As you begin to finalize calendar year 2016 financial reporting, consider taking a moment to consider the accounting changes that are required to be adopted for financial reporting in 2017. Accounting changes required to be adopted for annual periods beginning after Dec. 15, 2016, may impact processes and controls, as well as internal and external interim and year-end reporting. Identifying changes that impact your company and preparing now will make your year-ends a little smoother. Keeping your reporting as hassle-free as possible will be particularly important because more significant accounting update projects are on the horizon, including the changes to revenue recognition, leasing and financial instruments.

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A publication of the Professional Standards Group
February 2017
Accounting Updates that Will Impact 2017 Financial Reporting
As you begin to finalize calendar year 2016 financial
reporting, consider taking a moment to consider the
accounting changes that are required to be adopted
for financial reporting in 2017. Accounting changes
required to be adopted for annual periods beginning
after Dec. 15, 2016, may impact processes and
controls, as well as internal and external interim and
year-end reporting.
Identifying changes that impact your company and
preparing now will make your year-ends a little
smoother. Keeping your reporting as hassle-free as
possible will be particularly important because more
significant accounting update projects are on the
horizon, including the changes to revenue recognition,
leasing and financial instruments.
Provisions Affecting Both Public and Private
Entities
As part of the Simplification Initiative, the Financial
Accounting Standards Board (FASB) issued
accounting standards updates (ASUs) to clarify
existing U.S. generally accepted accounting principles
(U.S. GAAP). The following standards apply to
calendar year-end 2017 financial statements for both
public and private companies. In addition, they also
are required to be adopted for interim reporting during
the 2017 calendar year for public business entities.
Inventory: To streamline accounting for inventory,
ASU 2015-11, Inventory (Topic 330): Simplifying
the Measurement of Inventory will require entities
to measure inventory at the lower of cost and net
realizable value instead of lower of cost or market.
The update will apply to any organization that uses
first-in first out (FIFO) or average cost methods for
measuring inventory. Last-in, last-out (LIFO) and
retail method were specifically excluded. Adoption is
prospective. Companies required to use the revised
model will likely have adjustments to information
gathering, processes, and measurement of write-
downs of inventory.
Equity Method of Accounting: ASU 2016-07,
Investments- Equity Method and Joint Ventures
(Topic 323), Simplifying the Transition to the Equity
Method of Accounting eliminates the requirement to
retroactively apply the equity method of accounting
to an equity investment that becomes eligible for
the equity method of accounting. Instead, when an
investmentinanequityinstrumentthatisnotaccounted
for through consolidation or the equity method (e.g. a
cost method investment) first qualifies for use of the
equity method of accounting, entities should apply the
equity accounting method prospectively. If the change
to the equity method is caused by the purchase of
additional equity interest, the cost of acquiring the
additional interest in the investment is added to the
basis of the investor’s previously held interest. If the
equity instrument was previously accounted for as an
available- for-sale security, the investor recognizes the
unrealized holding gain or loss that was accumulated
in other comprehensive income into earnings upon
application of the equity method.
Public Business Entities
Public business entities are the first adopters of most
accounting changes, and they will have a number of
updates to implement for the first quarter in annual
periods beginning after Dec. 15, 2016.

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Copyright ©2017, Mayer Hoffman McCann P.C. All rights Reserved.
MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that is a member firm of Kreston International Limited, a global network of independent accounting firms.
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Simplification Initiative Projects
Balance Sheet Classification of Deferred Taxes:
ASU 2015-17, Income Taxes (Topic 740) Balance
Sheet Classification of Deferred Taxes, requires
entities to present deferred tax liabilities and assets
as noncurrent in their financial statements. It can
be adopted prospectively or retrospectively to all
financial periods presented in the financial statement
in the year of adoption.
Share-Based Payment Accounting: ASU 2016-
09, Compensation (Topic 718): Improvements
to Employee Share-Based Accounting modifies
accounting for share-based payments. Accounting
for income taxes upon settlement of the award,
presentation of excess tax benefits, and evaluation
of statutory income tax withholdings related to an
award, among other items, are also updated by ASU
2016-09. Transition methods vary. Depending on the
nature of the change to the financial statements, a
prospective, retrospective, modified retrospective
transition requiring a cumulative-effect adjustment to
equity or a combination of transition methods may be
required.
Derivatives Updates from the Emerging
Issues Task Force
Derivative Contract Novations: ASU 2016-05
Derivatives and Hedging (Topic 815): Effect of
Derivative Contract Novations on Existing Hedge
Accounting Relationships clarifies that a contract
novation of an instrument accounted for as a hedge
under hedge accounting does not stop the instrument
from using hedge accounting if the contract meets all
of the other hedge accounting criteria. The update
can be applied prospectively or using a modified
retrospective approach. If an entity uses a modified
retrospective approach, hedging relationships
previously dedesignated for hedge accounting solely
for contract novation must undergo the effectiveness
assessment and have ineffectiveness measured for
all periods since the use of hedge accounting was
discontinued.
Contingent Put and Call Options in Debt
Instruments: ASU 2016-06, Derivatives and Hedging
(Topic 815): Contingent Put and Call Options in Debt
Instruments clarifies the use of the four-step decision
sequence that entities apply when assessing put or
call options that accelerate the payment of a debt
instrument’s principal. The four-step process helps
the entity determine whether the options are clearly
and closely related to the host contract. ASU 2016-
06 must be adopted using a modified retrospective
transition. A reporting entity may elect a one-time
option to measure the debt instrument at fair value
if under the new decision-making sequence, the
reporting entity determines that it doesn’t need to
bifurcate the embedded derivative.
Corrections and Updates
In addition to the standards discussed above, public
business entities should also consider whether ASU
2016-17 Consolidation (Topic 810)- Interests Held
Through Related Parties That Are Under Common
Control, which updates the revised consolidation
model adopted in 2016, modifies any conclusions
reached. They should also consider whether any of
the changes contained in ASU 2016-19, Technical
Corrections and Improvements require updates
to accounting memos, disclosures or accounting
conclusions.
Private Entities
The most significant accounting change coming to
non-public business entities for calendar year-end
2017 is the adoption of the revised consolidation
model. Conclusions under the variable interest entity
(VIE) and voting interest consolidation models should
be carefully evaluated for compliance with the various
updates.

