This document summarizes a webinar presented by CBIZ & MHM on developments at the PCAOB and SEC. It discusses perspectives from leaders at the AICPA, SEC, FASB, IASB, and PCAOB on key themes in their areas. Technical accounting topics covered include revenue recognition, leases, credit losses, and tax reform. SEC reporting topics addressed are cybersecurity, internal controls, non-GAAP measures, and pay ratios. Recent SEC rulemaking efforts around disclosure effectiveness are also summarized.

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CBIZ & MHM
Executive Education Series™
What’s New at the PCAOB and SEC
Rich Howard, Brad Hale and Mark Winiarski
December 20, 2017

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Before We Get Started…
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CPE Credit
This webinar is eligible for CPE
credit. To receive credit, you will
need to answer periodic
participation markers
throughout the webinar.

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Presenters
Rich, based in our Orange County, CA office, is MHM’s Director of
Quality Control. He is also a member of our Executive Committee and
Professional Standards Group and a member of the Board of Directors of
Kreston International, our global network of accounting firms.
Rich is also the Regional Attest Practice Leader for the West Region with
overall responsibility for the operations of the audit practices in
California, Arizona, Colorado and Utah. Rich also leads our SEC practice
nationwide.
Rich joined the organization in 2002, following 14 years at a then Big
Five firm, where he was an audit partner.
949.450.4402 • rhoward@cbiz.com
RICH HOWARD, CPA
MHM Director of Quality Control

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Presenters
Brad is a shareholder in our Tampa Bay office. Prior to joining the firm,
he spent seven years in public accounting with a Big Four firm in Tampa.
He most recently served as Director of Accounting and Risk
Management for Bloomin’ Brands Inc.
Dividing his time between national and local responsibilities, he focuses
significantly on building the SEC Consulting practice and additional areas
of technical consulting in the Southeast. This includes consultations with
companies considering going public as well as assistance with IPOs;
assistance with SEC filings; review of complex contracts; and analysis of
new accounting standards and application of them for public entities.
Brad is a member of MHM’s Professional Standards Group where he
performs internal consultations on complex private or public company
engagements, as well as focuses on the firm’s SEC audit methodology.
727.572.1400 x 355 • bhale@cbiz.com
Brad Hale, CPA
MHM Shareholder

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Presenters
Located in our Kansas City office, Mark is a member of our Professional
Standards Group (PSG). Mark's role includes instructing in our national
training program, presenting as a subject matter expert at webinars and
conferences, and preparing MHM publications on accounting and
auditing issues.
As a PSG member, Mark consults with clients and engagement teams
across the country in many areas of accounting and auditing. Mark has
served clients as an auditor, consultant and advisor in numerous
industries including manufacturing, distribution, mining, retail sales,
services and software.
816.945.5614 • mwiniarski@cbiz.com • @KCWini
MARK WINIARSKI, CPA
MHM Shareholder

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Agenda
Key Overall Themes
02
01
03
04
Perspectives of Keynote Speakers
SEC Practice Issues
05 FASB Activities
06 PCAOB Activities
SEC Regulatory Matters

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KEY OVERALL THEMES

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Strong capital markets
Competitive markets
Roles and responsibilities
Insight
Preparation for the future
Transparency
Themes

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PERSPECTIVE OF KEYNOTE SPEAKERS

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• AICPA
• Kimberly Ellison-Taylor, Chair
• SEC
• Jay Clayton, Chairman
• Wesley Bricker, Chief Accountant
• FASB
• Russell G. Golden, Chairman
• IASB
• Sue Lloyd, Vice Chairman
• PCAOB
• James R. Doty, Chairman
• Martin F. Baumann, Chief Auditor
Organizations Represented – Keynote Speakers

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•The marketplace is changing
• Creates challenges and opportunities
• Three (3) areas of focus
• Changing cybersecurity landscape
• Future of the profession
• Talent pipeline
Kimberly Ellison-Taylor – Chair

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•Changing cybersecurity landscape
• Technology is changing everything
• Data security is high risk
• Average cost of a breach is $3.62 million
• Exclusive of reputation impact
• Companies need to demonstrate they are
protecting data
• Cybersecurity attestation engagement
• Evaluate a company’s cybersecurity risk
management systems
Kimberly Ellison-Taylor – Chair

