Accounting Update. Agenda

Transcription

1 Accounting Update Presented by Toby Leslie, CPA, Partner Keiter Jason Hart, CPA, CFE, Manager Keiter Agenda FASB Updates and Developments Private Company Council Developments Pending FASB projects PCAOB 1

2 2014 FASB Developments ASU ASU ASU ASU ASU ASU ASU Going Concern Troubled Debt Restructurings by Creditors Consolidations Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity Stock Compensation Performance targets achieved after the requisite service period Repurchase-to-Maturity Transactions Development Stage Entities Revenue Recognition FASB Developments ASU ASU ASU ASU ASU ASU ASU ASU Discontinued Operations VIE Guidance (PCC Consensus) Technical Corrections Service Concession Arrangements Troubled Debt Restructurings by Creditors Derivatives and Hedging (PCC Consensus) Intangibles and Goodwill (PCC Consensus) Accounting for Investments in Qualified Affordable Housing Projects 2

3 ASU Development Stage Entities Under previous standard, a Development Stage Entity (DSE) was required to report the statement of stockholders equity, statement t t of operations and cash flows on a cumulative basis from inception A DSE was defined as an entity devoting substantially all of its efforts to establishing a new business and for which either of the following conditions exists: Planned principal operations have not commenced Planned principal operations have commenced, but there has been no significant revenue there from This standard removes the definition of a DSE from GAAP and all of the related reporting requirements Standard is effective for annual periods beginning after December 15, 2014 with early application permitted ASU Going Concern Management must evaluate whether h there are conditions or events that raise substantial doubt about the entity s ability to continue as a going concern. 3

4 ASU Going Concern Based on events/conditions that are known or knowable at the date the financial statements are issued. Evaluation must indicate that it is probable the entity will continue as a going concern for one year from the date the financial statements are issued. ASU Going Concern If substantial doubt exists, management must disclose the reason(s) for the doubt to exist, and managements evaluation of the conditions or events, and its plans to mitigate the conditions. If liquidation is imminent, the financial statements must be presented on the liquidation basis of accounting under ASC

5 ASU Going Concern Effective for annual reporting periods ending after December 15, 2016 Covers both annual and interim financial statements Early adoption is permitted ASU Revenue Recognition Eliminates i the transaction and industryspecific guidance and replaces them with a unified approach Applies to all entities public, private, nonprofit 5

6 ASU Revenue Recognition Effective Dates: Public Entities Beginning December 16, 2016 (Includes SEC Registrants, Non-profits that have issued publicly-available debt instruments, and employee-benefit plans that file statements with the SEC) Nonpublic Entities Beginning December 16, 2017 Complicated phase-in of prior periods ASU Revenue Recognition Core Principal: An entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services 6

7 ASU Revenue Recognition Step 1 Identify the contract(s) 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 Revenue Recognition Step 1: Identify the Contract with a Customer 1. Approval and commitment of the parties 2. Identification of the rights of the parties 3. Identification of the payment terms 4. The contract has commercial substance 5. It is probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer 7

8 ASU Revenue Recognition Step 2: Identify the Performance Obligation in the Contract A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer. If an entity promises to transfer more than one good or service, the entity should account for each good or service as a performance obligation if it is (1) distinct, or (2) a series of distinct goods or services that are substantially the same and have the same pattern of transfer ASU Revenue Recognition Step 2: Identify the Performance Obligation in the Contract, Continued A distinct good or service has to meet both: 1. Capable of being distinct the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer 2. Distinct within the context of the contract the promise to transfer the good or service is separately identifiable from other promises in the contract 8

9 ASU Revenue Recognition Step 3: Determine the Transaction Price The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for in transferring promised goods or services to a customer ASU Revenue Recognition Step 3: Determine the Transaction Price, Continued Consider specific guidance for: Variable consideration Constraining estimates of variable consideration Existence of a significant financing component Noncash consideration Consideration payable to a customer 9

10 ASU Revenue Recognition Step 4: Allocate the Transaction Price to the Performance Obligations in the Contract Allocate consideration to each performance obligation Estimate a standalone selling price Include discounts or variable consideration Change orders are recognized in the period when the transaction price changes ASU Revenue Recognition Step 5: Recognize Revenue When (or As) the Entity Satisfies a Performance Obligation Entity must transfer (customer obtains control) of the good or service Can be over time or at a point in time 10

