2013. For more information, see In brief 2012-53, FASB amends new disclosures on items reclassified from accumulated other comprehensive income. Private company standard setting picks up steam It’s been an active quarter for private company standard setting. The Private Company Council is up and running, and comments are in on the private company decision- making framework.[The council is] eager to begin addressing the critical issues facingusers, preparers, and auditors of private company financialstatements.Source: Billy M. Atkinson, Private Company Council Chairman, October 18, 2012 Private Company Council kicks off discussions 8 In late September, the Financial Accounting Foundation (FAF) announced the members of the Private Company Council. The new council is charged with assessing whether U.S. GAAP should be modified for private companies. At its inaugural meeting, held on December 6, the council identified four areas for initial consideration: variable interest entities, “plain vanilla” interest rate swaps, uncertain tax positions, and 8 The FAF is the organization responsible for oversight of the FASB and Private Company Council. National Professional Services Group | CFOdirect Network – The quarter close 23
  • 25. intangible assets acquired in a business combination. After additional research anddiscussion, the council will decide which projects to add to its agenda. Stay tuned formore after the council meets again in February. For more on the December 6 meeting,see In brief 2012-56, Private Company Council holds its inaugural meeting.Comment period ends for decision-making frameworkThe response to the FASB’s proposed framework, which will help guide the PrivateCompany Council in its deliberations, was largely positive. Many cautioned, however,that modifications to recognition and measurement requirements should be rare. Oneissue many will be watching closely is whether a private company will be allowed toadopt only certain changes identified under the framework, or required to apply allchanges. Expect this issue to be debated as proposed modifications are being deliberated.Some who commented on the framework emphasized that modifications identified bythe Private Company Council should also be considered for public companies and non-profit entities. One possible solution is to make this assessment a required part of theFASB’s deliberation process.AICPA proposes an alternative financial reporting frameworkIn November, the AICPA released its proposed financial reporting framework as analternative for smaller entities that aren’t required to prepare U.S. GAAP financials. Theframework is an “other comprehensive basis of accounting” that uses historical cost as aprimary measurement basis. It’s not U.S. GAAP, nor is it authoritative guidance.Therefore, once the framework is finalized, there would not be an official effective dateor transition. Comments on the proposal are due January 30. For more information, seeIn brief 2012-51, AICPA seeks feedback on its Financial Reporting Framework forSmall- and Medium-Sized Entities.EITF discussions slide to first quarterWith the November EITF meeting sidelined by Hurricane Sandy, the next meeting isnow scheduled for mid-January. At that meeting, the EITF plans to discuss issuesexposed for comment earlier this year: (1) accounting by not-for-profit entities forcertain donated services from an affiliate and (2) accounting for certain joint and severalliability arrangements. For more background on these topics, see our June EITFobserver. The EITF will also discuss feedback on the foreign currency proposal featuredin “Hot off the press.”New topics for discussion in January“Push-down” accounting—a topic garnering significant interest—is also on the agendafor January. There is limited U.S. GAAP guidance today for determining when and howan acquired company’s standalone financial statements should reflect assets andliabilities based on what the buyer paid (that is, a “push down” of the buyer’s basis). Weexpect the EITF’s initial discussions to focus on defining the scope of the issue.Other new topics for January are: (1) accounting for service concession contractsbetween governmental and nongovernmental entities (for example, to operate ormaintain infrastructure assets such as roads and airports), (2) whether the Fed Fundsrate should be permitted as a “benchmark interest rate” for hedge accounting purposes,and (3) whether to present a liability for an unrecognized tax benefit on a gross or netbasis when a net operating loss or tax credit carryforward exists. Look for our EITFobserver shortly after the meeting for all of the highlights.National Professional Services Group | CFOdirect Network – The quarter close 24