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•Future of the profession
• New technologies
• Use of cryptocurrencies (bitcoin, etc.)
• Block chain
• Automation will expand the need for CPAs
• AICPA is studying impact of block chain on profession
• Need for standards and regulation
• Data analytics is an opportunity
• AcSEC is issuing a guide
Kimberly Ellison-Taylor – Chair

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•Talent pipeline
• Several initiatives re: developing CPAs of the future
• Outreach to community colleges
• Goal to increase number minorities taking the CPA exam
• Technology is critical to Gen Z and Millennials
Kimberly Ellison-Taylor – Chair

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• SEC’s core principles
• Investor protection
• From the perspective of the “main street” investor
• Regulation should match today’s reality
• Maximize the value of the good things without overloading them
• Capital formation is important
• SEC supports strong private markets (private equity, etc.)
• Costly to investors (especially main street)
• Desire for public markets more accessible to main street
• More efficient and attractive and lower cost option
• Some concern that there are fewer public companies
Jay Clayton & Wesley Bricker, SEC

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• Why is the Sarbanes-Oxley Act critical? (15th anniv)
• Created mandate for A/C over auditors on behalf of shareholders
• Benefits outweigh the additional burdens
• Audit committees are more engaged and focused on risks
• Areas for A/C to focus
• New standards implementation (revenue and leasing)
• PCAOB auditors report changes
• External risks such as tax changes and cybersecurity
• Overarching views
• SEC regulation should not promote “one size fits all”
• Loss of confidence is the biggest risk to the profession
• We have a disclosure-based system
• Reporting should match how management runs the business
Jay Clayton & Wesley Bricker, SEC

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• Other comments
• PCAOB
• Inspection program provides valuable information to firms and regulators
• International groups
• International groups are very important to the U.S.
• Believes that U.S. standards are the best in the world
• Ongoing communication should be the goal
• PCAOB should have a role in setting international standards
• Does not believe one global standards setter is correct
• Guidance on bitcoin (or other crypto-currencies)
• None expected
• Encouraged focus on cash equivalent vs. security
• Regulations exist for securities and cash already
Jay Clayton & Wesley Bricker, SEC

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• Focused on new revenue and leasing standards
• Outreach on what projects to tackle next
• Feedback received has been to take a break
• Future projects will focus on improvements
• No sweeping changes anticipated
• Focused on changes that reduce cost but not quality
• Highlighted new derivatives standard
• Closest the FASB has come to making everyone happy
Russell Golden – Chairman, FASB

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• 2018 Priorities
• Implementing new revenue and leasing standards
• Projects of note
• Disclosure framework
• Long duration insurance contracts
• Segments
• Debt classification
• Collaborative arrangements
• Cloud computing (EITF)
• Phase 3 business combinations
• Continue to communicate with international bodies
• Look for ways to have common outcomes
Russell Golden – Chairman, FASB

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• Encouraged US involvement in IASB activities
• US has an investment in IFRS
• Topics that are GAAP neutral
• Past activities focused on content of financial statements
• Financial instruments (IFRS 9)
• Revenue recognition (IFRS 15)
• Leasing (IFRS 16)
• Insurance contracts (IFRS 17)
Sue Lloyd – Vice Chairman, IASB

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• What is next?
• New agenda is to focus on better communications with investors
• Performance reporting is not comparable
• Presentation (individual items and subtotals, etc.)
• Better communication of financial information
• Primary financial statements
• Disclosure initiative
• Definition of material
• IFRS taxonomy
• Impact of the way information is delivered in a technological
environment
• Corporate reporting (e.g. SASB)
• Public policy
• Other stakeholders
Sue Lloyd – Vice Chairman, IASB

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• Accounting profession has a bright future
• Focus must be on user needs in order to succeed
• Investors want better quality audits
• Public trust is required for capital formation
• PCAOB contributes to strengthening profession
• Investor protection is enhanced by independent process
• Auditor oversight
• Long term investor confidence drives better economy
• PCAOB plays a vital role in managing the process
• Inspections have improved audits
• Audit firms’ attitudes have changed
• Improvements have occurred
• Helps build public confidence and investor trust
James R. Doty – Chairman, PCAOB

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• Future success depends on trust and confidence
• Focus activities on needs of users
• Innovation
• Drives and improves trust and confidence
• Not just focus on bottom line
• PCAOB task force for technology research
• New standards providing transparency and quality
• Form AP reporting
• New audit reports (CAMs) – will this differentiate audit firms?
• Standards on the use of specialists and other auditors
• Identifying fraud and other enforcement matters
• Concern with conduct outside the U.S.
• Recent discipline in Hong Kong, Brazil, Spain and Hungary
• 40% of disciplinary matters against non-U.S. firms
• Will global market compete on quality?
James R. Doty – Chairman, PCAOB

