Quarterly accounting roundup: An update on Q important developments The Dbriefs Financial Reporting series Bob Uhl, Partner, Deloitte & Touche

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Quarterly accounting roundup: An update on Q1 2018 important developments

LLP Peggy Cullen, Partner, Deloitte & Touche LLP Lauren Hegg, Manager,

1 Quarterly accounting roundup: An update on Q important developments The Dbriefs Financial Reporting series Bob Uhl, Partner, Deloitte & Touche LLP Peggy Cullen, Partner, Deloitte & Touche LLP Lauren Hegg, Manager, Deloitte & Touche LLP Jon Howard, Partner, Deloitte & Touche LLP March 27, 2018

Items to note Keep in mind: This webcast does not provide official Deloitte & Touche LLP interpretive accounting guidance. Check with a qualified advisor before taking any action.

3 Items to note Keep in mind: This webcast does not provide official Deloitte & Touche LLP interpretive accounting guidance. Check with a qualified advisor before taking any action. Learning Objective: To enhance participants understanding of important accounting issues and developments pertaining to recent actions of standard setters, regulators, and others. Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 3

4 Polling question #1 Are you a financial statement preparer, user, auditor, or other interested party? a) Preparer b) User c) Auditor d) Other Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 4

6 SEC Staff Accounting Bulletin No. 118 Categories ( Buckets ) Accounting is complete Incomplete, can determine a reasonable estimate record provisional amount Incomplete, cannot determine reasonable estimate no provisional amount recorded Incremental disclosures a)qualitative disclosures of income tax effects for which the accounting is incomplete b)items reported as provisional amounts c)existing current/deferred tax amounts for which income tax effects of tax reform have not been completed d)reason why initial accounting is incomplete e)additional information needed to complete accounting requirements under ASC 740 f)nature and amount of any measurement period adjustments recognized during reporting period g)effect of measurement period adjustments on effective tax rate; and h)when accounting for income tax effects of tax reform has been completed Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 6

7 SEC Staff Accounting Bulletin No.118 Measurement period (cont.) Potential measurement period considerations: Deferred taxes GILTI Method planning Deferred method or period cost policy election GILTI deferred taxes (policy) Inside basis (TBBS) Valuation allowances Expense allocation (for FTC) FTC credits Outside basis Net operating losses and state attributes GILTI basis differences Interest limitations ASC assertions GILTI inclusion Previously-taxed income Transition tax State tax consequences E&P studies and foreign tax pools Deemed and actual repatriations Cash vs non-cash Apportionment factors Method planning GILTI/FDII deduction Period of Enactment (includes December 22, 2017) First period after enactment (e.g., Q1) Second period after enactment (e.g., Q2) Third period after enactment (e.g., Q3) Final period last possible end of measurement period (e.g., Q4) Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 7

8 Stranded tax (AOCI): ASU Overview On February 14, 2018, FASB issued ASU , Reclassification of Certain Tax Effects From AOCI Allows companies to elect to reclassify from AOCI to retained earnings stranded tax effects resulting from the Act Disclosures A. Accounting policy related to releasing tax effects from AOCI B. Whether it has elected to reclassify, to retained earnings, tax effects in AOCI related to the Act 1. Description of other tax effects, i.e., other than tax rate change, related to the Act that are reclassified from AOCI to retained earnings Effective date and transition Guidance in ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein, early adoption permitted Apply guidance to each period in which effect of the Act (or portion thereof) is recorded Retrospectively as of date of enactment or As of beginning of period of adoption Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 8

9 Example AOCI (no valuation allowance) 2015 $100 unrealized loss on AFS security December 22, 2017 Impact of tax reform; apply proposed ASU Debit/(Credit) AFS security AOCI DTA (DTL) Valuation allowance Retained earnings Tax expense (benefit) Record unrealized loss 2015 (100) 100 Record related tax impact in OCI (35) 35 Record impact of tax enactment (December 22, 2017) (14) Record adoption of ASU (14) Ending balances after adoption of ASU (100) 79* AFS = available for sale * AOCI reflects Tax effects of items originally recorded in AOCI at 21% Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 9

