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The Ernst & Young Q4 2012 financial reporting update

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The Ernst & Young Q4 2012 financial reporting update
Co-sponsored by Financial Executives International (FEI)

Origination date: Thursday, 13 December 2012

Are you up-to-date with current accounting and regulatory developments? Can you identify the implications for your company’s financial accounting and reporting? Staying abreast of recent and pending rules and regulations is critical to positioning your company for success.

Each quarter thousands of professionals gain critical knowledge by participating in the Ernst & Young LLP financial reporting webcasts. During the fourth quarter event, we discussed frequently asked questions and practical matters on the following topics:

• Highlights from the AICPA conference on SEC and PCAOB developments
• Reminders for year-end closing
• Current events - related financial reporting effects

You are welcome to join the on-demand version of this interactive discussion and learn about fourth quarter developments in the world of financial accounting and reporting by going to: http://bit.ly/QsqsAS

This financial update is an ongoing, quarterly series. Register for any webcast and you will be asked if you want to receive invitations to future webcasts.

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The Ernst & Young Q4 2012 financial reporting update

  1. 1. The Ernst & Young Q4 2012financial reporting updateCo-sponsored with FinancialExecutives International13 December 2012
  2. 2. Disclaimer► Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a member firm serving clients in the US.► This presentation is ©2012 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young and its member firms expressly disclaim any liability in connection with use of this presentation or its contents by any third party.► The views expressed by panelists in this webcast are not necessarily those of Ernst & Young.© 2012 Ernst & Young LLP Page 2 Presentation title Young Q4 2012 financial reporting update Ernst &
  3. 3. Circular 230 disclaimer► Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.© 2012 Ernst & Young LLP Page 3 Presentation title Young Q4 2012 financial reporting update Ernst &
  4. 4. Today’s moderator Danita Ostling Partner, Professional Practice Director Ernst & Young LLP Americas IFRS Leader Ernst & Young organization© 2012 Ernst & Young LLP Page 4 Ernst & Young Q4 2012 financial reporting update
  5. 5. Today’s agenda ► AICPA conference ► Year-end matters to consider ► Joint projects update ► Future considerations© 2012 Ernst & Young LLP Page 5 Ernst & Young Q4 2012 financial reporting update
  6. 6. Today’s presenters ► Steven Jacobs Ernst & Young LLP Partner, Professional Practice ► Jackson Day Ernst & Young LLP Partner, Professional Practice Director Accounting Standards Leader ► Alison Spivey Ernst & Young LLP Partner, Professional Practice The information contained herein is a summary in nature. Viewers should consult their own professional advisors to address their individual circumstances and concerns.© 2012 Ernst & Young LLP Page 6 Ernst & Young Q4 2012 financial reporting update
  7. 7. Today’s agenda ► AICPA conference ► Year-end matters to consider ► Joint projects update ► Future considerations© 2012 Ernst & Young LLP Page 7 Ernst & Young Q4 2012 financial reporting update
  8. 8. AICPA conferenceKey remarks on IFRS► Paul Beswick, Acting Chief Accountant ► “Please stay tuned”► Julie Erhardt, International Deputy Chief Accountant ► Domestic upgrade ► Foreign investment needs ► Public capital market conformity► Leslie Seidman, FASB Chairman ► FASB understands the unique needs of US stakeholders and regulators ► US system cannot function with only broad principles© 2012 Ernst & Young LLP Page 8 Presentation title Young Q4 2012 financial reporting update Ernst &
  9. 9. AICPA conferenceSEC Staff discussion topics► Income taxes ► Significant judgments to establish or reverse a valuation allowance► Guarantor financial statements ► Subsidiary release provisions ► Form and content of condensed consolidating information► Contractual obligations table ► If timing and amounts are: ► Fixed and determinable – include in table (e.g., fixed-rate debt interest payments) ► Uncertain – describe in a footnote (e.g., variable-rate debt interest payments, uncertain tax positions)© 2012 Ernst & Young LLP Page 9 Presentation title Young Q4 2012 financial reporting update Ernst &
