FASB Insurance Contracts

Transcription

1 GAAP and SEC Update

2 FASB Insurance Contracts

3 FASB Initiatives Short-Duration Contracts (Final Standard ASU Issued May 2015) Long-Duration Contracts (Beginning) Focused efforts on targeted improvements to disclosures Focus efforts on targeted improvements to current U.S. GAAP No change to current U.S. GAAP model for recognition and measurement Evaluate how improvements compare to building block approach as determined by IASB (Unclear if this is still planned) 2 2

4 FASB Short-Duration Contracts The Board issued ASU , Disclosures about Short-Duration Contracts, to improve financial reporting for short-duration insurance contracts by providing financial statement users with disclosures about significant estimates of claim liabilities Expanded disclosure requirements include: Incurred and paid loss development tables Information about the frequency of claims and incurred but not reported claims Discounted claim reserves Estimation and changes in methodologies and assumptions Claim duration information Rollforwards of claims liabilities Health insurance contracts 3 3

5 FASB Short-Duration Contracts (continued) Claims Development Information Disaggregated net incurred and paid claim and allocated claim adjustment expense development must be disclosed by accident year Information for period of time claims typically remain outstanding Period of time does not need to exceed 10 years Net outstanding amount for all accident years not separately presented must be disclosed A reconciliation of the total net amount for all tables presented to the amounts in each statement of financial position presented is required with disclosure of disaggregated reinsurance balances Aggregate amounts for other reconciling items such as unallocated claim adjustment expense must be presented 4 4

6 FASB Short-Duration Contracts (continued) Claims Development Information (continued) Aggregate or disaggregate information so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have different characteristics The aggregation or disaggregation determination is facts and circumstances based and considers other presentation of the claim liabilities, including: Disclosures outside the financial statements Information regularly viewed for evaluating financial performance by the chief operating decision maker Other similar information used by the entity or financial statement users to evaluate financial performance or make resource allocation decisions The aggregation or disaggregation may differ from how information is currently aggregated, which may cause reconsideration of systems, financial reporting processes, and internal controls 5 5

7 FASB Short-Duration Contracts (continued) Claim Duration Information Disclose the average annual percentage paid claims by age based on the information in the paid claims development table Cover the same number of accident years presented in the claims and claim expense development tables Disaggregate consistent with the claims and claim expense development tables Disclosure is not required for health insurance claims The ASU s implementation guidance includes example claims duration calculations and disclosure 6 6

8 FASB Short-Duration Contracts (continued) Presentation as Supplementary Information Claims development information, including claims duration information, for the current reporting period must be presented in the notes to the financial statements Disclosure of all years that proceed the current reporting period will be presented as supplementary information Board members have previously stated they expect to see all periods presented together within the financial statements As the supplementary information is required by the accounting standard, the information is considered by the auditing standards to be required supplementary information Auditing standards require specific procedures to be performed with respect to required supplementary information and the auditor to report on the performance of the specific procedures 7 7

9 FASB Short-Duration Contracts (continued) Claim Frequency Information Disclosure providing information about claim frequency, unless it is impracticable to do so, is required and should include: Quantitative claim frequency information (i.e., number of reported claims that effect incurred claims and allocated claims adjustment expenses) Explanation of the methodologies used to determine claim frequency as there is no prescribed format as information may be tracked differently by organizations or type of business within an organization (e.g., by insured event, by separate claimant by insured event) If it is impracticable to disclosure claim frequency information, such as in some reinsurance arrangements or participation in residual market pools, disclosure shall describe why it is impracticable 8 8

10 FASB Short-Duration Contracts (continued) Other Disclosures Disclosure for incurred-but-not-reported liabilities and the expected development on reported claims Presented as a combined single amount for each accident year in the development table Description of the reserving methodology used to determine the amount disclosed The rollforward of the liability for unpaid claims and claim adjustment expenses required in paragraph will be required for interim periods as well as for the annual reporting periods For calendar year-end public companies this would be effective first quarter

11 FASB Short-Duration Contracts (continued) Other Disclosures (continued) When the liability for unpaid claims and claim adjustment expenses is discounted, disclose the effects of discounting on the financial statements including: Aggregate amount of the discount deducted from the liability for unpaid claims and claims adjustment expenses Interest accretion recognized during the period Line item(s) in which the interest accretion is classified 10 10

