2016 Audit & Accounting Update

2016 Audit & Accounting Update
November 15, 2016 | Vince Leo, CPA and Mike Giess, CPA

Vince Leo, CPA
Vince is a Partner in our Audit and
Business Advisory Services Group. He
has more than 30 years’ experience
serving some of the area’s largest
companies. He joined Insero &
Company as a Partner during 2002
from Arthur Andersen where he was a
Partner in their Rochester office. He
has advised his clients on technical
accounting matters, private
placements, public offerings, and
numerous acquisitions, mergers, and
divestitures.
www.inserocpa.com | 2Insero & Co. CPAs, LLP

Mike Giess, CPA
Mike is a Partner in the Audit and
Business Advisory Services Group. He
has more than 25 years’ experience
servicing private and public companies
in the manufacturing, service, retail,
and wholesale/distribution sectors.
Mike frequently consults with
companies on technical accounting
matters including business
combinations, implementation of new
accounting pronouncements, equity
and debt transactions, pension
accounting, and revenue recognition.

Agenda
– Overview
– FASB Update
– FASB Flashback
– FASB Pipeline
– Economic Outlook
– Questions
Insero & Co. CPAs, LLP www.inserocpa.com | 4

FASB UPDATE

ACCOUNTING STANDARDS UPDATES

SUMMARY
ASU 2015-17 —Income Taxes (Topic 740): Balance Sheet Classification of
Deferred Taxes
ASU 2016-01—Financial Instruments—Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities
ASU 2016-02—Leases (Topic 842)
– Section A—Leases: Amendments to the FASB Accounting Standards Codification®
– Section B—Conforming Amendments Related to Leases: Amendments to the FASB
Accounting Standards Codification®
– Section C—Background Information and Basis for Conclusions
ASU 2016-03—Intangibles—Goodwill and Other (Topic 350), Business
Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging
(Topic 815): Effective Date and Transition Guidance (a consensus of the
Private Company Council)

SUMMARY (continued)
ASU 2016-04—Liabilities—Extinguishments of Liabilities (Subtopic 405-20):
Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus
of the Emerging Issues Task Force)
ASU 2016-05—Derivatives and Hedging (Topic 815): Effect of Derivative Contract
Novations on Existing Hedge Accounting Relationships (a consensus of the
Emerging Issues Task Force)
ASU 2016-06 —Derivatives and Hedging (Topic 815): Contingent Put and Call
Options in Debt Instruments (a consensus of the Emerging Issues Task Force)
ASU 2016-07 —Investments—Equity Method and Joint Ventures (Topic 323):
Simplifying the Transition to the Equity Method of Accounting
ASU 2016-08—Revenue from Contracts with Customers (Topic 606): Principal
versus Agent Considerations (Reporting Revenue Gross versus Net)

SUMMARY (continued)
ASU 2016-09—Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting
ASU 2016-10—Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing
ASU 2016-11 —Revenue Recognition (Topic 605) and Derivatives and Hedging
(Topic 815): Rescission of SEC Guidance Because of Accounting Standards
Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the
March 3, 2016 EITF Meeting (SEC Update)
ASU 2016-12—Revenue from Contracts with Customers (Topic 606): Narrow-
Scope Improvements and Practical Expedients
ASU 2016-13—Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments

SUMMARY (continued)
ASU 2016-14—Not-for-Profit Entities (Topic 958): Presentation of Financial
Statements of Not-for-Profit Entities
ASU 2016-15—Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task
Force)
ASU 2016-16—Income Taxes (Topic 740): Intra-Entity Transfers of Assets
Other Than Inventory
ASU 2016-17—Consolidation (Topic 810): Interests Held through Related
Parties That Are under Common Control

ASU 2015-17
• Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
• Part of the FASB Simplification Initiative
• Current accounting: deferred taxes are presented as a net current asset or
liability and net noncurrent asset or liability (for each tax jurisdiction).
• New accounting: classify deferred taxes, and any related valuation
allowance, as noncurrent
– May effect financial ratios used in bank covenants
• Effective date:
– Public entity—for financial statements issued for annual periods beginning after
December 15, 2016, and interim periods within those annual periods
– All others—for financial statements issued for annual periods beginning after
December 15, 2017

