KPMG s CFO Financial Forum Webcast

Transcription

1 KPMG s CFO Financial Forum Webcast Quarterly Outlook for Accounting and Financial Reporting Matters September 26, 2013 Angie Storm, Partner Jack Pohlman, Senior Manager Jeremy Peters, Senior Manager Jennifer Yruma, Director Agenda Current Quarter Financial Reporting Matters Upcoming Financial Reporting Matters Looking Ahead: Major Joint Board Projects Other FASB Projects EITF Activities PCAOB Activity Wrap-up 2 1

2 Administrative CPE regulations require online participants take part in online questions You must respond to a minimum of 7 of 9 questions in order to be eligible for CPE credit Polling questions will appear on your media player on top of the slides Send Questions via Ask a Question Button Help Desk: or outside the U.S. at You can print out presentation slides, including the Glossary, from the Supporting Material icon 3 Glossary 2

3 Glossary ASC Accounting Standards Codification ASU Accounting Standards Update CAQ Center for Audit Quality COSO Committee of Sponsoring Organizations DPFs Discretionary Participation Features ED Exposure Draft EITF Emerging Issues Task Force FAQ Frequently Asked Question FASB Financial Accounting Standards Board Fed Funds Rate Overnight interbank lending rate on balances held at Federal Reserve FV-NI Fair Value Net Income FV-OCI Fair Value Other Comprehensive Income GAAP Generally Accepted Accounting Principles IASB International Accounting Standards Board ICOFR Internal Control Over Financial Reporting IPO Initial Public Offering JOBS Act - Jumpstart Our Business Startups Act LIBOR London Interbank Offered Rate LIHTC Low Income Housing Tax Credit NASDAQ National Association of Securities Dealers Automated Quotations NOL Net Operating Loss NYSE New York Stock Exchange OCI Other Comprehensive Income PCAOB Public Company Accounting Oversight Board PCC Private Company Council REIT Real Estate Investment Trust ROU Right-of-use SBA Share Based Awards SEC Securities and Exchange Commission UST U.S. Treasury rate VIE Variable Interest Entity XBRL extensible Business Reporting Language IT Information Technology 5 Current Quarter Financial Reporting Matters 3

4 CAQ SEC Regulations Committee Developments Cybersecurity Disclosures New Compliance and Disclosure Interpretations Form 8-K Filings for (1) material impairments and (2) classification of oil and gas reserves Capital Formation Initiatives Jumpstart Our Business Startups Act (JOBS Act) FAQs SEC Advisory Committee on Small and Emerging Businesses recommendations Smaller reporting company pro forma information 7 Other SEC Activities/Reminders Court Vacates Extractive Industry Payment Disclosure Rule NYSE and NASDAQ Rules - Compensation Adviser Independence Effective July 1, 2013 Updated Financial Reporting Manual Real estate acquisitions Determining the significance of equity method investees Examples of non-gaap financial measures Ongoing Staff Comments Goodwill Segments Fair value Income taxes Management Discussion and Analysis 8 4

5 Other SEC Activities/Reminders Recent Final Rules Ban on general solicitation or general advertising for certain private securities offerings lifted Broker-dealer reporting Disclosure guidance for non-traded real estate investment trusts (REITs) Recent Proposed Rules Two alternatives to money market reform and additional disclosures Securitization sponsors risk retention requirement Pay ratio disclosures 9 Polling question #1 Do you expect recent SEC rulemaking to directly affect your company? A. Yes B. No C. Not applicable D. Not sure 10 5