11 ASU Revenue Recognition Step 5: Recognize Revenue When (or As) the Entity Satisfies a Performance Obligation Control transferred over time: 1. Customer simultaneously receives and consumes the benefits provided by the entity s performance as the entity performs 2. The entity s performance creates or enhances an asset (for (o example, pe, work-in-progress) pogess)that atthe ecustomer controls as the asset is created or enhanced 3. The entity s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for the performance created to date. ASU Revenue Recognition Step 5: Recognize Revenue When (or As) the Entity Satisfies a Performance Obligation Control transferred at a point in time: 1. The entity has a present right to payment for the asset 2. The customer has legal title to the asset 3. The entity has transferred physical possession of the asset 4. The customer has the significant risks and rewards of ownership of the asset 5. The customer has accepted the asset 11

12 ASU Revenue Recognition More detailed disclosures will be required to enable the users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Management will be required to disclose its estimates and judgment used in recognizing revenue. ASU Discontinued Operations Strategic shift disposals that have/will have a major effect on the operations and financial results Nonprofit activities and equity method investments are added to the scope of potential discontinued operations 12

13 Private Company Available Alternatives On June 10 th the AICPA issued a Special Purpose Framework entitled Financial Reporting Framework for Small and Medium-Sized Entities (FRF for SMEs). The framework does not define a small and mediumsized entity, but does give some guidance as to entities that may, or may not be considered a SME. The FASB has taken a different approach by designating a sub-committee (the Private Company Council, or PCC) charged with identifying specific areas in which financial reporting under the GAAP framework is particularly burdensome for private companies. FRF for SMEs The Basics Objective - to provide latitude in determining certain key accounting policies, while also simplifying financial reporting in a number of particularly complex areas. Basis of framework Historical cost in most circumstances. Follows tax reporting in many areas with certain caveats, or alternatives. This is not GAAP!! 13

14 PCC Project The Basics Approach includes identifying certain carveout options for private companies. PCC s recommendations are subject to ratification from FASB It ratified by FASB, then proposed Accounting Standard Update (ASU) is issued ASU is then subject to public comment prior to issuance Not required that private companies adopt the ASUs. FASB Private Company Council ( PCC ) Developments FAF Oversight Identifies, deliberates and votes on proposed GAAP alternatives for private companies Advisory body to FASB Private company practitioners (4), users (3), preparers (3) 14

15 FASB Private Company Council ( PCC ) Developments Agenda set by PCC meet at least 5 supermajority vote times annually All deliberative meetings are open to the public FASB expected to attend FASB Private Company Council ( PCC ) Developments ASU Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements 1. Lessor/lessee under common control 2. Substantially all activity between lessor/lessee is related to the leasing activity 3. Lessee guarantees or collateralizes the lessors obligation related to the leased asset 15

16 FASB Private Company Council ( PCC ) Developments ASU Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements Not required to provide VIE disclosures about lessor entity (consolidating information) Disclose amount of liabilities and key terms of the arrangement that expose the lessee/lessor FASB Private Company Council ( PCC ) Developments ASU Accounting for Certain Receive-Variable, i Pay-Fixed Interest t Rate Swaps Interest rate approximates fixed-rate debt (same as now) Asset or liability measured at settlement value as an alternative to fair market value May not be required to include changes in fair market value as a component of other comprehensive income 16

17 FASB Private Company Council ( PCC ) Developments ASU Accounting for Goodwill Amortize goodwill over 10 years Test for impairment upon triggering event Goodwill impairment test: At entity level or reporting level One-step test Optional qualitative assessment (step 0) What is the Private Company Council Working On? Indefinite-lived intangible assets other than goodwill (specifically non-compete agreements and customer-related intangibles) Definition of a public entity Uncertain tax positions Stock-based compensation Fair value Liability v. Equity 17

18 What s the FASB working on? Project Current Stage Timing Debt issuance Costs ED issued on 10/15 TBD Leases ED redeliberations N/A Accounting for Goodwill for Public Business Entities and Not-for-Profits Initial deliberations N/A Accounting for Identifiable Intangible Assets in a Business Combination Drafting final standard Q Pushdown Accounting Fair Value Hierarchy Levels for Certain Investments Measured at Net Asset Value Drafting final standard d Q ED issued Q Extraordinary Items ED redeliberations N/A Other FASB Developments On 10/8/2014, the FASB instructed its staff to begin drafting a proposal to change financial reporting for not-for-profit entities Targeted for a 2015 release 18

19 What is the PCAOB Working On? Project Engagement g partner disclosure Auditor s reporting model Supervision of Other Auditors and Multi-location Audit Engagements Use of Specialists Framework from Reorganization of PCAOB Auditing Standards Going Concern Subsequent Events Status Issue supplemental request for comment Re-proposal Proposal Issue Staff Consultation Paper Adoption Issue Staff Consultation Paper Proposal Questions? Thank you! Contact: Toby Leslie tleslie@keitercpa.com Jason Hart jhart@keitercpa.com 19