Webinar Slides: 2013 Second Quarter Accounting Update


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This quarterly update provides accounting executives with an analysis of the more important financial and other management issues that will impact their areas of responsibility over the near and longer term.

This course is led by Shareholders from Mayer Hoffman McCann’s Professional Standards Group who are responsible for developing and providing guidance on implementation and application of financial reporting standards and SEC requirements.

For this quarter, we focused on the following accounting issues:

Highlights of the FASB's Exposure Draft on Leases
Recently issued Accounting Standards Updates and Exposure Drafts
Proposals for private company financial reporting
The PCAOB’s Proposed Audit Standard on Related Parties

Published in: Economy & Finance
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Webinar Slides: 2013 Second Quarter Accounting Update

  1. 1. MHM Executive Education Series:2013 Second Quarter Accounting UpdatePresented by:James Comito and Keith PeterkaJune 20, 2013
  2. 2. 2‹#› To view this webinar in full screen mode, click on viewoptions in the upper right hand corner. Click the Support tab for technical assistance. If you have a question during the presentation, please usethe Q&A feature at the bottom of your screen.Before We Get Started…
  3. 3. 3‹#› This webinar is eligiblefor CPE credit. To receivecredit, you will need toanswer periodic pollingquestions throughout thewebinar. External participants willreceive their CPEcertificate via emailimmediately following thewebinar.CPE Credit
  4. 4. 4The information in this Executive Education Seriescourse is a brief summary and may not include all thedetails relevant to your situation.Please contact your MHM service provider to furtherdiscuss the impact on your financial statements.Disclaimer
  5. 5. 5‹#›Today’s PresentersKeith Peterka, CPAShareholder610.866.2274 | kpeterka@cbiz.comWith more than 20 years of experience in public accounting, Keith performsnational firm responsibilities for IFRS, fair value accounting and auditing, revenuerecognition and business combinations. He is a member of the MHM SECtaskforce in charge of updating the Firm’s SEC Audit Methodology. Additionally,he is a subject matter expert for IFRS, SEC reporting and fair value accounting inMHM’s Professional Standards Group. He also is a member on the IFRSFoundations Small & Medium-sized Entities (SMEs) Implementation Group.James Comito, CPAShareholder858.795.2029 | jcomito@cbiz.comA member of MHM’s Professional Standards Group, James has expertise in allaspects of revenue recognition, business combinations, impairment of goodwilland other intangible assets, accounting for stock-based compensation,accounting for equity and debt instruments and other accounting issues.Additionally, he has significant experience with a variety of other regulatory andcorporate governance issues pertaining to publicly traded companies, includingall aspects of internal control. In addition, James frequently speaks onaccounting and auditing matters at various events for MHM.
  6. 6. 6Today’s Agenda12Private Company Council Progress ReportAICPA Financial Reporting Framework for SMEs –FRF for SMEsFASB Disclosure Draft Discontinued Operations3COSO Internal Control-Integrated FrameworkUpdated4FASB Deferral of ASU 2011-045
  8. 8. 8 Creation of Private Company Council (PCC) The Financial Accounting Foundation’s Board ofTrustees approved the establishment of thePrivate Company Council (PCC), a new body toimprove the process of setting accountingstandards for private companies. The final planwas issued May 30, 2012.Private Company Council
  9. 9. 9The PCC has two principal responsibilities:Private Company CouncilTo determine whether exceptions or modificationsto existing non-governmental U.S. GenerallyAccepted Accounting Principles (U.S. GAAP) arerequired to address the needs of users of privatecompany financial statements.To serve as the primary advisory body to theFinancial Accounting Standards Board (FASB) onthe appropriate treatment for private companies foritems under active consideration on the FASB’stechnical agenda.
  10. 10. 10 May 2013 meeting of the PCC The PCC submitted its initial proposal to theFASB that provides for alternative accounting forcertain existing U.S. GAAP. The alternatives aredirected at certain transaction involving businesscombinations and interest rate swaps. The proposed alternatives simplify existing U.S.GAAP and should result in reduced cost relatedto the accounting for the transactions impactedby the proposed PCC guidance.Private Company Council
  11. 11. 11 PCC Issue No. 13-01A, Accounting for IdentifiedIntangible Assets in a Business Combination The PCC is attempting to reduce the number ofintangible assets that are recognized. Only intangible assets that arise from either a non-cancelable contract or legal right will be subject torecognition. Private companies will measure the value of an assetthat originates from a non cancelable contract byconsidering only the contract’s remaining noncancelable term.Private Company Council
  12. 12. 12 PCC Issue No. 13-01B, Accounting for GoodwillSubsequent to a Business Combination In a return to “the past,” goodwill will once again beamortized over an estimated useful life, which cannotexceed ten years. Goodwill will not longer be subject to an annual impairmenttest, rather, a “triggering event” model will be used.Impairment testing would be required when an event orcircumstances occur that indicate that it is more likely thannot the fair value of the entity is below its carrying value. The goodwill impairment test will be performed at the entitylevel.Private Company Council
