Accounting Update - Chris Rouse

ACCOUNTING UPDATE
What You Need to Know
Chris Rouse, CPA
November 13, 2014

Accounting Update - 2015
Agenda
• Current environment for financial reporting
• New accounting pronouncements since Insights
2013
• Revisiting a couple of ASUs becoming effective in
2014
• An update on FASB exposure drafts for tomorrow
2

Current environment for financial reporting
• FASB and IASB Convergence Project
– 2002 Norwalk Agreement, and 2006 Memorandum of
Understanding
– Projects remaining include leases, financial instruments
and insurance
• Only revenue recognition project was issued in the
past year
– The Chair of the IASB has said that when the current
projects are completed, no more will be undertaken
– The Financial Accounting Foundation funded $3 million
to IASB in 2014
3

• SEC recognition of International Financial Reporting
Standards
– 2008 Roadmap is suspended
– SEC Staff Study is marking time
– Current situation
• Issuance of converged revenue recognition is a
substantial event for SEC’s consistency objective
• If a converged financial instruments standard can
be achieved, the SEC will have much better
“consistency”
4

• The Private Company Council has issued 3 new
standards setting different measurement GAAP for
private companies
– Covered in Breakout Session
– Can amortize goodwill over 10 years
– Not required to consider whether leasing entities
under common control are VIEs
– Plain vanilla swaps don’t require effectiveness
assessment to account for hedges
5

New Accounting Pronouncements Since Insights
2013
• 2014 – 15 ASUs issued thru Nov 13th
• 2013 – 12 ASUs issued (1 after Insights 2013)
• Check out FASB web site for ASUs at
http://www.fasb.org/home, click on “Standards”
tab
6

New Accounting Pronouncements
• ASU 2013-12—Definition of a Public Business Entity
– Necessary to define for application of GAAP for
private companies
– Includes entities the SEC requires to file or furnish
financial statements, and entities required by
Securities Exchange Act of 1934 to file or furnish
financial statements with regulatory authorities
• Includes broker/dealers, non-public entities being
acquired by public entities if filings include the
entities financials, etc.
– Effective upon issuance
7

• ASU 2014-01—Investments— Accounting for
Investments in Qualified Affordable Housing Projects (a
consensus of the FASB Emerging Issues Task Force)
– Deals with accounting for tax credits from
investments in low income housing
– Permits use of proportional amortization method
under specified circumstances
– Effective FY beginning after 12-15-14 for publics,
12-15-15 for non-publics
8

• ASU 2014-02—Intangibles—Goodwill and Other:
Accounting for Goodwill (a consensus of the Private
Company Council)
– Can amortize goodwill over 10 years, or less
– Only test for impairment if triggering event occurs
– Effective 12-15-14; early application permitted
9

• ASU 2014-03—Derivatives and Hedging: Accounting for
Certain Receive-Variable, Pay-Fixed Interest Rate
Swaps—Simplified Hedge Accounting Approach (a
consensus of the Private Company Council)
– Applies to “plain vanilla” hedges that effectively
converts variable rate debt to fixed rate
– Simplifies hedge qualification criteria
– All disclosures still apply
– Effective FY beginning after 12-15-14; early adoption
permitted
10

• ASU 2014-04—Receivables—Troubled Debt Restructurings
by Creditors: Reclassification of Residential Real Estate
Collateralized Consumer Mortgage Loans upon Foreclosure
(a consensus of the FASB Emerging Issues Task Force)
– Deals with when to de-recognize the loan and recognize
the foreclosed property as an asset
– De-recognize/Recognize when either …
• Legal title is obtained
• A deed in lieu of foreclosure is obtained
• Effective FY beginning after 12-15-14 for publics, 12-15-15
for non-publics
11

• ASU 2014-05—Service Concession Arrangements
– Entities that operate government roads, bridges,
airports, etc.
– Not a lease, and infrastructure is not an operating
entity asset
– Use other relevant GAAP to account for transaction(s)
– Effective FY beginning after 12-15-14; early
application permitted
12

• ASU 2014-06—Technical Corrections and Improvements
Related to Glossary Terms
– Just glossary
13

• ASU 2014-07—Consolidation: Applying Variable Interest
Entities Guidance to Common Control Leasing
Arrangements (a consensus of the Private Company
Council)
– As an option, a private company may elect not to
apply the VIE Guidance to a leasing entity under
common control
– Disclosures of quantitative info about lessor entity
and qualitative disclosures re exposure to financial
support to lessor
14

• ASU 2014-08— Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity
– Narrows application of discontinued ops and disposal
of segment
• “strategic shift” that has “major effect” on
operations
15

• ASU 2014-09—Revenue from Contracts with Customers
– Covered in earlier presentation
16

• ASU 2014-10—Development Stage Entities: Elimination
of Certain Financial Reporting Requirements
– Simplifies accounting for DSEs by removing all
“incremental financial reporting requirements”
• e.g., inception to date info
• e.g., eliminates “sufficiency of equity at risk”
criterion for determining VIE status
– Staged effective dates for elements, FY beginning
after 12-15-14
17

