Quarterly Accounting Update: On the Horizon The following selected FASB exposure drafts and projects are outstanding as of April 12, 2015.

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1 Quarterly Accounting Update: On the Horizon The following selected FASB exposure drafts and projects are outstanding as of April 12, Proposed Delay of Effective Date for Revenue Recognition Standard On April 1, 2015, the FASB voted to propose to defer the effective date of the new revenue recognition standard by one year. If approved, public organizations would apply the new revenue standard to interim and annual reporting periods beginning after December 15, Nonpublic organizations would apply the new revenue standard to interim and annual reporting periods beginning after December 15, Additionally, the FASB decided to permit both public and nonpublic organizations to adopt the new revenue standard early, but not before the original public organization effective date (that is, annual periods beginning after December 15, 2016). A public organization would apply the new revenue standard to all interim reporting periods within the year of adoption. A nonpublic organization would not be required to apply the new revenue standard in interim periods within the year of adoption. The FASB plans to expose its decisions for a thirty day public comment period in a proposed ASU, which is expected to be issued sometime during the second quarter of Leases In May 2013, the FASB issued a proposed ASU, Leases, which was a revision of the 2010 proposed ASU. The core principle of the proposed requirements is that an entity should recognize assets and liabilities arising from a lease. In accordance with that principle, a lessee would recognize assets and liabilities for leases with a maximum possible term of more than 12 months. A lessee would recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the leased asset (the underlying asset) for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee would depend on whether the lessee is expected to consume more than an insignificant portion of the economic benefits embedded in the underlying asset. For practical purposes, this assessment would often depend on whether the underlying asset is property or assets other than property. The FASB has received nearly 600 comment letters on the proposed ASU from trade groups, companies, and individuals all over the world. Many of the comments have been negative. For example, a consortium of 30 trade associations plus the U.S. Chamber of Commerce signed a comment letter raising concerns about the proposed standards impact. In their 2014 meetings, the FASB and the IASB began to back away from the lessee accounting model they proposed in May In redeliberations, the IASB supported a single on-balance sheet model, while the FASB supported a dual on-balance sheet model that would use the International Accounting Standard (IAS) 17, Leases, classification principles. These principles are similar to current U.S. GAAP but without bright lines. The Boards also indicated that they do not intend to significantly change lessor accounting. Instead, they supported retaining a dual classification model. The Boards also reached

2 certain tentative decisions on lease term, a short-term lease exception and other ways to simplify their 2013 proposal. In December 2014, the Boards moved closer to finishing the controversial lease accounting standards by settling a central part of the project: the definition of a lease. The Boards have decided to define a lease as a contract that conveys the right to use an asset for a period of time in exchange for consideration. A business determines if it has a lease, in part, by figuring out whether it has control over the use of the rented item, such as the freedom to drive a leased delivery truck on any route. The redeliberations will continue on a joint basis, with the intention of minimizing any differences between U.S. GAAP and IFRS. The Boards expect to publish final standards in FASB Simplification Initiative The FASB s Simplification Initiative is a tightly-focused initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. The projects included in the initiative are intended to improve or maintain the usefulness of the information reported to investors while reducing cost and complexity in financial reporting. In addition to the Simplification Initiative, the FASB recently completed several projects, and currently is working on several projects, that are intended to reduce cost and complexity in financial reporting. The FASB launched the initiative earlier this year to reduce the cost and complexity of financial reporting by making targeted changes to U.S. GAAP while maintaining or improving the usefulness of information for investors. Simplifying the Measurement of Inventory The proposed ASU would require inventory to be measured at the lower of cost and net realizable value. As such, it would eliminate existing requirements to consider the replacement cost of inventory and the net realizable value of inventory less an approximately normal profit margin. Accounting for Income Taxes The FASB issued two proposed ASUs, which are expected to simplify accounting for income taxes by: Eliminating the requirement for organizations that present a classified statement of financial position to classify deferred tax assets and liabilities as current and noncurrent, and instead require that they classify all deferred tax assets and liabilities as noncurrent. Eliminating the prohibition on the recognition of income taxes for transfers of assets from one jurisdiction to another. Customer s Accounting for Fees Paid in a Cloud Computing Arrangement The proposed ASU is intended to improve financial reporting of fees paid by public and private companies and not-for-profit organizations who are customers in a cloud computing arrangement. Current guidance addresses the accounting for cloud service providers but does not include explicit accounting guidance about a customer s accounting for its fees paid to the cloud service provider. To address this issue, the proposed guidance would help customers determine whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer would account for the software license consistent with other software licenses. If a cloud computing arrangement does not include a software license, the customer would account for the arrangement as a service contract.

