General GAAP & Regulatory Update

Transcription

1 General GAAP & Regulatory Update EEI / AGA Spring Accounting Conference 23 May 2017

2 Disclaimer This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. The views expressed by the presenters are not necessarily those of Ernst & Young LLP. This presentation is 2017 Ernst & Young LLP. All Rights Reserved. EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms, of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. Page 2

3 Agenda SEC developments PCAOB rulemaking GAAP updates Page 3

4 SEC developments Effects of the new administration SEC Commissioners Jay Clayton confirmed as SEC Chairman Two additional commissioner seats open Clayton s priority: capital formation Wants to encourage IPOs earlier in companies growth JOBS Act has made it easier for emerging growth companies to go public Recent SEC actions Revisiting conflict mineral rule and CEO pay ratio rule Changes to policies in Division of Enforcement Page 4

5 SEC developments Update on disclosure effectiveness Since Chair White s speech in 2013 the SEC and its staff have issued a number of concept releases, requests for comment, reports and proposed rules related to the disclosure effectiveness initiative, yet it is far from completion April JOBS Act Section Required the SEC to review S-K's registration requirements and determine how they can be modernized and simplified. October Chair White Speech - The Path Forward on Disclosure December Staff Report - Public Company Disclosures September Request for Comment Regulation S X Other entity financial statements December FAST Act Section requires SEC rulemaking to improve S- K (remove duplicate and outdated requirements). FAST Act Section requires SEC to study and report on Regulation S-K simplification as well as improvements to disclosure delivery and focus, and then undertake related rulemaking. April Concept Release Disclosure Requirements in Regulation S K July Proposed Rule Update and Simplify Disclosure Requirements (DUSTR) August Request for Comment Subpart 400 of Regulation S-K Proposed Rule Exhibit Hyperlinks November Staff Report Modernization and Simplification of Regulation S K March Final Rule Exhibit Hyperlinks Page 5

6 SEC developments Update on disclosure effectiveness SEC staff issued its Report on Modernization and Simplification of Regulation S-K Highlighted recent changes as part of disclosure effectiveness Provided recommendations for future rulemaking: Revise MD&A to require only a comparison of the two most recent fiscal years Eliminate requirement to provide a table of contractual obligations Provide an ability to omit attachments and schedules filed with exhibits unless not previously disclosed Revise Item 102 to clarify only material physical properties should be disclosed Proposed rules to implement recommendations expected later this year Page 6

7 Element of engagement Has your Company implemented a disclosure effectiveness initiative in the past three years? Page 7

8 SEC developments Areas of frequent comment Percent of issuers reviewed 60% 50% 44% 48% 48% 52% 52% 51% 56% 40% 30% FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Comment letter topic Ranking Dec 16 June 16 Non-GAAP financial measures 1 2 Management s discussion and analysis 2 1 Fair value measurements 3 3 Segment reporting 4 5 Revenue recognition 5 4 Source: Audit Analytics Comment letter taxonomy for SEC staff comment letters issued to registrants related to Forms 10-K from 1 July 2013 to 30 December 2016 Page 8

9 SEC developments Areas of frequent comment Non-GAAP measures Clearly explain usefulness to investors Should not be more prominent than GAAP measures Accurate explanation Management s discussion and analysis (MD&A) Results of operations Disclose not only what but why significant changes occurred Identify and quantify specific business drivers of results Discuss key metrics clearly and completely Discuss significant components of costs of sales and operating expenses at consolidated and segment levels Page 9

10 PCAOB rulemaking Page 10

11 PCAOB rulemaking Final rule: Form AP Form AP requires disclosure of the following for each PCAOB issuer client Requires the name of the signing audit partner and10-digit unique partner identification number Disclosure of all accounting firm participants, When a Global Firm uses network firms Separate disclosure if 5% or greater of total group audit hours If less than 5% of total group audit hours, total number of firms less than 5% and aggregate hours as a % of total group audit hours Percentages disclosed as ranges (e.g., between 5%-10%) Phased implementation Issued separately from Form 10-K Page 11

12 PCAOB rulemaking Re-proposed rule: Audit reporting model Current pass/fail model would stay the same Proposed additions and revisions Discussion of critical audit matters Auditor tenure Standard language about auditor s: Requirement to be independent Responsibility for risk of material misstatement due to fraud Format of auditor s report Page 12

