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A-3-GAAP-Update A-3-GAAP-Update Document Transcript

  • 47thBANK & CAPITAL MARKETS TAX INST IT U T Eannual A-3: GAAP UPDATE Fantasia K-N November 8th, 1:45pm – 3:15pm 47th ANNUAL BANK & CAPITAL MARKETS TAX INSTITUTE DISNEY CONTEMPORARY HOTEL Speakers: JUSTIN HORST, CPA FRED J. PETERSON MARK REIS CHARLIE SHANNON, CPA 47 BANK I N S T I T U MARKET th annual TA X & CAPITAL TE NOVEMBER 7-9, 2012 E.COM WWW.BANKTAX I N ST I T U T D I S N E Y C O N T E M P O R A RY H OT E L | ORLANDO
  • 10/26/2012 Accounting Update Justin Horst, CFO Pinnacle Bank Fred Peterson, Partner Charlie Shannon, Partner Mark Reis, Partner Bank Tax Institute November 8, 2012 MOSS ADAMS LLP | 1DISCLAIMERThe material appearing in this presentation is for informational purposes only and is not legal or accounting advice. Communication of this information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant‐client relationship. Although these materials may have been prepared by professionals, they should not be used as a substitute for professional services. If legal, accounting, or other professional advice is required, the services of a professional should be sought. MOSS ADAMS LLP | 2TOPICS FOR DISCUSSION o ALLL and Troubled Debt Restructurings o Proposed: Guidance on Financial Instruments and Impairment o Comprehensive Income o Proposed: Consolidations o Proposed: Repurchase Agreements MOSS ADAMS LLP | 3 1
  • 10/26/2012TOPICS FOR DISCUSSION o Proposed: Revenue Recognition o Proposed: Leases o Changes to Fair Value Disclosures o Goodwill and Indefinite‐Lived Intangible Assets o Proposed: Liquidity and IRR Disclosures o Private Company Council MOSS ADAMS LLP | 4 ALLL & Troubled Debt Restructurings MOSS ADAMS LLP | 5ACCOUNTING FOR ALLOWANCE FORLOAN LOSSES• Continues to be an area of regulatory and audit scrutiny!• Emphasis on adequate support o Need to ensure that ALLL methodology continues to be adequate.  Is the ALLL to total loans directionally consistent with the elevated levels of delinquencies, charge–offs and impaired loans?  Is our ALLL relative to nonperforming loans reasonable?  Unallocated reserve growing?  Has a 3rd party reviewed our methodology for improvement?  Have we appropriately documented our practices? MOSS ADAMS LLP | 6 2 View slide
  • 10/26/2012ACCOUNTING FOR ALLOWANCE FORLOAN LOSSES• Observations resulting from new disclosures o Increased scrutiny on higher risk portions of the portfolio o Higher demand on information systems and policy/procedural documentation o Unallocated reserve growing, increased focus o Negative provision/reserves vs. growing into reserve levels MOSS ADAMS LLP | 7TROUBLED DEBT RESTRUCTURINGS(TDRS)Observations regarding TDRs:• TDR accounting still inconsistent• New disclosures have essentially highlighted the effectiveness of TDRs by requiring disclosure of subsequent defaults• Still some differences in application of the guidance• Regulator application of guidance during exams MOSS ADAMS LLP | 8Proposed:  Guidance on Financial Instruments and Impairment MOSS ADAMS LLP | 9 3 View slide
  • 10/26/2012PROPOSED IMPAIRMENT GUIDANCE –THE RECENT HISTORY• IASB (2009) – Expected cash flow model• FASB Exposure Draft (2010) – Expected loss model based on static conditions• IASB/FASB Joint Supplemental Document (2011) – Three‐bucket approach MOSS ADAMS LLP | 10IMPAIRMENT: THE “NEW” NEWPROPOSED GUIDANCE• August 22, 2012 – FASB revisited model made a number of key decisions ‐ o Current Expected Credit Losses (CECL) Model o Single‐measurement objective o Recognize credit impairment allowance for current estimate of expected credit losses MOSS ADAMS LLP | 11IMPAIRMENT: THE “NEW” NEWPROPOSED GUIDANCEAdditionally ‐ FASB to explore single measurement approach for impairment of financial assets – o Currently, there are 5 different impairment models for debt instruments o FASB instructed its staff to explore a single measurement approach for estimating losses for financial assets that are not accounted for at fair value; impairment of loans, impairment of debt securities (OTTI), etc. MOSS ADAMS LLP | 12 4
