Third Quarter 2013 Accounting, Reporting and Auditing Developments. A&A Updates

Transcription

1 Third Quarter 2013 Accounting, Reporting and Auditing Developments A&A Updates Issue October 9, 2013

2 Contents Accounting and Financial Reporting Matters... 1 FASB... 1 Accounting Standards Updates...1 Leases...1 Revenue Recognition...2 Accounting for Financial Instruments...2 Insurance Contracts...3 Private Company Council...3 Other...3 SEC... 4 Dodd-Frank Rulemaking Activity...4 Other Rulemaking Activity...5 Other...5 Effective Dates Highlights... 7 Assurance Matters PCAOB Auditing Standards Other AICPA Center for Audit Quality Appendix A Matters discussed in previous Quarterly Updates FASB - Accounting Standards Updates GASB SEC Final Rules SEC Other AICPA Financial Reporting Framework for SMEs (Non-GAAP) i

3 Contents Technical Q&A (Accounting) Technical Q&A (Auditing) PCAOB Center for Audit Quality COSO ii

4 Contents THIRD QUARTER 2013 ACCOUNTING AND ASSURANCE UPDATE The developments included in this update are intended to be a reminder of recently issued accounting and auditing standards and other guidance that may affect our clients in the current reporting period. Developments that have been discussed in previous A&A updates that may be of interest can be found in Appendix A. This discussion is not intended to be all-inclusive dhgllp.com 2013 by Dixon Hughes Goodman LLP. All rights reserved. Permission is granted to view, store, print, reproduce and distribute any pages of this Newsletter provided that (a) no page is modified and (b) this page is included with any distribution. Disclaimer: This publication has been prepared by the Dixon Hughes Goodman LLP Professional Standards Group and contains information in summary form and is therefore intended for general guidance only; it is not intended to be a substitute for detailed research or the exercise of professional judgment. You should consult with Dixon Hughes Goodman LLP or other professional advisors familiar with your particular factual situation for advice concerning specific audit, tax or other matters before making any decision. To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. iii

5 Accounting and Financial Reporting ACCOUNTING AND FINANCIAL REPORTING MATTERS FASB Accounting Standards Updates ASU : Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes (a consensus of the FASB Emerging Issues Task Force) This Update permits the Overnight Index Swap Rate (OIS), also referred to as the Fed Funds Effective Swap Rate, to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to interest rates on direct Treasury obligations of the U.S. Government (UST) and the London Interbank Offering Rate (LIBOR). The Update also removes the restriction on using different benchmark rates for similar hedges. This Update is effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, ASU : Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) The objective of this Update is to reduce the diversity in practice by providing guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. The main provision of the Update provides that unrecognized tax benefits (or the portion of the benefit) should be presented as a reduction to a deferred tax asset for a NOL carryforward, a similar tax loss, or a tax credit carryforward; unless one of the following criteria are met: the NOL carryfoward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to be used to settle additional income taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose If one of the previous conditions is met the unrecognized tax benefit, or portion thereof that meets the criteria, should be presented as a liability, rather than netted against the deferred tax asset. The assessment should be performed based on the unrecognized tax benefit and deferred tax asset existing as of the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. Leases The comment period for the FASB and IASB May 2013 revised joint exposure drafts (EDs) on lease accounting ended September 13, Constituents expressed various concerns about the cost and complexity of the proposals compared to the expected benefit to financial statement users. The FASB s Investment Advisory Committee did not support the FASB s ED because they do not view that it is an improvement to current accounting. On the other hand, credit analysts that the Boards consulted 1