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The revised guidance was issued as ASU 2015-
02 Consolidation (Topic 810): Amendments to the
Consolidation Analysis and modifies each significant
“step” in the VIE consolidation model. Modifications
include changes to the scope of the VIE model,
modifying the conditions that cause a decision maker
or service provider arrangement to be a variable
interest, the criteria for determining whether an entity
is a VIE and the guidance on identifying the primary
beneficiary of a VIE.
ASU 2016-17 Consolidation (Topic 810)- Interests
Held Through Related Parties That Are Under
Common Control clarifies the process for determining
a primary beneficiary in a VIE under the revised model
introduced in ASU 2015-02. Entities that have the
power to direct the activities of a VIE that impact the
VIE’s financial performance must consider all direct
variable interests in a VIE and proportional indirect
interests in a VIE held through related parties.
Also impacting the VIE model is the adoption of the
consolidation provisions in ASU 2014-10 Development
Stage Entities (Topic 915): Elimination of Certain
Financial Reporting Requirements, Including an
Amendment to Variable Interest Entities Guidance in
Topic 810, Consolidation, which eliminates specialized
guidance that prevented many development stage
entities from being determined to be VIEs because
they had insufficient equity at risk to permit them to
finance activities without additional subordinated
financial support.
ASU 2015-02 also modifies the voting interest model
of consolidation. It eliminates the presumption that a
general partner consolidates a limited partnership or
similar entity and replaces it with a model based on
the ability to kick-out or remove the general partner.
For these types of entities, the kick-out rights are
considered to effectively be the voting rights, so that
a limited partner with the ability to unilaterally remove
the general partner typically consolidates.
ASU 2017-02, Not-for-Profit Entities- Consolidation
(Subtopic 958-10) Clarifying When a Not-for-Profit
That Is a General Partner or a Limited Partner Should
Consolidate a Profit Limited Partnership or Similar
Entity also updates the changes made in ASU 2015-02
by exempting not-for-profit entities from the changes
in the voting model of ASU 2015-02. ASU 2017-02
adds the guidance that a general partner is presumed
to consolidate a limited partnership or similar entity to
the not-for-profit industry- specific guidance.
When adopting the revisions to the consolidation
model, entities will need to re-evaluate their existing
consolidation conclusions and apply the new
guidance. If decisions to consolidate are affected by
the new guidance, the changes may be made either
retrospectively or using a modified retrospective
approach where the changes are reflected as
changes to equity as of the date of adoption. For more
information, see, End of 2016 Signals Beginning of
Private Company Consolidation Accounting Changes.
Updates to Simplify Accounting
Practical Expedient for Defined Benefit Obligation
and Plan Assets: ASU 2015-04, Compensation-
Retirement Benefits (Topic 715) Practical Expedient
for the Measurement Date of an Employer’s Defined
Benefit Obligation and Plan Assets creates an option
for defined benefit plans with year-ends that do not fall
at a month’s end to use the nearest calendar month
end to their year-end for determining fair value. Once
adopted, the expedient must be applied to all eligible
plans and the reporting entity must make a related
disclosure that includes the fair value measurement
date used.
Measurement-Period Adjustments: ASU 2015-16
Business Combinations (Topic 805), Simplifying the
Accounting for Measurement Period Adjustments
requires entities to recognize business combination
adjustments to provisional amounts during the
measurement period in which the adjustments

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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please
contact your MHM auditor to further discuss the impact on your audit or audit report.
are made. This will require the reporting entity to
calculate the cumulative effect of the change on the
income statement as if the change had been in place
on the date of acquisition. The cumulative effect will
be recorded to the provision amounts in the period
of the change. Private entities will adopt the change
prospectively.
Other updates
Three additional updates that are narrow in-scope,
but may impact 2017 financial statements depending
on the industry and nature of transactions are:
• ASU 2014-13, Consolidation (Topic 810)-
Measuring the Financial Assets and the Financial
Liabilities of a Consolidation Collateralized
Financing Entity
• ASU 2015-17, Fair Value Measurement (Topic
820)- Disclosures for Investments in Certain
Entities that Calculate Net Asset Value per Share
(Or Its Equivalent)
• ASU 2015-09, Financial Services- Insurance
(Topic 944) Disclosures about Short-Duration
Contracts
For More Information
For assistance in how the accounting standards
updates will affect your organization, please contact
your MHM professional or Mark Winiarski of MHM’s
Professional Standards Group. Mark can be reached
at mwiniarski@cbiz.com or 816.945.5614.