6 ASU Allows Fed Funds Rate as a Benchmark Interest Rate for Hedge Accounting Purposes Main impact Fed Funds Rate joins LIBOR and U.S. Treasury rate as a benchmark rate Removes requirement to use the same benchmark interest rate for similar hedges No additional disclosures required Transition Prospective application to new and re-designated hedge relationships Effective Date July 17, Other ASUs Effective for Calendar 2013 Topic Effective Date - Public Effective Date - Nonpublic For More Information Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income Disclosures about Offsetting Assets and Liabilities Impairment Analysis of Unamortized Film Costs Fiscal periods beginning after 12/15/2012 Fiscal years, and interim periods within those years, beginning on or after 1/1/2013 For impairment assessments performed on or after 12/15/2012 Fiscal periods beginning after 12/15/2013 FASB ASU Defining Issues 13-9 Same as public FASB ASU FASB ASU For impairment assessments performed on or after 12/15/2013 FASB ASU Defining Issues Accounting for an Indemnification Asset Fiscal years, and interim periods, within those years Same as public FASB ASU Defining Issues Recognized as a Result beginning on or after of a Government- 12/15/2012 Assisted Acquisition of a Financial Institution 12 6

7 Other ASUs Effective for Calendar 2013 (Continued) Topic Effective Date - Public Effective Date - Nonpublic For More Information Technical Corrections and Improvements Testing Indefinite-Lived Intangible Assets for Impairment Generally effective 10/1/2012, Generally effective 10/1/2012, except amendments related to except amendments related to contracts that are not indexed contracts that are not indexed to an entity s own equity and the definition of fair value in employee benefit plans, which are effective for fiscal periods beginning after 12/15/2012 For impairment tests in fiscal years beginning after 9/15/12 to an entity s own equity and the definition of fair value in employee benefit plans, which are effective for fiscal periods beginning after 12/15/2013 FASB ASU Same as public FASB ASU Continuing Care Fiscal periods beginning after Fiscal periods beginning after FASB ASU Retirement 12/15/ /15/2012 Communities Refundable Advance Fees Derecognition of In-substance Real Estate Fiscal years and interim periods within those years beginning on or after 6/15/2012 Fiscal years ending after 12/15/2013 and interim and annual periods thereafter FASB ASU Upcoming Financial Reporting Matters 7

8 COSO 2013 Framework Updated Internal Control Integrated Framework (2013 Framework) issued May 14, 2013 Addresses adapting to new and rapidly changing business models, greater use and dependence on IT, and increased regulatory requirements The five components remain and are supported by 17 Principles Provides example Points of Focus to assist management in determining whether a principle is present and functioning COSO 1992 Framework will be available until December 15, COSO 2013 Framework COSO 2013 An effective system of internal control requires that: Each of the five components and relevant principles i are present and functioning i and, The five components operate together in an integrated manner A major deficiency exists if the organization cannot conclude that these are met. SEC/PCAOB Material weakness: a deficiency, or a combination of deficiencies, in ICOFR, such that there is a reasonable possibility that a material misstatement of the company s annual or interim financial statements will not be prevented or detected on a timely basis. COSO determined the 2013 Framework will supersede 1992 Framework effective December 15, 2014 Pending SEC monitoring of the transition phase Assess the implications of the 2013 Framework as soon as feasible Impact of adopting the updated Framework will vary by entity Organizations should disclose whether the 1992 or 2013 version of the Framework is used during the transition period 16 8

9 New Presentation of Certain Unrecognized Tax Benefits (ASU ) Background Taxpayers may (or must) settle a liability on the disallowance of an uncertain tax position through reducing a NOL or other tax loss or credit carryforward rather than a cash payment Diversity in gross versus net presentation exists Conclusion If the liability for the uncertain tax position, when due, would reduce the carryforward under the provisions of the tax law, net presentation is required 17 New Presentation of Certain Unrecognized Tax Benefits (ASU ) Disclosure No incremental disclosures required Provide disclosures for changes in the method of applying an accounting principle under ASC Transition Prospective application, including all unrecognized tax benefits existing at the effective date Effective Date Public companies: Annual periods beginning i after December 15, 2013, and interim periods within those annual periods Nonpublic companies: Annual periods beginning after December 15, 2014, and interim periods within those annual periods Early adoption permitted 18 9