ASU 2016-01
Financial Instruments—Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities
Affects the accounting for the following:
1. Equity investments
2. Financial liabilities under the fair value option
3. Presentation and disclosure requirements for financial instruments
Note: will have biggest impact on certain financial institutions and
companies with large equity investment portfolios not currently
measured at fair value through net income

ASU 2016-01 (continued)
Equity Investments – Applicable to equity investments in
unconsolidated entities (other than those accounted for using the equity
method of accounting)
A. Readily determinable fair values
– Will generally be measured at fair value with changes in fair
value recognized in net income
– No longer have an available-for-sale classification for equity
securities with readily determinable fair values (i.e., changes in
fair value reported in other comprehensive income)

B. Equity investments without readily determinable fair values
– Can elect to measure at cost less impairment, if any, plus or
minus subsequent adjustments for observable price changes
– Election only applies to equity investments that do not qualify for
NAV practical expedient
– Election can be made on an investment by investment basis
– Changes in carrying value go through net income

Financial liabilities under the fair value option:
• Changes in fair value of a liability resulting from a change in the
instrument-specific credit risk are required to be recognized
separately in other comprehensive income
Presentation and disclosure requirements for financial instruments:
• Non public entities—eliminates the requirement to disclose the fair
value of financial instruments measured at amortized cost
• Public entities—continue to disclose fair value of financial
instruments measured at amortized cost but no longer need to
disclose the methods and significant assumptions used to estimate
the fair value

Effective Date
• Public entities—For fiscal years beginning after December 15,
2017
• All other entities– For fiscal years beginning after December 15,
2018

ASU 2016-02: Lease Accounting
A lease contract conveys the right to use an asset (the underlying
asset) for a period of time in exchange for consideration
Right-of-use asset
Lease payments
Lessor Lessee

Lease Accounting: Scope Relief
Short-Term Lease Exemption for Lessees
Recognition and measurement exemption for
leases with a term of 12 months or less

Lease Accounting: Lessee Model
All leases are recognized on the lessee’s balance sheet
Current U.S. GAAP New GAAP
Capital Leases Finance Leases
Operating Leases Operating Leases
Classification is
based on existing
U.S. GAAP

Lessee Accounting
Right-of-use
asset and
Lease liability
Amortization
expense
Interest expense
Cash paid for
principal and
interest
payments
Right-of-use
asset and
Lease liability
Single lease
expense on a
straight-line basis
Cash paid for
lease
payments
Finance
Leases
Operating
Leases
Balance Sheet Income
Statement
Cash Flow
Statement

Lessee Accounting
Lessee Accounting
– Operating leases:
• Expensed on a straight-line basis
• Straight-line expense to reflect the interest on the liability and
amortization of asset
• Amortization = straight line expense less interest expense
(amortization will grow as interest declines)
• Lease expense will be presented as a single line item
• Cash payments presented as operating activities on cash
flow statement

Lessee Accounting
Lessee Accounting
– Finance leases:
• Declining expense pattern
• Lease expense will equal interest on liability plus
amortization of asset (generally straight-line)
• Present interest expense and amortization of asset
separately
• No change in cash flow statement presentation

Lessee Accounting
Example
• Mfg. Corp enters into a lease of non-specialized equipment with
Lessor Corp.
Lease term 3 years (no renewal option)
Economic life 5 years
Purchase option None
Rent payments $5,000 monthly, escalating 3% annually
Interest rate 7%
Fair value of asset $300,000
Residual value guarantee None

Lessee Accounting
Lease classification - example
Transfer of ownership No – ownership of the asset does not
transfer
Option to purchase is reasonably certain No – the lease does not contain a purchase
option
Lease term is a major part of the economic
life
No – Mfg. Corp is utilizing the asset for only
60% of its economic life (3 year lease/5 year
economic life)
Present value of lease payments is
substantially all of the fair value
No – present value of the lease payments is
$168,000, which is only 56% of the fair
value of the leased asset
($168,000/$300,000)
Specialized nature No – asset is non-specialized
Conclusion Operating Lease

Lessee Accounting
Operating lease accounting – lessee
Initial recognition entry
Year 1 entry to record the lease payment and expense
Expense Liability Asset
Payment Interest Principal Amortization
Year A B C D A-C
1 61,820 60,000 9,110 50,890 52,710
2 61,820 61,800 6,414 55,385 55,406
3 61,820 63,660 2,350 61,311 59,470
185,460 185,460 17,874 167,586 167,586
Dr. Right-of-use asset 167,586
Cr. Lease liability 167,586
Dr. Lease expense 61,820 A
Dr. Lease liability 50,890 D
Cr. Cash 60,000 B
Cr. Accumulated amortization 52,710 A-C