  10. 10. AICPA conferenceSEC Staff discussion topics (continued)► Other recurring areas ► Segment reporting ► Variable interest entities ► MD&A disclosures ► Non-GAAP financial measures ► Goodwill impairment► Iran Threat Reduction and Syria Human Rights Act ► Effective for any periodic report due after 6 February 2013 ► Address all specified activities in calendar 2012 ► Includes affiliates, which includes any person that directly or indirectly controls, is controlled by or is under common control with, the issuer© 2012 Ernst & Young LLP Page 10 Presentation title Young Q4 2012 financial reporting update Ernst &
  11. 11. AICPA conferenceAudit considerations► Auditor independence, objectivity, skepticism and mandatory audit firm rotation ► Continuing to evaluate feedback on concept release ► Pursuing other initiatives: ► PCAOB Release, Information for audit committees about the PCAOB inspection process ► PCAOB Auditing Standard No. 16, Communications with audit committees ► PCAOB Staff Audit Practice Alert No. 10, Maintaining and applying professional skepticism in audits► PCAOB comments on SOX 404 reporting ► Precision of review/monitoring controls© 2012 Ernst & Young LLP Page 11 Presentation title Young Q4 2012 financial reporting update Ernst &
  12. 12. Today’s agenda ► AICPA conference ► Year-end matters to consider ► Joint projects update ► Future considerations© 2012 Ernst & Young LLP Page 12 Ernst & Young Q4 2012 financial reporting update
  13. 13. Current events Regulatory environment Potential: Decline in government spending ► Impairment of long-lived Fiscal cliff risks assets, Stock market volatility intangible assets, and Recession goodwill ► Decrease in US credit rating downgrade investment valuations S ► Changes in rule-making Scrutiny of cost-benefit analyses© 2012 Ernst & Young LLP Page 13 Presentation title Young Q4 2012 financial reporting update Ernst &
  14. 14. Opinion check Which potential event is most likely to affect your company: A. Decline in government spending B. Stock market volatility C. Recession D. Other E. Does not apply (Ernst & Young, faculty, alumni, other)© 2012 Ernst & Young LLP Page 14 Ernst & Young Q4 2012 financial reporting update
  15. 15. Year-end closing remindersRevenue recognition► Evolving business model examples ► Sale of intangible items, which may be bundled with physical goods ► Free online gaming with offer to sell virtual goods ► Hosted software arrangements► Revenue recognition considerations ► Consider existing policies ► Analogize to other business models ► Update internal controls over financial reporting© 2012 Ernst & Young LLP Page 15 Presentation title Young Q4 2012 financial reporting update Ernst &
  16. 16. Year-end closing remindersRevenue recognition (continued)► Multiple-element arrangements ► Review units of accounting ► Update allocation of arrangement consideration ► Disclosure considerations► Warranties and rights of return ► Consider significant estimates ► Update key assumptions ► Consider changes in business (e.g., new products, new markets) ► Perform look-back analysis© 2012 Ernst & Young LLP Page 16 Presentation title Young Q4 2012 financial reporting update Ernst &
  17. 17. Year-end closing remindersAllowance for doubtful accounts► Be wary of overreliance on historical trends and data► Disclose process and concentrations of credit risk Example SEC Staff comment: “We note your disclosure regarding your allowance for doubtful accounts [and] your concentration of sales to European countries. Considering the European sovereign debt crisis and economic conditions and your concentration of sales in these foreign countries, please explain to us in more detail how you have assessed your outstanding accounts receivable balances for potential impairment.”© 2012 Ernst & Young LLP Page 17 Presentation title Young Q4 2012 financial reporting update Ernst &
  18. 18. Year-end closing remindersPostretirement benefits► Discount rate ► Objective is to determine best estimate of effective settlement rate; varies by company and plan ► Method of estimating the discount rate should be applied consistently unless facts and circumstances change ► Continued low interest rate environment ► Fewer high-quality bonds available, particularly in Europe► Expected rate of return ► Management should reconsider whether expected rate of return is appropriate given current economic environment© 2012 Ernst & Young LLP Page 18 Presentation title Young Q4 2012 financial reporting update Ernst &
  19. 19. Year-end closing remindersAccounting for natural disasters► Asset impairments► Insurance proceeds ► Up to the recognized loss – recognize when probable of being received and costs have been incurred ► In excess of the recognized loss – follow gain contingency guidance► Future operating losses ► Recognize when related costs are incurred► Loss contingencies► Hedge accounting► Disclosures© 2012 Ernst & Young LLP Page 19 Presentation title Young Q4 2012 financial reporting update Ernst &