6 Accounting and Financial Reporting generally supported the changes being proposed, particularly recording leased assets and lease obligations in the balance sheet. The Boards are holding additional roundtable discussions and plan to begin redeliberations during the fourth quarter For additional information summarizing key provisions of the May 2013 FASB ED, refer to the Dixon Hughes Goodman A&A Update, Revised Lease Exposure Draft. Revenue Recognition The Boards have substantively completed their redeliberations for the revenue recognition project and are expected to issue a final standard in the fourth quarter, but ongoing discussions around the drafting of the final standard could delay the release until the first quarter When the Boards met in September 2013 their discussions revolved primarily around fine tuning the wording of the final draft, including requesting the FASB staff to evaluate guidance around collectability, constraint and licenses. The Boards also announced their plans to create a joint transition revenue recognition resource group, which will be comprised of preparers, auditors, regulators, users, and other stakeholders. The group will convene following the issuance of the final revenue recognition standard and will inform the Boards about various interpretative issues that arise in practice, but the group will not issue any guidance of its own. Most of the group s activities will be completed by 2017, when the standard is expected to take effect. Accounting for Financial Instruments The accounting for financial instruments projects of the FASB and IASB include three main components: 1. Classification and measurement, 2. Credit Impairment, and 3. Hedge accounting (FASB redeliberations have not started) Classification and Measurement The FASB issued an ED in February 2013 on the recognition, classification, measurement, and presentation of financial instruments, which was significantly changed from the original 2010 ED. The FASB and the IASB began joint redeliberations in September 2013 based on the feedback received and will continue those redeliberations in subsequent meetings. Currently, the FASB does not expect to issue a final standard until the first half of Credit Impairment On December 20, 2012, the FASB issued an ED on accounting for credit losses. The FASB and IASB initially developed and agreed on a three-bucket approach to impairment; however, while the IASB decided to retain this approach, the FASB abandoned this approach in favor of using a simpler current expected credit loss model (one-bucket model). In this approach, when estimating the loss, the allowance would reflect the current estimate of contractual cash flows not expected to be collected on financial assets. The threshold for recognizing losses has been removed, which is in contrast to current guidance (where the threshold of probable is required before a loss is recognized); as the FASB believes the threshold may have interfered with the timely recognition of credit losses (which would overstate assets) during the recent global economic crisis. The primary difference between the FASB and the IASB s proposed credit impairment recognition approaches results from the threshold used to measure expected losses. The IASB is proposing different measurement approaches to estimating credit losses, which vary based on the significance of credit deterioration. The Boards have begun their redeliberations based on the comments received in response to each of their proposals. 2

7 Accounting and Financial Reporting Insurance Contracts In June 2013, the FASB (as part of a joint project with the IASB) issued an ED on insurance contracts. Existing guidance for insurance contacts has evolved over the years leading to some inconsistencies in U.S. GAAP. Furthermore, the current guidance only applies to insurance entities, rather than to those entities that issue insurance-like contracts. Under the proposed ED the guidance would apply to all insurance contracts, as defined in the ED, rather than exclusively to insurance entities. The proposed update would supersede guidance in Topic 944, Financial Services Insurance. Two models are included in the ED for the measurement of insurance contacts: the building block approach (applicable to most life, annuity, and long-term health contracts) and the premium allocation approach (applicable to most property, liability, and short-term health contracts, as well as some guarantees and service contracts). The objective is to provide greater consistency in the financial reporting across various entities with similar contracts in order to assist users in understanding the insurance liabilities of an entity. The ED is available on the FASB s website and the comment period ends on October 25, Private Company Council The comment period has ended for the first three Private Company Council (PCC) proposals to provide less complex accounting alternatives for private companies in the areas of accounting for intangibles acquired in a business combination, goodwill, and certain interest rate swaps. In August 2013, the FASB endorsed an additional PCC proposal for applying variable interest entity (VIE) guidance to common control leasing arrangements. The proposed alternative would allow a private company to make an accounting policy election to not apply the VIE guidance regarding the evaluation of lessor entities under common control. Additional disclosures about the lessor would be required including the key terms of the leasing arrangement, the amount of debt and/or significant liabilities of the lessor, and the key terms of any other explicit interest related to the lessor. The alternative, if elected, would be applied retrospectively. The comment period ends October 14, 2013 and the effective dates will be determined after feedback is received. The FASB released an ED defining a public business entity on August 7, Entities that meet the definition of a public business entity would be scoped out from applying provisions proposed by the PCC, while entities that do not meet the definition could apply the alternatives (with the exception of not-forprofits and employee benefit plans, in which a determination will be made on a standard by standard basis). Comments on the proposed definition of a public business entity were due by September 20, In September 2013, the FASB decided to direct the Board s staff to draft a proposed ASU to eliminate inception-to-date information from the financial statements of development stage entities (public and private companies). This project was added to the Board s agenda in July 2013 based on the recommendation of the PCC. Other Effective July 1, 2013, Russell Golden became chairman of the FASB after the retirement of Leslie Siedman. In addition, James Kroeker, former SEC Chief Accountant, was named vice-chairman of the FASB effective September 1, The vice-chairman position was reinstated to ease the growing demands on the FASB chairman. 3