10 Polling question #2 Does your company have unrecognized tax benefits that might be netted against deferred tax assets for NOLs or similar carryforwards? A. Yes B. No C. Not sure 19 Other Upcoming Standards Topic Effective Date - Public Effective Date - Nonpublic For More Information Federal Government Fees Paid by Health Insurers Liquidation Basis of Accounting Calendar years beginning after 12/31/2013, when the fee initially becomes effective For companies that determine that liquidation is imminent during annual reporting periods, and interim periods within those years, beginning after 12/15/2013 Fiscal years, and interim periods within those years, Investment Companies Amendments beginning after 12/15/2013 Same as public FASB ASU Same as public FASB ASU Defining Issues Same as public FASB ASU Defining Issues

11 Other Upcoming Standards (Continued) Topic Effective Date - Public Effective Date - Nonpublic For More Information Joint and Several Liability Arrangements Fiscal years, and interim periods within those years, beginning after 12/15/2013 Fiscal years ending after 12/15/2014 and interim and annual periods thereafter FASB ASU Defining Issues 13-5 Release of Cumulative Translation Adjustment for Certain Derecognition Events Fiscal years, and interim periods within those years, beginning after 12/15/2013 Fiscal years ending after 12/15/2014 and interim and annual periods thereafter FASB ASU Defining Issues 13-5 Not-for-Profit Fiscal years beginning after Same as public FASB ASU Services 6/15/2014 and interim and Defining Issues Received from annual periods thereafter Personnel of an Affiliate 21 Polling question #3 Which upcoming standard do you expect will have the most effect on your company? A. Investment company amendments B. Joint and several liability arrangements C. Release of cumulative translation adjustment D. None of these standards impact my company 22 11

12 Looking Ahead: Major Joint Board Projects Revenue Recognition Leases Financial Instruments Insurance Contracts Standard Setting Activities and Beyond Active Joint FASB/IASB Projects Q3 13 Q4 13 1H 14 Revenue Recognition F* Leases C Insurance Contracts C Financial Instruments Classification & Measurement F Financial Instruments Impairment Financial Instruments Hedging F-IASB Only C - Comment Deadline E - Exposure Draft or Proposed ASU F - Final Standard * Target only 24 12

13 Main Steps to Apply the Revenue Recognition Exposure Draft (ED) Model Step 1 Step 2 Identify the contract with a customer Identify the separate performance obligations in the contract Step 3 Step 4 Step 5 Determine the transaction price Allocate the transaction price to the separate performance obligations Recognize revenue when each separate performance obligation is satisfied 25 Revenue Redeliberations Developments from July 24, 2013 Meeting Collectibility Distinguishing between doubts about collectibility arising from customer credit risk Collectibility application to Step 1 Accounting for Contracts that Do Not Meet Step 1 of the Revenue Model Consideration received should not be recognized as revenue until the entity s performance is complete and either: All the consideration in the arrangement has been collected and is nonrefundable The contract is cancelled and the consideration received in nonrefundable Constraint Minimum Requirements All contracts should include a minimum amount of variable consideration in the estimate of the transaction price, when including that amount would not result in a significant revenue reversal Circumstances when that minimum amount would be zero will not be specified in the standard (including specifying an exception for sales-based royalties on licenses of intellectual property) Topics Subject to Potential Future Meetings Collectibility Constraint Licenses 26 13

14 Polling question #4 Which best describes the status of your company s revenue recognition implementation plans? A. Started contemplating process and system changes based on the tentative guidance B. Waiting for a final standard C. Not sure 27 Joint Leases Project Status Boards issued revised exposure drafts 9/13/2013 Redeliberations 2014 Effective date (aligned with forthcoming joint revenue standard) 5/2013 Comment period ended Late No earlier than 1/1/2017 Final standards expected 28 14