11 Global intangible low-taxed income (GILTI) Overview Current US inclusion of global intangible low-tax income (similar to inclusions of Subpart F income) with up to 50% deduction for such income GILTI is controlled foreign corporations (CFCs ) aggregate net tested income over 10% of qualified business asset investment ( QBAI ) less interest expense 50% deduction reduced to 37.5% for years beginning after December 31, 2025 Policy election options Period cost method taxes due on future US GILTI inclusion as a current-period expense when incurred Deferred method establish deferred taxes on temporary differences for CFCs assets and liabilities that will impact GILTI inclusions when they reverse Considerations Ability to estimate outside and inside basis differences Sensitivity to effective tax rate variability Impact on valuation allowances including historical FTCs Key ASC 740 and/or tax technical topics Repeal of deferral Tangible asset return Impact of foreign tax credits, no carryforward, new FTC basket Interaction with subpart F income/hightaxed income Impact on attributes Traps for the unwary: Net operating losses Expense allocations Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 11

12 Foreign-derived intangible income (FDII) Overview New type of income category for US corporations FDII is income derived from Sales or other dispositions of property to a foreign person for a foreign use A license of IP to a foreign person for a foreign use Services provided to a person located outside of the United States 50% deduction reduced to 37.5% for years beginning after December 31, 2025 Special considerations New terms of art created for FDII Calculation itself is complicated Special rules apply to related-party transactions Many related-party transactions likely to qualify if property or services for use by a 3 rd party outside the United States Tax technical topics Similar to the GILTI Tangible asset return Allocation of expenses Branch income excluded Impact of net operating losses Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 12

13 Indefinite reinvestment assertions Reminders ASC provides an exception to recognizing a deferred tax liability with respect to an excess of book over tax basis of an investment in a foreign subsidiary or certain foreign corporate joint venture unless it becomes apparent that basis difference will reverse in foreseeable future ASC (which includes codification of APB 23) provides framework (i.e., operating rules) used to determine whether outside basis difference will reverse or close in foreseeable future ASC notes that a deferred tax liability is not recognized for an excess of amount for financial reporting over tax basis of an investment in foreign subsidiary that meets criteria in paragraph Accounting considerations ASC provides that commitment to offshore investment must be supported by evidence of specific plans for reinvestment of undistributed earnings of a subsidiary which demonstrate that remittance of earnings will be postponed indefinitely Plans must be specific and identifiable Plans must be viable Plans must be in writing ASC is not an election, rather, a conclusion based on facts, circumstances, and intent (indefinite reinvestment exception) Indefinite reinvestment exception is not an all or nothing proposition A portion of unremitted earnings may be indefinitely reinvested. Specific amounts of earnings may be designated as indefinitely reinvested Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 13

14 Other key changes related to tax reform Section 162(m) officers compensation Covers CEO, CFO (new) and 3 remaining highest paid employees Once a covered employee always a covered employee (beyond the grave) Removes prior exclusion for performance-based compensation (from the $1M limitation) Section 163(j) interest expense limitations Generally limits business interest deduction to business interest income plus 30% of adjusted taxable income ( ATI ) Provides for indefinite carryforward of disallowed interest NOL changes NOLs generated in taxable years ending after December 31, 2017, are no longer allowed to be carried back to prior tax years, but such NOLs can be carried forward indefinitely With respect to NOLs generated in taxable years beginning after December 31, 2017, the NOL deduction for a particular taxable year is equal to lesser of (i) aggregate of NOL carryovers to such year, plus NOL carrybacks to such year, or (ii) 80% of taxable income computed without regard to deduction allowable under section 172 ("80% Limitation") Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 14

Interim periods Guidance Annual Balance sheet approach Discrete approach that measures DTL or DTA at point in time to reflect all tax effects of pretax amounts included in financial statements