8 Accounting and Financial Reporting The 2014 proposed U.S. GAAP Financial Reporting Taxonomy is now available for public comment at the FASB s website. The Taxonomy contains updates for accounting standards and other improvements that have been implemented since the 2013 Taxonomy. The Taxonomy is used by issuers filing with the U.S. Securities and Exchange Commission. Comments are due by October 31, SEC Dodd-Frank Rulemaking Activity Release , Registration of Municipal Advisors Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act ( Dodd-Frank ) municipal advisors must register with the Securities and Exchange Commission ( SEC ). This final rule extends registration under a temporary rule through December 31, 2014 until a permanent registration process is established by the SEC. Furthermore, the new forms and rules included in this amendment require the SEC to establish a registration process and maintain certain record-keeping requirements on such advisors. Effective Date: Various dates depending on advisor s previous status, see section V. Implementation and Compliance Dates of the final rule. Release , Financial Responsibility for Broker-Dealers In July the SEC adopted a final rule regarding the financial responsibility requirements for broker-dealers. Net capital, customer protection, books and records, and notification rules for broker-dealers were amended to address several areas of concern. Effective Date: October 21, Release , Broker-Dealer Reports This amendment is being made to modify certain broker-dealer annual reporting, audit, and notification requirements. Broker-dealers must obtain audits performed in accordance with standards of the PCAOB. Furthermore, for broker-dealers that carry customer accounts or clear transactions the broker-dealer must agree to allow either the SEC or the designated examining authority to review and discuss the audit and related documentation with the independent public accountant during a regulatory examination. A new form will be required for broker-dealers to provide information regarding the custody of securities and funds of customers and non-customers to their designated examining authority. In addition to the release, the staff of the SEC published a Small Entity Compliance Guide summarizing and explaining the rules. Effective Date: June 1, 2014, except the amendment to a-5(e)(5), which is effective October 21, 2013 and the amendments to a-5(a) and (d)(6) and , which are effective December 31, Release , Rescission of Supervised Investment Bank Holding Company Rules Pursuant to Dodd-Frank the SEC is rescinding rules which established the SEC s program for supervising investment bank holding companies as well as certain provisions in its broker-dealer risk assessment and delegation of authority rules. Effective Date: July 18,

9 Accounting and Financial Reporting Release , Disqualification of Felons and Other Bad Actors from Rule 506 Offerings Pursuant to Dodd-Frank the SEC is prohibiting securities offerings involving certain felons and other bad actors from reliance on Rule 506 of Regulation D. Effective Date: September 23, Proposal Stage Rule On August 28, 2013 the SEC, Office of the Comptroller of the Currency, Federal Reserve, Federal Deposit Insurance Corporation, Federal Housing Finance Agency and the Department of Housing and Urban Development jointly proposed a rule to implement certain credit risk retention requirements of Dodd-Frank. The rule would require the securitizer of asset-backed securities to retain not less than 5 percent of the credit risk of the assets collateralizing the asset-backed securities. Various exemptions have been included in the proposed rule including qualifying residential mortgage asset-backed securities provided they meet certain criteria proposed in the rule. Comments are due by October 30, Other Rulemaking Activity Release , Retail Foreign Exchange Transactions In this final rule (which is substantially the same rule that was previously interim final temporary Rule 15b12-1) registered broker-dealers are permitted to engage in foreign exchange transactions if they comply with the Securities Exchange Act of 1934 as well as the rules of the applicable self-regulatory organizations of which the broker-dealers is a member. Effective Date: July 16, Release , Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings This final rule is pursuant to the implementation of certain provisions of Jumpstart Our Business Startups Act (JOBS Act) in which issuers are now permitted to engage in general solicitation and general advertising in offering securities. All purchasers must be accredited investors; furthermore, this rule requires the issuer to take reasonable steps to verify that such purchasers are accredited investors, several examples are provided as to how an entity may meet this requirement. Form D is also being revised to report when issuers are using the provisions of this rule allowing general solicitation and advertising in a Rule 506 offering. In addition to the release, the staff of the SEC published a Small Entity Compliance Guide summarizing and explaining the rules. Effective Date: September 23, Adoption of Updated EDGAR Filer Manual Several revisions have been made to the EDGAR Filer Manual in the third quarter of The Filer Manual is available on the SEC s website. Other On July 2, 2013 the SEC announced three new initiatives to focus on high-risk areas of the market and provide technological and analytical resources to the Division of Enforcement s investigations. The initiatives include: A Financial Reporting and Audit Task Force that will be focused on fraudulent or improper financial reporting 5

