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2014 AICPA CFO Conference - Accounting Trends and Update
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2014 AICPA CFO Conference - Accounting Trends and Update

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FASB recently issued several Accounting Standards Updates (ASUs), and there are a significant number of projects in process. This session will focus on certain aspects of these ASUs and projects …

FASB recently issued several Accounting Standards Updates (ASUs), and there are a significant number of projects in process. This session will focus on certain aspects of these ASUs and projects including those related to revenue recognition, financial instruments and Private Company Council activities.

Published in: Economy & Finance, Business
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  • 1. © 2014 McGladrey LLP. All Rights Reserved. © 2014 McGladrey LLP. All Rights Reserved. Accounting trends and update for CFOs
  • 2. © 2014 McGladrey LLP. All Rights Reserved. Rick Day Biography rick.day@mcgladrey.com Rick is the National Director of Accounting for McGladrey LLP. He has overall responsibility for the Firm’s accounting guidance, training on all accounting topics, and leadership of McGladrey’s Accounting Standards Group. Rick joined McGladrey in 1981 and became a partner in 1990. He recently served as Director of McGladrey’s Western Regional Professional Practice Office. In this capacity, he had overall responsibility for all audit and accounting quality assurance elements and procedures for this region. As a designated SEC compliance reviewer, Rick has been responsible for assisting many of our publicly held clients with compliance matters and mergers and acquisitions.
  • 3. © 2014 McGladrey LLP. All Rights Reserved. Brian Marshall Biography brian.marshall@mcgladrey.com Brian is a partner in the National Accounting Standards Group of McGladrey LLP. His responsibilities include consulting with clients and engagement teams on complex accounting issues, facilitating training events for McGladrey professionals and external participants and writing interpretive guidance for McGladrey publications. He also is responsible for monitoring standard setting by the Financial Accounting Standards Board (FASB) and the FASB’s Emerging Issues Task Force (EITF) and Private Company Council (PCC), writing firm comment letters on proposed standards to the FASB and has been a member of several EITF working groups. Brian’s primary areas of expertise include general revenue recognition, software revenue recognition, asset impairments, and business combinations accounting. Prior to joining McGladrey, Brian worked as a senior program manager in the accounting practices group of a Fortune 50 company and also was employed by a Big Four accounting firm for over eight years in various U.S. and European offices, with his last position being a senior manager in the assurance services group.
  • 4. © 2014 McGladrey LLP. All Rights Reserved. Agenda  Private Company Council activities  FASB/IASB joint projects status  Other FASB developments
  • 5. © 2014 McGladrey LLP. All Rights Reserved. Private Company Council (PCC) activities
  • 6. © 2014 McGladrey LLP. All Rights Reserved. Private Company Council  Established in 2012 to improve the process for setting accounting standards for private companies  Two primary responsibilities - Utilizing the private company decision-making framework, determine exceptions or modifications to existing GAAP - Act as the primary advisory body to FASB on appropriate treatment for private companies for items under active consideration on FASB technical agenda
  • 7. © 2014 McGladrey LLP. All Rights Reserved. ASU 2013-12 – Definition of a Public Business Entity  Provides a single definition of a public business entity (PBE) - Applicable to new guidance only  PBEs may not elect private company alternatives  A PBE is a business entity meeting any of the following conditions: - Required by the SEC to file or furnish financial statements, or does file or furnish financial statements, with the SEC (including other entities whose financial statements or financial information are included in a filing) - Required by the Securities Exchange Act of 1934 to file or furnish financial statements with a regulatory agency other than the SEC
  • 8. © 2014 McGladrey LLP. All Rights Reserved. ASU 2013-12 – Definition of a Public Business Entity  A PBE is a business entity meeting any of the following conditions (continued): - Required to file or furnish financial statements with a foreign or domestic regulatory agency to sell or issue securities that are not subject to contractual restrictions on transfer - Has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the- counter market - Has securities that are not subject to contractual restrictions on transfer, and it is required by law, contract or regulation to prepare U.S. GAAP financial statements (including footnotes) and make them publicly available on a periodic basis  Refer to our summaries, “FASB defines public business entity” and “Q&A on the new public business entity definition”
  • 9. © 2014 McGladrey LLP. All Rights Reserved. ASU 2014-03 – Interest rate swaps alternative  Provides private companies with an accounting alternative for certain interest rate swaps  Scopes out benefit plans, not-for-profit entities and financial institutions (banks, savings and loan associations, savings banks, credit unions, finance companies, and insurance entities)  Can elect for existing and new qualifying swaps  Allows up until the date on which the first annual financial statements are available to be issued to meet documentation requirements
  • 10. © 2014 McGladrey LLP. All Rights Reserved. ASU 2014-03 – Interest rate swaps alternative  Allows simplified hedge accounting for certain swaps used to convert variable rate debt to fixed rate - Assumes 100% effectiveness - Permits recording swap at settlement value  Criteria to apply: - Swap and debt have same rate index and reset period - Swap is “plain-vanilla” with no floor or cap on the variable interest rate unless borrowing has a comparable floor /cap - Repricing and settlement dates match or differ by no more than a few days - Swap’s fair value at inception ~ zero - Notional amount of the swap <= debt principal - All debt interest payments during swap term are hedged
  • 11. © 2014 McGladrey LLP. All Rights Reserved. ASU 2014-03 – Interest rate swaps alternative  Extends the exemption from certain fair value disclosures to private companies for which such swaps are their only derivatives  Private companies can elect to apply the alternatives early to any financial statements that have not yet been made available for issuance  Refer to our white paper, “Simplified accounting for private companies: Certain interest rate swaps” Effective date and transition Effective retrospectively to certain types of swaps, using either a modified retrospective approach or a full retrospective approach, in annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015.