16 Interim periods Guidance Annual Balance sheet approach Discrete approach that measures DTL or DTA at point in time to reflect all tax effects of pretax amounts included in financial statements Interim (ASC ) Income statement approach Tax expense for ordinary income or loss is measured using an annual effective tax rate ( AETR ) for the annual period Each interim period is an integral part of the annual period The FASB Board rejected discrete approach to interim reporting whereby operating results for each interim period are determined as if interim period were an annual period Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 16

Items accounted for separately from estimated AETR Certain items or events are specifically excluded from estimated AETR and, as such, related tax effects are recognized discretely (i.e., tax effect

17 Items accounted for separately from estimated AETR Certain items or events are specifically excluded from estimated AETR and, as such, related tax effects are recognized discretely (i.e., tax effect is excluded from numerator and underlying pretax book income or expense, if any, is excluded from denominator) Items or events excluded from the AETR calculation may include Significant and unusual or infrequently occurring items (ASC ) Out-of-period adjustments Certain loss jurisdictions (ASC a) Unpredictable income or loss (ASC b) Certain components of pretax income that are not estimable (ASC ) Any item reported net of tax (discontinued operations/oci/other tax effects in equity) Tax effects (excess or deficiency) of exercised or vested share-based payment awards Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 17

18 Interim considerations related to tax reform Assess implications of new provisions on annual effective tax rate For calendar year filers, update PY estimates for provision or non-completed impacts For fiscal year filers, calculate initial impacts and/or update estimates from prior quarters Disclose significant changes in the quarter and/or update status of analysis Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 18

19 Reliable estimate of AETR cannot be made Overview Estimates of annual AETR are based on evaluations of future events and transactions and subject to revision If a reliable estimate cannot be made, actual computation (vs. AETR computation) using YTD amount may be the best estimate In break-even situation, a small change in entity s ordinary income could produce a large change in estimated AETR In those circumstances, estimated AETR would not be reliable if a small change in estimated ordinary income were considered likely to occur (FIN 18, Appendix E, par. 82 (not codified)) Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 19

20 Balance sheet presentation How should income tax balance sheet accounts be adjusted as of interim reporting periods? No authoritative literature no specific requirement in ASC An entity should generally adjust its balance sheet in a manner that is representationally faithful to the balance sheet approach (ASC ) or the income statement approach (ASC ) Note: Consultation with attest firm is recommended Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 20

21 Internal tax controls and/or processes Post-enactment Steps in the provisions Identify perms and temps Calculate current payable Determine deferred taxes Analyze valuation allowances Account for uncertain tax positions Prepare RTP adjustment Compute total tax expense (benefit) Reconcile accounts and prepare JE Prepare rate reconciliation Prepare disclosures Interim reporting New considerations after tax reform New and removal of old permanent items lobbying expenses, M&E, GILTI inclusion impact on foreign rate differential, FDII, interest expense limitations, Section 162(m) BEAT, GILTI, AMT credits/refunds, NOL limitations Remeasured at reduced rate, DTLs on GILTI (original and reversing), indefinite reinvestment assertions, interest expense limitations, NOLs New sources of income, foreign-source income allocations, indefinite carryovers, Identification of all positive and negative evidence including updated sources of taxable income Tax reform may create new uncertain tax positions New method elections attributable to tax reform planning New line items Status of provisional amounts, when items are complete, measurement period adjustments, indefinite reinvestment assertions, subsequent events ASU , new guidance Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 21

22 Polling question #2 For this coming quarter, do you plan to update any SAB 118 disclosures? a) No, complete on all elements at year end b) No updates for this quarter expected c) Yes, additional elements have been completed d) Yes, updating provisional amounts e) Don t know/not applicable Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 22