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• Recent standards
• Auditors’ report
• Took 6 years to accomplish
• Includes critical audit matters (only most important/complex)
• Tenure and independence
• Opinion is in the 1st paragraph
• Form AP
• Partner name
• Extent of use of other firms in the audit
• Approx. 13,000 forms filed through November 2017
• Practice alert 15
• Auditing revenue – Topic 606
• New proposals
• Accounting estimates, including fair value measures
• Use of work of specialists
• Supervision of other auditors
Martin F. Baumann – Chief Auditor, PCAOB

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• Research agenda
• Quality control systems of audit firms
• Use of technology
• Impact of using artificial intelligence and data analytics
• Other information – non-GAAP measures
• Noncompliance with laws & regulations
• Use of technology
• Developing a task force on data and technology
• Believes standards should promote the use of technology
• Priorities – next 5 years
• Technology
• Changes in audit firm business models
• New standards implementation
• Focusing internally on systems
Martin F. Baumann – Chief Auditor, PCAOB

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SEC PRACTICE ISSUES

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Highlights from OCA
Sagar Teotia, Deputy Chief Accountant:
• Tone at the top, beginning with audit committees
• Transition disclosures
• New disclosures
• Staff will continue to respect reasonable, well
thought-out judgments

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Highlights from OCA
Marc Panucci, Deputy Chief Accountant:
• Internal Controls over Financial Reporting
• Transition to new accounting standards
• Auditor Independence
• Shared responsibility amongst auditors and audit committees
• Emphasis on proper policies in place (i.e. framework)
• Ensure predecessor auditors remain independent if engaged to
audit retrospective adjustments
• Keep accurate records of affiliates

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Highlights from OCA
Julie Erhardt, Deputy Chief Accountant:
• Innovation
• Making it a focus despite the time it takes away from our day jobs
• Role of technology in accounting auditing
• Technology’s impact on standard setting

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Technical Accounting Topics
• Revenue recognition
• Leases
• Credit losses
• Tax reform

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Technical Accounting Topics
• Revenue recognition (Topic 606)
• Accounting for pre-production arrangements
• Service deliverable under 605 versus performance
obligation under 606
• Identifying performance obligations
• Evaluation of highly interdependent or highly interrelated
 Two-way dependency
• Shipping and handling costs
• Classification should be consistent with today
• Continue to disclose amount if outside of cost of sales

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Technical Accounting Topics
• Revenue recognition (Topic 606) continued…
• Principal versus agent
• Principal if entity controls a good or service before
transfer to the customer
• Agent if role is to arrange for another entity to provide
that good or service
• Particularly challenging where multiple parties are
involved and transactions take place in the blink of an eye
• Indicators are not meant to serve as a checklist
• Relevance of indicators will differ based on facts and
circumstances

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Technical Accounting Topics
• Revenue recognition (Topic 606) continued…
• Reporting questions (consult Financial Reporting
Manual 3250)
• Selected financial data table
• Quarterly financial information
• Significance tests
• Pro forma disclosures when transition method or
adoption date differs
• AICPA FinREC update on industry task forces

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Technical Accounting Topics
• Leases
• Don’t delay due to a perceived lack of IT resources
• Gather contracts, evaluate whether they meet the
definition of a lease
• Transition issues
• Measuring initial lease liability for historical operating
lease
 Companies can follow historical accounting
• Incremental borrowing rate
 Consistent application of either a rate based on the original
lease or a rate based on the remaining lease term

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Technical Accounting Topics
• Credit losses
• Collateral-dependent financial assets for which
foreclosure is not probable
• Practical expedient to measure fair value
• Scope of application of the purchased credit impaired
model (PCI)
• Not appropriate when accounted for as a loan origination
• Not appropriate when purchased shortly after origination

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Technical Accounting Topics
• Tax reform
• If enacted before the end of the year, companies will
need to account for the change in tax law in the period
of enactment
• Accounting consequences could be significant
• Consider MD&A disclosure if effects are material

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Reporting Topics
• Cybersecurity
• Internal controls over financial reporting
• Non-GAAP
• Pay ratio

