Year End Accounting Standards Update

YEAR END ACCOUNTING
STANDARDS UPDATE
Janice Snyder, Partner

DISCLAIMER
The information contained in this presentation, both that contained in the
slides and that expressed by the presenter, is not intended to be complete
and comprehensive. To obtain a more detailed understanding of technical
literature mentioned, please consult the full standards and interpretations.

WHAT’S NEW IN ACCOUNTING STANDARDS?
• FASB Standards
• Code of Professional Conduct
• Not-for-Profit Accounting
• On the Horizon

FASB STANDARDS
Accounting Standard Update (ASU) #
Transition
Method Effective Date
Revenue from Contracts with Customers 2014-09 Retrospective Periods after 12/15/17
(public); 12/15/18 (private)
Presentation of Financial Statements –
Going Concern
2014-15 N/A Periods after 12/15/16
Early Adoption Permitted
Accounting for Identifiable Intangible
Assets in a Business Combination (PCC)
2014-18 Prospective Periods after 12/15/15
Simplifying the Presentation of Debt
Issuance Costs
2015-03 Retrospective Periods after 12/15/15 Early
Adoption Permitted

FASB STANDARDS
Accounting Standard Update (ASU) # Transition Method Effective Date
Disclosures for Investments in Certain Entities that
Calculate Net Asset Value per Share
2015-07 Retrospective Periods after 12/15/15 (public);
12/15/16 (private)
Simplifying the Measurement of Inventory 2015-11 Prospective Periods after 12/15/16 (public);
12/15/17 (private)
Plan Accounting
Part I : Fully Benefit-Responsive Investment Contracts
2015-12 Retrospective Periods after 12/15/15
Part II : Investment Disclosures 2015-12 Retrospective Periods after 12/15/15
Part III: Measurement Date Practical Expedient 2015-12 Prospective Periods after 12/15/15

FASB STANDARDS
Accounting Standard Update (ASU) #
Transition
Method Effective Date
Debt Issuance Costs associated with
Lines-of-Credit
2015-15 Retrospective Periods after 12/15/15
Business Combinations: Simplifying the
Measurement-Period Adjustments
2015-16 Prospective Periods after 12/15/15
Balance Sheet Classification of
Deferred Taxes
2015-17 Prospective or
Retrospective
Periods after 12/15/16

ASU 2014-09
Revenue from Contracts with Customers
• Ongoing project between IASB and FASB aimed at streamlining and converging
guidance on revenue recognition.
• Final standard issued in May 2014, effective for public companies in 2018 and for
private companies in 2019. (ASU 2015-14 officially extended the dates!)
• Most impact on companies that follow existing industry-specific guidance (software,
entertainment, healthcare, telecommunications, construction, etc.).
• Additional disclosures - Must include sufficient information to enable users to
understand the nature, amount, timing and uncertainty of revenue and cash flows.

ASU 2014-09
• 5-step model
• Step 1: Identify the Contract with a Customer
• Step 2: Identify the Performance Obligations in the Contract
• Step 3: Determine the Transaction Price
• Step 4: Allocate the Transaction Price to the Performance Obligations
in the Contract
• Step 5: Recognize Revenue When (Or As) the Entity Satisfies a
Performance Obligation.

ASU 2014-09
Potential Pitfalls
• Step 1: Identify the Contract with a Customer
• Requires approval, commitment, identification of rights, payment terms,
commercial substance
• Collection must be PROBABLE! Consideration of only the customer’s ability and
intention to pay.
• Self-pay revenue in healthcare
• Returns

ASU 2014-09
Potential Pitfalls
• Step 2: Identify the Performance Obligations in the Contract
• The good or service is capable of being distinct and is distinct within the
context of the contract
• Recognize revenue when the entity satisfies the performance obligation.
• Revenue may be recognized over time if certain criteria are met (i.e.
percentage of completion).

ASU 2014-09
Potential Pitfalls
• Step 3: Determine the Transaction Price
• Refund liabilities – recognized if the entity receives consideration from a
customer and expects to refund some or all of that consideration (i.e.
sales returns).
• Variable consideration – recorded at the probable amount (expected
value or most likely value).
• It must be probable the revenue will not be reversed.

ASU 2014-09
Potential Pitfalls
• Step 4: Allocate the Transaction Price to the Performance Obligations in
the Contract
• The entity must determine the standalone selling price at contract inception.
• Must allocate the transaction price on a relative standalone selling price basis (3 Methods).
1. Adjusted Market Assessment Approach
2. Expect cost plus margin approach
3. Residual approach
• Onerous Contracts / Loss Contracts

ASU 2014-09
Potential Pitfalls
• Step 5: Recognize Revenue When (Or As) the Entity Satisfies a Performance
Obligation
Items to consider
• The entity has a present right to payment for the asset.
• The customer has legal title to the asset.
• The entity has transferred physical possession of the asset.
• Customer receives and consumes the benefits.

