Financial Institutions Webinar

Transcription

1 Financial Institutions Webinar December 13, 2018 assurance - consulting - tax - technology - pncpa.com Postlethwaite & Netterville, A Professional Accounting Corporation Topics 2 1

2 Clarifying Definition of a Public Business Entity Common Q&As... What s a PBE? Master Glossary Public Business Entity meets any of these criteria... Note: PBEs must be a business entity, so a not forprofit entity and an employee benefit plan are excluded. A. Required to (or voluntarily does) file or furnish its financial statements with Securities and Exchange Commission (SEC) B. Required to file or furnish its financial statements with a regulatory agency other than the SEC in accordance with: the Securities Exchange Act of 1934 (Act), as amended or rules and regulations promulgated under the Act C. Required to file or furnish its financial statements with a foreign or domestic regulatory agency with issuance of securities not subject to contractual restrictions on transfer D. Has issued, or is a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an OTC market E. Has securities not subject to contractual restrictions on transfer, and required by law, contract, or regulation to both... prepare U.S. GAAP financial statements (including notes) make them publically available on a periodic basis 4 2

3 Common Q&As... What s a PBE? Criterion E: Has securities not subject to contractual restrictions on transfer, and required by law, contract, or regulation to both... prepare U.S. GAAP financial statements (including notes) make them publically available on a periodic basis Entire PBE definition, including Criterion E, should be applied entity by entity o Example: analysis under Criterion E (assume Criteria A - D are not met): 5 Unrestricted common equity in nonpublic market Restricted common equity 100% owned by BHC Investors Bank Holding Company Bank Subsidiary Neither entity a PBE because... No financial statement requirement, even if financials are filed on behalf of subsidiary Has a financial statement requirement under FDICIA, but... no unrestricted securities issued No look through required Financial Instruments: Recognition & Measurement (ASU ) 3

4 Financial Assets Amendments to Current GAAP Equity investments measured at each reporting period at fair value through net income, except Equity investments without readily determinable fair value; only marked to observable price changes Equity method investments Equity investments that result in consolidation of the investee Equity investment in federal home loan bank and federal reserve bank stock Ownership interest in an exchange 7 Financial Liabilities Amendments to Current GAAP (continued) Fair value change resulting from changes in own credit for financial liabilities measured under fair value option will be recognized through other comprehensive income (OCI) Current GAAP retained for accounting for financial liabilities 8 4

5 Financial Instruments Disclosure changes Private entities not required to disclose fair value of financial instruments not recognized at fair value on balance sheet Reduced disclosures for public entities of methods and assumptions used to estimate fair value for financial instruments not recognized at fair value on balance sheet 9 Financial Instruments Disclosure Changes (continued) Fair value measurements for financial instruments to be based on exit price notion (current GAAP includes practical expedient to measure fair value of certain financial instruments using entry price notion) Financial assets to be presented grouped by measurement category and form of instrument Financial liabilities to be presented grouped by measurement category 10 5

6 Effective Date for Final Standard All Public Business Entities Annual & Interim Reporting Periods beginning after Dec. 15, 2017 Non Public Business Entities* Annual Periods beginning after Dec.15, 2018 Non Public Business Entities* Interim Periods beginning after Dec. 15, 2019 Early Application: Entire standard is available for early application after Dec. 15, 2017 Certain provisions are available for early application upon issuance: 1. Presentation of FV changes due to entity s own credit changes in financial liabilities in OCI 2. Non Public Business Entities no longer required to disclose fair value of financial instruments not recognized at fair value on B/S 11 *Includes not for profit entities and employee benefit plans Simplifying the Test for Goodwill Impairment (ASU ) 6

7 Simplifying the Test for Goodwill Impairment (ASU ) 13 Goodwill Effective Date (ASU ) SEC Filers Annual periods beginning after December 15, 2019, for public business entities that are SEC filers All other entities (including private companies and NFPs) Annual periods beginning after December 15, 2020 and interim periods beginning after December 15, 2019 Early Application Early adoption would be allowed for all entities as of January 1,