  • 26. Corporate governance FCPA resource guide: put it on your reading list Consider it an early holiday gift. In November, the SEC and Department of Justice (DOJ) jointly issued a new resource guide to the U.S. Foreign Corrupt Practices Act (FCPA). The more than 100-page guide provides a detailed analysis of the FCPA and insight into SEC and DOJ enforcement practices. With the number of FCPA prosecutions continuing to increase, you’ll want to take advantage of this new resource. Read more in the December issue of BoardroomDirect on our Center for Board Governance website. Looking ahead to the 2013 proxy season Ready or not, the 2013 proxy season is right around the corner. This year, expect to see more activity in the areas that gained momentum in 2012. These include shareholder proxy access, board declassification (requiring all directors to be elected every year), and say-on-pay. We expect shareholders—particularly institutional investors—will focus on these and other related issues as they look to gain influence in the boardroom. Other topics likely to be debated in the 2013 proxy season include environmental and social proposals. In the aftermath of the recent election, disclosure of political contributions could remain a hot topic in 2013. For more on the upcoming proxy season, read the November issue of BoardroomDirect on our Center for Board Governance website. Other governance publications To find the following publications, visit our Center for Board Governance website. Directors and IT: What Works Best Overseeing a companys information technology (IT) can be a challenging task for directors, especially when few directors have IT backgrounds. We developed a two-part comprehensive guide—available now—to help directors bridge the “IT confidence gap.” Part 1 outlines a structured and efficient multi-step oversight process. Part 2 provides supplemental reading, giving directors information to better understand IT topics that they consider relevant. To the point—Winter 2012 In the upcoming edition of To the point—Current issues for boards of directors, we discuss Institutional Shareholder Services (ISS) policy updates for the 2013 proxy season, the recently issued guidance on FCPA, and insights about data security. To the point will be available in early January. National Professional Services Group | CFOdirect Network – The quarter close 25
  • 27. AppendixStandards effective in 2012 or earlier for calendar year-end public companies Public companies Nonpublic companiesASU 2010-28 Intangibles—Goodwill and Other (Topic Fiscal years (including interim Fiscal years (including interim 350): When to Perform Step 2 of the periods) beginning after periods) beginning after Goodwill Impairment Test for Reporting December 15, 2010 December 15, 2011* Units with Zero or Negative Carrying AmountsASU 2011-02 Receivables (Topic 310): A Creditor’s First interim or annual period Annual periods (including Determination of Whether a beginning on or after June 15, interim periods) ending on or Restructuring is a Troubled Debt 2011* after December 15, 2012* RestructuringASU 2011-09 Compensation–Retirement Benefits– Fiscal years ending after Fiscal years ending after Multiemployer Plans (Topic 715-80): December 15, 2011* December 15, 2012* Disclosures about an Employer’s Participation in a Multiemployer PlanASU 2010-26 Financial Services—Insurance (Topic Fiscal years (including interim Fiscal years (including interim 944): Accounting for Costs Associated periods) beginning after periods) beginning after with Acquiring or Renewing Insurance December 15, 2011* December 15, 2011* ContractsASU 2011-03 Transfers and Servicing (Topic 860): First interim or annual period First interim or annual period Reconsideration of Effective Control for beginning on or after beginning on or after Repurchase Agreements December 15, 2011 December 15, 2011ASU 2011-04 Fair Value Measurement (Topic 820): Interim and annual periods Annual periods beginning Amendments to Achieve Common Fair beginning after December 15, after December 15, 2011* Value Measurement and Disclosure 2011 Requirements in U.S. GAAP and IFRSsASU 2011-05 Comprehensive Income (Topic 220): Fiscal years (including interim Fiscal years ending after Presentation of Comprehensive Income periods) beginning after December 15, 2012, and December 15, 2011* interim and annual