CODIFICATION Effective for financial statements issued after September 15, 2009 (references to standards, etc.) Did not change GAAP! Merged authoritative guidance into single source 90 topics, subtopics, sections and paragraphs arranged by ASC # i.e. receivables-overall-recognition-factoring ASC 310-10-25-3
CODIFICATION Updates are denoted as “ASU 2010-01” Accounting standards update Issued in 2010 First update issued in 2010 Codification contains GAAP only – not OCBOA, GAAS, SSARS, etc.
STANDARDS UPDATES EFFECTIVE IN 2010 ASU 2009-17 (Topic 810 Consolidation) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities QSPEs no longer scoped out of VIE consolidation rules Eliminates quantitative evaluation of VIEs Evaluation of affiliated entities who are VIEs - If equity investors lack sufficient equity at risk, does reporting entity have the power to direct the activities of the VIE?
STANDARDS UPDATES EFFECTIVE IN 2010 ASU 2010-06 (Topic 820 Fair Value Measurement) Improving Disclosures about Fair Value Measurements Requires more robust disclosures about: Different classes of assets and liabilities measured at fair value Valuation techniques and inputs used Activity in level 3 fair value measurements Details of and reasons for transfers between levels
OTHER UPDATES EFFECTIVE IN 2010 ASU 2009-16 Transfers of Financial Assets ASU 2010-07 NFP Entities – Mergers and Acquisitions ASU 2010-09 Subsequent Events (further amendment) ASU 2010-25 EBPs – Loans to Participants
UPDATES EFFECTIVE AFTER 2010 ASU 2010-15 and 2010-26 for Insurance Companies ASU 2010-13 Stock Compensation ASU 2009-13,14 and 2010-17 Revenue Recognition ASU 2010-20 Credit Quality Disclosures (2010 for public companies) ASU 2010-23,24 Healthcare Companies
OPEN FASB PROJECTS Disclosure of Certain Loss Contingencies Going Concern Disclosures about an Employer’s Participation in a Multiemployer Plan Investment Properties Disclosure Framework Troubled debt restructuring
CONVERGENCE PROJECTS FASB and IASB working since 2002 to improve and converge U.S. GAAP and IFRS. Memorandum of Understanding (MoU) Identified 9 major accounting areas needing improvement in both U.S. GAAP and IFRS Completed Business Combinations project in 2007 by issuing FAS 141(R) and 160, and IFRS 3 Remainder of projects still ongoing
FASB/IASB PROJECTS AND TARGET DATESProject Exposure Draft Comments DueFinancial Instruments May 2010 9/30/10Reporting OCI May 2010 9/30/10Fair Value Measurement June 2010 9/17/10Revenue Recognition June 2010 10/22/10Insurance (DP) Sept 2010 12/15/10Leases August 2010 12/15/10Consolidations Deciding on strategyFinancial Statement Early 2011 TBDPresentationFinancial Instruments with After June 2011 TBDCharacteristics of Equity
FINANCIAL INSTRUMENTS Fair value balance sheet presentation for most financial instruments (including loans and deposits) Exceptions (cost): short term trade receivables and payables; debt, unless the entity has significant financial assets Narrowing of Equity Method Change in fair value included in net income unless qualifies for OCI Must be held long-term for collection of cash flows Must not have embedded derivatives Derivatives and equity securities do not qualify for OCI
FAIR VALUE MEASUREMENT No significant differences regarding how to measure fair value, most changes to ASC 820 made to conform words Major changes to ASC 820 (157) Eliminate “highest and best use” concept for financial instruments Guidance for measuring the fair value of an instruments included in shareholders’ equity Clarification of blockage factor Exception to FV for financial instruments managed as a portfolio Additional disclosures about fair value measurements
SINGLE STATEMENT OF COMPREHENSIVE INCOME OCI would be presented under Net Income, totaling to Comprehensive Income EPS still based on Net Income only US prevalent practice is Statement of Changes in Stockholders Equity; not allowed in IFRS
REVENUE RECOGNITION Revenue is recognized as benefits are transferred to customer and promises are fulfilled. Will change pattern for some arrangements. Multi-element contracts are separated and recognized based on estimated selling prices of elements Credit risk is initially factored into measurement of revenue rather than as a hurdle for revenue recognition Contract costs must be expensed, unless they meet certain conditions
LEASES Lessees: Obligations recognized on balance sheet, with a corresponding asset. Interest expense on debt; amortization of right-to-use asset. Practical expedient for short (12 months) lease terms. Lessor: Record lease receivables; tentatively decided that credit should be to the leased asset (derecognition approach) or a deferred revenue account (performance obligation) depending on facts and circumstances.
CONSOLIDATIONS Control based consolidation model Contractual ability to direct activities Votingrights Contractual rights Combination of voting and contractual rights Other indicators of ability to direct activities: Reporting entity’s voting rights relative to size and dispersion of holdings of other vote holders Evidence of ability to direct including: • Approving or appointing key management • Initiating, approving or vetoing significant transactions
FINANCIAL STATEMENT PRESENTATION The following comprise a complete set of financial statements: Statement of Financial Position Statement of Comprehensive Income Statement of Changes in Equity Statement of Cash Flows Comparative information for previous period is required.
“CONVERGENCE” Merging two separate sets of standards Best approach of- US GAAP IFRS Jointly developed new standard
US GAAP – IFRS CONVERGENCE HISTORY FASB and IASB commit to 2002 “Norwalk Agreement” compatible accounting standards; joint effort FASB and IASB develop 2006 “Memorandum of roadmap for convergence; Understanding” specific milestones by 2008 SEC accepts IFRS Result of European Union 2007 statements from foreign requiring its listed issuers companies to use IFRS.2008 - 2009 Ongoing GAAP-IFRS FASB and IASB reaffirm convergence projects; commitment to converge update to MoU all major standards by 2011. 2010 SEC proposes roadmap 2011 decision on if/when for IFRS adoption IFRS will be mandatory for US issuers
CURRENT SEC POSITIONWill decide on IFRS adoption in 2011Adoption will occur no earlier than2015Withdrew previously proposed rulespermitting early adoption
OFFICE OF THE CHIEF ACCOUNTANT Will prepare comprehensive Work Plan to address: Whether IFRS is sufficiently developed Impact on US Issuers Investor understanding and education Changes to regulatory environment Human capital readiness Ongoing role of FASB post-adoption?
PRIVATE COMPANY SCENARIOS Conversion to IFRS or IFRS for SMEs Private company US GAAP (“Blue Ribbon Panel” report expected in early 2011 recommending separate standards for private companies) Existing US GAAP maintained/updated
OTHER CONSIDERATIONS No current guidance in IFRS for not for profits (refer to IAS 8) Little industry-specific guidance Educating the profession, investors, bankers Costs of conversion