Lessee Accounting
Finance lease accounting - lease
Assume the same facts as the lease classification example except lease contains a bargain purchase
option
Initial recognition entry
Year 1 Entry to record the lease payment and expense
Asset Liability Expense
Payment Interest Principal Amortization
Year A B C D A+C
1 55,862 60,000 9,110 50,890 64,972
2 55,862 61,800 6,414 55,385 62,276
3 55,862 63,660 2,350 61,311 58,212
167,586 185,460 17,874 167,586 185,460
Dr. Interest expense 9,110 C
Dr. Amortization expense 55,862 A
Dr. Lease liability 50,890 D
Cr. Cash 60,000 B
Cr. Accumulated amortization 55,862 A
Dr. Right-of-use asset 167,586
Cr. Lease liability 167,586

Lessee Accounting
Financial statement impact - lessee
Balance sheet, beginning of year Operating lease Finance lease
Right-of-use asset 167,586 167,586
Lease liability (167,586) (167,586)
Income Statement
Lease expense 61,820
Amortization 55,862
Interest expense 9,110
Cash flow Statement
Operating activities (60,000) (9,110)
Investing activities
Finance activities (50,890)
Balance sheet, end of year
Right-of-use asset 114,876 111,724
Lease liability (116,696) (116,696)

ASU 2016-03
Intangibles—Goodwill and Other (Topic 350), Business Combinations
(Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic
815): Effective Date and Transition Guidance (a consensus of the
Private Company Council)
• The amendments in this Update make the guidance in Updates
2014-02, 2014-03, 2014-07, and 2014-18 effective immediately by
removing their effective dates.
• The amendments also include transition provisions that provide that
private companies are able to forgo a preferability assessment the
first time they elect the accounting alternatives within the scope of
this Update. Any subsequent change to an accounting policy
election requires justification that the change is preferable under
Topic 250, Accounting Changes and Error Corrections.

ASU 2016-04
Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of
Breakage for Certain Prepaid Stored-Value Products (a consensus of the
Emerging Issues Task Force)
• Eliminates diversity in practice
• Applies to entities that offer certain prepaid stored value products that can
be redeemed for goods, services or cash (for example, prepaid gift cards,
prepaid telecommunication cards, and traveler’s checks).
• The issuers frequently experience breakage whereby consumers do not
redeem the entire balance of their prepaid stored value cards.
• New guidance requires issuers to recognize the expected breakage amount
(derecognize the liability) either 1) proportionately in earnings as
redemptions occur, or 2) when redemption is remote, if issuers are not
entitled to breakage.

ASU 2016-05
Derivatives and Hedging (Topic 815): Effect of Derivative Contract
Novations on Existing Hedge Accounting Relationships (a consensus of
the EITF)
• The term novation, as it relates to derivative instruments, refers to
replacing one of the parties to a derivative instrument with a new
party.
• Issue: whether a change in the counterparty to a derivative
instrument that has been designated as a hedging instrument, in
and of itself, results in a requirement to de-designate that hedging
relationship and therefore discontinue the application of hedge
accounting.
• Answer: No

ASU 2016-06
Derivatives and Hedging (Topic 815): Contingent Put and Call Options
in Debt Instruments (a consensus of the Emerging Issues Task Force)
• Intended to eliminate current diversity in practice
• Simplifies the embedded derivative analysis for debt instruments
containing contingent call or put options
• Clarifies the requirements for assessing whether contingent call
(put) options that can accelerate the payment of principal on debt
instruments are clearly and closely related to their debt hosts

ASU 2016-07
Investments—Equity Method and Joint Ventures (Topic 323):
• Part of the Simplification Initiative
• Eliminates the requirement to retrospectively apply the equity
method of accounting when an investment qualifies for equity
method accounting as a result of an increase in the level of
ownership interest or degree of influence.
• No longer required to adjust the investment, results of operations,
and retained earnings retroactively as if the equity method had been
in effect during all previous periods.

Investments—Equity Method and Joint Ventures (Topic 323):
• New accounting requires the cost of acquiring the additional interest
in the investee to be added to the current basis and adopt the equity
method as of the date the investment becomes qualified for equity
method accounting.
• Effective for all entities for fiscal years beginning after December 15,
2016.

