FASB Update. MACPA NFP Conference April 27, Disclaimer

Transcription

1 1 FASB Update MACPA NFP Conference April 27, 2012 Jeff Mechanick Assistant Director Financial Accounting Standards Board Tele: Disclaimer 2 The views expressed in this presentation are my own and not the positions of the Financial Accounting Standards Board (FASB). Positions of the FASB are arrived at only after extensive due process and deliberations. 1

2 Agenda FASB Not-for-Profit Advisory Committee (NAC) and the FASB s NFP financial reporting projects Other projects central to improving NFP GAAP and other NFP-specific projects Updates on other standards and projects of interest to NFPs Q&A 3 FASB Not-for-Profit Advisory Committee (NAC) 4 Established in October 2009 to serve as a standing resource for the FASB in obtaining input from the NFP sector on Existing guidance Current and proposed technical agenda projects Longer-term issues affecting those organizations 17 members, plus 4 participating observers. NFP financial officers, auditors, foundation and other donors, creditor, watchdog agency, charities regulator, attorney, and academic Recently added an observer from the GASB staff Also, NFP Resource Group (a standing group of over 170 members) 2

3 FASB Not-for-Profit Advisory Committee (NAC) Marquis project: Three NAC subgroups worked to identify potential improvements in NFP financial reporting, discussed at the September 2011 NAC meeting Reporting financial performance Statements of Activities and Cash Flows and related notes: operating measures, net asset classes, functional and natural expenses, cash flow presentation, etc. Reporting liquidity/ financial health Balance Sheet and related notes: liquidity, other financial health measures Telling the story MD&A, functional expense reporting/ segment reporting, summary financials 5 FASB Not-for-Profit Advisory Committee (NAC) Recommendations for FASB Standards Project(s): (1) Reexamine net asset classes and improve how liquidity is depicted in NFP financial statements (2) Improve reporting of financial performance in statements of activities and cash flows (3) Reexamination of NFP footnotes, with aim of streamlining (4) Management s Discussion Analysis (MD&A) to better tell the organization s financial story Also, recommendation for educational efforts by FASB/ others 6 3

4 FASB NFP Financial Reporting Projects In November, the FASB added two projects to its technical agenda: NFP Financial Statements: A standards project, addressing NAC recommendations (1), (2), and (3). Other NFP Financial Communications: A research project, addressing NAC recommendation (4). Have formed project resource groups and are currently completing other detail project planning Podcast explaining the projects available on FASB website Board/ public education session scheduled for May 16 7 An Interlude : Public and Private Company Standard Setting Public Companies: SEC decision on IFRS still pending; in 2012? Private Companies: Long-standing debate Blue-Ribbon Panel and its recommendations Framework FAF proposal, discussion, and timeline Differences for NFPs: public accountability, typically broader user base 8 4

5 FASB Work Towards a Framework for Private Companies 9 Internal white paper on differential factors summarized in recent FASB in Focus document posted to website last July: Factors: types of financial statement users; access to management; investment strategies; ownership structures; accounting resources; learning and education cycle Have been working to draft Framework, centered on those factors, for making decisions on whether and when differences may be appropriate in: Effective date, transition, disclosure, display (presentation), and (most controversially) recognition and measurement Expected to be released for public comment in June 2012, and then finalized with the new private company structure (council or other) put into place by the FAF. FASB Work Towards a Framework for Private Companies 10 Also reexamining current definitions of private entity / nonpublic entity Key issues include financial institutions (public accountability), conduit debt obligors NFPs: Parallel process, with Concept Statements 4 & 6 as starting point Key issues for public/nonpublic split: public accountability, conduit bond obligors NAC/ NFP Resource Group will help in vetting these issues (see next slide) 5

6 Topics Discussed at March 1-2, 2012 NAC Meeting 11 Recent trends, concerns, observations Especially valuation/ reporting of donated pharmaceuticals Standard-setting environment (update on SEC consideration of IFRS and FAF proposal for private companies) Select current FASB projects (revenue recognition, leases, FV measurement disclosures, EITF issues) Issues with existing general GAAP for NFPs Public accountability and definitions of public and private for NFPs NFP financial reporting projects FASB Disclosure Framework Project 12 Goal: disclosure standard or conceptual framework guidance that reduces disclosure overload while making disclosures more comparable and effective Two approaches within project: Top down (development of principles) Bottom up (looking at actual current disclosure requirements) Many view this as a critical project in addressing GAAP complexity for all entities (public companies, private companies, NFPs) Initial discussion document to be issued in 2Q