  • 10/26/2012IMPAIRMENT: THE “NEW” NEWPROPOSED GUIDANCEDeveloping the single measurement approach for impairment of financial assets – o Issues to address:  Working on a practical expedient for measuring FV  Developing guidance to better address the classic issue: how does a credit discount being embedded in the purchase price of a purchased asset vs. the credit discount being embedded in the interest rate of an originated asset differ?  Also, Board believes Day 1 impairment is possible! MOSS ADAMS LLP | 13IMPAIRMENT: THE “NEW” NEWPROPOSED GUIDANCE What’s next? ‐ October 2012: ‐CECL model moving forward ‐Board will reexpose the revised credit impairment model proposal ‐Modifications (TDRs) to require basis adjustment (i.e.. charge‐off) rather than allowance • More to come…. Stay tuned. MOSS ADAMS LLP | 14PROPOSED: CLASSIFICATION &MEASUREMENT OF FINANCIAL INSTRUMENTSSubsequent measurement of financial assets based on characteristics and business model for managing them – o FV‐NI o FV‐OCI o Amortized cost• Financial liabilities generally recognized at amortized cost MOSS ADAMS LLP | 15 5
  • 10/26/2012 Comprehensive Income MOSS ADAMS LLP | 16COMPREHENSIVE INCOME• ASU 2011‐05 (June 2011)• Allows for two options ‐ o Single continuous statement of comprehensive income (as part of the income statement) o Two separate but consecutive statements• ASU 2011‐12 (December 2011)• Defers the effective date for presentation of reclassifications of items out of accumulated OCI required by ASU 2011‐05 MOSS ADAMS LLP | 17COMPREHENSIVE INCOME• 2012 Proposed ASU o Proposed August 2012; comment period ended October 15, 2012 o Proposed amendments would require enhanced disclosures to present separately, by component, reclassifications out of accumulated other comprehensive income o Current update on status… MOSS ADAMS LLP | 18 6
  • 10/26/2012 Proposed: Consolidations MOSS ADAMS LLP | 19PROPOSED: CONSOLIDATIONSNovember 2011, FASB issued proposed ASU 2011‐220• All entities required to evaluate whether they should consolidate another entity• Changes Variable Interest Entity evaluation• Changes evaluation of participation rights held by noncontrolling shareholders MOSS ADAMS LLP | 20PROPOSED: CONSOLIDATIONS Rights held by other parties  (not the DM) Decision maker’s exposure to  variability from other interests Decision maker’s  compensation MOSS ADAMS LLP | 21 7
  • 10/26/2012PROPOSED: CONSOLIDATIONS Purpose of entity Design entity MOSS ADAMS LLP | 22PROPOSED: CONSOLIDATIONS VIE Evaluation • Use P/A analysis to determine whether equity holders, as a  group, have the power to direct the activities that most  significantly affect the VIE’s economic performance • Lack of this power indicates entity as a VIE Primary beneficiary determination • Focuses on whether decision maker has power and  economics • Decision maker that uses power as agent typically not a  primary beneficiary and would not consolidate • Unless ID’d as primary beneficiary through related party  tiebreaker test MOSS ADAMS LLP | 23PROPOSED: CONSOLIDATIONSStatus –• Currently being redeliberated; • Expect something in final in late first half of 2013 MOSS ADAMS LLP | 24 8
  • 10/26/2012 Proposed: Repurchase Agreements MOSS ADAMS LLP | 25OBJECTIVE OF PROPOSED GUIDANCE • Improve existing accounting & disclosure o Provide useful information about transactions o Address application issues/changes in marketplace • Differentiate between repurchase agreements as: o Secured Borrowings vs. o Sales with forward repurchase commitment • Convergence with IFRS? o Effective control vs. risk and rewards MOSS ADAMS LLP | 26“EXCEPTION” CRITERIA FOR SECUREDBORROWING1. Involves transfer of existing financial assets2. Involves right and obligation to repurchase assets3. Initial transfer and forward repurchase agreement involve same counterparty4. Agreement to repurchase is entered into contemporaneously with, or in contemplation of, initial transfer5. Repurchase price is fixed or readily determinable6. Financial assets specified under forward repurchase agreement are identical to, or substantially the same as, assets transferred at inception MOSS ADAMS LLP | 27 9