ASU 2016-08
Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net)
• Amendment to new revenue recognition guidance issued in 2014
• Clarifies implementation guidance on principal versus agent
consideration when another party is involved in providing goods or
services to a customer
• An entity is a principal if it controls the good or service prior to it
being transferred to a customer

Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations (Reporting
Revenue Gross versus Net)
• Indicators that an entity controls the good or service:
– Entity is primarily responsible for providing the good or
service
– Entity has inventory risk before transfer of good or service
– Entity has discretion in establishing price

Revenue from Contracts with Customers (Topic 606): Principal
versus Agent Considerations (Reporting Revenue Gross versus
Net)
Principal
• Nature of an entity’s promise is to provide a specified good or
service itself
• Recognize revenue in the gross amount of consideration
Agent
• Nature of an entity’s promise is to arrange for a good or
service to be provided by another party
• Recognize revenue in the amount of any fee or commission

ASU 2016-09
Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting
• Includes provisions intended to simplify various aspects of
how share-based payments are accounted for and presented
in the financial statements
• Key provisions include:
– Income tax effects
– Forfeitures
– Minimum statutory tax withholding requirements
• Some provisions apply only to nonpublic entities

Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-
Based Payment Accounting
Income tax effects
Current GAAP Simplification
Excess tax benefits are recognized in APIC;
tax deficiencies are recognized either as an
offset to accumulated excess tax benefits, if
any, or in the income statement. Excess tax
benefits are not recognized until the
deduction reduces taxes payable.
All excess tax benefits and tax deficiencies
should be recognized as income tax expense
or benefit in the income statement (eliminates
need to track a windfall pool).
The tax effects of exercised or vested awards
should be treated as discrete items in the
reporting period in which they occur.
An entity also should recognize excess tax
benefits regardless of whether the benefit
reduces taxes payable in the current period.

Compensation—Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting
Forfeitures
Accruals of compensation cost are
based on the number of awards that
are expected to vest.
An entity can make an entity-wide
accounting policy election to either
estimate the number of awards
that are expected to vest or recognize
forfeitures when they occur.

Compensation—Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting
Nonpublic entity only provisions
Practical Expedient—Expected Term:
Entities are required to estimate the period of
time that an option will be outstanding.
Can make an accounting policy election to
apply a practical expedient to estimate the
expected term for all awards with
performance or service conditions that meet
certain conditions.
Intrinsic Value: At initial adoption of Topic
718, Compensation—Stock Compensation,
nonpublic entities were provided an option to
measure all liability-classified awards at
intrinsic value. Some entities were not aware
of that option.
Can make a one-time accounting policy
election to switch from measuring all liability-
classified awards at fair value to intrinsic
value.

ASU 2016-10
Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing
• Amendment to new revenue recognition guidance issued in 2014
Identifying Performance Obligations
• Clarifies how to determine whether a good or service is “separately
identifiable” from other promises in the contract and, therefore,
should be accounted for separately
• Not required to identify promised goods or services that are
immaterial in the context of the contract
• May elect to account for shipping and handling activities after the
customer has obtained control of a good as a fulfillment cost rather
than as an additional promised service

Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing
Licensing
• Categorizes IP into “functional” or “symbolic.”
– Functional IP has significant standalone functionality (e.g.,
software, completed media content, drug formulas)—revenue
generally recognized at a point in time
– All other IP is considered symbolic IP (e.g., trade names, logos,
franchise rights)—revenue recognized over time.

ASU 2016-11
Revenue Recognition (Topic 605) and Derivatives and
Hedging (Topic 815): Rescission of SEC Guidance
Because of Accounting Standards Updates 2014-09 and
2014-16 Pursuant to Staff Announcements at the March 3,
2016 EITF Meeting (SEC Update)

ASU 2016-12
Revenue from Contracts with Customers (Topic
606): Narrow-Scope Improvements and Practical
Expedients
• Amendment to new revenue recognition guidance
issued in 2014
• Amendments cover the following:
– Collectibility
– Presentation of sales tax
– Noncash consideration