7 Issues Referred to the FASB in Updating the AICPA Audit and Accounting Guide, Not-for-Profit Entities 13 Issue Description Action Taken Reporting the Contribution Portion of Charitable Gift Annuities Whether an NFP should report the contribution portion of a charitable gift annuity as unrestricted regardless of state requirements regarding required levels of annuity reserves and allowable types of related investments. To be considered as part of the Not-for-Profit Financial Reporting: Financial Statements project, which is expected to review the current net asset classification scheme. Reporting Investment Expenses Recognition of Beneficial Interests in Trusts Held by Others When Information to Measure Is Unavailable How investment expenses should be presented and disclosed by a not-for-profit entity. (Whether they should be presented gross on the face of the statement of activities or disclosed if netted against investment return and whether they should be included and functionalized in the statement of functional expenses.) When an NFP should recognize its beneficial interest in specified assets if it is the beneficiary of a split-interest agreement held by a third party but determines it does not have the information available to measure the fair value of that beneficial interest. The FASB Chairman recommended that the presentation of investment expenses on the statement of functional expenses be addressed as part of the FASB s ongoing project that addresses corrections and improvements to the Codification. The disclosure of investment expenses should be considered as part of the Not-for-Profit Financial Reporting: Financial Statements project, as that project is expected to review existing NFP-specific disclosure requirements. The FASB Chairman recommended that the FASB address this issue as part of the FASB s existing project that addresses corrections and improvements to the Codification. Issues Referred to the FASB in Updating the AICPA Audit and Accounting Guide, Not-for-Profit Entities 14 Issue Description Action Taken Subsequent Measurement of Other Investments Classification of Gifts of Securities Immediately Sold in the Statement of Cash Flows Whether the NFP subsector guidance for subsequent measurement of other investments in Section should be amended to conform the guidance for all NFPs. How NFPs should classify the sale of donated securities that immediately upon receipt are directed for sale and conversion to cash in the statement of cash flows. The FASB Chairman recommended that the Board consider this issue as part of its current projects on Accounting for Financial Instruments, Investment Companies, and Investment Property Entities, with a focus on conforming the impairment analysis. This issue was added to the EITF agenda was discussed at the March 15, 2012 EITF meeting. Consensus reached, ratified by FASB, just exposed for public comment as a proposed ASU. Employee Services Contributed by an Affiliate Statement of Functional Expenses Whether recipient NFPs should apply the contributed services guidance in paragraph for recognizing personnel costs incurred on its behalf by an affiliate. If not, what recognition and measurement guidance should the recipient NFP apply. Whether the statement of functional expenses should be required for more types of donorsupported not-for-profit organizations. This issue was added to the EITF agenda and was discussed at the March 15, 2012 EITF meeting. No consensus reached yet. Discussions expected to continue at next EITF meeting, on June 21, To be considered as part of the Not-for-Profit Financial Reporting: Financial Statements project. 7

8 ASUs Issued in Update No Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No Update No Receivables (Topic 310): A Creditor s Determination of Whether a Restructuring Is a Troubled Debt Restructuring Update No Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements Update No Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs Update No Comprehensive Income (Topic 220): Presentation of Comprehensive Income Update No Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers Update No Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities ASUs Issued in 2011 Update No Intangibles Goodwill and Other (Topic 350): Testing Goodwill for Impairment Update No Compensation Retirement Benefits Multiemployer Plans (Subtopic ): Disclosures about an Employer s Participation in a Multiemployer Plan Update No Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate a Scope Clarification Update No Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities Update No Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No

