SIGNIFICANT ACCOUNTING & REPORTING MATTERS

Transcription

1 AN OFFERING FROM BDO S NATIONAL ASSURANCE PRACTICE SIGNIFICANT ACCOUNTING & REPORTING MATTERS Significant Accounting & Reporting Matters Second Quarter FOURTH QUARTER 2017 BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and over 500 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,408 offices in 154 countries. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm s individual needs BDO USA, LLP. All rights reserved.

2 Significant Accounting & Reporting Matters Fourth Quarter TABLE OF CONTENTS Financial Accounting Standards Board (FASB)... 3 Final FASB Guidance... 3 Proposed FASB Guidance... 5 Other Activities... 6 Securities Exchange Commission (SEC) Final SEC Guidance...10 Proposed SEC Guidance...10 Other Activities...11 Public Company Accounting Oversight Board (PCAOB) Final PCAOB Guidance...13 Proposed PCAOB Guidance...14 Other Activities...14 International Accounting Standards Board (IASB) Final IASB Guidance...15 Proposed IASB Guidance...16 Get To Know BDO BDO Center Corporate Governance and Financial Reporting Contacts Appendix: Effective Dates of U.S. Accounting Pronouncements BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and over 500 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,408 offices in 154 countries. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm s individual needs BDO USA, LLP. All rights reserved.

3 Significant Accounting & Reporting Matters Fourth Quarter FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) FINAL FASB GUIDANCE All final FASB guidance can be accessed on the FASB website located under the Standards tab, Accounting Standards Updates. Accounting Standards Update , Codification Improvements to Topic 995, U.S. Steamship Entities: Elimination of Topic 995 Issued: December 2017 Summary: ASU eliminates Topic 995. As part of its ongoing Codification Improvements project, the FASB identified this Topic as no longer relevant. Steamship entities that had statutory reserve deposits originating from a Department of Transportation program made prior to December 15, 1992 were given an option to not recognize deferred income taxes related to these deposits. The Board decided all steamship entities with statutory reserve funds should be reporting in accordance with Topic as the Internal Revenue Service provided a 25-year time frame to use the reserves or forfeit the tax deferral. Statutory funds deposited before December 15, 1992 have reached their 25-year limit making Topic 995 irrelevant. Steamship entities are required to report deferred taxes resulting from deposits made on or before December 15, 1992, in accordance with Topic 740 (1) when those unrecognized temporary differences reverse or (2) in their entirety at the beginning of the fiscal year for which FASB Statement No. 109 was first applied Effective Date: For all steamship entities, the ASU is effective for fiscal years beginning after December 15, Early application is permitted for all entities including adoption in an interim period. A modified retrospective basis should be used to apply the amendments through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. In the period of adoption, disclosures should include the change in accounting principle. Entities also should disclose the amounts and types of temporary differences for which a deferred tax liability had not previously been recognized. 1 Income Taxes

4 Significant Accounting & Reporting Matters Fourth Quarter Accounting Standards Update , Income Statement Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 116 and SEC Release No Issued: November 2017 Summary: ASU adds SEC paragraphs pursuant to SEC Staff Bulletin No. 116 stating that SAB Topic 13 2 and SAB Topic 8 3 are no longer applicable once a registrant adopts Topic 606. It also modifies Section A, Operating-Differential Subsidies of SAB Topic 11 4 to clarify that revenues from operating-differential subsidies presented under a revenue caption should be presented separately from revenue from contracts with customers accounted for under Topic 606 or as a credit in the costs and expenses section of the statement of comprehensive income. Release No adds updated SEC guidance regarding accounting for sales of vaccines and bioterror countermeasures to the Federal Government for placement into the pediatric vaccine stockpile or the Strategic National Stockpile, and states that vaccine manufacturers should recognize revenue and provide the disclosures required under Topic 606 when vaccines are placed into Federal Governmental stockpile programs because control of the vaccines will have been transferred to the customer and the criteria to recognize revenue in a bill-and-hold arrangement under Topic 606 will have been met. For additional information, refer to BDO s Alert. Effective Date: The amendments became effective on August 29, Codification Improvements Project, Topic 225, Income Statement and Topic 220, Comprehensive Income (combined as Topic 220, Income Statement Reporting Comprehensive Income) Issued: November 2017 Summary: As part of its ongoing Codification Improvements project, the FASB identified Topic 225, Income Statement and Topic 220, Comprehensive Income as two Topics covering related guidance that could be simplified by combining the content within one Topic. The Board agreed with the recommendation to simplify these Topics through a maintenance update. The existing content in Topic 220 defines and provides more guidance about net income, and contains multiple examples of income statements (statement of comprehensive income). As such, the guidance in Topic 225 will be relocated to Topic 220. The combined Topic will be renamed as Topic 220, Income Statement Reporting Comprehensive Income. There have been no incremental changes to the actual guidance. Effective Date: The combination of Topic 225 and Topic 220 has no accounting impact and therefore does not have an associated effective date. 2 Revenue Recognition 3 Retail Companies 4 Miscellaneous Disclosure