12 FASB Short-Duration Contracts (continued) Health Insurance Claims Disclose, in both interim and annual financial statements, the incurred-but-not-reported liabilities combined with the reserve for expected development on reported claims, included in the liability for unpaid claims and claim adjustment expenses Either as a separate disclosure or as a component of the rollforward of the liabilities for unpaid claims and claims adjustment expenses A description of the reserving methodology used to determine the amount The rollforward of the liabilities for unpaid claims and claim adjustment expenses to be aggregated or disaggregated so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have different characteristics Claim reserve duration disclosures are not required for health insurance claims 11 11

13 FASB Short-Duration Contracts (continued) Transition and Effective Date Comparative disclosures for each prior period presented except: Incurred and paid development tables Material changes in judgment Loss development tables need not exceed 5 years in the year of transition, growing to a period of time that does not need to exceed 10 years Application of transition disclosure guidance in Subtopic on accounting changes and error corrections is not required Effective for public business entities for annual reporting periods beginning after December 15, 2015 and interim reporting periods within annual reporting periods beginning after December 15, 2016 One year deferral for other entities Early adoption is allowed Auditor independence considerations AICPA Q&A

14 FASB Long-Duration Contracts Potential Targeted Improvements for: Liability for future policy benefits Deferred acquisition costs (DAC) Premium deficiency and loss recognition Disclosures about revenue recognition 13 13

15 FASB Long-Duration Contracts Reminder of Board Decisions, August 2014 Meeting Liability for Future Policy Benefits For traditional long-duration contracts, limited payment contracts, participating life and additional liability for universal life-type insurance contracts: Update annually all assumptions used in calculating the liability for future policy benefits no provision for adverse deviation should be included in the assumptions Update during the fourth quarter Include the effects of changes assumptions in the determination of net income 14 14

16 FASB Long-Duration Contracts Reminder of Board Decisions, August 2014 Meeting (continued) Liability for Future Policy Benefits Disclosure Disaggregated balance of the liability and the weighted-average discount rates used in time bands, and any additional information about amounts and rates within the time bands provided that significantly affect the discount rates Disaggregated quantitative and qualitative information about the methods and inputs used, including disclosure of assumptions used (such as discount rate, mortality, morbidity, termination [lapse], and expense assumptions) Disaggregated reconciliations from the opening to the closing balance of the liability, with separate disclosure of changes due to new contracts, benefit payments, changes in assumptions, and derecognition of contracts Premium Deficiency Reserve No premium deficiency test would be required 15 15

17 FASB Long-Duration Contracts Liability for Future Policy Benefits Discount Rate Discussed November 19, 2014 Current Practice is that the discount rate can vary depending on the type of insurance contract This can include an expected investment yield, policy crediting rate, or dividend interest rate What did the Board decide on November 19, 2014? Determine discount rate using a reference portfolio of high-quality, fixed income investments Staff need to research how the term high-quality has been applied in practice and propose disclosures for future discussion Staff to recommend whether the scope of the new rate only applies to expected investment yield or more broadly for future discussion 16 16

18 FASB Long-Duration Contracts (continued) Liability for Future Policy Benefits Assumptions What did the Board discuss on June 24, 2015? Alternatives for updating assumptions under the net premium model Immediate, Retrospective, Retrospective/Immediate New gross premium approach What did the Board decide on June 24, 2015? Retain net premium reserving model A retrospective/immediate approach would be used to calculate the effect of assumption updates on a company s financial performance. Net premium unlocked and updated for changes in cash flow assumptions on retrospective basis through earnings Discount rate changes record immediately in other comprehensive income 17 17

19 FASB Long-Duration Contracts (continued) Deferred Acquisition Costs (DAC) Discussed February 18, 2015 The manner in which DAC should be amortized, including: Whether adjustments should be retrospective or prospective when using estimated gross profits or estimated gross margins If retrospective unlocking is required, whether additional disclosure about the determination and future effects of retrospective unlocking is necessary Disclosure of DAC rollforward Portfolios and the unit of account (consider broadly may be brought as a separate topic or with each of the other topics) 18 18

20 FASB Long-Duration Contracts (continued) Deferred Acquisition Costs (DAC) What did the Board decide on February 18, 2015? DAC relating to certain investment contracts would continue to be amortized using an effective interest method To apply a consistent method to amortize acquisition costs related to all other types of long duration insurance contracts based on insurance inforce If the amount of insurance inforce is variable and cannot be reliably predicted or is not otherwise determinable, the amortization would occur in proportion to the number of contracts outstanding and not the balance of insurance inforce The expected life of a book of contracts would consider assumptions such as persistency, mortality, and morbidity Interest would not accrue to the undiscounted balance of DAC The staff will consider whether the effect of changes in assumptions on DAC amortization and contract liabilities should be accounted for on a prospective or retrospective basis 19 19