Revenue from Contracts with Customers (Topic
606): Narrow-Scope Improvements and Practical
Expedients
• Collectibility
– When assessing collectibility, entities should consider
their ability to cease providing goods or services in
the event of nonpayment
– Also clarifies when revenue would be recognized for
non-refundable consideration received for a contract
that fails to meet the collectibility threshold

Revenue from Contracts with Customers (Topic 606):
Narrow-Scope Improvements and Practical Expedients
• Presentation of sales tax
– Can elect to present sales taxes collected from customers
on a net basis
– Entities not making the election need to evaluate each
type of tax to determine which amounts to present as
revenue on a gross basis and which amounts to exclude
from revenue as amounts collected on behalf of third
parties

Revenue from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients
• Noncash consideration
– Amendments specify that the measurement date for determining
the fair value of noncash consideration is contract inception
– Also clarifies that the variable consideration guidance applies
only to variability from reasons other than the form of the
consideration

ASU 2016-13
Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments
Credit Losses:
• Current US GAAP—companies generally recognize credit
losses when it is probable that a loss has been incurred
• New guidance—recognize an allowance for credit losses for
the difference between amortized cost basis and the amount
expected to be collected (aka Current Expected Credit Losses
or CECL)
• Estimate should consider historical and current information,
and supportable forecasts

Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments
Available for sale debt securities:
• Credit losses should be measured similar to current GAAP
• Credit losses should be presented as a allowance rather than
as a write-down
• Change will allow for recording of reversals of credit losses in
current period net income (current GAAP prohibits reflecting
reversals in current earnings)

ASU 2016-14
Not-for-Profit Entities (Topic 958): Presentation of Financial Statements
of Not-for-Profit Entities
Net Asset Classification
• Replaces the current presentation of three classes of net assets with
two classes—net assets with donor restrictions and net assets without
donor restrictions
• Net asset classification of underwater amounts of donor restricted
endowment funds will be classified as part of net assets with donor
restrictions

Statement of Activities
• Present the amount of the change in each of the two classes
of net assets
• Present investment return net of external investment
expenses and direct internal investment expenses (narrower
than what is permitted today)—requirement to disclose the
amount of the netted expenses is eliminated
• Present expenses by nature and function—can be presented
on face of the statement of activities, as a separate statement,
or in the notes

Cash Flows
• Retains option to present cash flows using either the direct
method or indirect method
• If direct method is used—no longer need indirect method
reconciliation

Enhanced Disclosures
• Information about donor restricted net assets
• Qualitative and quantitative information about liquidity
resources
• Methods used to allocate costs among program and support
functions

ASU 2016-15
Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments
• Intended to reduce diversity in practice in how certain items
are classified in the cash flow statement
• Main provisions:
1. Debt prepayment or debt extinguishment costs
• Cash payments for debt prepayment or debt extinguishment costs
should be classified as cash outflows for financing activities
2. Settlement of zero-coupon debt instruments
• Classify as cash outflows for operating activities for the portion
attributable to interest and as cash outflows for financing activities for
the portion attributable to principal

3. Contingent consideration payments made after a business
combination
• Cash payments made soon after the acquisition date (generally 3
months or less) should be classified as cash outflows for investing
activities
• Beyond that, payments made up to the amount of the contingent
consideration liability should be classified as financing activities; any
excess should be operating activities
4. Proceeds from the settlement of insurance claims
• Classify based on the nature of the loss
5. Proceeds from settlement of corporate owned life insurance
policies
• Classify as investing activities

6. Distributions received from equity method investees
• Provides an accounting policy election to classify distributions received
using either the cumulative earnings approach or nature of the
distribution approach
• Cumulative earnings approach:
– Compare the distributions received to cumulative equity-method
earnings since inception
– Distributions received up to the amount of cumulative equity
earnings are considered a return on investment and classified in
operating activities
– Any excess distributions would be considered a return of
investment and classified in investing activities

• Nature of distribution approach:
– Classify on the basis of the nature of activities of the investee that
generated the distribution
– Either a return on investment (operating activity) or return of
investment (investing activity)
7. Beneficial interests in securitization transactions
• A transferor’s beneficial interest obtained in a securitization of financial
assets should be disclosed as a noncash activity
• Cash receipts from a transferor’s beneficial interests in securitized trade
receivables should be classified as cash inflows from investing activities

ASU 2016-16
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than
Inventory
• Under current GAAP, the tax effects of intra-entity asset transfers
(intercompany sales) are deferred until the transferred asset is sold to an
outside party.
• The new guidance eliminates this exception for all intra-entity sales of
assets other than inventory.
• A reporting entity should recognize the tax expense from the sale of an
asset in the seller’s tax jurisdiction when the transfer occurs, even though
the pre-tax effects of that transaction are eliminated in consolidation.
• Any deferred tax asset that arises in the buyer’s jurisdiction would also be
recognized at the time of the transfer.