5 Significant Accounting & Reporting Matters Fourth Quarter PROPOSED FASB GUIDANCE The following is a summary of significant proposed guidance that was issued for comment during the quarter. All proposed FASB guidance can be accessed on the FASB website located under the Projects tab. Proposed Accounting Standards Update, Codification Improvements Issued: October 2017 Comment Deadline: December 4, 2017 Summary: The proposed amendments clarify aspects of the guidance to make certain technical corrections and other minor improvements. The proposed amendments would clarify: Topic 105, Generally Accepted Accounting Principles Subtopic , Comprehensive Income Overall Topic 260, Earnings Per Share Topic 320, Investments Debt and Equity Securities Subtopic , Debt Modifications and Extinguishments Subtopic , Distinguishing Liabilities from Equity Overall Subtopic , Compensation Stock Compensation Income Taxes Topic 720, Other Expenses Topic 740, Income Taxes Subtopic , Business Combinations Income Taxes Subtopic , Derivatives and Hedging Overall Subtopic , Fair Value Measurement Overall Topic 830, Foreign Currency Matters Subtopic , Financial Services Brokers and Dealers Liabilities Topic 944, Financial Services Insurance Topic 958, Not-for-Profit Entities Subtopic , Plan Accounting Defined Contribution Pension Plans Investments Other For additional information, refer to BDO s comment letter.

6 Significant Accounting & Reporting Matters Fourth Quarter OTHER ACTIVITIES The following section provides high level summaries of other relevant FASB publications and activities. Private Company Council Summary: The Private Company Council (PCC) met in December The PCC members provided feedback on the following FASB topic updates delivered by the FASB Staff with suggestions and alternatives to improve clarity: Customer's Accounting for Implementation, Setup, and Other Upfront Costs (Implementation Costs) Incurred in a Cloud Computing Arrangement (CCA) That Is Considered a Service Contract. PCC members expressed their view that implementation costs should be capitalized in these arrangements, but not the fees for a CCA that is considered to be a service contract. Financial Performance Reporting. PCC members discussed the results of research performed by the FASB staff on private company financial statements and the potential impact disaggregation of performance information could have within the private company sector. Invitation to Comment, Agenda Consultation. The FASB staff provided an update on the decisions reached by the Board at its September 20, 2017 meeting when it met to discuss the FASB Invitation to Comment, Agenda Consultation. A complete recap of the meeting can be found here. The PCC is scheduled to meet next on April 20, Emerging Issues Task Force The Emerging Issues Task Force (EITF) met on October 12, The following conclusions reached by the EITF do not represent final or proposed guidance until they are ratified by the FASB. Issue 17-A: Customer s Accounting for Implementation, Setup, and Other Upfront Costs (Implementation Costs) Incurred in a Cloud Computing Arrangement That Is Considered a Service Contract Status: Deliberations ongoing Summary: The Task Force reached a tentative conclusion to align the accounting for cloud computing arrangements with the accounting for software licenses. The Task Force also requested that the FASB staff research if there currently is diversity in practice in accounting for on-premise software licenses under Subtopic and to perform additional research on the initial and subsequent measurement for the hosting fees. All hosting arrangements, as defined in the Master Glossary, would be within the scope of Subtopic The Task Force also made decisions to: Not add or revise the guidance in Subtopic for costs incurred to implement a cloud computing arrangement, Not add guidance about separation of elements in a cloud computing arrangement, Not provide a definition or description of implementation costs within Subtopic