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Reporting Topics
• Cybersecurity
• Considering refreshing the guidance
• Clarification that cybersecurity risks are in the scope of disclosure
controls
• Appropriate notification including impact on insider trading policies
• Investigations should not prevent appropriate disclosure
• Internal controls over financial reporting
• Emphasis on risk assessment process when transitioning to new
accounting standards

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Reporting Topics
• Non-GAAP Measures
• Updated Compliance and Disclosure Interpretations on the use of
non-GAAP measures in May 2016
• Generally pleased with company changes
• Labeling of line items
• Focus shifting to key operating metrics
• Pay ratio
• Relief in the area of pay ratio
• No action position if prepared in good faith

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Comment Letter Trends
• Non-GAAP measures
• MD&A
• Fair value disclosures
• Segments
• Revenue recognition
• Business combinations
• Goodwill
• Intangible assets
• Income taxes

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SEC REGULATORY MATTERS

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SEC Rulemaking
• Disclosure effectiveness initiative
• Goal is to reduce the regulatory burden on registrants and make it
easier to access the public markets
• FAST Act- modernization of certain elements of S-K
• Flexibility in discussion of the earliest of the three annual periods in MD&A
• Considering changes to Rules 3-05 and 3-10
• Decrease in number of periods
• Emphasis on pro forma information
• Elimination of condensed consolidating footnote
• Drafting amendments that would eliminate outdated and redundant
disclosures

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SEC Rulemaking
• Seeking waivers under Rule 3-13
• SEC will accept a call on simple fact patterns
• More extensive fact patterns should submit a letter
• Most requests are being resolved within a week
• Good example is excluding acquiree financial statements when income
test is not in line with asset and investment test
• May put more emphasis on post-acquisition periods

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SEC Rulemaking
• Expansion of the non-public review
program
• Non-emerging growth IPOs
• Initial registrations under Section 12(b)
• Follow-on offerings
• Submissions can exclude interim periods
not expected to be included in the filed
registration statement

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FASB ACTIVITIES

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FASB Activities
•Monitoring of implementation
• Revenue
• Leases
• Credit losses
Implementation

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Here to Help
Revenue
Recognition
TRG
Credit Losses
TRG
Meetings
with advisory
groups
Webcasts,
Conference
appearances
Board
meetings
status and
issues
Technical
inquiry
service

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FASB Implementation
Web Portal

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Updates to Lease Accounting
• Clarify that land easements should be evaluated
under the new lease guidance
• Land easements (or rights of way) is the right to use,
access, or cross another entity’s land for a specified
purpose
• May elect to scope out easements that exist or expire
upon the adoption of Topic 842 Leases that were
previously not evaluated under Topic 840 Leases

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Updates to Lease Accounting
• Permit simplified transition
• Adjust the opening balance sheet the year of adoption
• i.e. do not revise prior periods
• Lessors may elect to not separate nonlease
components:
• Elected by class of underlying leased asset
• Nonlease component must have same timing and
pattern of revenue recognition
• Only applies to operating lease

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Updates to Lease Accounting
• FASB decided not to amend leasing for
the following requests:
• Leases with 100% variable payments
• Short-term lease disclosures
• Foreign currency
• Leases of land
• Determining the incremental borrowing
rate
• Private company disclosure relief

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Hedge Accounting
Separate recording
of hedge
“ineffectiveness”
• Fair value hedges
• Entire derivative gain or loss presented in
the same line item as the hedged item
• Cash flow hedges
• Entire derivative gain or loss deferred in OCI
• Except for amounts excluded from the
assessment of effectiveness
• Gain or loss previously deferred in OCI is
recognized in earnings when the hedged
item affects earnings

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Opportunities for Hedge Accounting
• Component hedging for nonfinancial items
• Hedge contractually specified component
• For example:
• Hedging a contract for the delivery of gas
• Priced based on index for gas plus transportation costs
• Previously must assess effectiveness against the entire
contract value
• Now may designate only the index price for hedging

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Opportunities for Hedge Accounting
• Cash flow hedging strategies variable rate debt:
• Eliminates concept of benchmark interest rate for cash flow
hedge of interest rate risk of a variable-rate financial instrument
• Example: Enter into an interest rate swap to hedge the cash flows
of a variable rate loan based on the bank’s prime rate plus 2.5%
• Designate the bank’s prime rate as the hedged risk
• Fair value hedging strategies fixed rate financial instrument:
• Securities Industry and Financial Markets Association (SIFMA) Municipal
Swap Rate added as a benchmark

