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Current Accounting and Reporting Developments Webcast Series Q4

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Current Accounting and Reporting Developments Webcast Series Q4

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Current Accounting and Reporting Developments Webcast Series Q4

  1. 1. Current Accounting and Reporting Developments Webcast Series Fourth Quarter 2015 www.pwc.com
  2. 2. PwC Welcome Current Accounting and Reporting Developments 2 Beth Paul Accounting Services Group Team Leader Daghan Or Partner, National Professional Services Group Greg Bakeis Partner, National Professional Services Group Peter Ferraro Partner, National Professional Services Group December 16, 2015
  3. 3. PwC Administrative matters Current Accounting and Reporting Developments 3 For better viewing experience, close all other applications For better sound quality, use headphones To enlarge the slides click the bottom right corner of the slide window and drag to the desired size or click the green maximize button at the top right of the slide window To download today’s presentation, click on the “Resources” icon on the left Submit questions any time during the session using the “Q&A” window on the left side of your screen If you experience any technical difficulties during the polling sessions, reply to the question in the “Q&A” window and include the poll number December 16, 2015
  4. 4. PwC CPE administrative details Current Accounting and Reporting Developments 4 To receive full 1.5 CPE credits for today’s webcast, you must be active during the entire 90 minute webcast. You will be required to answer 6 polling questions during the webcast to verify attendance. You will have 2 minutes to answer each timed poll. CPE is not offered for audio only attendees or viewers of the replay. To download the slides and polling questions, click on Resources. Use Q&A to ask questions during the webcast, or to respond to polls manually if you have a technical issue. December 16, 2015
  5. 5. PwC Today’s agenda December 16, 2015 Current Accounting and Reporting Developments 5 December 16, 2015 AICPA National Conference on current SEC and PCAOB Developments Impairment and disposal issues Measurement period adjustments Revenue update Standard setting update Q&A Year-end reminders
  6. 6. PwC Polling question # 1 Which of the following best describes your role or responsibilities within your organization? A. CFO or Controller/Assistant Controller B. Financial Reporting Director/Manager C. Accounting or Finance Manager/Analyst D. Tax Director/Manager E. None of the above or PwC staff 6 Current Accounting and Reporting Developments December 16, 2015 ? …..… …..… …..… …..… ?
  7. 7. PwC AICPA conference highlights • Internal control over financial reporting • Management’s discussion and analysis • Non-GAAP measures • Segments • Disclosure effectiveness • FAST Act • Standard setting • IFRS 7 Current Accounting and Reporting Developments December 16, 2015 December 9 – 11, 2015 in Washington, D.C.
  8. 8. PwC Polling question # 2 Based on your experience, why do companies include non-GAAP measures in their SEC filings or earnings releases? A. Because others in their industry include those non-GAAP measures B. Because analysts are asking for them C. Because they provide meaningful insight D. Because management utilizes these measures in running the business and making decisions E. Not sure or PwC staff 8 Current Accounting and Reporting Developments December 16, 2015 ? …..… …..… …..… …..… ?
  9. 9. PwC Segments – Chief Operating Decision Maker (CODM) • Information reviewed by the CODM is critical to identifying operating segments - CODM = the individual(s) responsible for allocating resources and assessing performance ◦ Often the CEO or the COO, but can be a group or a function • How are resource allocation decisions made? Consider the following: - Organizational structure - Internal reporting, communication, meetings - Management style, culture - Budgeting, compensation decisions, among other key decisions 9 Current Accounting and Reporting Developments December 16, 2015
  10. 10. PwC Segments – Aggregation of operating segments Operating segments may be aggregated when they have • Similar economic characteristics (e.g., similar long-term financial performance) and • Similar (1) products/services (2) production processes (3) customer types (4) distribution methods, and, (5) regulatory environment Sanity check: Is aggregation consistent with • A reasonable Investor’s expectation • External communications (filings, releases, website, etc.) 10 Current Accounting and Reporting Developments December 16, 2015
  11. 11. PwC Risk and uncertainties 11 Current Accounting and Reporting Developments December 16, 2015 Considerations • Reassess financial statement and MD&A disclosures • Impact to significant estimates • Evaluate significant concentrations of risk