24 Targeted improvements to accounting for hedging activities Effective date and transition Effective Dates: PBEs: Fiscal years beginning after 12/15/18 and interim periods therein All others: Fiscal years beginning after 12/15/19, interims within fiscal years after 12/15/20 Early adoption is allowed during any interim or annual period: If adopted during an interim period transition adjustments as of beginning of fiscal year Also must complete all transition elections by end of quarter of adoption Transition: Modified retrospective approach to existing hedging relationships Cash flow and net investment hedges: adjust OCI for prior ineffectiveness Effects of any modified hedge relationships also in cumulative-effect adjustment Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 24

ASU 2017-12 Targeted improvements to hedge accounting Issues discussed at 2/14/18 FASB Meeting General technical inquiries received by Staff: Transition: Entities that elect to change existing

25 ASU Targeted improvements to hedge accounting Issues discussed at 2/14/18 FASB Meeting General technical inquiries received by Staff: Transition: Entities that elect to change existing designated risk to benchmark component of contractual coupon may also rebalance existing hedge relationship May rebalance the notional of the derivative or the amount of the hedged item May not involve new derivative or new hedged item No transition provided for switching from full-term to partial-term fair value hedge Fair value hedge basis adjustment disclosures intent was to disclose adjustments that do not impact future cash flows of hedged item: Basis adjustments that do impact future cash flows, such as foreign exchange risk basis adjustments are EXCLUDED from disclosures Hedged Available-For-Sale (AFS) security: carrying amount should be amortized cost, not fair value Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 25

ASU 2017-12 Targeted improvements to hedge accounting Issues discussed at 2/14/18 FASB Meeting Definition of prepayable Qualification for last of layer approach What can be reclassified from HTM upon

26 ASU Targeted improvements to hedge accounting Issues discussed at 2/14/18 FASB Meeting Definition of prepayable Qualification for last of layer approach What can be reclassified from HTM upon adoption? Measurement of the hedged item Financial instruments meet the definition of prepayable include the following: Instruments that are currently exercisable or prepayable at any time Instruments with certain contingent prepayment features: Passage of time Occurrence of specified event Movement of an interest rate Instruments with conversion features Does NOT include acceleration due to credit Subsequent sale of HTM securities reclassified to AFS do not taint Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 26

27 ASU Targeted improvements to hedge accounting Issues discussed at 2/14/18 FASB Meeting Net investment hedge with a cross-currency interest rate swap: Cross currency basis spread is not technically an excludable component on its own, but spot method mechanics essentially exclude them Transition from forward to spot method (must de- and re-designate): Improved method of assessment Off-market swap at time of re-designation Methodology should result in only changes in spot rate in cumulative translation adjustment at end of hedge Choose a systematic and rational approach Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 27

28 ASU Targeted improvements to hedge accounting Issues being discussed Items to be discussed at future FASB meeting(s): Last of layer approach Basis adjustments Multiple layers Contractually specified components and spot purchases Changes in the hedged risk of a forecasted transaction Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 28

29 Polling question #3 When do you plan to adopt ASU ? a) We already adopted b) During the remainder of 2018 c) 2019 d) 2020 e) We don t use hedging instruments f) Don t know/not applicable Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 29

31 ASU Technical Corrections Improvements to Financial Instruments Clarifications relating to ASU (Recognition and Measurement of Financial Assets and Liabilities) Equity securities w/o readily determinable fair value, measurement alternative: Observable transaction: Remeasure as of date of observable transaction Forward or option: Remeasure to full FV if observable transaction on underlying security May change to FV: All current and future identical or similar securities of same issuer Transition for insurance entities: Prospective method should be consistently applied to all securities where measurement alternative applied FVO Liabilities Own credit to OCI: Applicable whether FVO under ASC 815 or ASC 825 F/X Denominated: Remeasure in F/X first then translate at EOP spot Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 31

32 ASU Technical Corrections Improvements to Financial Instruments Effective Date and Transition Effective Date: PBE: Fiscal years beginning after December 15, 2017, interim periods within those fiscal years beginning after June 15, 2017 Others: Fiscal years beginning after December 15, 2018, interim periods within fiscal years beginning after December 15, 2019 Transition: Cumulative effect adjustment as of beginning of fiscal year Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 32