  • 10/26/2012REPURCHASE AGREEMENTS• Proposed disclosures for transactions accounted for as: o Secured borrowing ‐ disclose a disaggregation of the carrying value of the borrowing based on the type of collateral pledged o Sale accounting ‐ disclosure including quantification of these transactions at each reporting period will be required. To the extent that the amount of such agreements has changed significantly since the previous balance sheet date, an entity will be required to disclose the reason(s) for the change.• Next Steps o Exposure Draft in 4th quarter 2012 o Staff to research potential for project that broadly assesses overall derecognition model MOSS ADAMS LLP | 28 Proposed: Revenue Recognition MOSS ADAMS LLP | 29PROPOSED: REVENUE RECOGNITION• Joint project with IASB• Single revenue recognition standard would replace all current U.S. GAAP and IRFS revenue recognition standards• Exposure Draft is available at www.fasb.org• Expect final standard in the 1st half of 2013 MOSS ADAMS LLP | 30 10
  • 10/26/2012PROPOSED: REVENUE RECOGNITIONKey issues:• Constraints on recognizing variable consideration• Collectability• Adjustments for time value of money• Contract combinations for distributor and reseller agreements MOSS ADAMS LLP | 31PROPOSED: REVENUE RECOGNITIONWhy should bankers care? o Scopes out contractual rights and obligations:  Financial Instruments; loans, debt, securities, etc.  Lease contracts  Insurance contracts  Transfers and servicing  Guarantees (other than product warranties) MOSS ADAMS LLP | 32PROPOSED: REVENUE RECOGNITIONWhy should bankers care? o Many financial services could be scoped in:  Credit card rewards programs  Certain loyalty programs  Sales of OREO  Asset management services  Interchange revenue  Underwriting revenue  Other commissions and fees for service  Outsourcing and back‐office services MOSS ADAMS LLP | 33 11
  • 10/26/2012PROPOSED: REVENUE RECOGNITION• Other key issues o Transition costs could be significant if retrospective transition o Disclosure for both interim and annual financials are excessive and increase preparation costs substantially• Disclosures and transition still need to be ironed out MOSS ADAMS LLP | 34 Proposed: Leases MOSS ADAMS LLP | 35WHERE ARE WE NOW?• For lessee o Operating lease liability will be on balance sheet (except short term leases) o There will be two types of leases for income statement  Single lease expense (SLE; primarily land and/or building leases; straight line expense)  Interest and amortization (I&A; primarily equipment leases; front loaded expense)• Lessor has two models for both balance sheet and income statement with same determining factors as lessee o Receivable and residual (I&A criteria) o Operating lease accounting (SLE criteria)• No grandfathering of existing transactions MOSS ADAMS LLP | 36 12
  • 10/26/2012DEFINITION OF A LEASE• Definition of a lease – a contract in which the right to use a specified asset is conveyed, for a period of time, in exchange for consideration o Specified asset (similar to current GAAP) o Right to control the use of a specified asset (different from current GAAP)• Definition of a lease is likely to be a bit more narrow than current guidelines MOSS ADAMS LLP | 37SPECIFIED ASSET• Includes an asset that is explicitly or implicitly identifiable o Excludes contracts that provide the lessor with substantive substitution rights (e.g., lessor can substitute the asset without the lessee’s consent; economically feasible) o Includes a physically distinct portion of a larger asset (e.g., a floor in a building would be included, whereas a capacity portion of a pipeline would be excluded) MOSS ADAMS LLP | 38RIGHT TO CONTROL THE USE• Direct the use o Make decisions that significantly impact how the asset is used (i.e., raw materials, processes applied) AND• Receive the benefits o Obtain substantially all of the potential economic benefits from use (not only physical attributes) MOSS ADAMS LLP | 39 13
  • 10/26/2012MULTIPLE ELEMENTS• Contracts that contain lease and non‐lease (services, supplies, etc.) components o Both lessors and lessees would be required to separately account for lease and non‐lease components o Lessors would allocate payments in accordance with revenue recognition standard o Lessees would generally use observable prices to allocate payments on a relative purchase price basis  Lessees can apply a residual method  Items that cannot be separated based on observable prices would be included with lease payments on balance sheet MOSS ADAMS LLP | 40OVERVIEW OF RIGHT-OF-USE MODEL(ROU)• Lessee will recognize o A right‐of‐use asset representing lessee’s right to use the leased asset o A liability