ASU 2014-09
Other Considerations
• Warranties
• Principal versus Agent
• Licensing
• Returns

ASU 2014-15
Disclosure of Uncertainties About an Entity’s Ability to Continue as
a Going Concern
• Management must evaluate if there are conditions that raise substantial
doubt about the entity’s ability to continue as a going concern within one year
after the date that the financial statements are issued.
• Substantial doubt exists when it is probable that the entity be unable to meet
its obligations as they become due within one year after the date that the
financial statements are issued.

ASU 2014-15
Disclosure of Uncertainties About an Entity’s Ability to Continue as
a Going Concern
• If management concludes that substantial doubt exists, which is not
alleviated, disclosures indicating substantial doubt about the entity’s ability to
continue as a going concern are required.
• If the substantial doubt is alleviated, management still must disclose:
o Conditions or events that raised substantial doubt.
o Management’s evaluation of the conditions or events.
o Management’s plans that alleviated the doubt.

ASU 2014-18
Accounting for Identifiable Intangible Assets in a Business
Combination (PCC)
• Applies to private companies (public entities and NFPs are excluded)
• An entity can elect not to recognize certain intangibles separately from goodwill:
o Customer-Related Intangibles – only recognized separately if capable of being sold or licensed
independently from other assets of a business.
o Non-Competition Agreements
• An entity that elects this standard must also amortize goodwill under ASU 2014-02.

ASU 2015-03
Simplifying the Presentation of Debt Issuance Cost
• Focuses on the different balance sheet presentation requirements for debt issuance
costs, premiums and discounts.
• Requires debt issuance costs to be presented in the balance sheet as a direct
deduction from the carrying amount of the debt liability.
• The debt issuance costs will not be classified as an asset (deferred charge or deferred
credit).
• Amortization of debt issuance costs will be recorded as interest expense.

ASU 2015-07
Disclosures for Investments in Certain Entities that Calculate Net Asset
Value per Share
• Removes the requirement to categorize within the fair value hierarchy all investments for which
fair value is measured using the net asset value (NAV) per share practical expedient.
• Investments using NAV as the practical expedient should not be categorized in the fair value
hierarchy (Level 1, 2 or 3).
• A reporting entity should continue to disclose information on investments for which fair value is
measured at net asset value.
• Reconciliation of the fair value of investments included in the fair value hierarchy to the line items
presented in the statement of financial position is still required.

ASU 2015-11
Simplifying the Measurement of Inventory
• To simplify the measurement of inventory, the Board proposes that inventory should
be measured at the lower of cost and net realizable value.
• Net realizable value is defined as the “estimated selling prices in the ordinary course
of business, less reasonably predictable costs of completion, disposal, and
transportation.”
• Eliminates the requirement of a reporting entity to consider the replacement cost of
inventory and the net realizable value of inventory, less an approximately normal profit
margin.
• Closely aligns to the IFRS definition.
• LIFO and Retail Methods are specifically excluded.

Plan Accounting
Part I: Fully Benefit-Responsive Investment Contracts
• Fully benefit-responsive investment contracts will be measured, presented, and
disclosed only at contract value.
Part II: Plan Investment Disclosures
• Investments (both participant-directed and nonparticipant-directed
investments) of employee benefit plans be grouped only by general type,
eliminating the need to disaggregate the investments in multiple ways.
• Eliminates disclosures of investments over 5% of net assets.

ASU 2015-12
Plan Accounting
Part III: Measurement Date Practical Expedient
• Provides a practical expedient to permit plans to measure investments and
investment-related accounts as of a month-end date that is closest to the
plan’s fiscal year-end, when the fiscal period does not coincide with month-
end.
• If a plan applies the practical expedient and a contribution, distribution, and/or
significant event occurs between the alternative measurement date and the
plan’s fiscal year-end, the plan would be required to disclose the amount of the
contribution, distribution, and/or significant event.

ASU 2015-15
Debt Issuance Costs associated with Lines-of-Credit
o SEC Content
o Addresses presentation and subsequent measurement of debt issuance costs
associated with line of credit arrangements.
o “The SEC staff would not object to an entity deferring and presenting debt
issuance costs as an asset and subsequently amortizing the deferred debt
issuance costs ratably over the term of the line-of-credit arrangement,
regardless of whether there are any outstanding borrowings on the line-of-
credit arrangement.”
o Accounting remains the same for LOC arrangements.