34 New Leasing Standard Recent Developments November 2017 Board Meeting FASB Board Meeting on November 29, 2017 Consideration of implementation relief requests based on preparer feedback Concerns about ability to adopt on time Formal requests for relief from various groups FASB reluctant to defer effective date but willing to consider other relief requests Three main areas of focus Easements consideration of comments received on proposed ASU Comparative period reporting requirement in ASC 842 Separation of lease and non-lease elements from lessor perspective Proposed ASU on comparative period reporting requirements and lessor separation guidance was issued on January 5, 2018 (30 day comment period). The FASB has since met to discuss the comments received on easements and comparative period reporting. Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 34

35 New Leasing Standard Recent Developments Easements FASB agreed to move forward with a final amendment to ASC 842 Amendment will provide for the following: As a practical expedient, existing easements are not subject to ASC 842 unless already accounted for as leases under ASC 840 New or modified easements after adoption of ASC 842 should be assessed under ASC 842 Amends an example in ASC 350 (clarifies that ASC 842 must be applied first) Amendment does not: Provide guidance on accounting for easements that are not leases Provide guidance on assessing easements under ASC 842 (e.g. guidance on assessing unit of account, economic benefits, etc.) FASB reiterated that unit of account for easements is an area of judgment. We believe that there are acceptable alternatives and expect to see diversity in practice. Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 35

36 New Leasing Standard Recent Developments Comparative Period Reporting FASB agreed to move forward with a final amendment to ASC 842 Prior to the amendment, ASC 842 requires a modified retrospective transition approach, which requires recasting the comparative periods in the year of initial application FASB received request for relief from comparative period recasting Concerns about systems capabilities with respect to recasting Assertion that removing requirement would facilitate timely adoption Amendment will provide for the following optional relief: No need to restate/recast the comparative periods No need to provide ASC 842 disclosures for lease activity during comparative periods Recognize effects of applying ASC 842 as a cumulative effect adjustment to retained earnings as of adoption date (January 1, 2019 for public companies) This is a significant decision and should make transition easier for most companies. However, don t take your foot off the gas! The FASB does not appear willing to consider deferral and we are less than a year away from adoption. Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 36

37 New Leasing Standard Recent Developments Lessor Separation of Lease and Non-lease Components Lessees have an option under ASC 842 to combine lease and non-lease elements and treat as a lease Lessors are not afforded the same option Request by NAREIT to allow combination by lessors Highlighted real estate arrangement involving building lease and CAM Suggested that separation can be difficult and isn t meaningful to investors (largely a presentation and disclosure issue) FASB likely to provide optional relief, if certain conditions are met: Timing and pattern of revenue recognition for the components are the same The combined, single unit of account would be classified as an operating lease Comments on the proposed ASU are expected to be discussed at the March 28th FASB board meeting It remains unclear how useful this relief will be for arrangements outside of real estate. For example, some board members suggested that it would not be available to a lessor providing drilling services but they did not explain the basis for that view. Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 37

38 New Leasing Standard Recent Developments Rejected requests FASB received other requests which were ultimately rejected: Remove from scope arrangements with 100% variable lease payments Remove short-term leases from scope (i.e. eliminate the required disclosures) Allow different methods of accounting and reporting for FX leases Change lease classification requirements for land-only leases Remove requirement to assume collateral when developing lessee IBR Reduce disclosure burden on private companies Firm guidance on developing lessee IBR collateral considerations: Start with company s credit-adjusted recourse borrowing rate and add the effect of collateral (recourse rate should serve as a cap in most cases) Assume full collateralization Nature of collateral can vary does not have to be the leased asset Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 38

39 Polling question #4 Which of the FASB s proposed amendments will be most impactful to your company s adoption of ASC 842? a) Transition practical expedient for existing easements b) Elimination of the requirement to restate comparative periods c) Granting a lessor option to combine lease and non-lease elements d) The proposed amendments will not have a meaningful impact e) Other f) Don t know/not applicable Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 39