  13. 13. 13 PCC Issue No. 13-01B, Accounting for GoodwillSubsequent to a Business Combination The requirement to perform ahypothetical “purchase priceallocation” is removed. The amountof impairment recognized is simplythe difference between the fair valueof the entity and its carrying value.Private Company Council
  14. 14. 14 PCC Issue No. 13-03, Accounting for Certain Receivable-Variable, Pay-Fixed Interest Rate Swaps The intent is to simplify the accounting for certainderivative transactions involving an interest rate swapwhere variable rate debt is converted to fixed rate debt. If certain criteria are met, the swap is combined with therelated debt instrument which effectively results in afixed rate borrowing. Derivative accounting is not required. A “simplified short-cut method” is also available thatmakes it easier to apply hedge accounting. Certaincriteria must be met.Private Company Council
  15. 15. 15 FASB Endorsement While the FASB did raise questions pertaining to theproposed alternatives, it unanimously endorsed each ofthe accounting alternatives approved by the PPC. The proposed alternatives are expected to be exposedfor public comment where FASB’s questions may beaddressed. Subsequent to the public comment process, the PCC willredeliberate the accounting alternatives. PCC accounting alternatives will be subject to “finalendorsement” by the FASB.Private Company Council
  17. 17. 17AICPA Framework for SMEs A less complicated and less costly system of accountingfor SMEs that are not required to produce U.S. GAAP-based financial statements. A cost-beneficial solution for owner-managers and otherswho need financial statements that are prepared in aconsistent and reliable manner in accordance with aframework that has undergone public comment andprofessional scrutiny. Principles-based framework is intended to be responsiveto the issues and concerns stakeholders currentlyencounter when preparing financial statements for SMEs.
  18. 18. 18AICPA Framework for SMEs The FRF for SMEs draws upon a blend of traditionalmethods of accounting with some accrual income taxmethods. The framework was developed by a working group of CPAprofessionals and AICPA staff with experience servingsmaller-to-medium-sized private entities.
  19. 19. 195 61234Features of FRF for SMEs1) Traditional accountingmethods with accrualincome tax methods2) Reduced adjustmentsfrom book to tax3) Relevant4) Simplified/straight-forward principles5) Stable yet nimble6) Reduced disclosures
  20. 20. 20AICPA Framework for SMEsDeveloped for smaller- to medium-sized, owner-managed,for-profit entities where internal or external users have directaccess to the owner-manager and GAAP financialstatements are not required.The AICPA has no authority to require the use of the FRF forSMEs for any entity. Therefore: The FRF for SMEs effective upon issuance on June 10, 2013. An owner-manager can decide to use the FRF for SMEs once it isreleased. An owner-manager should make that decision in conjunctionwith those who may use the entity’s financial statements.
  21. 21. 21Does not include: Earnings per share guidance Segment reporting Other comprehensive income Interim reporting Stock compensation Many of the complex issuesassociated with debt/equityComprehensive and Relevant Framework
  23. 23. 23 Historical cost is the measurement basis primarilyutilized Departs from increased use of fair value for manyinstruments required by GAAP Only equity securities held-for-sale measured at fairvalueReduction in Fair Value Measurements
  24. 24. 24No Concept of Variable Interest Entities (VIEs) Consolidation is not appropriate when an entity has alimited right and ability to determine or influence thestrategic policies of another entity but does notcontrol it. A holding of an interest in an entity that is not asubsidiary qualifies as an investment. Either equity method or cost basisSubsidiaries & Consolidation
  25. 25. 25Recognition and Presentation Does not require consolidation An entity should make an accounting policy choice toeither:a. Consolidate its subsidiaries orb. Account for its subsidiaries using the equity methodParent-only (unconsolidated)financial statements are permitted.Subsidiaries & Consolidation
  26. 26. 26 Goodwill is not tested for impairment. Goodwill should be amortized: the same period as that used for federal income taxpurposes or if not amortized for federal income tax purposes then aperiod of 10 years.Goodwill
  27. 27. 27 Closely aligned withrequirements of U.S. IncomeTax Code Criteria for capitalizing alease for tax purposesgenerally matches criteria inFRF for SMEs Evaluation of capital vs.operating leases are thesame as US GAAP Retains “rules” based approachLease Accounting
  28. 28. 28Revenue27.04 Revenue fromsales and servicetransaction s should berecognized when therequirements regardingperformance…aresatisfied, provided thatat the time ofperformance, ultimatecollection is reasonablyassured.RecognitionThe seller of the goodshas transferred to thebuyer the significantrisks and rewards ofownership…Reasonable assuranceexists regarding themeasurement of theconsideration…Performance
  29. 29. 29 In the case of rendering of services andlong-term contracts and modifications tothose contracts, performance should bedetermined using either the percentageof completion method or thecompleted contract method, whicheverrelates the revenue to the workaccomplished. Very limited discussion of multipleelement deliverables Limited, but similar, guidance on grossvs. net reporting of revenuesRevenue
