הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

Transcription

1 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים חדשות ועדכונים מרשות ניירות ערך בארצות הברית )SEC( רונן מנשס, שותף, ראש המחלקה המקצועית 12 בדצמבר 2016

2 Agenda Major FASB Pronouncements Revenue recognition- will be discussed thoroughly in the next panel Leases Employee share-based payment accounting Credit losses Financial Instruments classification and measurement Simplifying the transition to the equity method of accounting Statement of cash flows Going concern Software development costs Page 2 December 2016 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

3 Agenda (cont.) SEC Staff Focus Area Management s discussion and analysis )MD&A( Non-GAAP financial measures PCAOB update Transparency rules Auditor s reporting model Page 3 December 2016 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

4 Major FASB Pronouncements Page 4 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

5 Effective date matrix Public entities- calendar year-end entities Final FASB pronouncements ASC 606 Revenue from Contracts with Customers ASU Leases (Topic 842) ASU Compensation- Stock Compensation (Topic 718) ASU Financial Instruments - Credit Losses (Topic 326) ASU Financial Instruments - Overall (Subtopic ) ASU Investments - Equity Method and Joint Ventures (Topic 323) ASU Statement of Cash Flows (Topic 230) ASU Statement of Cash Flows (Topic 230), Restricted cash ASU Presentation of Financial Statements- Going Concern (Subtopic ) Mandatory effective date January 2018 January 2019 January 2017 January 2020 January 2018 January 2017 January 2018 January 2018 January 2017 Page 5 December 2016 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

6 Leases (ASU , ASC 842) Overview Under ASC 842, Leases, lessees recognize assets and liabilities for most leases but recognize expenses in a manner similar to today s accounting Lease classification is important in determining how and when a lessee and a lessor recognize lease expense and revenue, respectively Classification continues to affect what lessors record on the balance sheet Changes balance sheet presentation Under ASC 840, operating leases are off-balance sheet Under ASC842, the accounting for an operating lease will backload amortization of the right-ofuse asset, potentially increasing the risk of an impairment Right-of-use assets and lease liabilities are subject classifying them as current and noncurrent in classified statements of financial position Income statement and statement of cash flows presentation requirements Similar to the current presentation requirements for capital and operating leases EBITDA- No change Effective date Public business entities (PBEs) annual periods beginning after 15 December 2018, and interim periods within those years Early adoption permitted for all entities Full retrospective adoption is prohibited Page 6

7 Leases (ASU , ASC 842) Lease classification lessees At lease commencement, lessees classify a lease as a finance lease (vs. an operating lease) if the lease meets any of the following criteria: The lease transfers ownership of the underlying asset to the lessee by the end of the lease term The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise The lease term is for the major part of the remaining economic life of the underlying asset* The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of lease term * Not applicable for leases that commence at or near the end of the underlying asset s economic life. ** The FASB included guidance that indicates that today s thresholds of 75% and 90% are reasonable ways to evaluate the lease term and the present value of lease payments criteria Page 7

8 Leases (ASU , ASC 842) Lease and non-lease components Contracts may contain a lease coupled with an agreement to purchase or sell other goods or services (non-lease components) Non-lease components are identified and accounted for separately from the lease component in accordance with other applicable US GAAP As a practical expedient, lessees can make an accounting policy election (by class of underlying asset) to account for each separate lease component of a contract and its associated non-lease component(s) as a single lease component Lessees generally allocate consideration in the contract to the lease and non-lease components (unless the practical expedient is elected) on a relative standalone price basis Page 8

9 Employee share-based payment accounting (ASU ) Overview Changes how companies account for certain aspects of share-based payments to employees, including: Accounting for income tax effects when awards vest or are settled Recognition of forfeitures Effective for public companies that are SEC filers in Q Early adoption permitted for all entities in any interim or annual period Page 9

10 Employee share-based payment accounting (ASU ) Summary of changes Issue- Income tax effects: Issue Current GAAP ASU Accounting for excess tax benefits (tax deficiencies) from share-based payment Recognition of excess tax benefits Cash flow presentation of excess tax benefits Effect on calculating earnings per share Record excess tax benefits in additional paid-in capital (APIC) and record tax deficiencies in (1) APIC, if previous benefits (pool) available, or (2) income statement, if pool not available Not recognized until realized (i.e., reduce taxes payable) Financing activity Include excess tax benefits (deficiencies) in assumed proceeds from option exercise Record all excess tax benefits (tax deficiencies) in income statement and account for excess tax benefits (tax deficiencies) as discrete items for interim reporting Recognized upon option exercise or share vesting Operating activity Exclude excess tax benefits (deficiencies) from assumed proceeds Page 10

11 Employee share-based payment accounting (ASU ) Summary of changes (continued) Issue- Forfeitures: Forfeitures Issue Current GAAP ASU Estimate the number of awards that will vest when determining compensation cost. Each period adjust based on new estimate/ actual forfeitures Accounting policy election to recognize forfeitures as they occur or apply current U.S. GAAP Applies only to service conditions No effect on calculating dilutive EPS- The purpose of dilutive EPS is to present the most dilutive scenario, therefore, no matter what alternative was elected, all outstanding dilutive instruments should be included in dilutive EPS Page 11