periods thereafter*ASU 2011-07 Health Care Entities (Topic 954): Fiscal years (including interim Fiscal years ending after Presentation and Disclosure of Patient periods) beginning after December 15, 2012, and Service Revenue, Provision for Bad December 15, 2011* interim and annual periods Debts, and the Allowance for Doubtful thereafter* Accounts for Certain Health Care EntitiesASU 2011-08 Intangibles–Goodwill and Other (Topic Annual and interim goodwill Annual and interim goodwill 350): Testing Goodwill for Impairment impairment tests performed impairment tests performed for fiscal years beginning after for fiscal years beginning after December 15, 2011* December 15, 2011*ASU 2011-12 Comprehensive Income (Topic 220): Fiscal years (including interim Fiscal years ending after Deferral of the Effective Date for periods) beginning after December 15, 2012, and Amendments to the Presentation of December 15, 2011* interim and annual periods Reclassifications of Items Out of thereafter* Accumulated Other Comprehensive Income in ASU 2011-05ASU 2012-07 Entertainment – Films (Topic 926): Impairment assessments Impairment assessments Accounting for Fair Value Information performed on or after performed on or after That Arises after the Measurement Date December 15, 2012* December 15, 2013* and Its Inclusion in the Impairment Analysis of Unamortized Film Costs*early adoption permitted National Professional Services Group | CFOdirect Network – The quarter close 26
  • 28. Standards effective after 2012 for calendar year-end public companies Public companies Nonpublic companiesASU 2011-10 Property, Plant, and Equipment (Topic Fiscal years (including interim Fiscal years ending after 360): Derecognition of in Substance periods) beginning on or after December 15, 2013, and Real Estate—a Scope Clarification June 15, 2012* interim and annual periods thereafter*ASU 2012-02 Intangibles – Goodwill and Other (Topic Fiscal years beginning after Fiscal years beginning after 350): Testing Indefinite-Lived Intangible September 15, 2012* September 15, 2012* Assets for ImpairmentASU 2011-11 Balance Sheet (Topic 210): Disclosures Annual reporting periods Annual reporting periods about Offsetting Assets and Liabilities (including interim periods) (including interim periods) beginning on or after January beginning on or after January 1, 2013 1, 2013ASU 2012-01 Health Care Entities (Topic 954): Fiscal years beginning after Fiscal years beginning after Continuing Care Retirement December 15, 2012* December 15, 2013* Communities – Refundable Advance FeesASU 2012-04 Technical Corrections and Fiscal periods beginning after Fiscal periods beginning after Improvements December 15, 2012 (for December 15, 2013 (for amendments subject to amendments subject to transition guidance) transition guidance)ASU 2012-06 Business Combinations (Topic 805): Fiscal years (including interim Fiscal years (including interim Subsequent Accounting for an periods) beginning on or after periods) beginning on or after Indemnification Asset Recognized at the December 15, 2012* December 15, 2012* Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial InstitutionASU 2012-05 Statement of Cash Flows (Topic 230): Fiscal years (including interim Fiscal years (including interim Not-for-Profit Entities: Classification of periods) beginning after June periods) beginning after June the Sale Proceeds of Donated Financial 15, 2013* 15, 2013* Assets in the Statement of Cash FlowsASU 2011-06 Other Expenses (Topic 720): Fees Paid Calendar years beginning Calendar years beginning to the Federal Government by Health after December 31, 2013 after December 31, 2013 Insurers*early adoption permitted National Professional Services Group | CFOdirect Network – The quarter close 27
  • 29. Edited by: Jan Hauser Partner Phone: 1-973-236-7216 Email: Josh Paul Partner Phone: 1-408-817-1269 Email: Angela Fergason Director Phone: 1-408-817-1216 Email: Mark Barsanti Senior Manager Phone: 1-973-236-4048 Email: quarter close is prepared by the National Professional Services Group of PwC. This content is for general information purposes only, and shouldnot be used as a substitute for consultation with professional advisors. To access additional content on accounting and reporting issues, register forCFOdirect Network (, PwC’s online resource for financial executives.© 2012 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the United States member firm, and may sometimes refer to the PwCnetwork. Each member firm is a separate legal entity. Please see for further details.