41 Anticipated transition method Percentage of SEC registrants that disclosed their transition method in their most recent SEC filings: 13% 12% Full Retrospective Modified Retrospective Undecided/Other 75% Note: Based on public filings made by nearly 1,000 SEC registrants as of December 31, 2017, of which 29 have early adopted. Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 41

42 Observations from early adopters The required comprehensive disclosures are likely to significantly affect an entity s financial statements regardless of its effect on recognition patterns. Diversity in the type and amount of information entities have disclosed. Many early adopters chose to add a separate and specific revenue footnote that contains the required disclosures. When providing disaggregated revenue disclosures, the majority used three or fewer categories. The most commonly selected categories were (1) timing of transfer of goods and services and (2) product lines. Most early adopters elected multiple practical expedients related to the disclosures specifically, those related to remaining performance obligations. Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 42

43 Considerations for private companies Private companies are provided with relief in two areas related to the new revenue standard: Mandatory effective date (annual reporting periods beginning after December 15, 2018, and interim periods thereafter) Disclosures Disclosure practical expedients include: Private companies are only required to disaggregate revenue based on the timing of transfer of goods or services (i.e., point in time versus over time). Not required to disclose information about remaining performance obligations, contract costs, or practical expedients used. Partial relief for disclosures related to a private company s significant judgments used in applying the standard. Keep in mind, the recognition and measurement principles in the new revenue standard are the same for public and private companies. Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 43

45 Classification of debt in a classified balance sheet Current vs. Noncurrent Exposure draft issued 1/10/17, comments due 5/5/17 Debt should be classified as noncurrent if either: Liability is contractually due to be settled more than one year (or operating cycle) after balance sheet date Entity has a contractual right to defer settlement more than one year (or operating cycle) after balance sheet date Contractual right is not limited to right with same lender Based on facts as of balance sheet date: Covenant waiver exception Subjective acceleration clauses impact classification when triggered Disclosures relating to any events of default Effective date first annual period after issuance (early adoption permitted) Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 45

46 Classification of debt in a classified balance sheet Current vs. Noncurrent Covenant waiver exception (must meet all): Debt would have qualified for noncurrent, absent covenant violation Waiver is for more than one year (or operating cycle) Waiver is not a TDR or extinguishment Not probable other covenants will be violated within one year (or operating cycle) Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 46

47 Derivatives and Hedging Inclusion of SOFR rate as benchmark interest rate for hedge accounting purposes Exposure draft issued 2/20/18, comments due 3/30/18 Relevant for fair value hedging Current benchmark rates: Treasury LIBOR Fed Funds (including OIS) SIFMA Municipal Swap Rate Proposal to add: Overnight Index Swap Rate based on Secured Overnight Financing Rate (SOFR) Effective Date:? Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 47

48 Distinguishing liabilities from equity Including convertible debt 9/20/17: Board added project to agenda 12/13/17: Board discussed project plan Today s complexity: Meaning of indexed to the entity s own stock Should current fixed-for-fixed principle be replaced? Can anything be borrowed from current ASC 480 model? Many different models for convertibles Bifurcation under ASC 815 Cash convertibles Beneficial conversion features Traditional convertible Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 48

50 Cloud Computing Background of EITF Project ASU clarifies the circumstances in which a customer in a cloud computing arrangement would account for the arrangement as a license of internal-use software under ASC or a service contract. U.S. GAAP is not clear on how to account for the costs associated with implementation activities related to cloud computing arrangements that are considered service contracts (i.e., not within scope of ASC ). The lack of clarity led to the FASB adding to the EITF s agenda a narrow-scope project on the accounting for implementation costs in a hosting/service arrangement. In October 2017, the EITF met and agreed to certain tentative decisions on this issue. A consensus was reached by the EITF at its January 18, 2018 meeting, and the FASB ratified the EITF s consensus on February 7, The FASB issued a proposed ASU on March 1, Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 50