10 Accounting and Financial Reporting The Microcap Fraud Task Force that will be focused on fraud and abusive trading of securities issued by microcap companies The Center for Risk and Quantitative Analytics that will be focused on analysis to assist the Division of Enforcement in profiling high-risk behaviors and transactions. The most recent Financial Reporting Manual can be found on the SEC s website. At the time this document was prepared, the most recent version was updated July 16, 2013 for revisions through March 31,

11 Effective Dates Highlights EFFECTIVE DATES HIGHLIGHTS Accounting Standards Update ASU : Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ASU : Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes ASU :Fair Value Measurement: Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No ASU : Financial Services Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements ASU : Liquidation Basis of Accounting ASU : Not-for-Profit Entities (Topic 958): Services Received from Personnel of an Affiliate ASU , Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ASU , Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date ASU , Financial Instruments (Topic 825): Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities ASU , Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ASU , Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs Public Entities Fiscal years, and interim periods within those years, beginning after December 15, 2013 Effective Date Nonpublic Entities Fiscal years, and interim periods within those years, beginning after December 15, 2014 Early Adopt? Transition Prospective or Retrospective (1) Qualifying new or redesignated hedging relationships entered into on or after July 17, 2013 Prospective Only applicable to nonpublic entities Upon issuance Prospective Interim and annual reporting periods in fiscal years beginning after December 15, 2013 Prospective Annual reporting periods beginning after December 15, 2013 and interim reporting periods therein. Prospective Fiscal years beginning after June 15, 2014, and interim and annual periods thereafter. Fiscal years, and interim periods within those years, beginning after December 15, 2013 Fiscal years, and interim periods within those years, beginning after December 15, 2013 Reporting periods beginning after December 15, 2012 Impairment assessments performed on or after December 15, 2012 The first annual period beginning after December 15, 2014, and interim and annual periods thereafter Fiscal years ending after December 15, 2014, and interim and annual periods thereafter Prospectively (2) Prospective (3) Retrospective (4) Upon issuance Prospective Reporting periods beginning after December 15, 2013 Impairment assessments performed on or after December 15, 2013 (5) Prospective Prospective 7

12 Effective Dates Highlights Accounting Standards Update ASU No , Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government- Assisted Acquisition of a Financial Institution ASU No , Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows ASU No , Testing Indefinite- Lived Intangible Assets for Impairment ASU , Continuing Care Retirement Communities Refundable Advance Fees ASU , Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities ASU No , Disclosures about Offsetting Assets and Liabilities ASU No , Derecognition of in Substance Real Estate ASU No , Disclosures about an Employer s Participation in a Multiemployer Plan ASU No , Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities ASU No , Fees Paid to the Federal Government by Health Insurers ASU No , 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 ASU No , Presentation of Comprehensive Income Public Entities Effective Date Nonpublic Entities Early Adopt? Transition Fiscal years, and interim periods within those years, beginning after December 15, 2012 Prospective Fiscal years, and interim periods within those years, beginning after June 15, 2013 (6) Retrospective or Prospective Fiscal years beginning after September 15, 2012 Prospective Annual periods beginning after December 15, 2012 Annual periods beginning after December 15, 2013 Retrospective Annual periods beginning on or after January 1, 2013 and interim periods within those annual periods Retrospective Fiscal years, and interim periods within those years, beginning on or after June 15, 2012 Annual periods ending after December 15, 2011 Fiscal years, and interim periods within those years, beginning after December 15, 2011 Annual periods ending after December 15, 2013 and interim and annual periods thereafter Prospective Annual periods ending after December 15, 2012 Retrospective Annual periods ending after December 15, 2012 and interim and annual periods thereafter Retrospective (7) Calendar years beginning after December 31, 2013 Prospective Fiscal years, and interim periods within those years, beginning after December 15, 2011 Fiscal years ending after December 15, 2012 and interim and annual periods thereafter Retrospective ASU No , A Creditor s Determination of Whether a Restructuring Is a Troubled Debt Restructuring Interim or annual periods beginning on or after June 15, 2011 Annual periods ending on or after December 15, 2012, including interim periods within those annual periods Retrospective (8) 8

