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Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011
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Current & Emerging Accounting Developments presented by McGladrey - AICPA National Audit Committee Forum June 2011

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McGladrey & Pullen Presentation (Rick Day & Brian Marshall) on Current & Emerging Accounting Developments at the June 2011 AICPA National Audit Committee Forum

McGladrey & Pullen Presentation (Rick Day & Brian Marshall) on Current & Emerging Accounting Developments at the June 2011 AICPA National Audit Committee Forum

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  • 1. Audit Committee Landscape:Current & Emerging Accounting Developments
  • 2. Rick Day Biographyrick.day@mcgladrey.com Rick is the National Director of Accounting for McGladrey & Pullen, 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 & Pullen in 1981 and became a partner in 1990. He recently served as Director of McGladrey & Pullen’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. American Institute of CPAs
  • 3. Brian Marshall Biographybrian.marshall@mcgladrey.com Brian is a partner in the Accounting Standards Group of McGladrey & Pullen, LLP. His responsibilities include consulting with clients and engagement teams on complex accounting issues associated with these subject matters, facilitating training events for McGladrey professionals and external participants and writing interpretive guidance for McGladrey publications. He is also responsible for monitoring standard setting by the FASB and the FASB’s EITF and has been a member of EITF working groups. Prior to joining McGladrey in 2007, Brian worked for more than two years as a Senior Program Manager in IBM’s Accounting Practices Group, serving as a resource on complex technical accounting matters for the Company’s global accounting community. Brian also was employed by Deloitte & Touche, LLP for over eight years in various offices in the U.S. and Europe, with his last position being a Senior Manager in the Firm’s Assurance Services Group. American Institute of CPAs
  • 4. Agenda The Big Picture Certain Accounting Standards Updates (ASUs) Recently Issued / Effective Major Joint FASB / IASB Projects in Progress American Institute of CPAs 4
  • 5. The Big Picture American Institute of CPAs 5
  • 6. People Matters FASB • Board back to 7 members • Leslie Seidman appointed chairman • 2 new board members - Daryl E. Buck - R. Harold Schroeder PCAOB • New chairman and 2 new board members - James R. Doty, Chairman - Lewis H. Ferguson - Jay D. Hanson American Institute of CPAs 6
  • 7. When was this said? “The latter half of the decade…was a period of unprecedented stress for the individual members and institutions of the accounting profession. Problems arising from…the development of increasingly complex and innovative business practices…[have] create[d] a wave of criticism of corporate financial reporting.” AICPA Report of the Study on Establishment of Accounting Principles, 1972 (aka the Wheat Report) American Institute of CPAs 7
  • 8. Blue Ribbon Panel (BRP) - Private CompanyFinancial Reporting In January, the BRP issued its recommendations to the Financial Accounting Foundation (FAF) Significant recommendations include: • creation of a separate private company standards board • a new standard-setting model that follows GAAP with exceptions for private companies In March, the FAF formed a Trustee Working Group to: • conduct outreach to stakeholders • seek input on improvements, including BRP’s recommendations American Institute of CPAs 8
  • 9. SEC Staff IFRS Work Plan Issued in February 2010 and addresses concerns on incorporating IFRS into US financial reporting system Progress Report - October 2010 • SEC staff observations and update on their six areas of concern in the Work Plan SEC Staff Paper Exploring a Possible Method of Incorporation – May 2011 • US GAAP would change over time through endorsement / incorporation of individual IFRSs into US GAAP • Would organize individual IFRSs into 3 categories for transition purposes American Institute of CPAs 9
  • 10. SEC Staff IFRS Work Plan SEC Staff Paper Exploring a Possible Method of Incorporation – May 2011 (cont.) • Consistent with “Condorsement” approach discussed by SEC staff member in December 2010 • Comments requested by July 31, 2011 Future Activity • Several additional papers for public study & comment expected to be issued - Updated study of US GAAP / IFRS differences - Detailed analysis of IFRS filings • SEC scheduled IFRS Roundtable on July 7 • Decision by SEC expected in late 2011 American Institute of CPAs 10
  • 11. Certain ASUs Recently Issued / Effective Revenue Recognition Disclosures about Financing Receivables and Allowance for Credit Losses Goodwill Impairment Fair Value Measurement American Institute of CPAs 11