3 Financial Instruments The FASB continues to work on its financial instruments project. This project took on heightened significance in the wake of the 2008 financial crisis and once was considered an essential international accounting convergence project. Negotiations with the IASB to write global accounting guidelines have since fallen apart, and the amendments the FASB plans to publish in 2015 are expected to change U.S. GAAP and not match the IASB s revisions to its standards. The project has three primary areas that are being individually addressed, (1) classification and measurement, (2), impairment and (3) hedging. Classification and Measurement The FASB tentatively decided to retain the separate models in current U.S. GAAP for classifying and measuring loans and debt securities rather than overhaul its guidance in this area, as it had proposed in In a change from today s accounting, however, equity securities would be measured at fair value with changes in fair value recognized in net income. Impairment The FASB reaffirmed its proposal to apply a one-step impairment test (which is a qualitative test) to equity securities without readily determinable fair values but hasn t decided whether to apply this test to equity method investments or retain today s other-than-temporary impairment model. The FASB also decided that available-for-sale debt securities would continue to follow today s other-than-temporary impairment model with some modifications and reaffirmed its decision that loans that are held for investment and held-to-maturity debt securities will follow the proposed lifetime expected credit losses model. The FASB expects to issue final guidance in the first half of Hedging Separately, the FASB has added hedging to its agenda and began redeliberations on February 25, The objective of this project is to make targeted improvements to the hedge accounting model based on feedback received from preparers, auditors, users, and other stakeholders. In this meeting, the FASB directed the staff to conduct additional research on the following topics: Identifying additional hedging relationships that may qualify under a reasonably effective threshold Developing a numerical threshold to define reasonably effective Recognizing an impairment loss if, at any time, an entity believes that a loss reported in other comprehensive income would result in recognizing a net loss on the combination of the hedging instrument and the hedge transaction Performing qualitative assessments of hedge effectiveness at each reporting period after quantitative testing at hedge inception Allowing contractually specified components to be designated as the hedged item Presentation of hedge ineffectiveness. No technical decisions have been made, however the FASB will consider opportunities to align with IFRS 9, Financial Instruments, which was issued in 2013.

4 Disclosure Framework The objective and primary focus of this project is to improve the effectiveness of disclosures in notes to financial statements by clearly communicating the information that is most important to users of each entity s financial statements. Although reducing the volume of the notes to financial statements is not the primary focus, the FASB hopes that a sharper focus on important information will result in reduced volume in most cases. On March 4, 2014, the FASB issued an Exposure Draft, Conceptual Framework for Financial Reporting: Chapter 8 Notes to Financial Statements, intended to improve its process for evaluating existing and future disclosure requirements in notes to financial statements. Specifically, it addresses the FASB s process for identifying relevant information and the limits on information that should be included in notes to financial statements. If approved, it would become part of the FASB s Conceptual Framework, which provides the foundation for making standard-setting decisions. A final Concepts Statement is expected to be issued in the first half of Financial Statements of Not-for-Profit Entities In March 2015, the FASB voted to issue a proposed ASU, which would propose changes to: The current net asset classification scheme The required information about an organization s liquidity, financial performance, and cash flows The proposal will reduce the number of net asset classes presented from three to two. The new classification would also convey net assets with donor-imposed restrictions and without donor-imposed restrictions. In addition, under the proposal, not-for-profits also would be required to report expenses by their nature and by function. The FASB expects to issue an Exposure Draft for public comment in the second quarter of Clarifying the Definition of a Business This project is intended to clarify the definition of a business with the objective of addressing whether transactions involving in-substance nonfinancial assets (held directly or in a subsidiary) should be accounted for as acquisitions (or disposals) of nonfinancial assets or as acquisitions (or disposals) of businesses. The project will include clarifying the guidance for partial sales or transfers and the corresponding acquisition of partial interests in a nonfinancial asset or assets. Clarifying Certain Existing Principles on Statement of Cash Flows In November 1987, the FASB issued FASB Statement No. 95, Statement of Cash Flows. Statement 95 was later codified in Accounting Standards Codification (ASC) 230, Statement of Cash Flows. Recently, FASB staff research indicated that there was diversity in practice with respect to the classification of certain cash receipts and payments. The FASB staff s research also indicated that the primary reasons for the diversity in classification is the result of lack of specific accounting guidance and inconsistent application of the existing principles within ASC 230. This project will include clarifying existing principles in ASC 230 on how to classify cash receipts and cash payments. As part of the project, the FASB staff will research potential additional disclosures that could result in increased relevance for users.