for its obligation to make lease payments• Lessor will recognize o A receivable representing the lessor’s right to receive lease payments and a residual asset for the portion of the underlying asset retained for I&A leases o PPE on balance sheet for SLE leases• Initially measure lessee’s liability and the lessor’s receivable (when applicable) at the present value of lease payments to be made over the lease term MOSS ADAMS LLP | 41LEASE TERM• Recognized lease term would include non‐ cancellable period, plus any optional periods where there is a significant economic incentive to extend (or not terminate) the lease• Purchase options – include on a basis consistent with renewal options o Assume exercise if significant economic incentive to exercise exists• Similar to current GAAP, through reassessment required throughout term MOSS ADAMS LLP | 42 14
  • 10/26/2012LEASE PAYMENTS• Lease payments include: o Fixed payments o Variable payments based on index or rate (e.g., CPI or LIBOR) o Termination penalties (if term is assumed not to be renewed) o Residual value guarantees, at the amount expected to be paid, if any (lessee only); lessor does NOT include them o Exercise price of purchase option included in lease term• Contingent rents based on performance or usage would be excluded o Recognized as incurred/accrued o Contingent rents must be truly variable to be excluded MOSS ADAMS LLP | 43TWO TYPES OF LEASES• Interest and amortization (I&A) (front loaded)• Single lease expense (SLE) (straight‐line) Determination of lease type is same for lessees and  lessors and is primarily dependent on asset type MOSS ADAMS LLP | 44TWO TYPES OF LEASESInterest and amortization lease (I&A)• Lessee income statement o Interest expense on effective interest method o Amortization of ROU generally on straight‐line basis o Total of both causes front loading of expense• Lessor applies receivable and residual method o PPE removed and replaced with present value of lease payments and residual (at cost) o Income recognition based on effective interest; up‐front profit (if any) is recognized on portion of asset sold MOSS ADAMS LLP | 45 15
  • 10/26/2012TWO TYPES OF LEASESSingle lease expense (SLE)• Lessee income statement reflects straight‐line lease expense o Lease expense equals interest expense under effective interest method plus amortization of ROU asset in amount that causes total lease expense to equal straight‐ line for the period o Presented as a single lease expense on income statement• Lessor applies current operating lease accounting o PPE on balance sheet with depreciation recognized o Lease income on a straight‐line basis MOSS ADAMS LLP | 46DETERMINING LEASE TYPEUnderlying principle: Does lessee consume more than an insignificant portion of the leased asset?• Is it a lease of property (land, building or part of a building)? o Apply SLE unless:  Lease term is for major part of economic life of asset OR  PV of lease payments is for substantially all of FV of leased asset• Is it a lease of equipment? o Apply I&A unless:  Lease term is an insignificant portion of the economic life of asset OR  PV of lease payments is insignificant relative to FV of leased asset MOSS ADAMS LLP | 47LESSEE ACCOUNTINGINITIAL RECOGNITION AND MEASUREMENT• Lease‐related assets and liabilities initially recognized and measured as of lease commencement date• Liability initially measured at the present value of the lease payments o Discounted using rate of the lessor charges the lessee (when available) or the lessee’s incremental rate• Right‐of‐use asset is measured initially at cost o Amount of the liability o Plus: any initial direct costs incurred o Less: any lease incentives received MOSS ADAMS LLP | 48 16