  • 12. Revenue Recognition (ASU 2009-13) Supersedes current guidance on multiple- deliverable revenue arrangements Amends guidance on how to: • Determine the unit of accounting • Allocate consideration to each unit of accounting Can utilize best estimate of selling price for allocation purposes in certain cases Relative selling price will be used to allocate arrangement consideration • Residual method of allocation has been eliminated Effective for fiscal years beginning after June 15, 2010 American Institute of CPAs 12
  • 13. Revenue Recognition (ASU 2009-14) Changes the accounting model for revenue arrangements that include both tangible products and software elements • Tangible products containing software components and non- software components that function together to deliver the tangible products essential functionality are no longer within the scope of the software revenue recognition guidance • Factors provided for evaluating whether the software and non- software components function together to deliver a products essential functionality Same effective date and disclosure requirements as ASU 2009-13 American Institute of CPAs 13
  • 14. Disclosures about Financing Receivables andAllowance for Credit Losses (ASU 2010-20) Rollforward schedule of the allowance for loan losses (ALL) on a portfolio segment basis, with the ending balance further disaggregated based on impairment method • For each disaggregated ending balance, the related recorded investment in financing receivables The nonaccrual status of financing receivables by class of financing receivables Impaired financing receivables by class of financing receivables American Institute of CPAs 14
  • 15. Disclosures about Financing Receivables andAllowance for Credit Losses (ASU 2010-20) Credit quality indicators and aging of past due by class of financing receivable Troubled debt restructurings (TDRs) that occurred during the period and effect on the ALL TDRs that re-defaulted during the period Significant purchases and sales of financing receivables during the period, by portfolio segment Effective dates • Balance sheet (public) – ending on or after December 15, 2010 • Activity (public) – beginning on or after December 15, 2010 (other than for TDR disclosures, which are June 15, 2011) • Nonpublic – annual periods ending on or after December 15, 2011 American Institute of CPAs 15
  • 16. Goodwill Impairment (ASU 2010-28) Affects entities with goodwill in a reporting unit (RU) that has a zero or negative carrying amount Some entities with RUs that have zero or negative carrying amounts historically concluded that Step 1 of the test is automatically passed Modifies Step 1 of the goodwill impairment test for these RUs • Required to perform Step 2 if adverse qualitative factors indicate that goodwill impairment is more likely than not Effective for fiscal years, and interim periods in those years, beginning after December 15, 2010 (public) / December 15, 2011 (nonpublic) American Institute of CPAs 16
  • 17. Goodwill Impairment Proposed ASU Issued in April with comments due in early June Entity could qualitatively evaluate whether it is more likely than not that the fair value of a RU is less than its carrying amount prior to performing step one Qualitative factors to consider are included and replace existing guidance Carryforward of RU’s prior year fair value would no longer be allowed Effective for annual and interim impairment tests performed for fiscal years beginning after December 15, 2011, with earlier adoption permitted American Institute of CPAs 17
  • 18. Fair Value Measurement (ASU 2011-04) Blockage discounts prohibited for all fair value measurements Other discounts or premiums (for non-Level 1 measurements) may be applied if consistent with unit of account and would be considered by a market participant Concepts of “highest and best use” and “valuation premise” apply only to nonfinancial assets Exception to fair value requirements provided for financial instruments managed in a portfolio American Institute of CPAs 18
  • 19. Fair Value Measurement (ASU 2011-04) Principal market – determined based on market with greatest volume and level of activity the Company can access Fair value of instrument classified in equity measured from perspective of market participant that holds instrument as an asset Additional disclosures required Effective dates • Public – interim and annual periods beginning after December 15, 2011 • Nonpublic - annual periods beginning after December 15, 2011 American Institute of CPAs 19
  • 20. Major Joint FASB / IASB Projects in Progress FASB / IASB Progress Report – April ’11 Timetable for Selected Joint Projects Revenue Recognition Project Leases Project American Institute of CPAs 20
  • 21. FASB / IASB Progress Report – April ‘11 Joint standards on Statement of Comprehensive Income & Fair Value Measurement expected & subsequently issued in Q2 Priority projects • Revenue Recognition • Leases • Financial Instruments Timetable extended for priority projects from 2Q to 2H 2011 Effective dates will allow sufficient time for changes American Institute of CPAs 21
  • 22. FASB / IASB Progress Report – April ‘11 Revenue Recognition and Leases Projects • Boards’ timetables are in sync for both projects • Final redeliberations are in progress • Consider whether re-exposure is necessary • Even without re-exposure, draft standards will be made available for review • Boards will then determine whether to proceed to finalize the standards American Institute of CPAs 22