15 Overview of Proposed Accounting Models Right to use leased property Lessor Models Lessee Right-of-Use (ROU) Model Receivable and Residual Model (most non-property 1 leases) Type A Leases Lease payments Recognize right to receive estimated future lease payments Recognize residual asset Recognize right-ofuse asset Recognize liability to make estimated future lease payments Operating Lease Model (most property 1 leases) Type B Leases 1 Property = land and/or buildings (or part of a building) Recognize leased property Do not recognize right to receive estimated future lease payments Accelerated ROU Model (most nonproperty 1 leases) Type A Leases Straight-Line ROU Model (most property 1 leases) Type B Leases 29 Financial Instruments Project Update Classification and Measurement FASB issued proposed ASU in February 2013 Changes how entities determine the classification and measurement of financial instruments Financial assets measurement based on both contractual cash flow characteristics and the business model (amortized cost, FV-OCI, FV-NI) Financial liabilities are generally measured at amortized cost Comment period ended Q IASB issued exposure draft in November 2012 FASB and IASB proposed models are generally converged in principle, although differences in application may arise Comment period ended Q Joint redeliberations began September

16 Financial Instruments Project Update Impairment FASB issued proposed ASU in December 2012 Replaces multiple credit impairment i models in current U.S. GAAP Reflects an entity s current estimate of all contractual cash flows that it does not expect to collect Based on all relevant information (past events, current conditions, and reasonable and supportable forecasts) Comment period ended Q IASB issued exposure draft in March 2013 FASB and IASB not converged at this time IASB model includes a dual measurement approach Comment period ended Q Joint redeliberations began September Insurance Contracts Project Milestones IASB exposure draft FASB discussion paper rations Joint delibe IASB targeted re-exposure draft FASB exposure draft Redelibera ations IASB final standard? FASB final standard? Prepare for transition Effective dates? to 1Q 2013 June H 2013 to 2014 late 2014 or early to mid-2015? Jan 2018 Potential effective date? 32 16

17 Insurance Contract Project Scope Scope includes many guarantees generally accounted for under FASB ASC Topic 460, Guarantees Certain product warranties issued by third parties Financial and mortgage guarantees Standby letters of credit Performance or surety bonds Indemnities Auction rate security guarantees Liquidity facilities Minimum revenue guarantees and residual value guarantees Scope exclusions include Product warranties by manufacturers, dealers, and retailers Fixed-fee service contracts that meet specified criteria Guarantees with certain characteristics (most of the exclusions from ASC Topic 460 plus a few new ones), and contracts within the scope of FASB ASC Topic 815, Derivatives 33 Polling question #5 Will the proposed Insurance Contracts standard affect your company? A. Yes B. No C. Not sure 34 17

18 Question and Answer Session I Looking Ahead: Other FASB Projects 18

19 Other FASB Standard Setting Activities Active FASB Projects Q3 13 Q4 13 1H 14 Going Concern Technical Corrections and Improvements Definition of a Nonpublic Entity Reporting Discontinued Operations Consolidation: Policy and Procedures Transfers and Servicing: Repurchase Agreements and Similar Transactions Not-for-Profit Financial Reporting: Financial Statements Development Stage Entities Disclosure Framework Clarifying the Definition of a Business (formerly Application of Asset- or Entity-Based Guidance to Nonfinancial Assets Held in an Entity) Investment Companies: Disclosures about Investments in Another Investment Company C C C F F E TBD TBD TBD E C - Comment Deadline E - Exposure Draft or Proposed ASU F - Final Standard 37 Proposed Definition of a Public Business Entity Purpose One definition to be used by FASB, PCC, and EITF in specifying the scope of future accounting guidance Excludes all not-for-profit organizations and employee benefit plans within the scope of ASC Topics 960 through 965 Would not be eligible ibl to use private company exceptions and alternatives 38 19