  20. 20. Year-end closing remindersOther areas to consider► Inventory ► Adjustments to reduce to the lower of cost or market► Investments ► Other-than-temporary impairments► Fair value measurements ► Update for current market conditions► Restructuring ► Changes in structure of business operations and internal reporting ► Accruals for reductions in workforce© 2012 Ernst & Young LLP Page 20 Presentation title Young Q4 2012 financial reporting update Ernst &
  21. 21. Opinion check Which of the areas that we discussed do you expect to most affect your company at year-end: A. Revenue recognition B. Allowance for doubtful accounts C. Pensions D. Impairment E. Other F. Does not apply (Ernst & Young, faculty, alumni, other)© 2012 Ernst & Young LLP Page 21 Ernst & Young Q4 2012 financial reporting update
  22. 22. Accounting standards effective for 2012 Accounting standards update Public Private companies companiesASU 2012-07 — Accounting for Fair Value Information ThatArises after the Measurement Date and Its Inclusion in the 4Impairment Analysis of Unamortized Film CostsASU 2012-04 — Technical Corrections and Improvements 4ASU 2011-09 — Disclosures about an Employer’sParticipation in a Multiemployer Plan * 4ASU 2011-08 — Testing Goodwill for Impairment 4 4ASU 2011-07 — Presentation and Disclosure of PatientService Revenue, Provision for Bad Debts, and theAllowance for Doubtful Accounts for Certain 4 4Health Care EntitiesASU 2011-05 — Presentation of Comprehensive Incomeand ASU 2011-12 — Deferral of the Effective Date forAmendments to the Presentation of Reclassifications of 4 4Items Out of Accumulated Other Comprehensive Incomein Accounting Standards Update No. 2011-05 © 2012 Ernst & Young LLP Page 22 Presentation title Young Q4 2012 financial reporting update Ernst &*These ASUs were effective for public companies in 2011
  23. 23. Accounting standards effective for 2012 Accounting standards update Public Private companies companiesASU 2011-04 — Amendments to Achieve Common FairValue Measurement and Disclosure Requirements in U.S. 4 4GAAP and IFRSsASU 2011-03 — Reconsideration of Effective Controlfor Repurchase Agreements 4 4ASU 2011-02 — A Creditor’s Determination of Whethera Restructuring Is a Troubled Debt Restructuring 4ASU 2010-28 — When to Perform Step 2 of the GoodwillImpairment Test for Reporting Units with Zero or Negative 4Carrying AmountsASU 2010-26 — Accounting for Costs Associated with 4 4Acquiring or Renewing Insurance Contracts© 2012 Ernst & Young LLP Page 23 Presentation title Young Q4 2012 financial reporting update Ernst &
  24. 24. SEC enforcement SEC tips under► Guide to the US Foreign whistleblower program Corrupt Practices Act (FCPA) Trading Corporate ► From SEC and Department and pricing disclosures 11% and of Justice financials ► Provides FCPA enforcement 18% examples ► Defines key terms and Offering explains priorities Other fraud ► Does not provide 33% 19% interpretative guidance or bright lines FCPA ► Provides examples of 4% Manipulation matters not pursued 15%© 2012 Ernst & Young LLP Page 24 Presentation title Young Q4 2012 financial reporting update Ernst &
  25. 25. Changes in auditor report for privatecompanies Headings and subheadings Management’s responsibilities Auditor’s responsibilities Opinion (basis for modification paragraph, when applicable) Additional paragraphs, when applicable: ► Emphasis-of-matter ► Other-matter Other reporting responsibilities, when applicable© 2012 Ernst & Young LLP Page 25 Presentation title Young Q4 2012 financial reporting update Ernst &
  26. 26. PCAOB Auditing Standard No. 16Communications with Audit Committees► Effective in 2013 for calendar-year public companies, subject to SEC approval► Management may make certain communications to the audit committee (with auditor involvement)► Key changes include: ► Processes and significant assumptions used in making critical accounting estimates ► Significant unusual transactions, including business rationale ► Difficult or contentious matters resulting in consultations ► Discussion of corrected and uncorrected misstatements© 2012 Ernst & Young LLP Page 26 Presentation title Young Q4 2012 financial reporting update Ernst &
  27. 27. Today’s agenda ► AICPA conference ► Year-end matters to consider ► Joint projects update ► Future considerations© 2012 Ernst & Young LLP Page 27 Ernst & Young Q4 2012 financial reporting update