9 Fair Value Measurements (ASU ) IASB putting into place an equivalent of FAS 157 (Topic 820); we ve made revisions to attempt to get identical language Primarily will affect U.S. GAAP disclosure rather than measurement Most significant change to U.S. GAAP: qualitative sensitivity disclosure for measurement uncertainty for level three FV measurements Requires (1) identification of key inputs for which material changes in fair value would result if another feasible value for the input were used (2) quantitative information indicating the numerical input used and (3) discussion of the nature of the change in fair value if another feasible input amount was used Nonpublics exempt from part (3) Project on Nonpublic Entity FV Measurement Disclosures (slide 33) 17 Fair Value Measurements Other key changes to disclosures for public entities only: 18 Level tables for FV used in FAS 107 disclosures Note that FAS 107 disclosures are being reexamined in Financial Instruments project All transfers between Levels 1 and 2 (not just significant transfers) Nonpublics will no longer have to disclose any such transfers Effective date: Publics: Effective for fiscal years beginning after December 15, 2011 and interim periods therein. Nonpublics: Effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Early adoption permitted but no earlier than interim periods beginning after December 15, Applied prospectively. 9

10 Patient Service Revenue and Bad Debts (ASU ) Scope: health care entities that recognize significant amounts of patient service revenue at the time services are rendered, even though the entity does not assess a patient s ability to pay Bad debt as contra-revenue amount rather than operating expense; also, quantitative and qualitative disclosures Effective date: Publics: Effective for fiscal years beginning after December 15, 2011 and interim periods therein. Nonpublics: Effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Early adoption permitted Change in presentation of bad debt applied retrospectively for all periods presented; new disclosures provided prospectively, beginning with year of adoption 19 Goodwill Impairment Testing (ASU ) Existing requirement: Step one: Determine the fair value of the reporting unit, compare to carrying amount (can carry forward prior year FV under certain conditions) Step two: Determine the implied fair value of the goodwill of the reporting unit by assigning the fair value of the reporting unit used in step 1 to all the assets and liabilities New guidance: Allows an optional assessment of qualitative factors to determine whether it s necessary to perform the two-step quantitative goodwill impairment test Examples of events and circumstances in the ASU Fair value of reporting unit needed for the quantitative test would not have to be calculated unless it s more likely than not (>50%) that its fair value is less than its carrying amount 20 10

11 Goodwill Impairment Testing 21 Applicable for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011; early adoption permitted with some caveats Multiemployer Plan Disclosures (ASU ) 22 Enhance disclosures to allow financial statement users to better assess risks an entity faces by participating in a multiemployer plan. Previous disclosures generally were limited to contributions for period. Some of the new disclosures include: The amount of employer contributions made to each significant plan and to all plans in the aggregate An indication of whether the employer s contributions represent more than 5% of total contributions to the plan Expiration date(s) of collective bargaining agreement(s) and any minimum funding arrangements An indication of which plans, if any, are subject to a funding improvement plan (ERISA zone status ) 11

12 Multiemployer Plan Disclosures 23 Effective date: Publics: For annual periods for years ending after December 15, 2011 Nonpublics: For annual periods for years ending after December 15, 2012 Early adoption permitted Applied retrospectively for all prior periods presented. Joint (MOU and other) and FASB-Only Projects (* high-priority) 24 Leases Joint* Revenue Recognition Joint* Accounting for Financial Instruments Joint * Insurance Contracts Joint* Consolidation (Investment Companies) Joint Consolidation (Voting Interest Entities) Joint Financial Statement Presentation Joint Fin. Instruments w/ Characteristics of Equity Joint Reporting Discontinued Operations Joint Emissions Trading Schemes Joint Disclosure of Loss Contingencies FASB only Disclosure of Risks and Uncertainties and Liquidation Basis of Accounting (Going Concern) FASB only Investment Properties FASB only (but converging) Impairment of Indefinite-Lived Intangible Assets FASB only Other Comprehensive Income (reclassification items) FASB only Nonpublic Entity FV Measurement Disclosures FASB-only Decision-Making Framework for Private Companies FASB only Definition of a Nonpublic Entity FASB only NFP Financial Reporting: Financial Statements FASB only NFP Financial Reporting: Other Financial Communications FASB only Disclosure Framework FASB only Technical Corrections FASB only Various EITF Issues FASB only 12