ASU 2016-17
Consolidation (Topic 810): Interests Held through Related Parties That
Are under Common Control
• Amendment to the consolidation guidance that was issued in 2015
(ASU-2015-12)
• Under ASU 2015-12, a single decision maker of a variable interest
entity (VIE) is required to consider indirect interests in the VIE held
through related parties on a proportionate basis when assessing
whether it is the primary beneficiary of that VIE, unless the single
decision maker and its related parties are under common control.
For common control situations, the single decision maker was
required to consider indirect interests in an entity held through a
common control related party to be equivalent of direct interests.

Example:
No common control
Single decision maker owns a 20% interest in a related party and that
related party owns a 40% interest in the VIE being evaluated. The
decision maker’s indirect interest in the VIE would be considered
equivalent to an 8% direct interest (20% x 40%) in that VIE.
Common control
Assume the same facts as above except the related party is under
common control. The interest in the VIE would be 40%, instead of 8%.

• ASU 2016-17 changes how an entity considers indirect interests in a
variable interest entity held through an entity under common control
by applying the proportionate basis approach to all situations
• May make it less likely that an entity, in its standalone financial
statements, will consolidate a VIE when it holds only a minor indirect
interest in the VIE through a non-consolidated common control
affiliate

FASB Flashback
ASU Effective Date
ASU 2015-16—Business Combinations
(Topic 805): Simplifying the Accounting
for Measurement-Period Adjustments
Public entities: Years beginning after
December 15, 2015
All others: Years beginning after
December 15, 2016
ASU 2015-11—Inventory (Topic 330):
Simplifying the Measurement of
Inventory
Effective for years beginning after
December 15, 2016

FASB Flashback
ASU Effective Date
ASU 2015-07—Fair Value
Measurement (Topic 820): Disclosures
for Investments in Certain Entities That
Calculate Net Asset Value per Share
(or Its Equivalent) (a consensus of the
FASB Emerging Issues Task Force)
December 15, 2015
December 15, 2016
ASU 2015-05—Intangibles—Goodwill
and Other—Internal-Use Software
(Subtopic 350-40): Customer’s
Accounting for Fees Paid in a Cloud
Computing Arrangement
December 15, 2015

FASB Flashback
ASU Effective Date
ASU 2015-04—Compensation—
Retirement Benefits (Topic 715):
Practical Expedient for the
Measurement Date of an Employer’s
Defined Benefit Obligation and Plan
Assets
December 15, 2015
December 15, 2016
ASU 2015-03—Interest—Imputation of
Interest (Subtopic 835-30): Simplifying
the Presentation of Debt Issuance
Costs
December 15, 2015

FASB Flashback
ASU Effective Date
ASU 2015-01—Income Statement—
Extraordinary and Unusual Items
(Subtopic 225-20): Simplifying Income
Statement Presentation by Eliminating
the Concept of Extraordinary Items
December 15, 2015
ASU 2014-15—Presentation of
Financial Statements—Going Concern
(Subtopic 205-40): Disclosure of
Uncertainties about an Entity’s Ability to
Continue as a Going Concern
December 15, 2016

ASU 2015-11
Inventory (Topic 330): Simplifying the Measurement of Inventory
• Current accounting requires an entity to measure inventory at the
lower of cost or market. Market could be replacement cost, net
realizable value, or net realizable value less a normal profit margin.
• ASU requires measurement of inventory at the lower of cost and net
realizable value.
• Net realizable value = estimated selling price less reasonably
predictable costs of completion, disposal and transportation.
• Does not apply to inventory measured using LIFO or the retail
inventory method.

ASU 2015-07
Fair Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net Asset Value
per Share (or Its Equivalent)
• Applies to reporting entities that elect to measure the fair
value of an investment using the net asset value (NAV) per
share (or its equivalent) practical expedient.
• Eliminates the requirement to categorize within the fair value
hierarchy all investments for which fair value is measured
using the NAV practical expedient.
• Change is being made to eliminate inconsistencies in
presentation of these investments.