ASU 2015-16
Business Combinations: Simplifying the Measurement-Period
Adjustments
• Applies to all entities that have reported provisional amounts for items in a business
combination for which the accounting is incomplete by the end of the reporting period.
• An acquirer is required to recognize adjustments to provisional amounts that are
identified during the measurement period in the reporting period in which the
adjustment amounts are determined.
• Requires an entity to present separately on the face of the income statement or disclose
in the notes the portion of the amount recorded in current-period earnings by line item
that would have been recorded in previous reporting periods if the adjustment to the
provisional amounts had been recognized as of the acquisition date.

ASU 2015-17
Balance Sheet Classification of Deferred Taxes
• Current GAAP requires current and noncurrent deferred tax assets and liabilities.
• This standard requires that deferred tax liabilities and assets be classified as
noncurrent in a classified statement of financial position.
• By tax jurisdiction, all current deferred tax liabilities and assets shall be offset and
presented as a single amount and all noncurrent deferred tax liabilities and assets,
shall be offset and presented as a single noncurrent amount.
• An entity shall not offset deferred tax liabilities and assets attributable to different tax-
paying components of the entity or to different tax jurisdictions.

CODE OF PROFESSIONAL CONDUCT
A revised Code was approved on January 28, 2014, to be effective
December 15, 2014.
• New conceptual frameworks and related interpretations will not be effective until
December 15, 2015
• Revised code launched on June 2, 2014, with early adoption encouraged.

• Incorporate references to division’s non-authoritative guidance
• Physically different – Separate parts
• Part 1: Members in public practice
• Part 2: Members in business
• Part 3: All Other Members
• On-line Codification with enhanced functionality

Significant changes in the revised code include
• Organization:
• The prior code was organized by rule, with chronological listing of
interpretations and rulings (if any).
• The revised code is organized more intuitively
• Separates guidance by line of business, then by topic
• Where necessary, Topics are broken into subtopics and sections

Significant changes in the revised code include
• Conceptual Framework
• Incorporate a “Threats and Safeguards” approach, designed to assist users in
analyzing relationships and circumstances that the code does not specifically
address
• Under this approach, users:
• Identify threats to compliance with the rules
• Evaluate the significance of those threats to determine if it is at an acceptable level
• If not at an acceptable level, users apply safeguards to eliminate the threats or reduce
them to an acceptable level

AICPA – CONCEPTUAL FRAMEWORK

WHAT’S NEW IN ACCOUNTING STANDARDS
• FASB Standards
• Code of Professional Conduct
• Not-for-Profit Accounting
• On the Horizon

NOT-FOR-PROFIT ACCOUNTING
ED- Presentation of Financial Statements of Not-for-Profit Entities(comment deadline of 8/20/15)
Affects Not-for-Profit Entities (958) and Health Care Entities (954)
Balance Sheet
• 2 classes of restrictions –
(1) net assets with donor restrictions and
(2) net assets without donor restrictions
Operating Performance
• Focused on availability for use for Mission
• Expenses by function and nature
• Excludes investment income and financing activities
• Board restricted items (quasi endowment funds) will be shown separately

ED - Presentation of Financial Statements of Not-for-Profit Entities (comment deadline of 8/20/15)
Affects Not-for-Profit Entities (958) and Health Care Entities (954)
Cash Flow
• Requires Direct method cash flow statement
• Classify as operating cash flows:
(1) Purchases of long-lived assets
(2) Contributions restricted to acquire long-lived assets, and
(3) Sales of long-lived assets.
Liquidity
Disclosures around how the Organization manages liquidity and future cash flow needs.
More disclosures, more disclosures, more disclosures!

ED - Presentation of Financial Statements of Not-for-Profit Entities (comment
deadline of 8/20/15)
Comment Letters
• HFMA – Views proposed changes are creating further deviation between for-profit
and not-for-profit healthcare entities
• General agreement with 2 classes of net asset (as opposed to 3 classes)
• General disagreement with NFPs leading the way to more clearly define operating
and non-operating activities.
• Liquidity disclosures and self-defined time horizons by the Organization are causing
some concern and will bring more judgment into the financial statements.

Uniform Administrative Guidance
• Administrative and cost principal changes applicable for new awards and additional
funding increments of existing awards made after December 26, 2014.
• Procurement is the only area with a time extension for implementation of one
year.
• Audit changes effective for fiscal years beginning on or after December 26, 2014.
• i.e. Years ending December 31, 2015, June 30, 2016, etc.