8 ASU Premium Amortization on Purchased Callable Debt Securities ASU Premium Amortization on Purchased Callable Debt Securities 16 8

9 ASU Premium Amortization on Purchased Callable Debt Securities 17 Cloud Computing Arrangements 9

10 Cloud Computing Arrangements (CCA) ASU (EITF 17-A) 19 Cloud Computing Arrangements (CCA) ASU (EITF 17-A) 20 10

11 Revenue Recognition Topic 606 Effective Date 22 11

12 Revenue Recognition Scope 23 Revenue - Overview of New Model 1. Identify the contract(s) with the customer 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price 5. Recognize revenue when (or as) a performance obligation is satisfied 24 12

13 Disclosure Requirements Disclosure objective: To enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers 25 *Public entities include NFPs with publicly traded conduit (or direct) debt Leases (ASU ) 26 13

14 Right-of-Use Model A lease contract conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration 27 Identifying a Lease That is explicitly or implicitly specified 28 Lease contracts in the scope of Topic 842 involve An identified asset The right to control the use during the lease term Supplier has no practical ability to substitute and would not economically benefit from substituting the asset Decision making authority over the use of the asset The ability to obtain substantially all economic benefits from the use of the asset 14

15 Lessee Accounting Overview Balance Sheet Income Statement Cash Flow Statement Finance Right of use (ROU) asset Lease liability Amortization expense Interest expense Cash paid for principal and interest payments Operating Right of use (ROU) asset Lease liability Single lease expense on a straight line basis Cash paid for lease payments Classification is similar to the classification in Topic 840 Recognition and measurement exemption for short term leases 29 Effective Date Public Companies* Fiscal years beginning after December 15, 2018, including interim periods within those fiscal years All Other Organizations Fiscal years beginning after December 15, 2019 and interim periods beginning after December 15, 2020 Early Application Permitted for all organizations 30 * Public Companies refers to the following: (1) public business entities, (2) a not for profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over the counter market, and (3) an employee benefit plan that files or furnishes statements with or to the SEC 15

16 Leases: Transition Current Transition Recognize leases on balance sheet for all periods Provide new lease disclosures for all periods Some relief provided with run off approach for existing leases Feedback Unanticipated costs and complexity related to comparative periods Examples: disclosures, tracking of FX rates New Transition Added Initially apply new leases guidance at effective date Still gets leases on balance sheet at effective date Changes when new leases guidance is initially applied, not how 24 CECL: Implementation vs. Validation 32 16

17 CECL: Old News, New Focus 33 CECL: Old News, New Focus 34 17

18 Model Risk Management Framework 35 Framework Components 36 18

19 Data Integrity 37 Vendor Management 38 19

20 FASB Resources for Implementation of CECL 40 20

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22 Credit Losses Implementation Issues Memos - Examples 43 November 1, 2018 Agenda Contractual Term: Extensions and Measurement Inputs Vintage Disclosures for Revolving Loans disclosure relating to revolver loans that convert to term loans Recoveries expected recoveries from loans that have incurred a write off and types of recoveries to include in the CECL measurement Impact of Tax Reform on Financial Institutions 22

23 Tax Cuts and Jobs Act 45 Federal Corporate Tax Rate Reduction 46 23

24 S-Corporation Banks 47 Limitation on FDIC Premium Deduction 48 24

25 BOLI Transfers 49 BOLI Transfers 50 25

26 Business Expensing/Bonus Depreciation Business Expensing 52 26

27 Interest Expense Limitation 53 Meals & Entertainment 54 27

28 Like-Kind Exchanges 55 Mortgage Interest Deduction 56 28

29 Mortgage Interest Deduction 57 Itemized Deductions Personal Casualty Loss 58 29

30 Estate/Gift/GST Increased exemption sunsets 12/31/25 59 Questions / Contact Info cwright@pncpa.com cmcdonald@pncpa.com 60 kcrews@pncpa.com 30

31 A Professional Accounting Corporation 31