• ASU 2014-11—Repurchase-to-Maturity Transactions,
Repurchase Financings, and Disclosures
– Changes accounting for repos to a single method,
“secured borrowing accounting”
– Revises disclosures accordingly
– Effective FY beginning after 12-15-14 for publics,
12-15-15 for non-publics
18

• ASU No. 2014-12— Accounting for Share-Based Payments
When the Terms of an Award Provide That a Performance
Target Could Be Achieved after the Requisite Service Period
– Applies to stock options that provide for performance
targets that can be achieved after the service period
• e.g. Retirement
– Accounting driven by terms
– Effective FY beginning after 12-15-15; early application
permitted
19

• ASU No. 2014-13—Measuring the Financial Assets and
the Financial Liabilities of a Consolidated Collateralized
Financing Entity (a consensus of the FASB Emerging
Issues Task Force)
– Applies to special purpose entities of financial
institutions
– Fine tunes the fair value accounting differences
required for VIEs and for financing entities that carry
loans at fair value
20

• ASU 2014-14—Receivables—Troubled Debt
Restructurings by Creditors: Classification of Certain
Government-Guaranteed Mortgage Loans
– Primarily affects banks
– Requires loans with guarantee to remain
classified as loans until title is passed
– Requires government guarantee amounts to be
classified as receivables
21

• ASU 2014-15—Going Concern: Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern
– Prior to this, going concern accounting was in audit
Standards
– FASB started out with a “Business Risks” approach to
going concern
– FASB later moved to a 12 month – 24 month model
– FASB ended with a Standard very similar to current
GAAS/SSARS Standard
22

• ASU 2014-15—Going Concern (continued)
– Requires management to assess going concern for a
period of 12 months from date financial statements
are available to be issued
– Disclosures “more” than current GAAS requirements
• More qualitative information
23

Revisiting a couple of ASUs becoming effective
in 2014
• ASU 2013-07—Liquidation Basis of Accounting
– Calls for liquidation accounting when liquidation is
“imminent”
– Calls for assets to be carried at the amount of cash
expected to be received, and liabilities to be carried
at GAAP
24

Revisiting a couple of ASUs
• ASU 2013-06—Not-for-Profit Entities: Services Received
from Personnel of an Affiliate (a consensus of the FASB
Emerging Issues Task Force)
– Calls for such services to be recognized as a
contribution at their cost to the affiliate, or fair value
if cost not determinable
25

• ASU 2013-04—Obligations Resulting from Joint and
Several Liability Arrangements for Which the Total
Amount of the Obligation Is Fixed at the Reporting Date
– Measure at the sum of …
• The amount the entity has agreed to pay
• Any additional amount the entity expects to pay
on behalf of co-obligors
– Also requires disclosure of nature and amount of
obligation, and other information
26

• ASU 2013-02—Comprehensive Income: Reporting of
Amounts Reclassified Out of Accumulated Other
Comprehensive Income
– Must display changes in other comprehensive income
in income statement, or separate statement of
comprehensive income
– Permits presentation of reclassifications on face of
statement or in footnote
27

Some important accounting exposure drafts for
tomorrow
• Financial instruments
– Too complicated to cover in this year’s Insights
– FASB and IASB having a difficult time on Convergence
matters
• Bad debt and loan loss reserves are hard to
converge
• Hedging is hard to converge
28

Some important accounting exposure drafts
• Leases
– Not much change in exposure draft during 2013
– Core principle – All leases will be capitalized based on
the present value of future lease payments
• Payments based on contract and contingent
payments that are likely to occur
• Indexed changes recognized as they occur
29

• Leases (continued)
– Core principles (continued)
• Lease term includes non-cancellable period plus
renewal periods when “significant economic
incentive” to renew is present
• Discount rate is rate charged by lessor or lessee’s
incremental borrowing rate
–Non-publics could use risk-free discount rate
option
30

– No specific guidance for measuring related party
leases
– Financial statements
• Balance sheet, income statement and cash flow
geography changes
31

– Disclosures
• Reconcile opening and closing asset and obligation,
by class
–Still considering non-public exemption
• Undiscounted maturities for 5 years and thereafter,
less interest portion
• Have added disclosures (vs. measurement) for
service elements of leases
32

– Disclosures (continued)
• Lease expense in tabular format, including:
–Amortization
–Interest
–Variable payments not in amortization
–Expense for any non-capitalized leases
• Future commitment for services or non-asset
component of leases
33

• Financial statements
– No more balance sheet
• Present financial condition using operating,
investing and financing aggregation and display of
assets and liabilities
–Equity is the “balancing” element
– Income statement would also use operating,
investing and financing display approach
34

35
In Conclusion….
Bon Auditpetite!
Questions??
Contact any WB professional,
or contact Chris Rouse
crouse@windhambrannon.com
404-898-2000

Accounting Update - Chris Rouse

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