  • 12. © 2014 McGladrey LLP. All Rights Reserved. ASU 2014-07 – Variable interest entities alternative  Provides private companies with an accounting alternative for certain common control leasing arrangements: - A private company may elect not to apply the variable interest entity (VIE) model in assessing whether to consolidate a lessor entity if: 1. The lessor entity and the private company (reporting entity) are under common control; 2. The private company has a leasing arrangement with the lessor entity; 3. Substantially all of the activities between the two entities relate to the leasing activity; and
  • 13. © 2014 McGladrey LLP. All Rights Reserved. ASU 2014-07 – Variable interest entities alternative - A private company may elect not to apply the variable interest entity (VIE) model in assessing whether to consolidate a lessor entity if (continued): 4. If the private company explicitly guarantees or provides collateral for any obligation of the lessor entity related to the leased asset, then the principal amount of the obligation at inception of the guarantee or collateral arrangement is not more than the value of the leased asset  Additional disclosures required
  • 14. © 2014 McGladrey LLP. All Rights Reserved. ASU 2014-07 – Variable interest entities alternative  Other guidance, including ASC 460, Guarantees, ASC 840, Leases, and non-VIE guidance in ASC 810, may be applicable  Private companies can elect to apply the alternatives early to any financial statements that have not yet been made available for issuance  Refer to our white paper, “Simplified accounting for private companies: Common control leases” Effective date and transition Effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015.
  • 15. © 2014 McGladrey LLP. All Rights Reserved. ASU 2014-02 – Goodwill alternative  Provides private companies with a simplified approach to the subsequent accounting for goodwill  Amortize goodwill over a period not to exceed 10 years  Goodwill impairment testing - Test only when there is a triggering event rather than annually - Test at either the entity level or reporting unit level - One-step test • Compare the fair value of the entity (or reporting unit) to its carrying amount to measure impairment instead of performing current two-step goodwill impairment test
  • 16. © 2014 McGladrey LLP. All Rights Reserved. ASU 2014-02 – Goodwill alternative  Private companies can elect to apply the alternatives early to any financial statements that have not yet been made available for issuance  If alternative is elected, application is generally required to begin as of the first day of the fiscal year of adoption - As a result, a full year of goodwill amortization will be required in the year of adoption Effective date and transition Effective prospectively to goodwill existing as of the beginning of the period of adoption and new goodwill recognized in annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015.
  • 17. © 2014 McGladrey LLP. All Rights Reserved. ASU 2014-02 – Goodwill alternative  Refer to our white paper, “Simplified accounting for private companies: Goodwill”  FASB is currently discussing the accounting for goodwill for public business entities and not-for- profit entities  FASB and PCC are also continuing to discuss a related issue, PCC Issue No 13-01A, on Accounting for identifiable intangible assets in a business combination
  • 18. © 2014 McGladrey LLP. All Rights Reserved. Considerations for electing private company alternatives  Companies should carefully consider the new public business entity definition in ASU 2013-12 - More companies may be considered PBEs  Private companies anticipating going public or eventually being acquired by a PBE should consider the difficulty involved in transitioning to public company accounting - Currently no specific transition guidance provided - Retrospective application would be required
  • 19. © 2014 McGladrey LLP. All Rights Reserved. Considerations for electing private company alternatives  Private companies should discuss with their lenders, and other financial statement users, whether it is acceptable to utilize these alternatives  Refer to our summary, “FASB defines public business entity”
  • 20. © 2014 McGladrey LLP. All Rights Reserved. FASB/IASB joint projects status
  • 21. © 2014 McGladrey LLP. All Rights Reserved. FASB/IASB joint projects timeline 2014 Project Status 1H 2H Revenue recognition Final ASU expected F Leases ED issued in May 2013 RD RD Financial instruments • Classification and measurement ED issued in Feb. 2013 RD RD, F • Impairment ED issued in Dec. 2012 RD RD, F • Hedging DP issued in Feb. 2011 Insurance ED issued in June 2013 RD RD F = Final RD = Redeliberations
  • 22. © 2014 McGladrey LLP. All Rights Reserved. Revenue recognition Why should you be interested? • Revenue recognition policies of almost all entities will be affected • Virtually all industry-specific guidance will be superseded What’s the status? • Final ASU expected in Q2 2014 What’s happened recently? • Drafting final standard When would it be effective? • 2017 for calendar year-end public companies - Disclosure of effect of adoption required once final ASU is issued • 2018 for calendar year-end private companies
  • 23. © 2014 McGladrey LLP. All Rights Reserved. Leases Why should you be interested? • Accounting by lessees and lessors could change drastically What’s the status? • Second ED issued in May 2013 • Redeliberations commenced in November 2013 What’s happened recently? • Joint meetings in March and April • Boards did not agree on lessee model • Differences also on lessor model • Joint decisions on a number of items including discount rate, modifications and in-substance fixed payments What’s next? • Continued redeliberations