20 Proposed Definition of a Public Business Entity A public business entity meets any of the following criteria: Required to or does file or furnish financial statements with the SEC Required by the 1934 Act or related rules to file or furnish financial statements with a regulatory agency Required to file or furnish financial statements with a regulatory agency in preparation to sell securities Has (or is a conduit bond obligor for) unrestricted securities that are traded or can be traded on an exchange or an over-the-counter market Has unrestricted securities, and is required to make U.S. GAAP financial statements publicly available on a periodic basis because of a legal or regulatory requirement 39 FASB/PCC Projects Project Timeline Issue Allowed Alternative Timeline Accounting for Identifiable Intangible Assets in a Business Combination Only acquired identifiable intangible assets that arise from contractual rights with non-cancelable contract terms or from other legal rights recognized separately from goodwill. Comment period closed Accounting for Goodwill Subsequent to a Business Combination Amortize goodwill (straight-line) over the shorter of 10 years or the life of the primary asset acquired. Test goodwill for impairment only when a triggering event occurs & at entity level. Comment period closed Accounting for Certain Receive- Two simplified hedge accounting approaches: Combined Variable, Pay-Fixed Interest Rate Instruments Approach and Simplified Hedge Accounting Swaps Approach. Comment period closed Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements Provides a practical expedient to private companies in evaluating certain arrangements under VIE guidance. Comment period ends October

21 Private Company Decision-Making Framework Project Objective: To develop a private company decision-making framework for the FASB and the PCC to use in determining whether and in what circumstances to provide alternative guidance for private companies reporting under U.S. GAAP. Not meant to be a new conceptual framework. Types and number of financial statement users Access to management Six Differential Factors Investment strategies of equity investors Ownership and capital structures Accounting resources Learning about new financial reporting guidance 41 Polling question #6 Will your company consider the private entity alternatives? A. Yes B. Maybe C. No (private entities) D. No, I work for an entity not permitted to apply private entity alternatives 42 21

22 Going Concern Disclosure Thresholds Assess at each annual and interim reporting period an entity s potential inability to meet its obligations as they become due within 24 months after the financial statement date. Consider all information about conditions and events that exist at: The date the financial statements are issued (public entities) The date the financial statements are available to be issued (nonpublic entities) When information about conditions and events indicate either of the following: Without taking actions outside the ordinary course of business it is: More likely than not that the entity will be unable to meet its obligations within 12 months after the financial statement date, OR Known or probable that the entity will be unable to meet its obligations within 24 months after the financial statement date Disclose information that enables users of the financial statements to understand all of the following: Principal conditions and events giving rise to the entity s potential inability to meet its obligations Possible effects of such conditions and events on the entity Management s evaluation of the significance of those conditions and events Mitigating conditions and events Management s plans to address potential inability to meet obligations 43 Going Concern Evaluating Whether There Is Substantial Doubt SEC filers would be required to determine whether there is substantial doubt about the entity s going concern presumption: Substantial ti doubt exists if it is known or probable that the entity will be unable to meet its obligations as they become due within 24 months after the financial statement date. When evaluating, consider the effect of ALL plans that are likely to be effectively implemented and likely to mitigate adverse conditions and events, including those outside the ordinary course of business. SEC filers that determine there is substantial doubt would be required to: Explicitly itl state t in the financial i statements: there is substantial doubt about the entity s ability to continue as a going concern within 24 months after the financial statement date (or similar wording) Non-SEC-filers: Separate evaluation (and disclosure) of substantial doubt would not be required

23 Polling question #7 Do you believe the proposed amendments requiring an assessment of the potential inability to meet obligations as they become due for a period of 24 months is appropriate? A. Yes 24 months is an appropriate period of time to make an assessment B. No 24 months is too long of a time period to accurately forecast C. No companies should provide earlier warning of uncertainties beyond 24 months. D. Not sure 45 Discontinued Operations Current Requirements A discontinued operation is a component of an entity that meets all the following criteria: It has been disposed of or meets all of the held for sale criteria, Its operations and cash flows have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction, AND The entity will not have any significant continuing involvement in the operations of the component after the disposal transaction