13 Effective Dates Highlights (1) Prospective application should be applied to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. (2) A recipient not-for-profit may apply the amendments using a modified retrospective approach under which all prior periods presented upon the date of the adoption should be adjusted, but no adjustment should be made to the beginning balance of net assets of the earliest period presented. (3) If an entity elects to early adopt the amendments, it should apply them as of the beginning of the entity s fiscal year of adoption. (4) The amendments in this Update should be applied retrospectively to all prior periods presented for those obligations resulting from joint and several liability arrangements within the Update's scope that exist at the beginning of an entity's fiscal year of adoption. An entity may elect to use hindsight for the comparative periods (if it changed its accounting as a result of adopting the amendments in this Update) and should disclose that fact. Early adoption is permitted. (5) Earlier application is permitted, including for impairment assessments performed as of a date before October 24, 2012, if, for SEC filers, the entity s financial statements for the most recent annual or interim period have not yet been issued or, for all other entities, have not yet been made available for issuance. (6) Early adoption from the beginning of the fiscal year of adoption is permitted. For fiscal years beginning before October 22, 2012, early adoption is permitted only if an NFP s financial statements for those fiscal years and interim periods within those years have not been made available for issuance. (7) Except for disclosures to be provided prospectively. (8) Retrospective application to the beginning of the annual period of adoption. 9

14 Assurance Matters ASSURANCE MATTERS PCAOB Auditing Standards Auditing Standard No. 16, Communications with Audit Committees. The SEC approved AS 16 on December 17, AS 16 establishes requirements that enhance the relevance and timeliness of the communications between the auditor and the audit committee, and is intended to foster constructive dialogue between the two on significant audit and financial statement matters. The standard is effective for public company audits of fiscal periods beginning on or after December 15, Other The PCAOB released a proposed rule on August 13, 2013 which would significantly change the auditor s standard report (to be distinguished from the changes proposed by the International Auditing and Assurance Standards Board). Under the proposed rule the current pass/fail model would remain; however, additional information would be included in the auditor s report, such as critical audit matters. These matters would be the most complex and difficult sections of the audit due to the extent of auditor judgment that was needed, difficulty in obtaining sufficient evidence or difficulty in forming an opinion on the financial statements. An explanation as to why they were considered critical audit matters would be provided along with reference to the applicable financial statement accounts and disclosures. Additional information would be included in the auditor s report such as duration the firm has provided assurance services, information about the firm s independence and further descriptions of the auditor s responsibilities. The proposed rule includes new requirements aimed at improving auditor s procedures and increasing the auditor s responsibilities regarding other information (information in a company s annual report filed with the SEC that also contains audited financial statements). Comments are due by December 11, AICPA The AICPA updated its Audit and Accounting Guides for Brokers and Dealers in Securities and Construction Contractors. The Auditing Standards Board has issued a proposed Statement on Standards for Attestation Engagements titled, Attestation Standards: Clarification and Recodification, as part of the AICPA s larger project to address concerns over the clarity, length, and complexity of its standards. The guidance is organized to mirror that of the International Auditing and Assurance Standards Board s attestation standards and is categorized in chapters based on whether the guidance applies to all attestation engagements (chapter 1) or certain types of engagements (chapters 2-4). The most significant changes include: Required assertion in examinations and reviews Required representation letters in examinations and reviews Risk assessment for examination engagements Incorporation of detailed requirements Separate discussion of review engagements, and Scope limitation imposed by the engaging party or the responsible party. The comment period ends October 24,