13 Leases Project: Lessees Proposed right-of-use model for lessees Feedback: general agreement for on-balance sheet treatment but concerns about complexity: Measurement (renewal options, contingent rents, shortterm leases) Expense pattern/ categorization (front-loading, cost recovery allowability) Redeliberations: Measurement simplifications Pursued and discontinued finance versus other-thanfinance distinction, but FASB and IASB are now remulling 25 Leases Project: Lessors Proposed two different models ([partial] derecognition, performance obligation) Feedback: concern about complexity, representation of underlying economics, relationship to lessee model Boards currently pursuing one model ( receivable and residual, i.e., partial derecognition) Exception for investment properties (being defined) 26 13

14 Leases Project: Timeframe Redeliberations still ongoing Revised ED now expected later in 2012 Likely 120-day comment period Final standard now expected to be issued in 2013 Effective date for public entities now likely 2016 Likely incremental deferral for nonpublic entities for one or two years beyond the public entity effective date 27 Revenue Recognition Project 28 Contracts with customers Excluded: Donations Collaborative arrangements May significantly change recognition pattern for some industries, but probably not for most NFPs Exception from onerous performance test for many NFP contracts with customers Bad debts as contra-revenue Disclosure exemptions for nonpublic entities 14

15 Revenue Recognition Project: Timeframe Comment deadline for revised ED was March 13, to be followed by public roundtables in April and May Separate roundtable dedicated to private companies and NFPs on May 8 in Salt Lake City Standard expected to be issued in 4Q 2012 or 1Q 2013 Effective date for public entities no earlier than 2015, perhaps later Likely incremental deferral for nonpublic entities for one or two years beyond that 29 Financial Instruments Project 30 Classification and Measurement: For the most part, changes no longer significant for NFPs Loans receivable and liabilities remain at cost NFPs already at FV for debt securities (key change for business entities) Liquidity risk disclosures being developed (now spun off into a separate project, which also covers interest rate risk for financial institutions only; ED to be released for comment shortly) IASB has reopened some aspects of IFRS 9 in an effort to pursue additional convergence 15

16 Financial Instruments Project 31 Impairment: FASB and IASB continue to work towards an improved and converged model, going beyond incurred losses Hedge Accounting: FASB and IASB are currently in very different places here Reexposure? Timing? Ongoing FASB-only Projects of Note Impairment of indefinite-lived intangible assets Spin-off of Goodwill Impairment Testing Project (ASU ) Companies were analogizing to carry-forward provisions for goodwill impairment testing ASU eliminates those provisions in favor of an optional assessment of qualitative factors FASB has tentatively decided to allow a similar optional assessment of qualitative factors, to obviate the need for FV calculations in certain circumstances Example: hospital certificates of need, FCC broadcast licenses ED released on January 25; comments were due April

17 Ongoing FASB-only Projects of Note 33 Nonpublic entity FV measurement disclosures Focus: disclosures about Level Three FV measurements Grew out of relevance concerns heard at Fall 2011 private company roundtables and elsewhere ED expected in 2Q 2012 Disclosure of certain loss contingencies Investors complain that they often have no idea about litigation settlements until after the check has been written FASB issued two EDs to attempt to rectify this concern Project will likely be dropped from the FASB s agenda Ongoing FASB-only Projects of Note 34 Risks and uncertainties (going concern) Had been focused on disclosures aimed at earlier identification of circumstances that might lead to going concern issues, as well on providing guidance on the liquidation basis of accounting Project was on-hold while awaiting input from SEC, PCAOB; resumed in late 2011, with FASB staff working with PCAOB and AICPA ASB staff FASB has tentatively decided: Not to add to GAAP the requirement for management to make an affirmative going concern assertion, or to define substantial doubt Coordinate disclosures with the project on liquidity risks Focus here on liquidation basis of accounting ED expected in 2Q

18 Staying Current 35 Best ways to stay current Sign up for electronic Action Alert FASB on Twitter Nonpublic Entities Portal on FASB website Project summaries FASB in Focus executive summaries Podcasts Webcasts Semiannual FASB Updates for Nonpublic Entities (for CPE!; next one will be on June 28, 2012) 36 Questions? 18