24 Discontinued Operations - Proposed Requirements A discontinued operation is either of the following: A component of an entity or a group of components of an entity that: Has been disposed of or meets all of the held for sale criteria, AND Represents a separate, major line of business or geographical area of operations, or is part of a single coordinated plan to dispose of a separate major line of business. A business that, on acquisition, meets the held for sale criteria. Transition Effective date to be determined Apply prospectively to all disposals (or classifications as held-for-sale) of affected components in annual periods beginning on or after the effective date. Early adoption permitted Key judgment is determining a major line of business or geographic area 47 Other Repurchase Agreements Will require repurchase-tomaturity agreements to be accounted for as secured borrowings Final standard expected during Q Principal Versus Agent Analysis Will change and align the way reporting enterprises evaluate consolidation of variable interest entities (VIEs) and non-vie partnerships and similar entities Final standard expected in 2H 2014 Disclosure Framework Project Split into two separate projects: the Board s decision process and the entity s decision process Separate exposure drafts but the timing is unknown 48 24

25 Looking Ahead: EITF Activities EITF Overall Status of Issues Consensus for Exposure Reached Issue 13-D, Determining Whether a Performance Target That Can Be Met after the Requisite Service Period Is a Performance Condition or a Condition That Affects the Grant-Date Fair Value of the Awards Issue 13-G, Determining Whether the Host Contract in a Hybrid Financial Instrument is More Akin to Debt or Equity *Issue 12-G, Measuring the Financial Liabilities of a Consolidated Collateralized Financing Entity (re-exposed) *Issue 12-H, Accounting for Service Concession Arrangements *Issue 13-E, Reclassification of Collateralized Mortgage Loans upon a Troubled Debt Restructuring Certain Issues Expected to be Discussed at future EITF Meetings Issue 12-F, Recognition of New Accounting Basis (Pushdown) in Certain Circumstances Issue 13-B, Accounting for Investments in Tax Credits Issue 13-F, Accounting for the Effect of a Federal Housing Administration Guarantee *Consensus for Exposure reached prior to September meeting 50 25

26 Issue 13-B, Accounting for Investments in Tax Credits Low Income Housing Tax Credit (LIHTC or Affordable Housing Tax Credit) Designed to encourage investment in the construction and rehabilitation of low income housing Allows investors in a limited partnership that owns the project to receive tax credits in addition to recognizing the operating losses Effective yield method under Issue 94-1 permitted if certain criteria are met, including that the tax credits be guaranteed and there s a positive return to the investor based on the tax credit alone Equity method is generally used Issue Few entities were able to apply Issue 94-1 resulting in many LIHTC investments being accounted for under the equity method 51 Issue 13-B, Accounting for Investments in Affordable Housing Tax Credits Tentative Agreement Allow LIHTC investors to use a proportional amortization method only if all of the following are met: If it is probable that the tax credits will be available Investors return is positive, based solely on all tax benefits They do not have significant influence over the investee and substantially all of the benefits are from tax benefits They hold a limited it interest t in the project and liability is limited to their capital investment Generally results in more entities meeting the criteria Effective Date and Transition Fiscal years beginning after December 15, 2014 Retrospective application will be required, except the current effective yield method could be continued for existing investments accounted for using the effective yield method Early adoption will be allowed Next Steps FASB staff to: Perform constituent outreach on decisions Research expanding the scope to other tax credit investments Analyze, based on the preliminary consensus, whether reexposure may be necessary 52 26

27 Issue 13-D, Determination of Whether a Performance Condition That is Allowed to Be Met after the Requisite Service Has Been Provided by the Employee Is a Vesting Condition or a Nonvesting Condition Background Certain share-based awards (SBAs) include performance targets that are achievable by the employee even after the employee is no longer providing service to the employer (e.g., IPO event after employee is terminated) Under current practice, these provisions may be accounted for: As performance conditions that affect vesting (View A). As post-vesting restrictions that are incorporated into the determination of grant-date fair value (View B), or Thus, diversity in practice exists: In recent IPOs, some companies have applied View A while other companies have applied View B. The difference in applying those views would often have been material to reported results for those companies. 53 Issue 13-D, Determination of Whether a Performance Condition That is Allowed to Be Met after the Requisite Service Has Been Provided by the Employee Is a Vesting Condition or a Nonvesting Condition Consensus-for- Exposure (View A) Terms of awards are a performance condition that affects the vesting of the award Grant date fair value does not consider probability of performance condition being met Compensation expense recognized only when achievement of the performance condition is probable Transition Prospective transition approach for awards that are granted or modified after the effective date 54 27