  30. 30. 30Accounting Policy Election An entity should make an accounting policy election to accountfor income taxes using either the taxes payable method or the deferred income taxes methodTaxes Payable Method Under the taxes payable method, only current income tax assetsand liabilities are recognized Current income taxes, to the extent unpaid or refundable, shouldbe recognized as a liability or asset The liability for current income taxes included in the balancesheet is the cost (benefit) or current income taxes for current andprior periods less amounts already paid in respect of theseincome taxesIncome Taxes
  31. 31. 31 When preparing financial statements, managementshould make an assessment of whether the goingconcern basis of accounting is appropriate. Management should take into account all known andavailable information about the future, which is limited totwelve months from the balance sheet date. If applicable, the entity should disclose thoseuncertainties along with its plans for dealing with theadverse effects of the conditions and events.Going Concern Assessment
  33. 33. 33 Discontinued Operations Exposure Draft In April, 2013, the Financial Accounting StandardsBoard issued an exposure draft related to certainchanges to the accounting for discontinuedoperations. The guidance is in response to concerns that currentguidance is not “decision-useful” and too costly toprepare. Many believe that too many dispositionsqualify as discontinued operations. The Exposure Draft would enhance convergencewith International Financial Reporting Standards(IFRS).FASB Exposure Draft – Disc Ops
  34. 34. 34 Discontinued Operations Exposure Draft It is likely that fewer disposals would qualify fordiscontinued operations presentation because of thechange in threshold to a major line of business or majorgeographical area of operation. Some disposals that do not meet the criteria on anindividual basis but are included in a larger corporateplan to dispose of a major line of business or majorgeographical area of operation would qualify asdiscontinued operations.FASB Exposure Draft – Disc Ops
  35. 35. 35 Discontinued Operations Exposure Draft Significant continuing involvement with component of abusiness (subsequent to its disposal), or failing toeliminate significant operations or cash flows of adisposed component from the ongoing operations of anentity would not preclude presentation as discontinuedoperations as is currently the required under currentguidance. The proposed transition method is “prospective” for newdisposals (and components classified as held for sale).Early adoption is permitted. The effective date has not yetbeen determined.FASB Exposure Draft – Disc Ops
  37. 37. 37 COSO issues Updated Internal-ControlIntegrated Framework During May 2013, the Committee of SponsoringOrganizations of the Treadway Commission (COSO),published an updated Internal Control-IntegratedFramework and related supporting documents. The key concepts and principles found in the originalCOSO framework are both fundamentally sound andwidely accepted in the marketplace. Accordingly, COSOelected to update the framework rather than completelyrevamp it.COSO Internal Control-Integrated Framework
  38. 38. 38 COSO issues Updated Internal Control-IntegratedFramework While the COSO Update retains the key concepts foundin the original framework, certain changes andimprovements were made that: Formalizes the concepts found within the basicprinciples into 17 principles. Facilitates the consideration of changes in the businessand operating environment. Expands the financial reporting objective to addressother important forms of reporting.COSO Internal Control-Integrated Framework
  39. 39. 39 COSO issues Updated Internal Control-IntegratedFramework Transition COSO will continue to make the original framework availableduring the transition period (to December 15, 2014). After December 15, 2014, the original framework will beconsidered superseded. COSO has stated that while the continued use of the originalframework during the transition is appropriate, users of theoriginal framework should transition their applications anddocumentation as soon as possible. Disclosure of whichframework is in use should be disclosed.COSO Internal Control-Integrated Framework
  41. 41. 41 Deferral of ASU 2011-04 The Financial Accounting Standards Board (FASB)today voted to indefinitely defer certain disclosuresabout investments held by a nonpublic employeebenefit plan in its plan sponsor’s own nonpublic equitysecurities. The FASB will issue an AccountingStandards Update, Fair Value Measurement (Topic820): Deferral of the Effective Date of CertainDisclosures for Nonpublic Employee Benefit Plans inUpdate No. 2011-04, in the next few weeks.FASB Deferral of ASU 2011-04
  42. 42. 42 The indefinite deferral applies to disclosures of certainquantitative information about the significant unobservableinputs used in Level 3 fair value measurement forinvestments held by certain employee benefit plans. The deferral applies specifically to employee benefitplans—other than those plans that are subject to Securitiesand Exchange Commission filing requirements—that holdinvestments in their plan sponsors’ own nonpublic entityequity securities, including equity securities of theirnonpublic affiliated entities.FASB Deferral of ASU 2011-04
  43. 43. 43‹#›#MHMWebinarQuestions?
  44. 44. 44If You Enjoyed This Webinar… Join us for these related EES courses: July 16: Is a Simpler Accounting Framework in the Future forPrivate Companies? Aug. 22: Private Company Framework – AICPA versus IFRS? Aug. 29: Third Quarter Accounting and Financial IssuesUpdate Read these related MHM Messengers: 6-13: AICPAs Special-Purpose Framework ProvesControversial MHM Messenger 5-13: Progress on Standard-Setting forPrivate Companies
  45. 45. 45‹#›#MHMWebinarConnect with Mayer Hoffman McCannlinkedin.com/company/mayer-hoffman-mccann-p.c.@mhm_pcyoutube.com/mayerhoffmanmccanngplus.to/mhmpcblog.mhm-pc.comslideshare.net/mhmpcfacebook.com/mhmpc