12 Credit losses (ASU , ASC 326) Overview Effective date for public companies that are SEC filers for calendar-year Changes the impairment model for most financial assets and certain other instruments Virtually all entities will be affected (e.g. trade receivable) For AFS debt securities with unrealized losses, measure credit losses in a manner similar to today, except recognize losses as allowances rather than reductions in the amortized cost of the securities Moving from today s incurred loss model to the new expected credit loss model An entity will recognize its estimate of expected credit losses for financial assets as of the end of the reporting period Page 12

13 AFS debt security impairment model What s changing? FASB made targeted amendments to the existing impairment guidance Current guidance Recognize other-than-temporary impairment as a reduction of the security s cost basis Recognize reversals of impairment as an adjustment to future interest income Focuses on whether the impairment is other than temporary New standard Generally recognize an allowance for credit losses Recognize reversals of impairment immediately as a reduction of the allowance for credit losses Focuses on whether the unrealized loss results, at least in part, from a credit loss An entity may not use the length of time a security has been in an unrealized loss position as a factor, by itself or in combination with others, to conclude whether a credit loss exists Page 13 December 2016 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

14 Classification and measurement (ASU , ASC 321) Overview What s changing: Equity investments will generally be measured at FV with changes in FV reported in net income (FV-NI) Realizability of deferred tax assets (DTA) related to available-for-sale (AFS) debt securities will be assessed in combination with other DTAs Effective date for calendar-year entities: Public companies : Annual and interim periods in 2018 Cumulative-effect adjustment to retained earnings except: Amendments related to equity investments without readily determinable fair values applied prospectively Page 14

15 Classification and measurement (ASU , ASC 321) Equity investments Equity investments will generally be measured at FV and changes in FV will be recognized in net income Entities will no longer classify and measure equity securities (including certain forward contracts and purchased options) as trading or AFS or use the cost method of accounting Equity instruments in scope include: Equity securities and other ownership interests (investments in partnerships, unincorporated joint ventures, LLCs) Rights to acquire (warrants, forward purchase contracts, call options) or dispose of (put options, forward sale contracts) an ownership interest at fixed or determinable prices Equity instruments not in scope include equity method investments, investments in consolidated subsidiaries and derivative instruments subject to the requirements of ASC 815 Page 15

16 Classification and measurement (ASU , ASC 321) Measurement alternative for certain equity investments A measurement alternative will be available for equity investments that don t have readily determinable fair values and don t qualify for the net asset value practical expedient in ASC 820 Investments will be measured at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer Entities will assess investments qualitatively for impairment at each reporting date If an investment is impaired, they will estimate the investment s FV in accordance with ASC 820 and recognize any loss in net income Page 16

17 Simplifying the transition to the equity method of accounting (ASU ) Accounting for an investment previously accounted for by another method (not including consolidation) that now initially qualifies for the equity method For example, an investment accounted for under the cost method in year one that qualifies as an equity method investment in year two because the investor obtained significant influence over the investee Current GAAP ASU Recast financial statements as if equity method had always been applied when the investment first qualifies for the equity method Prospectively adopt the equity method when the investment first qualifies Recognize any previously unrealized gains or losses (AFS) Effective for fiscal years, and interim periods within those fiscal years, beginning after 15 December 2016 Early adoption permitted for all entities The guidance will be adopted on a prospective basis Page 17

18 Statement of cash flows Classification of certain cash receipts and cash payments (ASU ) Provides presentation and classification guidance to reduce existing diversity in practice EITF provided guidance on seven specific fact patterns Effective for public business entities For fiscal years, and interim periods within those years, beginning after 15 December 2017 Early adoption is permitted, including adoption in an interim period An entity that elects early adoption must adopt all of the amendments in the same period Page 18 December 2016 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

19 Statement of cash flows Classification of certain cash receipts and cash payments (continued) Topic Classification Debt prepayment or extinguishment costs Financing Settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing: Portion attributable to interest Portion attributable to principal Contingent consideration payments after a business combination: Made soon after Not made soon after: Up to fair value of acquisition date contingent consideration liability In excess of fair value of acquisition date contingent consideration liability Distributions received from equity method investees:* Return on investment Return of investment * Entities are required to make a policy election to apply one of two approaches to determine when the cash distributions represent a return on investment rather than a return of investment. Operating Financing Investing Financing Operating Operating Investing Page 19 December 2016 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

20 Statement of cash flows Restricted cash (Issue 16-A, ASU ) Entities would be required to: Present restricted cash with cash and cash equivalents on the statement of cash flows Would eliminate the need to determine how to classify transfers to or from restricted cash within the statement of cash flows Reconcile the total of cash, cash equivalents and restricted cash on the statement of cash flows to amounts on the balance sheet Effective Public business entities- fiscal years beginning after 15 December 2017, and interim periods within those years Early adoption is permitted Applied retrospectively Page 20 December 2016 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