21 FASB Long-Duration Contracts (continued) Disclosures About Revenue Recognition To date the FASB has not deliberated on this potential targeted improvement Whether certain disclosures should be required, such as amounts included in revenue that are required to be returned to policyholders or their beneficiaries regardless of whether an insured event occurs Next Steps: The Board will continue to deliberate the targeted improvements to accounting for longduration contracts 20 20

22 Accounting Update: Revenue Recognition

23 Effective Date One Year Deferral In July 2015, the FASB agreed to defer the original effective date by one year. Early application would be permitted (but not before original effective date, i.e., in annual periods beginning after December 15, 2016) Both the retrospective and cumulative-effective transition methods remain Public business entities and certain not-for-profit entities Fiscal years, and interim periods within those years, beginning after December 15, 2017 All other entities Fiscal years beginning after December 15, 2018, interim periods in fiscal years beginning after December 15, 2019 In July 2015, the IASB agreed to defer its original mandatory effective date by one year

24 Principal versus Agent Guidance FASB & IASB agreed to make converged, targeted improvements to the principal versus agent guidance: Retain and reinforce the control principle as the basis for determining whether an entity is a principal or an agent by: Providing guidance on the unit of account. Providing guidance on the nature of the specified good or service. Amending guidance to more clearly link the indicators to the notion of control. Revise the existing illustrative examples to demonstrate that the indicators assist in the evaluation of whether the entity controls a specified good or service. Include additional illustrative examples to address questions about how to apply the control principle to service arrangements

25 SEC Comment Letter and PCAOB Update

26 COSO 2013 Documentation Reminders Effective documentation of the organization s system of internal control is necessary to: Provide evidence of its effectiveness Enable proper monitoring Effective documentation is also useful: For assigning responsibility and accountability to employees Training new and experienced employees who implement and monitor the controls Promoting consistency across the organization Retaining organizational knowledge Higher level of documentation necessary when management asserts effectiveness of internal controls to regulators, shareholders and other third-parties Expanded documentation on design and operating effectiveness of controls Expanded documentation in areas involving significant judgment Consider guidance in Chapter 4 of the COSO 2013 Framework 25 25

27 SEC Comment Letters The incidence of comments containing questions about a registrant s ICOFR continues to increase with focus on: Inadequate description of the control failure Failure to disclose material changes in ICOFR in Item 9a/Item 4 Interaction between Disclosure Controls and Procedures and ICOFR Remediation disclosures Immaterial error corrections Administrative deficiencies (incorrect dates, failure to include internal control framework, missing reports or information, certifications, etc.) The issues addressed in comment letters received by insurance companies included: Timing of the recognition of a Premium Deficiency Reserve (PDR) Goodwill impairment in relation to unfavorable reserve development or recognition of a PDR Changes in insurance reserves 26 26

28 Findings in Recent PCOAB Reports Internal Controls Management review controls Understanding and testing of steps in management s review process Documentation of judgments made by management to reach conclusions Accuracy and completeness of data or reports Testing of assumptions used in determining an estimate 27 27

29 Recent Material Weaknesses Management s adjustment of actuarially determined central estimate Stock based compensation Income taxes Compilation of disclosures 28 28

30 Contents Proposed Financial Instruments Update: Classification and Measurement Proposed Financial Instruments Update: Impairment Proposed Hedge Accounting Simplification Consolidations 29 29

31 Proposed Financial Instruments Classification and Measurement

32 Recent Major FASB Decisions Retain current classification except for Equity investments Retain existing bifurcation guidance for hybrid financial assets Retain unconditional fair value option 31 31

33 Targeted Improvements Accounting Changes in fair value attributable to instrument-specific credit risk presented in OCI for financial liabilities for which the fair value option was elected Equity Investments Would Be Measured at FV-NI, except For: Equity method investments Investments recorded at Net Asset Value (NAV) Practicability exception 32 32