  28. 28. Joint projects update Current stage Q1-Q2 2013Financial Instruments FASB Deliberating Exposure Draft Classification and measurement Exposure Draft IASB Deliberate comments (limited amendments) FASB Drafting Exposure Draft Exposure Draft Impairment IASB Deliberating comments Exposure Draft FASB On hold Final standard Hedging Review draft (except macro hedging to be IASB (except macro hedging) included in a Discussion paper) FASB Drafting Exposure Draft Exposure DraftLeases IASB Drafting Exposure Draft Exposure Draft FASB Deliberating comments Final standardRevenue Recognition© 2012 Ernst & Young LLP Page 28 IASB Deliberating comments Presentation title Young Q4 2012 financial reporting update Ernst & Final standard
  29. 29. Revenue recognition projectRedeliberations ► Identifying separate performance obligations P July ► Satisfying separate performance obligations P ► Onerous performance obligations P ► Time value of money P September ► Contracts with customers that contain nonrecourse, P seller-based financing ► Contract issues – contract combinations and distribution P ► Contract modifications P October ► Measures of progress P ► Licenses – rights vs. access November ► Constraining the amount of revenue recognized P ► Collectibility, including presentation of customer credit risk P P Future meeting In process Complete© 2012 Ernst & Young LLP Page 29 Presentation title Young Q4 2012 financial reporting update Ernst &
  30. 30. Revenue recognition projectNext steps ► Allocating the transaction price December ► Costs ► Scope ► Nonfinancial assets ► Contract issues – credit cards Upcoming ► Disclosures topics ► Transition, effective date and early adoption ► Sweep issues and consequential amendments ► Cost-benefit analysis Future meeting© 2012 Ernst & Young LLP Page 30 Presentation title Young Q4 2012 financial reporting update Ernst &
  31. 31. Opinion check As the debate over implementation guidance continues, do you think that the Boards should provide: A. Less implementation guidance B. More implementation guidance C. No opinion© 2012 Ernst & Young LLP Page 31 Ernst & Young Q4 2012 financial reporting update
  32. 32. Today’s agenda ► AICPA conference ► Year-end matters to consider ► Joint projects update ► Future considerations© 2012 Ernst & Young LLP Page 32 Ernst & Young Q4 2012 financial reporting update
  33. 33. Accounting standards effective for 2013 Public Private Accounting standards update companies companiesASU 2012-07 — Accounting for Fair Value Information That * 4Arises after the Measurement Date and Its Inclusion in theImpairment Analysis of Unamortized Film CostsASU 2012-06 — Subsequent Accounting for anIndemnification Asset Recognized at the AcquisitionDate as a Result of a Government-Assisted Acquisition 4 4of a Financial InstitutionASU 2012-04 — Technical Corrections and Improvements 4ASU 2012-02 — Testing Indefinite-Lived Intangible Assetsfor Impairment 4 4ASU 2012-01 — Continuing Care Retirement 4Communities — Refundable Advance FeesASU 2011-11 — Disclosures about Offsetting Assets 4 4and LiabilitiesASU 2011-10 — Derecognition of in Substance RealEstate — a Scope Clarification 4 4 © 2012 Ernst & Young LLP Page 33 Presentation title Young Q4 2012 financial reporting update Ernst &*These ASUs were effective for public companies in 2012
  34. 34. SEC rulemaking update Topic Current statusConflict minerals and ► Final rules issued August 2012payments by resource ► Effective 2013extraction issuers ► Current legal challenges(Dodd-Frank)Clawbacks and othercompensation matters ► Awaiting proposals(Dodd-Frank) ► Proposed rule – August 2012General solicitation and ► SEC Staff deliberatingadvertising (JOBS Act) comments receivedCrowdfunding and “Reg. A+” ► Awaiting proposals(JOBS Act)© 2012 Ernst & Young LLP Page 34 Presentation title Young Q4 2012 financial reporting update Ernst &
  35. 35. Liquidity and interest rate risk disclosures Companies would be required to provide extensive disclosures about liquidity and interest rate risks► Significant issues identified: ► Disclosures focused on providing information about risks already addressed by the SEC ► Disclosures do not represent how a company manages risk ► Standardized disclosures reduce relevancy because financial institutions manage risk in different ways ► Benefits don’t appear to exceed costs ► Nonpublic and not-for-profit entities should be exempt© 2012 Ernst & Young LLP Page 35 Presentation title Young Q4 2012 financial reporting update Ernst &