21 Going concern (ASU ) Management is required to evaluate whether substantial doubt exists about an entity s ability to continue as a going concern by considering: Adverse conditions and events Certain management plans Sets an evaluation period of one year from the financial statement issuance date (instead of from the balance sheet date) Disclosures are required when substantial doubt exists or is alleviated by management's plans Effective in 2016 for public companies Page 21

22 Software development costs Internal- use software vs. Software to be sold The issue of capitalizing software costs has been and continues to be a controversial many companies in the software industry want to capitalize a significant amount of software development costs and other companies want to capitalize virtually nothing The costs that are eligible for capitalization may depend on whether the costs are accounted for in accordance with ASC or ASC Page 22

23 Software development costs Software to be sold ASC (formerly known FAS 86) Costs must be capitalized when technological feasibility is achieved when all planning, designing, coding, and testing activities necessary to establish that the product can be produced to meet its design specifications have been completed The capitalization threshold requirement of either a detail program design or a working model Many companies disclose that they do not capitalize; The Company does not incur material costs between the completion of the working model and the point at which the product is ready for general release. Therefore, research and development costs are charged to the statement of operations as incurred Page 23

24 Software development costs Internal- use software ASC (formerly known SOP 98-1) capitalization of qualifying internal-use software costs begins when the preliminary project stage is completed and management, with the relevant authority, implicitly or explicitly authorizes the project commits to funding a computer software project it is probable that the project will be completed the software will be used to perform the function intended Page 24

25 SEC Staff Focus Area Page 25 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

26 Areas of frequent SEC staff comment Ranking Comment letter topic Management s discussion & analysis )MD&A( 1 1 Non-GAAP financial measures 2 4 Fair value measurements 3 2 Revenue recognition 4 3 Segment reporting 5 7 Income taxes 6 6 Intangible assets and goodwill 7 8 Acquisitions and business combinations 8 9 Signatures, exhibits and agreements 9 5 Commitments and contingencies Source: Audit Analytics Comment letter taxonomy for SEC staff comment letters issued to registrants related to Forms 10-K from 1 July 2014 to 30 June Page 26

27 Management s discussion and analysis (MD&A) Results of operations Identify and quantify specific business drivers of results Disclose key metrics and how they correlate with material changes in the results of operations Discuss significant components (disaggregation) of costs of sales and operating expenses at consolidated and segment levels Critical accounting estimates Provide a more robust analysis than that included in the notes to the financial statements (e.g., goodwill impairment) The SEC staff continues to request that registrants disclose not only what but why significant changes occurred in their results of operations Page 27

28 SEC priorities Non-GAAP financial measures A frequent area of focus in SEC staff reviews of public filings and related comment letters Due to concerns on the growing use and prominence of non-gaap measures Applies to both earnings releases and SEC filings This area deserves close attention, both to make sure that our current rules are being followed and to ask whether they are sufficiently robust in light of current market practices. SEC Chair Mary Jo White Page 28 December 2016 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

29 SEC priorities Non-GAAP financial measures 2016 C&DIs SEC staff updated and clarified previous interpretations SEC staff views on: Examples Non-GAAP measures that are misleading Excluding normal, recurring cash operating expenses Tailoring recognition and measurement principles Presenting measures inconsistently between periods Excluding non-recurring charges but not gains Accelerating the recognition of deferred revenue that must be recognized ratably under GAAP Prominence of non-gaap measures Omitting comparable GAAP measure Presenting measures per share that appear to be liquidity measures in substance Determining the income tax effects of adjustments to non-gaap measures Using bold or larger font for non-gaap Volume and order of discussion Excluding a quantitative reconciliation with respect to a forward-looking non-gaap measure EBIT per share and EBITDA per share Other measures on a per-share basis that appear to function as liquidity measures Non-GAAP income tax effects are not determined appropriately based upon non-gaap profit level Page 29 December 2016 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

30 PCAOB update Page 30 הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים

31 PCAOB Transparency rules New transparency rules require audit firms to file a new PCAOB Form AP for each issuer audit that includes: The name of the signing partner The extent of participation in the group audit by other accounting firms, including other EY member firms (based on hours incurred on the group audit) Forms will be posted on the PCAOB website and will be publicly available The filing deadline is 35 days after the audit report release date (or 10 days for a registration statement) Phased-in effective date: Audit reports issued on or after 31 January 2017 partner name only Audit reports issued on or after 30 June 2017 partner name and other participants in the audit Page 31

32 PCAOB Auditor s reporting model Background- reproposal The reproposal would require auditors to include more information in the auditor s report than under today s standard, including: Discussion of critical audit matters (CAMs) Clarification of existing auditor s responsibilities Disclosure of auditor s tenure The discussion of matters identified as CAMs would include: An explanation of the principal considerations in determining that the matter was a CAM An explanation of how the CAM was addressed in the audit Reference to related financial statement accounts and disclosures The reproposal builds on more than five years of Board outreach The PCAOB did not repropose amendments to the auditor s responsibilities related to other information Page 32

33 Thank you for listening!