  12. 12. PwC Income tax Valuation Allowances • Companies must consider all four sources of income • More weight is given to information that is objectively verifiable Indefinite Reinvestment • The indefinite reversal exception must be re-assessed at each reporting date • Companies are required to have a plan for reinvestment of undistributed earnings Uncertain Tax Positions • Record the benefit for the amount that is more likely than not to be realized 12 Current Accounting and Reporting Developments December 16, 2015
  13. 13. PwC Significant equity method investees: Rule S-X 4-08(g) Considerations • 10% significance test (individually and in the aggregate) • Summarized financial information (S-X 1-09(bb)) • Disclose for all periods - Do not label “unaudited” 13 There is no grace period. The summarized financial information must be included in the notes to the registrant’s financial statements when those financial statements are filed with the SEC. Current Accounting and Reporting Developments December 16, 2015
  14. 14. PwC Significant equity method investees: Rule S-X 3-09 Considerations • 20% significance test • Full financial statements • Disclose for all periods - Comparative periods are required but may be unaudited if not significant 14 3-09 investee financial statements • May not be required to comply with certain public company GAAP disclosures • Required to comply with SEC rules and interpretations • Generally same period as the registrant • Required to be filed based on the investee’s reporting requirements Current Accounting and Reporting Developments December 16, 2015
  15. 15. PwC Significant equity method investees Rules 4-08(g) and 3-09 Key reminders • Update significance test for retrospective changes • Rules apply to certain investees accounted for under the fair value option 15 Current Accounting and Reporting Developments December 16, 2015
  16. 16. PwC Polling question #3 Where do you think the FASB should focus its standard-setting? A. Performance reporting (rethinking the presentation of the income statement) B. Cash flows (comprehensively revisiting the cash flow statement guidance) C. Liabilities and equity D. Goodwill and intangibles (post-business combination accounting) E. Other/PwC staff Current Accounting and Reporting Developments 16 December 16, 2015 ? …..… …..… …..… …..… ?
  17. 17. PwC Equity method of accounting – Basis differences Basis difference Cost of the investment (i.e., amount paid by the investor) - Investee’s net assets (portion attributable to the investor) Basis difference Day 1: Perform a purchase price allocation: • Allocate basis difference to the investee’s net assets (include unrecognized intangibles) • Assign residual purchase price to equity method goodwill Day 2: Track basis differences in “memo accounts”: • Adjust investee earnings for amortization of basis differences (generally lowers investee earnings) • Equity method goodwill is not amortized and is not separately tested for impairment 17 December 16, 2015Current Accounting and Reporting Developments
  18. 18. PwC Equity method of accounting – Basis differences Example • 20% equity interest: Current Accounting and Reporting Developments 18 December 16, 2015 Purchase price $600 Investee’s net assets (20%) 400 Basis difference $200 • 20% of individual assets and liabilities: Fair Value Carrying Value Difference Fixed assets $600 $500 $100 Trade name (unrecognized in the f/s) $50 - $50 Liabilities $(100) $(100) - • Basis difference allocation: Fixed assets Trade name Goodwill Total $100 ($10 incremental amortization over 10 years) 50 (may be indefinite-lived) 50 (not amortized, not impaired separately) $200
  19. 19. PwC Debt modification with a change in principal – Change in practice Current Accounting and Reporting Developments 19 December 16, 2015 • Relates to the accounting for unamortized costs and new fees when the principal balance changes • Apply prospectively to loans modified after March 23, 2015 • See section 3.4.5 of our guide, Financing transactions: debt, equity and the instruments in between for further information and examples Modification accounting Unamortized cost: No write-off New creditor fees: Capitalize New 3rd party fees: Expense
  20. 20. PwC Debt issuance costs – Line-of-credit arrangements Line-of-credit arrangements • ASU 2015-03 does not address costs to secure or maintain line- of- credit arrangements • It continues to be appropriate to present such fees as an asset on the balance sheet - For example, if a borrower had a line-of-credit with $0 drawn, it would not be appropriate to present the related commitment fees as a contra liability even if there is other debt outstanding. Current Accounting and Reporting Developments 20 December 16, 2015
  21. 21. PwC Age of financials (S-X 3-12) • 45 day limit, regardless when 10-K is due • Relief under S-X 3-01(c) if all criteria are met - All required Securities Exchange Act reports filed - Expect to report net income attributable to the registrant - Reported net income attributable to registrant in at least one of the two preceding years Current Accounting and Reporting Developments 21 December 16, 2015 If the criteria are not met, audited financial statements for the most recently completed year would need to be filed, even though it is before the Form 10-K due date.