  • 23. FASB / IASB Progress Report – April ‘11 Financial Instruments Project • Various Board sub-projects 1.Balance Sheet – Offsetting - Boards’ timetables are in sync 2.Classification and Measurement - FASB expects to complete in 2H 2011 and consider whether re-exposure is necessary - IASB completed in 2010 American Institute of CPAs 23
  • 24. FASB / IASB Progress Report – April ‘11 Financial Instruments Project • Various Board sub-projects 3.Impairment - Boards’ timetables are in sync - Basic impairment approach to be determined by end of 2H 2011 - Consider whether re-exposure is necessary 4.Hedge Accounting - IASB plans to finalize in 2H 2011 - FASB timing unclear American Institute of CPAs 24
  • 25. FASB / IASB Progress Report – April ‘11 Insurance Project • Different Board timetables: - IASB expects to issue final document by end of 2011 - FASB expects to issue an ED in 2H 2011 and final standard in 2012 American Institute of CPAs 25
  • 26. Timetable for Selected Joint ProjectsJoint Project 2Q 2011 2H 2011 2012 & Beyond Press Tab 1xRevenue Recognition to create the orange shield bulletF EDLeases a hard return to create an additional orange Use F shield bulletFinancial Instruments F • Press Tab 2x to create the bulletInsurance ED FFair • Use a hard Return to create anIssued Value Measurements additional bulletStatement of Comprehensive Income the dash - Press Tab 3x to create IssuedConsolidation a hard Return to create an additional dash - Use ED FReporting Discontinued Operations ED FEmissions Trading Schemes ED, FFinancial Instruments with ED, FCharacteristics of EquityFinancial Statement Presentation ED, F American Institute of CPAs 26
  • 27. Revenue Recognition Project Scope Steps in applying the model 1. Identify the contract with a customer 2. Identify the separate performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the separate performance obligations 5. Recognize revenue when each separate performance obligation is satisfied American Institute of CPAs 27
  • 28. Revenue Recognition Project1. Identify the contract with a customer • Contract is an enforceable agreement between parties • Can be written, verbal or implied • Contract combination - Required for contracts entered into at or near the same time if certain other criteria are met2. Identify the separate performance obligations • Account for performance obligations separately if the good or service has a distinct function and is transferred at a different time from other promised goods or services • However, a bundle of promised goods or services is accounted for as one performance obligation if the entity provides a service of integrating those goods or services into a single item American Institute of CPAs 28
  • 29. Revenue Recognition Project3. Determine the transaction price • Estimated amount of consideration to which the entity will be entitled - If price is variable (e.g.; contingencies, rebates, royalties), estimate based on probability-weighted or most-likely amount - Time value of money - Fair value of noncash consideration • Collectibility is not considered4. Allocate the transaction price • Based on relative standalone selling price of goods or services • Subsequent changes to transaction price generally allocated to all performance obligations unless certain criteria are met American Institute of CPAs 29
  • 30. Revenue Recognition Project5. Recognize revenue • Recognition limited to cumulative revenue the entity is reasonably assured of being entitled to receive • Recognize revenue as goods or services are transferred • Determine whether separate performance obligations are goods or services - Goods – recognize revenue when customer obtains control - Services – recognize revenue as the entity provides service if performance obligation is satisfied continuously - Select a method for service revenue recognition that faithfully depicts the entity’s performance American Institute of CPAs 30
  • 31. Leases Project Perceived problems with current model • Similar transactions can have different accounting • Structuring opportunities • Complex, rules-based • Assets and liabilities not recognized on balance sheets American Institute of CPAs 31
  • 32. Leases Project Lease definition Short-term leases Lease term Agreements with lease and non-lease components Lease payments American Institute of CPAs 32
  • 33. Leases Project Classification • Finance or other-than-finance - Decision reversed at May meeting - Conclusion: all leases have a financing element • Reversal means leases will be accounted for in manner illustrated in Exposure Draft - Expense will be front loaded American Institute of CPAs 33
  • 34. McGladrey Thought Leadership More Accounting Changes Coming FASB Tentatively Decides to Significantly Revise Proposed Revenue Recognition Standard http://mcgladrey.com/Assurance/Accounting- Resources http://mcgladrey.com/Publications/Publication- Subscription American Institute of CPAs 34
  • 35. QUESTIONS?American Institute of CPAs 35

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