• Moved from the Audit Requirement in A-133 to Uniform Guidance
• Organizations MUST establish and maintain effective internal controls over
federal awards to provide reasonable assurance that awards are being managed
in compliance with laws and regulations
• SHOULD be in compliance with COSO
• Control Environment, Risk Assessments, Control Activities,
Information/Communication, and Monitoring

CONTROL ENVIRONMENT
Yes/No Examples
• Sets the tone at the top
• Establishes ethical standards of conduct
• Evaluates adherence to ethical standards of conduct
• Addresses deviations or violations fromthe code of conduct ina timely manner
• Whistleblower programis inplace andcommunicatedthroughout the organization
• Reducingimproper payments is a topmanagement priority
Principle 1. The organization demonstrates a commitment to integrity and ethical values.
MONITORING ACTIVITIES
Yes/No Examples
• Performs monitoring through direct observations
• Uses knowledgeable personnel
• Integrates with business processes
• Objectively evaluates, considers scope and frequency
Principle 16.The organization selects, develops, and performs ongoing and/or separate evaluations to ascertain
whether the components of internal control are present and functioning.

Good News - Grace period of one full fiscal year that begins on or after December 26,
2014
• i.e. December 31, 2015, June 30, 2016, etc.
Organizations Must:
• Have written procurement policies
• Engage in full and open competition
• Ask for actual or potential conflicts of interest (written)
• Maintain records for all procurement activity

Procurement Levels Thresholds
1. Micro Purchases Less than $3,000
2. Small Purchases Up to $150,000
3. Sealed Bids Greater than $150,000
4. Competitive Proposals Greater than $150,000
5. Sole Source (Noncompetitive) Unique, Public Emergency

• Audit Threshold increases from $500,000 to $750,000 of federal funds
• Still required to make records available for review/audit by Federal Agencies,
pass-through entities, and the GAO
• Change in audit coverage amounts
• Low-Risk Auditee = 20% (previously 25%)
• Non Low-Risk Auditee = 40% (previously 50%)
• Audit Finding threshold is raised to $25,000
• Single Audit Report will now be posted publicly on the Federal Audit Clearinghouse

1. Reimbursement for more of your Direct Costs
a) More costs are reimbursable as direct costs (i.e. secretarial staff)
2. Reimbursement for Indirect Costs
a) De minimus of 10% of the modified total direct costs
b) Or may negotiate a higher rate
c) Government entities may no longer limit payments to nonprofits under grants and contract to
only direct costs
https://www.councilofnonprofits.org/sites/default/files/documents/know-your-rights-and-how-to-protect-them.pdf

ON THE HORIZON
Leases
• Ongoing joint project of FASB/IASB.
• Most recent exposure draft (May 2013) continues to be re-deliberated.
• Nearly all leases will be recorded on the balance sheet!
• FASB supports a dual model
• Type A – applies to almost all leases – record asset, liability, amortization and
interest expense.
• Type B – only applies to certain leases of buildings – record single line lease
expense.

ON THE HORIZON
Leases (continued)
Balance Sheet Income Statement Cash Flows
Assets - Record ROU Asset
(increases long-term assets)
Liabilities - Record NPV of
lease payments as a long-term
liability (increases liabilities)
Expenses –
Increases interest and
amortization expense
Operating –
Cash payments for interest
Cash payments for Type B
leases.
Financing – Cash
payments for principal
portion of the lease liability

ON THE HORIZON
Leases (continued)
Decisions reached to date:
• Inclusion of extension options in term if “significant economic incentive to exercise”.
• Exemption for short-term leases (12 months or less).
• Includes all related party leases at legally enforceable terms.
• Incremental borrowing rate of lessee or implicit rate in the lease (nonpublic entities
can use risk-free rate)
Final Standard Expected in Q1 2016!

ON THE HORIZON
Exposure Draft Topic Issue date
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing 5/12/15
Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Equity Method of Accounting 6/5/15
Revenue from Contracts with Customers (Topic 606): Principal versus Agent (Reporting Revenue Gross
versus Net)
8/31/15
Conceptual Framework for Financial Reporting Chapter 3: Qualitative Characteristics of Useful Financial
Information
9/24/15
Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material 9/24/15
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients 9/30/15
Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810),
and Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance (a proposal of PCC)
9/30/15
Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement 12/3/15

QUESTIONS
Janice Snyder
• McKonly & Asbury
• Partner
• CPA
• jsnyder@macpas.com

Year End Accounting Standards Update

Year End Accounting Standards Update

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