  22. 22. PwC Polling question #4 Which of the following standards effective in 2016 do you expect to have the most significant impact on your company? A. Consolidation guidance B. Cloud computing guidance C. Debt issuance costs D. Measurement period adjustments E. None of the above/PwC staff Current Accounting and Reporting Developments 22 December 16, 2015 ? …..… …..… …..… …..… ?
  23. 23. PwC Impairment of long-lived assets: Held and used model Trigger-based test: • Are there indicators that asset group may not be recoverable • A more-likely-than-not disposal is an example trigger If triggered, perform recoverability test (Step 1): • Calculate undiscounted cash flows (from the use and eventual disposition of the asset group) • Compare carrying amount to the sum of undiscounted cash flows If carrying amount is not recoverable: • Calculate fair value of the asset group • Allocate impairment (carrying amount less fair value) to long-lived assets ratably Current Accounting and Reporting Developments 23 December 16, 2015
  24. 24. PwC Impairment of long-lived assets: Held for sale model • Consider held-for-sale classification when there is a plan to sell an asset (or a business) or group of assets (or businesses) - Applies only to a sale transaction. - Does not apply other disposal transactions (e.g., spin offs or abandonments) • Specified criteria must be met for held-for-sale classification - Commitment to a plan that is probable of resulting in a sale within one year - Other criteria also must be considered • Measure disposal group at the lower of book value or fair value less costs to sell - Apply other GAAP first to the assets and liabilities of the disposal group (including goodwill) - Recognize impairment if carrying amount exceeds fair value less costs to sell Current Accounting and Reporting Developments 24 December 16, 2015
  25. 25. PwC Discontinued operations The standard: A discontinued operation is a component or group of components that has been disposed of or is classified as held for sale, and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” Current Accounting and Reporting Developments 25 December 16, 2015 Asia (Disc Ops) Africa Oceania Europe The Americas Examples of a strategic shift could include disposing of a: • Major line of business • Major geographical area of operations • Major equity method investment • Other major parts of an entity
  26. 26. PwC Measurement period adjustments New standard issued • Recognize the ‘cumulative’ impact in the period the adjustment is identified - Do not restate prior periods - Amount to recognize = cumulative effect on earnings including prior period impact - Disclose out-of-period impact Current Accounting and Reporting Developments 26 December 16, 2015 Looking forward • Effective in 2016 for calendar-year-end public companies; an additional year for nonpublic companies • Early adoption allowed • To be applied prospectively
  27. 27. PwC Polling question # 5 How often does your company early adopt new standards? A. Virtually never B. Occasionally C. Frequently D. Don’t know/PwC staff Current Accounting and Reporting Developments 27 December 16, 2015 ? …..… …..… …..… …..… ?
  28. 28. PwC Revenue recognition update – Proposed amendments to principal vs agent guidance (PwC In transition No. US2015-05) Current Accounting and Reporting Developments 28 December 16, 2015 Principal vs Agent Assessment Unit of Account Clarify Indicators Control in a Service Arrangement
  29. 29. PwC Narrow scope improvements and practical expedients – Proposed amendments Current Accounting and Reporting Developments 29 December 16, 2015 FASB proposed amendments Transition to the new standard • Adds a practical expedient for contracts that are modified before the date of initial application • Clarifies that a completed contract is one for which all (or substantially all) of the revenue was recognized under legacy GAAP
  30. 30. PwC Narrow scope improvements and practical expedients – Proposed amendments (continued) Current Accounting and Reporting Developments 30 December 16, 2015 FASB proposed amendments Collectibility • Clarifies that the collectibility assessment is not based on collecting all the consideration promised in the contract Noncash consideration • Clarifies that measurement date is at contract inception • Clarifies that variable consideration guidance only applies to variability resulting from reasons other than form of consideration Sales tax presentation • Adds a practical expedient that allows companies to present revenue net of taxes collected from customers
  31. 31. PwC Polling question #6 When does your company plan to adopt the new revenue standard? A. We plan to early adopt (2017) - public company B. We plan to adopt at effective date (2018) – public company C. We plan to early adopt (2017 or 2018) - private company D. We plan to adopt at effective date (2019) – private company E. Not sure/PwC staff Current Accounting and Reporting Developments 31 December 16, 2015 ? …..… …..… …..… …..… ?