15 Assurance Matters Center for Audit Quality The CAQ s SEC Regulations Committee regularly meets with the staff of the SEC to discuss emerging financial reporting issues related to SEC rules and regulations. The CAQ has posted highlights from the June 18, 2013 meeting; items discussed include: Guidance provided by the SEC s Division of Corporate Finance regarding disclosures around cybersecurity attacks and risks. New Compliance and Disclosure Interpretations issued in May of 2013 by the SEC s Division of Corporate Finance. Questions that continue to arise regarding the JOBS Act around the application of the provisions of the Act under specific fact patterns. During 2012 the SEC published several Frequently Asked Questions to provide guidance on implementation. The SEC does not anticipate issuing additional FAQs unless they receive questions that have general applicability. Ideas discussed at the May 1, 2013 meeting of the SEC Advisory Committee on Small and Emerging Companies to improve trading activity and assist in capital formation for smaller companies. The FAQs issued by the SEC for Conflict Minerals and Disclosures of Payments by Resource Extraction Issuers. The revised COSO framework issued in May The status of the roundtables regarding the FASB s financial disclosure project (in which the timing for those discussions has not been established). The application of providing pro forma information in a significant disposition for smaller reporting companies (as contained in Article 8 of Regulation S-X) and available guidance. With the FASB s expected final revenue recognition standard by the end of 2013, areas that may be affected outside of the financial statements by the changes. They also noted the SEC Staff expected that registrants will be required to disclosure the transition method when selected, even though the likely effective date will not be before The adoption of a new accounting standard that requires retrospective application during an interim period and the application of Rule 3-09 of Regulation S-X in a registration statement during that period. The full summary of the meeting has been posted on the CAQ s Web Site. 11

16 Appendix A Matters discussed in previous Quarterly Updates APPENDIX A MATTERS DISCUSSED IN PREVIOUS QUARTERLY UPDATES FASB - Accounting Standards Updates ASU : Receivables (Topic 310): A Creditor s Determination of Whether a Restructuring Is a Troubled Debt. The Update clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. Note that this Update also addresses the deferral of the disclosures required by ASU relating to troubled debt restructurings. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. For nonpublic entities, the amendments to the Codification in the Update are effective for annual periods ending on or after December 15, 2012, including interim periods within those annual periods. Early application is permitted. ASU : Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The amendments in this Update allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this Update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this Update should be applied retrospectively. ASU , discussed below, delayed the effectiveness of the provisions of this ASU requiring the presentation on the face of the income statement of the components of net income that are being reclassified from accumulated other comprehensive income. ASU , discussed below, finalized the reporting requirements for reclassifications out of accumulated other comprehensive income (AOCI). The remaining provisions of ASU were not deferred. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. For issuers previously reporting other comprehensive income and total comprehensive income in the shareholders equity statement that file a registration statement after reflecting adoption of the provisions of this Update in their first quarter 10-Q, you are reminded that Regulation S-X requires the annual audited financial statements to be revised to reflect retrospective application of this accounting change (if material). While this is typically done via filing the required revised audited financial statements on a Form 8-K or an amended Form 10-K, the SEC Staff indicated during its September 2011 meeting with the CAQ SEC Regulations Committee that they would not object if the registrant concludes and its auditor agrees that there is no need to retrospectively revise previously issued annual audited financial statements incorporated by reference in the filing, as long as the filing includes prominent transparent disclosure (e.g. in a selected financial data type table) of the primary components of a statement of comprehensive income. See the minutes of the September 27, 2011 meeting at the Center for Audit Quality website for additional information. 12

17 Appendix A Matters discussed in previous Quarterly Updates ASU : Other Expenses (Topic 720): Fees Paid to the Federal Government by Heath Insurers. The amendments in this Update specify that the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that is payable. Additionally, this Update indicates that the fee would not meet the definition of an acquisition cost, as defined in ASU The amendments in this update are effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective. ASU : 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. The amendments in this Update require certain health care entities to change the presentation of their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts), as well as to provide enhanced disclosures about policies for recognizing revenue and assessing bad debts. The amendments also require disclosures of patient service revenue (net of contractual allowances and discounts) as well as qualitative and quantitative information about changes in the allowance for doubtful accounts. For public entities, the amendments in this Update are effective for fiscal years and interim periods within those fiscal years beginning after December 15, For nonpublic entities, the amendments are effective for the first annual period ending after December 15, 2012, and interim and annual periods thereafter. Early adoption is permitted. ASU : Compensation Retirement Benefits Multiemployer Plans (Subtopic ). For employers that participate in multiemployer pension plans, the amendments in this Update require an employer to provide additional quantitative and qualitative disclosures. The amended disclosures provide users with more detailed information about an employer s involvement in multiemployer pension plans, including the level of the employer s participation in significant multiemployer plans, the financial health of the plans, including an indication of the funded status, and the nature of employer commitments to the plan. For public entities, the amendments are effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. For nonpublic entities, the amendments are effective for annual periods for fiscal years ending after December 15, 2012, with early adoption permitted. The amendments should be applied retrospectively for all prior periods presented. ASU : Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate a Scope Clarification. The objective of this Update is to resolve the diversity in practice about whether the guidance in Subtopic , Property, Plant, and Equipment -- Real Estate Sales, of Topic 360, applies to a parent that ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary s nonrecourse debt. This Update provides that when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary s nonrecourse debt, the reporting entity should apply the guidance in Subtopic to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic , the reporting entity would continue to include the real estate, debt, and the results of the subsidiary s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. The amendments should be applied on a prospective basis to deconsolidation events occurring after the effective date; with prior periods not adjusted even if the reporting entity has continuing 13