  • 24. © 2014 McGladrey LLP. All Rights Reserved. Financial instruments – Classification and measurement Why should you be interested? • As proposed in 2013 ED, more financial assets would be measured at fair value What’s the status? • Redeliberations are well underway Have any significant decisions been reached in redeliberations? • Existing separate guidance for loans and debt securities will be retained with modification as well as for hybrid financial assets and liabilities What’s next? • Consider in addition to most equity investments, what other financial assets should be measured at FV-NI
  • 25. © 2014 McGladrey LLP. All Rights Reserved. Financial instruments – Impairment Why should you be interested? • Could significantly accelerate recognition of expected credit losses What’s the status? • Redeliberations are in process Have any significant decisions been reached in redeliberations? • Reaffirmed upfront recognition of lifetime expected credit losses • However for FV-OCI assets, expected credit losses would only be recognized if FV is less than amortized cost and would be limited to the difference between FV and amortized cost What’s next? • Decide extent of impairment recognition when asset is identified for sale or MLTN requirement to sell exists
  • 26. © 2014 McGladrey LLP. All Rights Reserved. Other FASB developments
  • 27. © 2014 McGladrey LLP. All Rights Reserved. ASU 2014-08 – Discontinued operations  Changes criteria for reporting discontinued operations, including removal of requirements to evaluate whether cash flows have been eliminated from ongoing operations and whether there will be any significant continuing involvement  Disposal of a component of an entity (or group of components) is a discontinued operation if considered a strategic shift resulting in a major effect on an entity’s operations and financial results when any of the following occurs to the component (or group of components): - Meets the criteria to be classified as held for sale - Disposed of by sale - Disposed of other than by sale
  • 28. © 2014 McGladrey LLP. All Rights Reserved. ASU 2014-08 – Discontinued operations  A business or nonprofit activity that meets the held- for-sale criteria on the date of acquisition is also considered a discontinued operation  Entities can adopt the guidance early for disposals (or classifications as held for sale) that have not been reported in previously issued financial statements  Additional disclosures required Effective date and transition Effective in the first quarter of 2015 for public organizations with calendar year ends. For most nonpublic organizations, it is effective for annual financial statements with fiscal years beginning on or after December 15, 2014.
  • 29. © 2014 McGladrey LLP. All Rights Reserved. Other final standards issued since last year’s CFO conference ASU 2013-08, Financial Services-Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements ASU 2013-09, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04 ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
  • 30. © 2014 McGladrey LLP. All Rights Reserved. Other final standards issued since last year’s CFO conference ASU 2014-01, Investments–Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects ASU 2014-04, Receivables–Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure ASU 2014-05, Service Concession Arrangements (Topic 853) ASU 2014-06, Technical Corrections and Improvements Related to Glossary Terms
  • 31. © 2014 McGladrey LLP. All Rights Reserved. Projects expected to be finalized in the first half of 2014 Development Stage Entities Repurchase Agreements and Similar Transactions Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
  • 32. © 2014 McGladrey LLP. All Rights Reserved. Questions and closing remarks
  • 33. © 2014 McGladrey LLP. All Rights Reserved. McGladrey thought leadership Financial Reporting Resource Center www.McGladrey.com/FRRC
  • 34. © 2014 McGladrey LLP. All Rights Reserved. McGladrey thought leadership  Recent McGladrey accounting white papers and summaries: - FASB defines public business entity - Q&A on the new public business entity definition - Simplified accounting for private companies: Certain interest rate swaps - Simplified accounting for private companies: Common control leases - Simplified accounting for private companies: Goodwill - FASB discusses the accounting for financial instruments - Recent developments in the FASB’s financial instruments project
  • 35. © 2014 McGladrey LLP. All Rights Reserved. McGladrey thought leadership Publications subscription site www.mcgladrey.com/subscribe
  • 36. © 2014 McGladrey LLP. All Rights Reserved. Contact Information Rick Day * rick.day@mcgladrey.com ( 563.888.4017 Brian Marshall * brian.marshall@mcgladrey.com ( 203.312.9329
  • 37. © 2014 McGladrey LLP. All Rights Reserved. About McGladrey McGladrey LLP is a leading provider of assurance, tax and consulting services focused on the middle market, with more than 6,700 professionals in 75 U.S. cities and access to more than 32,000 people in 100 countries through our membership in RSM International. We provide the following services through our practice areas:  Assurance  Tax  Consulting  Wealth Management  International Business Follow us on:

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