  • 10/26/2012 LESSEE ACCOUNTING REASSESSMENT Consideration Indicator to reassess Accounting treatment Lease term and purchase Significant change in factors  options (except market factors)  relevant to determining  whether a significant  Adjust obligation to make  economic incentive exists lease payments and right‐of‐ use asset Discount rate Change in lease payments  due to a change in lease  term Residual value guarantees Events or circumstances  indicate that there has been  Amounts relating to current  a significant change in the  or prior periods – net  amounts expected to be  income; amounts relating to  payable future periods – adjust ROU  asset Lease payments that depend  When the rate changes on an index or rate MOSS ADAMS LLP | 49 LESSEE ACCOUNTING PRESENTATION Balance sheet Income Statement Cash flow  statementRight‐of‐use asset Amortization expense  Supplementary non‐ not combined with  cash disclosure of ROU  interest expense for  asset acquired Present separately in  I&A; combined for SLE balance sheet or Liability to make lease  disclose in notes (if in  Separately present or  Principal payments –payments notes disclose line  disclose interest  financing for I&A  item in balance sheet)  expense for I&A and Interest payments – for each lease type unwind of lease  operating for I&A liability of SLE Cash payments for SLE  – operatingVariable lease  Not recognized Disclose expense that  Operatingpayments is not included in lease  payments MOSS ADAMS LLP | 50 LESSEE TRANSITION • May choose full retrospective approach or modified retrospective approach • Under modified retrospective approach: o Liability to make lease payments measured at the present value of the remaining lease payments o I&A ROU measured equal to the proportion of the liability to make lease payments at lease commencement calculated on the basis of the remaining lease payments o SLE ROU measured at amount of related liability and adjusted for any uneven lease payments o Differences between the liability to make lease payments and right‐of‐use asset would be a cumulative adjustment to opening retained earnings o Discount rate based on incremental borrowing rate on effective date  May be determined at a portfolio level for leases with similar characteristics o Adjust right‐of‐use asset by prepaid/accrued rents, subject to impairment review o May elect to use hindsight when preparing comparative information and not evaluate initial direct costs for leases that began before the effective date • Not required to adjust carrying amounts for existing capital leases MOSS ADAMS LLP | 51 17
  • 10/26/2012LESSOR ACCOUNTING Two models for balance sheet AND income statement • Receivable and residual o Most equipment leases o Derecognize portion of asset, potential up‐front gain recognition for portion sold • Operating lease accounting o Most land and building leases o PPE on balance sheet; straight line income recognition MOSS ADAMS LLP | 52LESSOR ACCOUNTING – RECEIVABLE ANDRESIDUAL(MOST EQUIPMENT LEASES)• Record of a lease receivable• Allocate a portion of the carrying value of the underlying asset to the right‐ of‐the asset “sold”• Recognize profit (or loss) for the difference between the PV of the lease  payments and the carrying value allocated to right‐of‐use asset “sold”• Record a residual asset as an allocation of the carrying amount of• The underlying asset• Profit associated with the residual asset would be deferred until the asset is  subsequently sold or released MOSS ADAMS LLP | 53RECEIVABLE AND RESIDUALINITIAL AND SUBSEQUENT MEASUREMENT Initial measurement: • Lessor lease term – same approach as applicable to lessee • Lessor receivable = PV of lease payments similar to lessee but does not include any amounts for residual value guarantees (considered in impairment assessment only) • Lessor discount rate as of the lease commencement date using the rate the lessor charges the lessee Subsequent measurement: • Lease payments received by lessor allocated as a reduction of the lease receivable and interest income using the interest method • Recognize interest income to accrete the residual asset to its estimated fair value at the end of the lease (deferred profit not recognized until residual asset sold/released) MOSS ADAMS LLP | 54 18