34 Proposed Financial Instruments Impairment

35 Financial Instruments Impairment: CECL model overview Entities would not need to estimate expected credit losses if both of the following conditions are met: (i) Fair value is greater than amortized cost, and (ii) Expected credit losses are insignificant Interest income based on expected cash flows at the date of acquisition Initial expected credit losses would be recognized as an allowance (gross up to balance sheet) Impairment would follow same approach as originated assets Other in-scope [ ] assets Debt securities classified as held-to-maturity Trade and lease receivables [ ] Loan commitments not measured at FV-NI, and financial guarantees not remeasured at FV-NI and not accounted for as insurance Model would apply to all modified debt instruments (Identification of TDRs would continue to apply) 34 34

36 Financial Instruments Impairment: Recognizing expected credit losses Expected credit losses = estimate of all contractual cash flows not expected to be collected No recognition threshold (probable or otherwise) Allowance recognized at each reporting date Allowance trued up by provision in current period earnings Other than temporary impairment (OTTI) 35 35

37 Based on: Past events Current conditions Reasonable and supportable forecasts Financial Instruments Impairment: Measuring expected credit losses Consider: Borrower information Current economic environment Current point and forecasted direction of economic cycle Measurement would reflect: Time value of money At least two possible outcomes (credit loss and no credit loss) Entire contractual term of financial asset Embedded credit enhancements 36 36

38 In-scope assets Financial Instruments Impairment: CECL model The model would apply to the following financial instruments that are not measured at FV-NI: Lease receivables recognized by a lessor Receivables that result from revenue transactions Reinsurance receivables Loan commitments Debt securities classified as held-to-maturity Out-of-scope assets CECL will NOT apply to debt securities classified as available-for-sale The existing guidance in ASC 320 will continue to apply with some modifications: An allowance approach will apply, which would allow reversal of previously recognized impairment. Entities will not be required to consider the length of time that fair value of an AFS security has been less than amortized cost. Entities will no longer be required to consider recoveries or additional declines in the fair value after the balance sheet date 37 37

39 Collateral-dependent (practical expedient) Financial Instruments Impairment: CECL model (continued) Practical expedient may be applied to all collateral-dependent financial assets (not just collateraldependent loans) Definition of collateral-dependent financial asset is different than current U.S. GAAP An entity may estimate expected credit losses by comparing the asset s amortized cost basis to the fair value of the collateral (less estimated costs to sell) Loan commitments not measured at FV-NI Estimate of expected credit losses would consider the likelihood that funding will occur and an estimate of the expected credit losses on commitments expected to be funded 38 38

40 Financial Instruments Impairment: Purchased credit-impaired financial assets Assess whether individual financial assets or groups of financial assets with shared-risk characteristics meet the definition of PCI financial assets Group-level assessment is a change from current U.S. GAAP Interest income would be based on expected cash flows at the date of acquisition Yield held constant (another change from current U.S. GAAP) Expected credit losses at the acquisition date would be recognized as an allowance through a gross-up to the balance sheet That amount would not be recognized in interest income Subsequent increases or decreases in expected credit losses would be recognized immediately in earnings as a provision for credit losses Compared the current U.S. GAAP, the proposal is a simplification that achieves symmetry for both subsequent increases and decreases in expected cash flows 39 39

41 Financial Instruments Impairment: Current Status Fatal Flaw draft issued in summer 2015: Near-final draft distributed to a small group of practitioners, users, and issuers. Purpose: Final opportunity to identify major practice concerns or conceptual flaws. Final standard expected during Q or early Q Final implementation TBD, but likely 1/1/18 or 1/1/

42 Proposed Hedge Accounting Simplification

43 Background At recent meetings, the FASB decided to change the U.S. GAAP hedge accounting model to broaden its use and decrease operational burdens. The FASB staff plans to draft a proposed Accounting Standards Update with the goal of issuing it before the end of Key Impact: Hedge accounting would be permitted for more financial and nonfinancial hedging strategies than what is currently allowed by U.S. GAAP. The required effectiveness testing and hedge documentation would be less burdensome. A significant disincentive to using the shortcut method would be removed

44 Hedging Model Effectiveness Testing The highly effective qualifying threshold for all hedging relationships would be retained. Initial quantitative effectiveness testing of all hedges would continue to be required unless they meet the requirements for the shortcut or critical-terms match methods. However, subsequent quantitative testing would be performed only if relevant facts and circumstances change