Fair Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net Asset Value
per Share (or Its Equivalent)
• Eliminates certain disclosure requirements, primarily the roll
forward for level 3 investments valued using NAV as a
practical expedient.
• Does not affect all other investments and a roll forward is still
required for level 3 investments not valued using NAV.

Assets at Fair Value as of December 31, 2016
Level 1 Level 2 Level 3 Total
Cash & Cash Equivalents 250,000 - - 250,000
Equity Securities 1,500,000 - - 1,500,000
US Government Securities - 5,000,000 - 5,000,000
Corporate Bonds - 6,000,000 50,000 6,050,000
Real Estate - - 3,000,000 3,000,000
Derivatives - - 500,000 500,000
Total assets in FV Hierarchy 1,750,000 11,000,000 3,550,000 16,300,000
Investments Measured at Net
Asset Value (a)
- - - 2,225,000
Investments at Fair Value $1,750,000 $11,000,000 $3,550,000 $18,525,000
(a) In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or its
equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended
to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

ASU 2015-03
Interest—Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs
• Requires that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from
the carrying amount of that debt liability, consistent with debt
discounts.

ASU 2015-01
Income Statement—Extraordinary and Unusual Items (Subtopic
225-20): Simplifying Income Statement Presentation by
Eliminating the Concept of Extraordinary Items
• Eliminates from U.S. GAAP the concept of extraordinary
items.
• Event or transaction that is considered to be unusual or
infrequent (or both):
– Report as a separate component of income from
continuing operations
– Disclose nature and financial effects of each event

FASB PIPELINE

FASB Pipeline
Project Status Timing
Financial Instruments: Hedging Exposure draft Comment period
ends November 22,
2016
Improvements to accounting for
long-duration insurance
contracts
Exposure draft Comment period
ends December 15,
2016
Accounting for goodwill
impairment
Drafting final standard Q4 2016
Accounting for interest income
associated with the purchase of
callable debt securities
Exposure draft Comment period
ends November 28,
2016
Clarifying the definition of a
business
Drafting final standard Q4 2016

FASB Pipeline
Liabilities & equity—
targeted improvements
Drafting ED Q4 2016
Non-profit general partner
consolidation of a for-profit
limited partnership
ED redeliberations
Nonemployee share-based
payment accounting
Initial deliberations
Revenue recognition of
grants and contracts by
NFP entities
Initial redeliberations

FASB Pipeline
Presentation and Disclosures
• Pension and post retirement benefit cost Final standard Q1 2017
• Restricted cash Final standard Q4 2016
• Debt classification Exposure draft Q4 2016
• Inventory Exposure draft Q4 2016
• Defined benefit plans ED redeliberations
• Fair value measurement ED redeliberations
• Income taxes ED redeliberations
• Interim reporting Initial deliberations
• Entity’s decision process ED redeliberations
• Financial statements for NFP (phase 2) ED redeliberations

FASB Pipeline
Simplifying the accounting for goodwill impairment
• Simplifies subsequent measurement of goodwill
• Eliminates step 2 of the impairment test, which requires a
hypothetical purchase price allocation to measure impairment
loss
• Impairment loss would instead be measured as the excess of
the reporting unit’s carrying value over its fair value
• Will apply to all entities except non-public entities that adopted
the private company goodwill accounting alternative

FASB Pipeline
Improving the presentation of net periodic pension cost and
postretirement benefit cost
• ASU as proposed:
– Would require an employer to report the service cost component
in the same line item(s) on the income statement as other
compensation costs
– Other components pension/benefit cost would be presented in
the income statement separately from the service cost
component and outside of income from operations

Q3 2016 ECONOMIC OUTLOOK -
AICPA
Source:
https://www.aicpa.org/InterestAreas/BusinessIndustryAndGovernment/NewsAn
dPublications/DownloadableDocuments/3Q_2016_EOS_ES.pdf

Questions ?

Thank you
Thank you for your attendance at today’s program.
For more information regarding the topics discussed today, please feel free to
contact:
Vince Leo, CPA
vincent.leo@inserocpa.com
(585) 697-9683
Mike Giess, CPA
Michael.giess@inserocpa.com
(585) 697-9639
Insero & Co. CPAs, LLP
www.inserocpa.com

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2016 Audit & Accounting Update

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