  • 10/26/2012LESSOR TRANSITION• Similar to lessees, may choose full retrospective approach or modified retrospective approach• Under modified retrospective approach: o Lease receivable measured at the present value of the remaining lease payments subject to any adjustments required to reflect impairment o Allocate the carrying value of the underlying asset between the right‐of‐ use asset “sold” and the residual asset using the estimated fair value of the leased asset at the beginning of the earliest comparative period presented o Discount rate based on the rate charged in the lease determined at the date of commencement o Adjust cost basis of underlying asset derecognized by prepaid/accrued rents o May elect to use hindsight when preparing comparative information and not evaluate initial direct costs for leases that began before the effective date• Not required to adjust carrying values for existing direct finance or sales‐type leases if qualify as receivable and residual leases MOSS ADAMS LLP | 55 Fair Value Disclosures MOSS ADAMS LLP | 56UPDATE TO FAIR VALUE DISCLOSURES• ASU 2011‐04• Principal impact will be changes in Level 3 disclosures for nonrecurring fair value measures• Convergence with IFRS• Became effective for calendar year public companies first quarter of 2012; effective for calendar nonpublic companies December 31, 2012 MOSS ADAMS LLP | 57 19
  • 10/26/2012UPDATE TO FAIR VALUE DISCLOSURES • Nonpublic entities will not be required to: o Provide information about transfers between Level 1 and Level 2 o Provide information about the sensitivity of the fair value measurements of Level 3 to changes in unobservable inputs o The categorization by level of the hierarchy for items that are not measured at fair value in the financial statements, but for which the fair value is required to be disclosed MOSS ADAMS LLP | 58Goodwill and Indefinite‐Lived Intangible Assets MOSS ADAMS LLP | 59GOODWILL – TESTING FOR IPAIRMENT • Goodwill o Requires an evaluation of events and circumstances that could affect the significant inputs used to determine fair value • Companies are allowed to go straight to Step 1 without performing a qualitative analysis • If a company has negative equity a qualitative analysis must be performed, and if impairment is likely, a Step 2 analysis is required MOSS ADAMS LLP | 60 20
  • 10/26/2012GOODWILL – TESTING FOR IMPAIRMENT• Companies with positive equity are to qualitatively evaluate factors in determining whether it is more likely than not the fair value exceeds its carrying value o If YES ‐ Step 1 does not need to be performed o If NO ‐ Step 1 must be performed, and Step 2 may need to be performed based on the results of Step 1 MOSS ADAMS LLP | 61GOODWILL – TESTING FOR IMPAIRMENT• If a qualitative evaluation is completed, the entity should document its assessment of all relevant events and circumstances, such as: o Macroeconomic conditions o Industry and market considerations o Cost factors that have negative effects on earnings and cash flow• Don’t underestimate level of effort required MOSS ADAMS LLP | 62GOODWILL – TESTING FOR IMPAIRMENT• Documenting assessment (continued): o Overall financial performance and other events affecting the reporting unit o A sustained decrease in share price o Other relevant entity‐specific events o Also consider positive and mitigating events and circumstances MOSS ADAMS LLP | 63 21
  • 10/26/2012INDEFINITE-LIVED INTANGIBLE ASSETS –TESTING FOR IMPAIRMENT• Relief for impairment testing• ASU 2012‐02 (issued July 2012) • Amendments effective starting in 2013 for calendar‐year entities• Applies to both public and nonpublic entities that have indefinite‐lived intangible assets reported in their financial statements MOSS ADAMS LLP | 64INDEFINITE-LIVED INTANGIBLE ASSETS –TESTING FOR IMPAIRMENT• Entity has the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite‐lived intangible asset is impaired• It is determined that it is not more‐likely‐than‐ not that the asset is impaired, no further action required• Otherwise, full impairment testing required MOSS ADAMS LLP | 65 Proposed: Liquidity and IRR Disclosures MOSS ADAMS LLP | 66 22
  • 10/26/2012PROPOSED: LIQUIDITY AND INTERESTRATE RISK• FASB Publishes Proposal for Disclosing Liquidity and Interest Rate Risk. o FASB has issued for comment a proposed standard for disclosures about liquidity risk and interest rate risk. o Comments were due September 25, 2012. MOSS ADAMS LLP | 67PROPOSED: LIQUIDITY AND INTERESTRATE RISK• Proposed liquidity risk disclosures would require a financial institution to: o disclose the carrying amounts of classes of financial assets and financial liabilities in a table, segregated by their expected maturities (based on contractual terms), including off‐balance‐sheet financial commitments and obligations. o disclose information about its time deposit liabilities, including the cost of funding in a table or list during the previous four fiscal quarters. MOSS ADAMS LLP | 68PROPOSED: LIQUIDITY AND INTERESTRATE RISK• Proposed liquidity risk disclosures would require a financial institution to: o provide their available liquid funds in a table, which includes unencumbered cash, high‐quality liquid assets, and borrowing availability. o provide additional quantitative or narrative disclosure of the organization’s exposure to liquidity risk, including discussion about significant changes in the amounts and timing in the quantitative tables and how the reporting organization managed those changes during the current period. MOSS ADAMS LLP | 69 23