13 PCAOB rulemaking Re-proposed rule: Audit reporting model Critical audit matters: Material to financial statements Subjective or challenging in nature Requires complex auditor judgment Factors to consider: Risks of material misstatement, including significant risks Degree of subjectivity and judgment Nature and extent of audit effort Nature and timing of significant unusual transactions Nature of audit evidence Audit report would identify the critical audit matters AND: Principal considerations in making determination Description of how matters were addressed in audit Relevant financial statement accounts or disclosures Page 13

14 GAAP updates Page 14

15 Final standards Goodwill: ASU Step 1 Step 2 Impairment Current GAAP ASU Determine whether fair value of reporting unit is less than its carrying amount Determine the implied N/A fair value of goodwill (reporting unit s fair value less fair value of assets and liabilities) Excess of carrying Excess of carrying amount of goodwill over amount of reporting unit its implied fair value over its fair value Effective dates for calendar year ends Transition SEC filer Other PBE Non-PBE Early adoption? Prospective Yes Page 15

16 Final standards Goodwill example Fact pattern Fair value of reporting unit 92 Carrying amount of reporting unit 100 Fair value of identified assets and liabilities 80 Carrying amount of goodwill 15 Current GAAP ASU Step 1 Fair value of reporting unit (92) is less than carrying amount of reporting unit (100) Step 2 Implied fair value of goodwill: N/A 12 (92 80) Impairment 3 (15 12) 8 (100 92) Page 16

17 Element of engagement Have you (or do you plan) to early adopt ASU ? Page 17

18 Final standards Select final standards No. Accounting Standards Update (ASU) PBE Inventory: Simplifying measurement of 2017 inventory Income taxes: Balance sheet classification of 2017 deferred taxes Derivatives and hedging: Effect of derivative 2017 contract novations on existing hedge accounting relationships Improvements to employee share-based 2017 payment accounting Statement of cash flows: Restricted cash 2018 * Statement of cash flows: Classification of 2018 * certain cash receipts and payments Financial instruments: Credit losses 2020 * * Early adoption allowed Page 18

19 Proposed standards Debt current/noncurrent classification Applies to all debt arrangements Includes convertible debt and mandatorily redeemable financial instruments classified as liabilities Classify debt as noncurrent only when either: Goal: replace rules-based guidance with principles Liability is contractually due to be settled more than one year (or operating cycle, if longer) after balance sheet date Entity has a contractual right to defer settlement for at least one year (or operating cycle, if longer) after balance sheet date Emphasis on rights that exist as of balance sheet date Page 19

20 Proposed standards Debt current/noncurrent classification (continued) Examples Current GAAP Proposal Short-term debt refinanced after balance sheet date but before financial statements issued Short-term debt secured by a long-term line of credit as of the balance sheet date Subjective acceleration clause Waiver received after balance sheet date but before financial statements issued Noncurrent Noncurrent Current, if probable of occurring Noncurrent Current Noncurrent Current only when triggered Noncurrent (exception to principle) Page 20

21 FASB agenda selected projects Project Disclosures about government assistance Disclosure framework: Board s decision process Entity s decision process Defined benefit plans Fair value measurement Income taxes Interim reporting Inventory Hedging Implementation costs in cloud-computing arrangements Status Redeliberations Redeliberations Redeliberations Redeliberations Redeliberations Redeliberations Deliberations Redeliberations Redeliberations New item Page 21

22 Appendix: Disclosure effectiveness survey Page 22

23 Disclosure effectiveness survey Financial reporting that accurately reflects economic and business realities has never been more important We talked to 120+ key participants in the financial reporting process Including CFOs, CAOs, controllers and directors of SEC reporting Participants covered a wide range of sectors including manufacturing, life sciences, health care, pharmaceuticals, electronics, technology, software and services, and professional services Annual revenues of $5 million to $50 billion We know that of responding companies are already taking action to improve their financial reporting disclosures, with still others planning to take action in the near-term have seen improvement in financial communication have seen improvement in process efficiencies have saved or expect to save at least 1 3 days of financial reporting preparation time Page 23

24 Disclosure effectiveness survey Calls for improvements in financial reporting is coming from the top Biggest reasons companies are making changes management team and senior-level executive influence SEC s initiatives Companies are focused on three key areas related to disclosure effectiveness focusing on disclosing material information and eliminating immaterial information focusing on reducing redundancies, including using more cross-references Three areas of the SEC report that companies have improved the most focusing on eliminating outdated information Page 24

25 AccountingLink What you need to know. When you need to know it. Because change is constant in the financial reporting world, you need the latest information, analysis and insight, first. Register free at: ey.com/us/accountinglink