5 Measurement Period Adjustments in Business Combination Transactions At its March 18, 2015 meeting, the FASB added to its agenda a project to simplify the accounting for measurement period adjustments for business combinations. The project is expected to remove the requirement to account for measurement period adjustments retrospectively. Specifically, during the measurement period, an acquirer would recognize adjustments of provisional amounts in the reporting period in which the adjustment amount is determined. The acquirer would record, in the current period income statement, the cumulative effect on earnings of changes in depreciation, amortization, or other income effects, as a result of the change to the provisional amount. Certain disclosures will be required in the period of adoption. The FASB is expected to issue an exposure draft during the second quarter of Simplification of Accounting for Share-Based Payments The FASB plans to release a proposal for public comment early in the second quarter of 2015 a proposal to simplify some of the guidance for accounting for the costs of share-based payments with the goal of issuing a final ASU by the end of The ASU will likely be effective for public companies in 2017, but the FASB plans to omit an effective date from its exposure draft so it can learn whether the date would work for most companies. The proposal represents an effort to reduce the cost and complexity of applying the guidance outlined in ASC 718 (formerly SFAS No. 123(R), Share-Based Payment). Specifically, the proposal addresses accounting for minimum statutory withholding requirements, options that are forfeited, the cash flow statement s presentation of employee tax payments and excess tax benefits, and the accounting for income taxes upon vesting or settlement of awards. The FASB also wants to provide some breaks for valuing some private company compensation programs. Fair Value Disclosures for Investments in Certain Entities That Calculate Net Asset Value Per Share (or Its Equivalent) Removed from Three Level Fair Value Hierarchy On April 7, 2015, the FASB ratified EITF Issue No. 14-B, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). Topic 820, Fair Value Measurement, permits a reporting entity, as a practical expedient, to estimate the fair value of certain investments that calculate net asset value per share using the net asset value of the investment. The current accounting literature requires investments valued using the practical expedient to be categorized within the fair value hierarchy on the basis of whether the investment is redeemable at net asset value on the measurement date, never redeemable at net asset value, or redeemable at net asset value at a future date. Under current guidance, for the investments that are redeemable at a future date, a reporting entity must take into account the length of time until those investments become redeemable to determine the classification within the fair value hierarchy. This ASU removes the requirement to classify and report these items within the three level fair value hierarchy. Once finalized, the amendments in this proposed ASU would be applied retrospectively to all periods presented beginning in an entity s fiscal year of adoption. The retrospective approach would require investments for which fair value is measured at net asset value using the practical expedient to be removed from the fair value hierarchy in all periods presented in the entity s financial statements. The final ASU will be issued once the FASB Staff has drafted the final ASU and the FASB approves the standard as drafted. The ASU is expected to be effective for interim and annual periods beginning after