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Hedge Accounting
• Simplifications
• Qualitative testing after the initial quantitative
assessment
• Eliminate requirement for contemporaneous
documentation with hedge designation
• Allow designation of a back-up long-haul method when
the shortcut method is used

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Current Practice Issues - Consolidation
• Determining which model to use?
• Limited partnership type entities
• Evaluating participating rights
• Determining control
• Consider all terms, rights and obligations on equity and
other interests
• A primary beneficiary of a VIE must control at least one of
the most significant activities
• Under the voting model control occurs when an entity
has all the power over significant decisions in the
ordinary course of business

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Current Practice Issues – Definition of a Business
• Revision narrows the definition of a business
• Improves alignment with IFRS
• Results in fewer business combinations (ASC 805)
• Three significant revisions:
• Application of a “screen”
• Definition of an output
• Existence of inputs and processes

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Current Practice Issues – Attribution of Earnings
• Allocation of earnings between noncontrolling
interests and controlling interests can be complex
• Specialized guidance on
eliminations for VIE’s
• Contractual terms may impact
the allocation
• Hypothetical-liquidation-at-
book-value (HLBV) model may
be appropriate

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Current Practice Issues – Goodwill Impairment
• Simplified test for goodwill impairment
• Eliminates Step 2
• Goodwill is still tested at the reporting unit level
• An operating segment or one level below (component)
• Two or more components are aggregated if they have
similar economic characteristics

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PCAOB ACTIVITIES

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Enforcement
• PCAOB has issued 67 disciplinary orders in its history
• Most relate to documentation alteration
• 40% of cases were international
• 1st charges related to a carrying broker-dealer
• Examples
• Failure to exercise due professional care
• Violations of audit standards
• Violations of exchange act

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Common Audit Deficiencies
• Application of auditing standards
• Assessing and responding to material misstatement
• Internal control over financial reporting
• Auditing accounting estimates
• Financial reporting
• Allowance for loan losses
• Revenues
• Inventory
• Business Combinations
• Impairment long-lived assets
• Debt and equity instruments

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Enhancing Audit Quality
• Firm quality control – the foundation to a good audit
• Monitoring use of audit quality indicators (AQIs)
• Trying to understand responses to cybersecurity
• Monitoring impact of technology
• Robotics
• Artificial intelligence
• Distributed ledger and database technologies

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Proposals and Staff Guidance
• Auditing of accounting estimates, including fair value
• Focus on bias, consistency in audit requirements, and risk
assessment
• Use of specialists
• Reduce diversity in practice and improve supervision
• Staff Audit Practice Alert No. 15
• Audit Implications of Topic 606

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Revised PCAOB Auditors Report
Changes are effective for fiscal years ending on or
after December 15, 2017
Starts with
the opinion

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Revised PCAOB Auditors Report
Specific
Statements:
Independence
& Fraud

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Revised PCAOB Auditors Report
Auditor
Tenure
Critical Audit Matters (CAMS) effective:
• Accelerated filers: fiscal years ending June 30, 2019
• All others December 15, 2020
• Do not apply to brokers and dealers, investment companies, benefit
plans, and EGCs

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What is a CAM?
Communication made to the audit
committee that
Relates to accounts or disclosures
material to the financial
statements, and
Involves especially challenging,
subjective, or complex auditor
judgement

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?
QUESTIONS

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If You Enjoyed This Webinar…
Upcoming Courses:
• 12/21 & 12/28: Fourth Quarter Accounting and Financial Reporting Issues Update
• 2/8: Eye on Washington – Quarterly Business Tax Update
Recent Publications:
• SEC modifies Staff Guidance on Revenue Recognition
• Common Questions When a Business is Acquired
• Relief Coming for Leasing Standard Implementation
• AICPA’s Proposed Changes to Employee Benefit Plan Auditing Standards Draw
Pushback

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If You Enjoyed This Webinar…
Upcoming courses:
• 1/10 & 1/17: Key International Tax Considerations - 4th Quarter Update
• 2/9 & 2/14: Eye on Washington: Quarterly Business Tax Update
Recent publications:
• FASB May Simplify the Accounting for Instruments with Down Round Provisions
• Five Keys to Beginning Revenue Recognition Implementation
• Presentation Changes to the Cash Flow Statement

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THANK YOU
CBIZ & Mayer Hoffman McCann P.C.
cbizmhmwebinars@cbiz.com