18 Appendix A Matters discussed in previous Quarterly Updates involvement with previously derecognized in substance real estate entities. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning on or after June 15, For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted. ASU : Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this Update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This Update affects all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either Section or Section or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements amend the disclosure requirements on offsetting in Section This information is intended to enable users of an entity s financial statements to evaluate the effect or potential effect of netting arrangements on an entity s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this Update. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. ASU : 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 The amendments in this Update are effective at the same time as the amendments in ASU No , so that entities will not be required to comply with the presentation requirements in ASU No that this Update is deferring. The amendments are being made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No All other requirements in ASU No are not affected by ASU No , including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities are required to apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, Nonpublic entities are required to apply these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. As discussed in the FASB s other developments below, the FASB issued an ED to address the reasons for this deferral. ASU : Health Care Entities (Topic 954) Continuing Care Retirement Communities Refundable Advance Fees. The amendments in the Update clarify that a health care entity should classify an advance fee as deferred revenue when a continuing care retirement community has a resident contract that provides for payment of the refundable advance fee upon reoccupancy of a unit by a subsequent resident, which is limited to the proceeds of reoccupancy. Refundable advances that are contingent upon reoccupancy by a subsequent resident but are not limited to the proceeds of reoccupancy should be accounted for and reported as a liability. For public entities (including conduit bond obligors), the amendments are effective for fiscal periods beginning after December 15, 2012, with early adoption permitted. For nonpublic entities, the amendments are effective for fiscal periods beginning after December 15, 2013, with early adoption permitted. The amendments should be applied retrospectively by recording a cumulative-effect adjustment to opening retained earnings (or unrestricted net assets) as of the beginning of the earliest period presented. 14

19 Appendix A Matters discussed in previous Quarterly Updates ASU : Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The amendments in the Update are intended to reduce cost and complexity by providing an entity the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test. The Update also enhances consistency of impairment testing guidance among long-lived asset categories by permitting entities to assess qualitative factors to determine whether it is necessary to calculate the asset s fair value when testing for impairment, which is equivalent to the impairment testing requirements for other longlived assets. In conducting a qualitative assessment, an entity should consider the extent to which relevant circumstances and events, both individually and in the aggregate, could have affected the significant inputs used to determine the fair value of the indefinite-lived intangible asset since the last assessment. Consideration should also be given as to whether there have been changes to the carrying amount of the indefinite-lived intangible asset when evaluating whether it is more likely than not that the indefinite-lived asset is impaired. Positive and mitigating events and circumstances that could affect its determination of whether it is more likely than not that the indefinite-lived asset is impaired should also be considered. Examples are provided in the Update. The Update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012 (date of issuance of this Update), if a public entity s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. ASU : Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows. The amendments in this Update require a not-for-profit entity ( NFP ) to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash. Accordingly, the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities unless the donor restricted the use of the contributed resources to long-term purposes, which would change the classification to financing activities. Otherwise, cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities by the NFP. The amendments in this Update are effective prospectively for fiscal years, and interim periods within those years, beginning after June 15, Retrospective application to all prior periods presented upon the date of adoption is permitted. Early adoption from the beginning of the fiscal year of adoption is permitted. For fiscal years beginning before October 22, 2012, early adoption is permitted only if an NFP s financial statements for those fiscal years and interim periods within those years have not yet been made available for issuance. ASU : Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution. The Emerging Issues Task Force concluded that the amendments in this Update should resolve current diversity in practice on the subsequent measurement of indemnification assets recognized as a result of a government-assisted acquisition of a financial institution. When a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs, the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (i.e. the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). For public and nonpublic entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after December 15, Early 15