51 Cloud Computing Key provisions of the proposed ASU Key provisions of the proposed ASU: Align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with those for capitalizing implementation costs incurred to develop or obtain internal-use software. Apply ASC to determine which implementation costs should be capitalized. Costs that are part of a software intangible asset should be capitalized under ASC Determine which project stage an implementation activity relates to determine whether the costs should be capitalized. Capitalized implementation costs should be expensed over the term of the hosting arrangement, which may include renewal and termination periods (similar to ASC 842). Comments on the proposed ASU are due by April 30, Stay tuned for future updates! Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 51

52 Polling question #5 Which team would you like to see win the NCAA Men s Championship? Kansas Loyola Chicago Michigan Villanova Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 52

54 Join us April 19 at 2 p.m. ET as our Financial Reporting series presents: Lease accounting: Ready or not the countdown is on Copyright 2017 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 54

55 Eligible viewers may now download CPE certificates. Click the CPE icon in the dock at the bottom of your screen. CPE Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 55

56 Contact information Bob Uhl Partner Deloitte & Touche LLP Connect with me on LinkedIn Peggy Cullen Partner Deloitte & Touche LLP Connect with me on LinkedIn Jon Howard Partner Deloitte & Touche LLP Connect with me on LinkedIn Lauren Hegg Manager Deloitte & Touche LLP Connect with me on LinkedIn Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 56

57 Acronyms used in presentation AFS-Available for Sale AMT-Alternative Minimum Tax AOCI- Accumulated Other Comprehensive Income APB-Accounting Principles Board API American Petroleum Institute ASC Accounting Standards Codification ASU Accounting Standards Update BEAT-Base Erosion and Anti-Abuse CAM Common Area Maintenance DTA-Deferred Tax Asset DTL-Deferred Tax Liability E&P-Earnings and Profits EITF Emerging Issues Task Force EOP End of Period FDII-Foreign Derived Intangible Income FEI Financial Executives International FV Fair Value FVO Fair Value Option FTC-Foreign Tax Credit FX Foreign Currency GAAP Generally Accepted Accounting Principles GILTI Global Intangible Low-Taxed Income HTM-Held to Maturity IBR Incremental Borrowing Rate LIBOR London Interbank Offered Rate M&E-Meals and Entertainment NAREIT National Association of Real Estate Investment Trusts NOL-Net Operating Loss OCI Other Comprehensive Income OIS-Overnight Index Swap PBE Public Business Entity PY-Prior Year SAB Staff Accounting Bulletin SEC Securities and Exchange Commission SIFMA Securities Industry and Financial Markets Association TBBS Tax Basis Balance Sheet YTD-Year to Date Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 57

58 Resources U.S. Tax Reform Insights FRA 18-1 FRA 18-2 Roadmap Accounting for Income Taxes (2017) IFRS in Focus Accounting for the effects of the U.S. tax reform legislation under IFRS Heads Up FASB Issues Proposed ASU on Cloud Computing Arrangements Heads Up - In the Spirit of Full Cybersecurity Disclosure Heads Up - Observations From a Review of Public Filings by Early Adopters of the new Rev Standard Roadmap Series EITF Snapshot January 2018 Heads Up - FASB Tentatively Decides to Relieve Entities From Implementing Certain Aspects of the New Leasing Standard Heads Up - FASB Proposes Changes to Simplify the Balance Sheet Classification of Debt Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 58

59 This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. Copyright 2018 Deloitte Development LLC. All rights reserved. Quarterly accounting roundup: 59

About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities.

60 About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a detailed description of DTTL and its member firms. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright 2018 Deloitte Development LLC. All rights reserved. 36 USC

Quarterly accounting roundup: An update on Q important developments The Dbriefs Financial Reporting series

Quarterly accounting roundup: An update on Q2 2017 important developments The Dbriefs Financial Reporting series Robert Uhl, Partner, Deloitte & Touche LLP Chris Chiriatti, Managing Director, Deloitte