  32. 32. PwC Transition resource group update • Meeting was held November 9, 2015 • Topics discussed: - Customer options for additional goods and services - Pre-production activities - License restrictions and renewals • Next steps Current Accounting and Reporting Developments 32 December 16, 2015
  33. 33. PwC EITF issues Current Accounting and Reporting Developments 33 December 16, 2015 Issue Title Status 15-B Recognition of Breakage for Certain Prepaid Stored-Value Cards Final Consensus 15-D Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships Final Consensus 15-E Contingent Put and Call Options in Debt Instruments Final Consensus 15-F Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments Consensus-for-exposure (8 issues) and Deliberation (1 issue) Added to agenda Deliberation Consensus for exposure Deliberation Final Consensus Final ASU
  34. 34. PwC EITF exposure draft on statement of cash flows Current Accounting and Reporting Developments 34 December 16, 2015 Impact: Reduce diversity in practice in the classification of cash flows (i.e., operating, investing, financing) on eight issues out for exposure Issue Consensus-for-exposure 1) Debt prepayment or extinguishment costs Financing 2) Settlement of zero-coupon bonds Operating – Interest Financing – Principal 3) Contingent consideration payments Financing – FV of initial liability Operating – Excess amount 4) Restricted cash None reached; in deliberation
  35. 35. PwC EITF exposure draft on statement of cash flows (continued) Current Accounting and Reporting Developments 35 December 16, 2015 Issue Consensus-for-exposure 5) Proceeds from insurance claims Classify based on nature of the insured loss 6) Corporate-owned life insurance policies Investing – proceeds Operating and/or investing – premiums 7) Distributions from equity method investees Operating up to cumulative equity method earnings, excess as investing 8) a) Beneficial interests in securitizations Disclose beneficial interests received as noncash activity 8) b) Cash receipts from beneficial interests in securitized trade AR Investing 9) Predominance principle Apply when there is no specific guidance and cash flows are not separately identifiable .
  36. 36. PwC Leasing project Tentative effective date Current Accounting and Reporting Developments 36 December 16, 2015 Public Private Effective Date Periods beginning after December 15, 2018 Fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020 Early adoption Upon issuance of the standard Upon issuance of the standard Transition Modified retrospective with the ability for lessees to elect a package of reliefs Modified retrospective with the ability for lessees to elect a package of reliefs
  37. 37. PwC Polling question #7 Based upon your experience and preference, select the area of the audit where you would MOST like to see changes: A. Increased automation of audit testing (e.g., data auditing) B. Global consistency of audit processes C. Greater auditor understanding of the company’s business and its industry D. Smoother audit workflow E. Enhanced transparency into the audit F. Not applicable Current Accounting and Reporting Developments 37 December 16, 2015 ? …..… …..… …..… …..… ?
  38. 38. PwC Q&A session Download The quarter close at: http://www.pwc.com/us/qc Current Accounting and Reporting Developments 38 December 16, 2015
  39. 39. PwC CPE credit reminders Current Accounting and Reporting Developments 39 December 16, 2015 Please turn off all pop up blockers before downloading and printing your own CPE certificate. For manual responses, you will be unable to download your certificate. You can return to the event once archived and download the certificate if eligible. To download the slides and polling questions, click on Resources. You can still respond to missed polls before the webcast closes. Note: you will be unable to download your certificate. You can return to the event once archived and download the certificate if eligible. To receive full CPE credit for today’s webcast, you must have been active during the entire live session and answered six polling questions. CPE is not offered for the replay or for listen only attendees.
  40. 40. PwC CPE certificates • Click the CPE icon under the presentation slides For group viewing: • Click “Request CPE” • Select the number of co-viewers then click Submit • Enter group information and check the “I attest…” box • On the following page, click the Download Certificate link and certificate will open Current Accounting and Reporting Developments 40 December 16, 2015 PwC personnel that have met the requirements do not need to submit for CPE certificates as credit will be automatically posted to Learning @ PwC
  41. 41. PwC PwC webcasts • Upcoming webcasts: - Leasing - on issuance of final standard - Debt modifications and extinguishment – Spring 2016 - Standard setting update - Spring 2016 - Impairment - on issuance of final standard - For a full list of upcoming webcasts, please visit CFOdirect Current Accounting and Reporting Developments 41 December 16, 2015 • Webcasts on demand: - CPE credit available for the replay upon passing a quick knowledge check • On-demand library of CPE-eligible webcasts
  42. 42. Thank you for participating © 2015 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

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