28 Polling question #8 Does your company issue share-based awards with performance conditions that can be satisfied after the requisite service has been provided? A. Yes B. No C. Not sure 55 Issue 13-G, Determining Whether the Host Contract in a Hybrid Financial Instrument is More Akin to Debt or Equity A hybrid financial instrument is a contract that embodies one or more embedded derivatives and a host contract ASC Subtopic , Derivatives and Hedging Overall requires an entity to bifurcate an embedded derivative from the host contract in certain cases and account for the feature as a derivative When a hybrid financial instrument is issued in the form of a share (e.g., preferred shares), the determination to bifurcate its embedded derivative features will depend, in part, on whether the host contract is more akin to debt or equity. Diversity in practice regarding the methods used in evaluating the nature of the host contract. The potential approaches to evaluate the host contract include: A. Whole-instrument approach B. Chameleon approach C. Pure-host approach 56 28

29 Issue 13-G, Determining Whether the Host Contract in a Hybrid Financial Instrument is More Akin to Debt or Equity Consensus-for- Exposure Consider all of the instrument s terms and embedded derivative features (the whole-instrument approach) No rebuttable presumption that a non-contingent, fixed price redemption option results in a debt-like host Transition The effects of initial adoption be would reported as a cumulative effect adjustment directly to retained earnings as of the beginning of the year of adoption No additional transition disclosures required Early adoption would be permitted 57 Looking Ahead: PCAOB Activity 29

30 PCAOB Current Standard-Setting Topic For More Information Related Parties and Significant Unusual Transactions PCAOB Release Defining Issues 12-8 Auditor Independence and Audit Firm Rotation PCAOB Concept Release Issues In-Depth 11-1 Issues In-Depth 12-3 Defining Issues Improving Audit Transparency PCAOB Release New Model for Audit Reports PCAOB Release Defining Issues The Proposed New Auditing Standards Would: Require communication in the auditor s report of critical audit matters Enhance standardized language in the auditor s report related to the auditor s responsibilities for fraud and the notes to financial statements Critical Audit Matters Enhance Some Language Auditor s Report New auditor Elements Other Information Add new elements to the auditor s report related to auditor independence and tenure Require communication in the auditor s report regarding the auditor s responsibility for, and evaluation of, other information accompanying the audited financial statements 60 30

31 Effective Date and Next Steps Effective date The proposed effective date, subject to SEC approval, is for audits of financial statements for fiscal years beginning on or after December 15, Next steps Comment period ends December 11, The PCAOB noted in its proposing release that it anticipates the proposed standards will have cost implications for both auditors and companies, including audit committees. The PCAOB has asked commenters to address a number of questions relative to the economic considerations of its proposal, including both additional costs and possible increases to auditor s liability in private litigation. The Board is considering holding a public roundtable in 2014 to discuss comments on the proposed standards. 61 Polling question #9 Do you believe that the auditor s report should include critical audit matters? A. Yes, all public and private company audit reports should include critical audit matters B. Yes, only public company audit reports should include critical audit matters C. No D. Undecided 62 31

32 Question and Answer Session II Questions? 32

33 Access additional training opportunities at 23 rd Annual Accounting and Financial Reporting Symposium December 5-6, 2013 Aria Resort Las Vegas Register Now for Discount! Delivering quality training. Driving high performance. KPMG Learning Presenter s contact details Angie Storm, Partner Phone: astorm@kpmg.com Jack Pohlman, Senior Manager Phone: jpohlmanjr@kpmg.com Jeremy Peters, Senior Manager Phone: jpeters@kpmg.com Jennifer Yruma, Director Phone: jyruma@kpmg.com Financial Reporting Network: KPMG Learning Executive Education:

34 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of fthe particular situation. ti 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved NSS The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. 34