45 Hedging Model Presenting and Recording the Change in the Fair Value of Hedging Derivatives There would be new reporting requirements for the changes in the fair value of hedging derivatives that meet the highly effective threshold. For fair value hedges, cash flow hedges and net investment hedges, the change in fair value of the hedging derivative would no longer be split between effective and ineffective portions. For cash flow hedges and net investment hedges, the change in fair value of the portion of the hedging instrument that is excluded from the assessment of hedge effectiveness will continue to be recognized immediately in earnings. Cash Flow Hedges Entities would present the entire change in fair value of the hedging derivative that is included in the assessment of hedge effectiveness in other comprehensive income (OCI) until the hedged item affects earnings. This would be a change from current U.S. GAAP, and would eliminate the immediate recognition of ineffectiveness for the portion of the hedging derivative that is included in the assessment of hedge effectiveness. The current accounting for a cash flow over-hedge vs. under-hedge would be eliminated. Amounts reclassified from accumulated OCI would be recorded in the income statement line item being hedged. The change in fair value of the portion of the hedging instrument that is excluded from the assessment of hedge effectiveness would be recognized immediately in earnings in the same income statement line item being hedged. This would be a change from current U.S. GAAP, which does not specify which income statement line item should include the change in fair value of the hedging derivative

46 Hedging Model Presenting and Recording the Change in the Fair Value of Hedging Derivatives Fair Value Hedges The entire change in fair value of the hedging derivative (including the effective and ineffective portions) would be presented in the income statement line item that is being hedged (e.g., interest expense or cost of goods sold). This would be a change from current U.S. GAAP, which does not specify which income statement line item should include the change in fair value of the hedging derivative and allows for presentation of the effective and ineffective portions in different line items. Net Investment Hedges Entities would present the entire change in the fair value of the hedging instrument that is included in the assessment of hedge effectiveness in the cumulative translation adjustment section of other comprehensive income (OCI). This would be a change from current U.S. GAAP, and would eliminate the immediate recognition of ineffectiveness for the portion of the hedging derivative that is included in the assessment of hedge effectiveness. In the period(s) the hedged item affects earnings, entities would reclassify changes in fair value of the hedging instrument recorded in OCI to the same income statement line item where the earnings effect of the hedged item is presented. This would be a change from current U.S. GAAP, which does not specify which income statement line item should include the change in fair value of the hedging derivative. Consistent with current guidance, the change in fair value of the portion of the hedging instrument that is excluded from the assessment of hedge effectiveness would be recognized immediately in earnings, however the Board decided not to provide guidance on how these changes would be presented

47 Hedging Model Hedge Documentation & Voluntary Dedesignations of Hedges Hedge Documentation Entities have until the end of the three-month effectiveness testing period to perform testing and prepare the related quantitative portion of their hedge documentation. The current requirements to provide all other hedge documentation contemporaneously with the inception of the hedge would not change. Voluntary Dedesignation of Hedges The FASB decided that entities would continue to have the ability to voluntarily dedesignate hedging relationships

48 Financial Hedging Relationships Variable-rate Hedged Items Contractually specified indices would be permitted to be the designated hedged interest rate risk in cash flow hedges. This would be a change from current U.S. GAAP, which requires that the hedged interest rate risk meet the definition of a benchmark interest rate risk to use hedge accounting. This change is expected to have a significant impact because it would permit financial institutions to use hedge accounting when hedging interest payments that adjust based on changes in prime lending rates. Fixed-rate Hedged Items. Under current U.S. GAAP, the designated interest rate risk must be a benchmark interest rate. The Board decided to retain both this requirement and the existing definition of a benchmark interest rate. However, the municipal swap index of the Securities Industry and Financial Markets Association would be added to the list of permitted benchmark interest rates. The Board also decided to permit entities to designate the portion of the total coupon cash flows attributable to the benchmark interest rate as the hedged risk in a fair value hedge. This would permit entities to exclude credit spreads when measuring the change in the hedged item. However, if the effective interest rate of the financial instrument is less than the benchmark interest rate on the date of hedge designation ( sub-benchmark hedge), however, an entity would be required to use the total coupon cash flows. Current U.S. GAAP requires entities to use the total coupon cash flows when measuring the change in the hedged item. This change would reduce ineffectiveness

49 Financial Hedging Relationships (continued) Partial Term Hedging In fair values hedges, entities would be able to designate the hedged item as a portion of a debt instrument s remaining term to maturity. Thus, entities would be permitted to calculate the change in fair value of the hedged item assuming the same term as the derivative hedging instrument. Callable Debt In assessing hedge effectiveness for a fair value hedge of callable debt, entities would be allowed to consider the effect of a prepayment option only as it relates to the designated hedged risk (e.g., interestrate risk). They would not need to consider any other reason the call option may be exercised