6 December 15, 2015 for public entities and periods beginning after December 15, 2016 for private companies. Simplifications to Benefit Plan Accounting and Reporting Proposed by EITF At its meeting on March 19 th, the EITF voted to submit EITF Issue 15-C to the FASB that will simplify the measurement of employee benefit plans and the disclosures plans are required to make. The proposed guidance is intended to address certain differences between Topic 820, Fair Value Measurement, and the plan accounting (Topics 960, 962, and 965) with respect to the amount of detail to be disclosed about plan assets. If approved by the FASB and issued as a final ASU, in addition to addressing the differences noted above, the guidance will also result in a measurement simplification for fully benefit-responsive investments resulting in those items being measured at contract value. FinREC Approves Releasing Draft of New Chapter for EBP Audit and Accounting Guide The AICPA s Financial Reporting Executive Committee (FinREC) agreed on January 14, 2015, to release for public comment a draft of a new chapter for the AICPA Audit and Accounting Guide (AAG) Employee Benefit Plans. The chapter, titled Employee Stock Ownership Plans, was drafted by the ESOP Task Force to provide guidance for employee stock ownership plans. Once the draft is cleared by FinREC, it will be sent out for comment. EITF Activity Update Several EITF issues were discussed in the FASB s most recent meeting. See information below regarding the decisions reached: EITF Consensus Items Ratified by the FASB ASU to be Drafted and Finalized During its meeting on April 7, 2015, the FASB discussed and ratified the EITF Issues listed below. Final ASUs will be issued once the FASB Staff has drafted the final ASU and the FASB approves the standard as drafted. Issue No. 14-A, Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions Addresses allocation of earnings between general and limited partnership interests in a dropdown transaction. Issue No. 14-B, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) As discussed in more detail earlier, this standard will effectively eliminate the requirement for investments for which fair value is measured at net asset value (or its equivalent) to be categorized in the fair value hierarchy. Other EITF Agenda Items At its April, 2015 meeting, the FASB ratified three consensuses-for-exposure. The FASB will issue proposed ASUs for comment related to the three items below: Issue No. 15-A, Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts within Nodal Energy Markets Would address whether the NPNS scope exception in ASC 815, Derivatives and Hedging, would apply to certain electricity contracts for physical delivery within nodal energy markets.

7 Issue No. 15-B, Recognition of Breakage for No-Cash Prepaid Cards Would provide guidance on whether and when an entity should derecognize a prepaid card liability that exists before redemption of the card at a third-party merchant. Issue No. 15-C, Accounting Issues in Employee Benefit Plan Financial Statements Would cover the following topics related to employee benefit plan accounting: o Differences between the level of detail provided under the ASC 820, Fair Value Measurement, disclosure requirements and that provided under the disclosure requirements in the ASC topics on plan accounting o Discrepancies in the requirements for disaggregating assets within these disclosures, and (3) inconsistencies between the measurement requirements in ASC 820 and those in the ASC topics on plan accounting with respect to fully benefit-responsive investment contracts. PCC Activities At its February, 2015 meeting, the Private Company Council (PCC) discussed the following projects: Definition of a Public Business Entity (Phase 2): The PCC decided to not amend the existing definitions of a nonpublic entity (i.e., not to change the scope of existing FASB Accounting Standards Codification topics) at this time. The prior definitions will remain in the ASC until potentially amended at a later date by the FASB. The new definition of a public business entity would continue to be used for future accounting and reporting guidance. Balance Sheet Classification of Debt: The PCC expressed significant concerns about the FASB s project on the balance sheet classification of debt, and encouraged the FASB to conduct further outreach to stakeholders. PCC Accounting Alternative Effective Dates: The PCC added a project to its agenda to consider allowing elective adoption after the effective date for existing PCC accounting alternatives. Share-Based Payments: The PCC directed the FASB staff to conduct further research on a private company alternative to account for share-based payments. Uncertain Tax Positions: The PCC raised an issue regarding disclosure of open tax years if there are no material uncertain tax positions. The PCC also discussed the FASB s project on the Accounting for Financial Instruments Classification and Measurement, and expressed concerns about the FASB s project on Simplifying the Presentation of Debt Issuance Cost.