  • 10/26/2012PROPOSED: LIQUIDITY AND INTERESTRATE RISK• Proposed interest rate risk disclosures would require a financial institution to disclose: o carrying amounts of classes of financial assets and financial liabilities according to time intervals based on the contractual repricing of the financial instruments. o An interest rate sensitivity table that presents the effects on net income and shareholders’ equity of hypothetical, instantaneous shifts of interest rate curves. MOSS ADAMS LLP | 70PROPOSED: LIQUIDITY AND INTERESTRATE RISK• Proposed interest rate risk disclosures would require a financial institution to disclose: o Quantitative or narrative disclosures of the organization’s exposure to interest rate risk, including discussion about significant changes in the amounts and timing in the quantitative tables and how the reporting organization managed those changes during the current period MOSS ADAMS LLP | 71 Private Company Council MOSS ADAMS LLP | 72 24
  • 10/26/2012PRIVATE COMPANY COUNCIL• What is it and why do we care? o The Private Company Council (“PCC”) was created by the Financial Accounting Foundation to improve the standard‐setting process for private companies – represents a good portion of the room today o PCC will determine definition of a “private” company and which elements of US GAAP should be considered for possible exceptions or modification MOSS ADAMS LLP | 73PRIVATE COMPANY COUNCIL• What is it and why do we care? o PCC will identify, deliberate, and vote on changes to US GAAP for private companies. Proposals will be subject to public comment and endorsement by FASB before becoming incorporated into US GAAP o PCC will serve as the primary advisory body to FASB for technical agenda items relevant to private companies MOSS ADAMS LLP | 74PRIVATE COMPANY COUNCIL• Key elements of the Private Company Council o Agenda setting  Determine whether exceptions or modifications to US GAAP are warranted for private companies  Will evaluate current GAAP for possible exceptions or modifications  Require 2/3 vote of members o FASB Endorsement Process  Proposals are issued for public comment  PCC will redeliberate  Forward recommendation to FASB, who will make a final decision on enforcement within 60 days MOSS ADAMS LLP | 75 25
  • 10/26/2012PRIVATE COMPANY COUNCIL• Key elements of the Private Company Council o Membership and term  PCC will comprise 9 to 12 members  PCC Chair will not be a FASB member  Membership of the PCC will include a variety of users, preparers, and practitioners with substantial experience working with private companies  Appointed for a three‐year term and may be reappointed for an additional term of two years o Meetings  For first three years, PCC will hold at least five meetings each year  Deliberative meetings of the PCC will be open to the public MOSS ADAMS LLP | 76PRIVATE COMPANY COUNCIL• Key elements of the Private Company Council o Three‐year Assessment o The PCC will provide quarterly written reports to the FAF Board of Trustees. The FAF Trustees will conduct an overall assessment of the PCC following its first three years of operation to determine whether its mission is being met and whether further changes to the standard‐ setting process for private companies are warranted MOSS ADAMS LLP | 77PRIVATE COMPANY COUNCIL• Bottom line purpose: o Not intended to develop a new conceptual framework o Intended to help facilitate decisions & drive consistency o Fundamental approach retains & improves information relevant to typical users o Seeks to reduce cost & complexity where appropriate, but not in a way that adversely affects reporting of relevant information MOSS ADAMS LLP | 78 26
  • 10/26/2012QUESTIONS MOSS ADAMS LLP | 79 27