  36. 36. Private company reporting► Private Company Council ► Plans a “look-back” analysis of existing US GAAP ► Review of private company decision-making framework ► Will address definition of a nonpublic entity► We believe the FASB should consider: ► Disclosure and transition relief ► Increasing the transparency of its cost-benefit analysis ► Single, straight-forward definition of a non-public entity We applaud the FASB’s commitment also to consider the effects on public companies© 2012 Ernst & Young LLP Page 36 Presentation title Young Q4 2012 financial reporting update Ernst &
  37. 37. Disclosure projectsComment letter views► We support decision to develop a framework► Primary focus should be reducing existing disclosures► Flexible disclosure requirements would result in second- guessing of preparers by regulators and legal community► Certain principles should be challenged and debated ► Strong reliance on cash flows as a basis for disclosure ► Boundary of the notes to the financial statements ► Materiality as applied to note disclosure ► Cost benefit analysis of disclosure► FASB should continue to coordinate with SEC and PCAOB© 2012 Ernst & Young LLP Page 37 Presentation title Young Q4 2012 financial reporting update Ernst &
  38. 38. Other standard-setting activities Active projects Current stageReclassifications out of accumulated ► Final standard expected 1Q 2013other comprehensive incomeConsolidation: policy and procedures ► Final standard expected 1H 2013Investment companies ► Final standard expected 1H 2013Repurchase agreements and ► Exposure draft expected Q4 2012similar transactions ► Deliberating comments received onLiquidation basis of accounting Proposed Update ► Final standard expected 1H 2013Going concern ► Exposure draft expected 1H 2013Scope clarification of disclosures about ► Comments due 21 December 2012offsetting of financial instruments ► Final standard expected Q4 2012 © 2012 Ernst & Young LLP Page 38 Ernst & Young Q4 2012 financial reporting update
  39. 39. Register free at:www.ey.com/us/accountinglink AccountingLink What you need to know. When you need to know it. Because change is constant in the financial reporting world, you need the latest information, analysis and insight, first.
  40. 40. Thanks for participating! The Ernst & Young Q4 2012 financial reporting update Co-sponsored with Financial Executives International
  41. 41. Connect with us Follow us on Twitter @EY_Webcasts Watch us on YouTube Search on Ernst & Young webcast© 2012 Ernst & Young LLP Page 41 Ernst & Young Q4 2012 financial reporting update
  42. 42. Viewing tips Need more help? To make the current slide ► Click the yellow Media Player appear larger, click the help/tips icon SLIDE SIZE button. ► Then click the red Click it again to reduce. QA icon and request assistance Feedback form Ask Media Launch at end of panelists a Related webcast to get your player links question (increase CPE/CE certificate volume) Download slides© 2012 Ernst & Young LLP Page 42 Ernst & Young Q4 2012 financial reporting update
  43. 43. Receiving CPE/CE► To be eligible for CPE/CE credit, you must meet all of the minimum eligibility criteria: ► Participate for a minimum of 50 minutes to start earning credit ► Respond to ALL polling questions ► Submit feedback► Webcast technology automatically determines whether participants qualify for credit based on the eligibility requirements above► Certificates will be available for qualified participants to print at the conclusion of the webcast by clicking on the purple CPE icon at the bottom of this interface© 2012 Ernst & Young LLP Page 43 Ernst & Young Q4 2012 financial reporting update
  44. 44. If you are participating in a group► Each person who logged into the webcast should: ► Register for and log into the live webcast ► Respond to the required number of poll questions ► Complete the feedback form► At the end of the webcast, the group leader can: ► Print certificates for ALL qualified participants by clicking on the purple CPE icon at the bottom of this interface OR ► Complete the CPE/CE attendance sheet available on the Thought Center Webcast site and include all requested information ► Submit the attendance sheet within 72 hours of the completion of the webcast by email to tcw.efaxdocs@ey.com ► Certificates will then be emailed to participants© 2012 Ernst & Young LLP Page 44 Ernst & Young Q4 2012 financial reporting update
  45. 45. Special notice for 13 December 2013 Ernst & Young professionals who are logging in from an EY office: You will receive an audio-only webcast today Clients and all others participating from outside an EY office: Will have the option to view a video webcast© 2012 Ernst & Young LLP Page 45 Ernst & Young Q4 2012 financial reporting update

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