50 ASU : FASB s New Consolidation Guidance

51 Summary of Consolidation Guidance Changes Number of consolidation models reduced by eliminating the VIE consolidation model based on majority exposure to variability and the voting interest model for limited partnerships Money market funds required to comply with Rule 2a-7 of Investment Company Act of 1940 (or that operate in accordance with similar requirements) are exempt from consolidation New guidance for determining whether fees paid to a decision maker or service provider represent a variable interest in a VIE New related party consolidation requirements for VIEs New guidance for evaluating whether limited partnerships and similar entities are VIEs New approach for determining whether equity at-risk holders of entities other than limited partnerships have power through voting rights when the entity has an outsourced manager 50 50

52 Key Changes to VIE Consolidation Model Steps 1 and 2: Scope Registered money market funds and similar entities exempt from consolidation No separate VIE consolidation model for investment entities: deferral of ASU eliminated Step 3: Variable Interests Fees paid to decision makers or service providers Interests held by related parties Step 4: VIE Characteristics Decision making rights of equity-at-risk investors Limited partnerships and similar entities Other entities Step 5: Determining the Primary Beneficiary of a VIE Potentially significant variable interest criterion Interests held by related parties 51 51

53 Steps 3 and 5: Consideration of Related Party Interests Held in a VIE The following decision tree highlights how related parties are considered in evaluating whether fees paid to a decision maker or service provider represent a variable interest Are the decision maker or service provider and the related party under common control? No Does the decision maker or service provider hold an economic interest in the related party? Yes Yes No Consider interests held by the related party in their entirety Exclude any interest held by the related party Consider interests held by the related party on a proportionate basis* * If the related party is an employee or employee benefit plan of the decision maker or service provider, only consider interests held by the related party if the employee or employee benefit plan is being used to circumvent the VIE consolidation requirements

54 Steps 3 and 5: Consideration of Related Party Interests Held in a VIE The following decision tree highlights how related parties are considered in determining whether a decision maker meets the potentially significant variable interest primary beneficiary criterion Is the decision maker s fee a variable interest? No Stop the decision maker is acting as a fiduciary Yes Does the decision maker hold an economic interest in the related party? No Exclude any interest held by the related party Yes Are the decision maker and the related party under common control? No Consider interests held by the related party on a proportionate basis Yes Consider interests held by the related party in their entirety 53 53

55 Does a single variable interest holder meet the primary beneficiary criteria? No Is power shared between two or more related parties that collectively meet the PB criteria? No Is there a group of related parties under common control that collectively meet the PB criteria? No Is there a single decision maker and do substantially all activities of the VIE either involve or are they conducted on behalf of a single variable interest holder (excluding the single decision maker) in the related party group? No Stop consolidation analysis Step 5: Primary Beneficiary Determination in a Related Party Group Yes Yes Yes Yes That variable interest holder consolidates the VIE Perform the related party tiebreaker test to determine which party in the related party group is most closely associated with, and should consolidate, the VIE Party for which substantially all VIE s activities either involve or are conducted (excluding single decision maker) is the primary beneficiary and consolidates the VIE 54 54

56 Step 4: Limited Partnerships and Similar Entities New VIE characteristic under which all limited partnerships and similar entities are VIEs unless a simple majority or lower threshold of limited partners with equity at risk is able to exercise substantive kick-out rights or participating rights Voting interests held by the general partner, entities under common control with the general partner and parties acting on behalf of the general partner are excluded from the evaluation Limited partnerships and similar entities that are not VIEs are evaluated for consolidation under the guidance that applies to corporations Guidance previously in EITF 04-5 is eliminated, including the presumption that the general partner should consolidate a limited partnership Any limited partnership consolidated by the general partner is a VIE 55 55

57 Effective Date Public business entities Other entities Annual and interim periods in fiscal years beginning after December 15, 2015 Annual periods beginning after December 15, 2016 and interim periods in fiscal years beginning after December 15, 2017 Early adoption is permitted, including early adoption in an interim period 56 56

58 Transition Provisions Companies are required to initially measure any newly-consolidated subsidiaries at their carrying amount at the date the guidance first applies Companies are required to initially measure any retained interests in deconsolidated entities at their carrying value at the date the guidance first applies Companies are permitted to use fair value if it is not practicable to determine the carrying amount Companies are permitted to use either a modified retrospective approach or full retrospective approach Upon initial adoption, companies may elect the fair value option on an entity-by-entity basis Election must be applied to all of the subsidiary s eligible financial assets and financial liabilities 57 57

59 Thank you