7 Significant Accounting & Reporting Matters Fourth Quarter FASB Transition Resource Groups Credit Losses TRG Summary: The FASB established the Transition Resource Group (TRG) for Credit Losses early in 2016 to solicit, analyze, and discuss implementation issues that could arise when organizations implement ASU , Measurement of Credit Losses on Financial Instruments. In September, the FASB discussed issues related to identification and measurement of reasonably expected troubled debt restructurings (TDRs) that were unresolved at TRG s June 2017 meeting. During their December 2017 meeting, the Board discussed general implementation activities and made the following tentative decisions on specific issues: 1. Troubled debt restructurings (TDRs): Provide transition relief for entities that elect to use a prepayment-adjusted effective interest rate (EIR) in a discounted cash flow (DCF) method to measure credit losses upon adoption. Accordingly, entities may calculate the prepayment-adjusted EIR based on the original contractual terms of the loan and prepayment assumptions as of the date of adoption. 2. Variable-rate financial assets: Allow entities to determine the EIR and expected cash flows (including expected prepayments and defaults) using their own expectations of future interest rates when estimating credit losses on variable rate assets using a DCG method. 3. Subsequent events: Regarding consequential amendments made to Topic 855, 5 the Board decided that when determining an estimate of credit losses, an entity should not recognize in the financial statements the effects of any events that occur after the balance sheet date but before financial statements are issued or are available to be issued. However, subsequent events should be reflected in the estimate of credit losses if an entity determines an error correction is necessary under Topic For more information on the credit losses standard, refer to BDO s archived webinar and BDO s Alert. Revenue Recognition TRG Background: Shortly after issuing the new revenue standard in 2014, the FASB and the IASB established a joint Transition Resource Group (TRG) for Revenue Recognition to solicit, analyze, and discuss stakeholder issues arising from implementation of the standard. The TRG met last in November To date, the TRG has received 108 issue submissions, 72 of which were discussed at TRG meetings. TRG issue papers provide additional insight into the FASB staff s views regarding how the standard is to be applied in practice, and are available here. Several of the TRG issues resulted in amendments to clarify the intent of the guidance. In addition, the AICPA has established sixteen industry task forces to develop a new revenue recognition accounting guide that will provide illustrative examples for how to apply the new guidance. In 2017, many working drafts on industry-specific implementation issues were released for public comment as a result of task force research. The AICPA has continued to publish updates to its Revenue Recognition Audit and Accounting Guide as these implementation issues are finalized. Refer to AICPA Financial Reporting Executive Committee, below. For more information on the new revenue standard, refer to BDO s Revenue Recognition Resource Center. 5 Subsequent Events 6 Accounting Changes and Error Corrections

8 Significant Accounting & Reporting Matters Fourth Quarter AICPA Financial Reporting Executive Committee Summary: The Financial Reporting Executive Committee (FinREC) is the senior committee of the AICPA for financial reporting. It is authorized to make public statements on behalf of the AICPA on financial reporting matters. During the year, significant topics discussed by FinREC included: Revenue Recognition FinREC has issued multiple working drafts that provide industry-specific considerations and illustrative examples related to the implementation of ASU FinREC continued to issue working drafts for comment throughout 2017 affecting a variety of industry sectors. Comment periods are generally 60 days. In January 2017, the AICPA published the first edition of its Audit and Accounting Guide: Revenue Recognition, and has issued updates periodically thereafter. This guide addresses general accounting considerations, general auditing considerations, and accounting implementation issues in specific industries. The AICPA plans to update the online edition as additional accounting implementation issues are finalized. At its completion, the guide will include 16 industry-specific chapters that address accounting implementation issues, and provide industry- specific illustrative examples of how to apply the new standard. It will also provide detailed coverage of audit considerations. Complete details and additional AICPA resources are available here. Accounting and Valuation Guide - FinREC continued making progress on a new interpretive practice guide, Valuation of Portfolio Company Investments of Venture Capital and Private Equity Firms and Other Investment Companies. Refer to the AICPA website at: AICPA Technical Questions and Answers Summary: The AICPA publishes Technical Questions and Answers (TQA) based on selected practice matters identified by the staff of the AICPA's Technical Hotline and various other sources. These TQAs do not represent authoritative guidance. Q&A Section 7100, Definition of a Public Business Entity (October 2017): This TQA is intended to address questions regarding the definition of a public business entity (PBE) as defined by FASB ASU Key points arising from the TQA include: OTC Market The FASB staff has interpreted this broadly to include any system that brought buyers and sellers together. The TQA says that, based on recent discussions with the FASB staff, markets that are not generally accessible by the public or that do not publish information such as security listings, bid/ask pricing or price and volume trade data are not OTC markets. Markets that only certain investors (e.g., qualified institutional, accredited investors) have access to also are not considered accessible by the public. Examples of those markets are TRACE (Trade Reporting and Compliance Engine), EMMA (Electronic Municipal Market Access), and PORTAL (Private Offering, Resale and Trading through Automated Linkages). Private Placements & Resales under Rule 144A There are various scenarios in which an entity that has gone through a transaction under Rule 144A may or may not be a PBE. For example, resales under Rule 144A do not cause the issuer to be considered a PBE under criterion d because the securities can generally be sold only to qualified institutional buyers and cannot be traded by the public. However, if the securities become registered with the SEC and the issuer is therefore required to file or furnish financial statements with the SEC, this would cause the issuer to meet the definition of a PBE under criterion a. However, if the security holder and purchaser in transactions under Rule 144A have the right to obtain certain financial and nonfinancial information from the issuer, but there may not be a requirement for the issuer to file or furnish financial statements with the SEC or to make its financial statements (including footnotes) publicly available on a periodic basis, it may not be a PBE. But further, if that entity is required to make financial statements available on a periodic basis under another regulation, such as the Federal Deposit Insurance Corporation Improvement Act, it would be a PBE. Conduit bond obligor - The definition of a PBE excludes conduit bond obligors that meet the definition of a not-for-profit entity in the FASB Codification Master Glossary and are within the scope of ASC 958, Not-for-Profit Entities.

9 Significant Accounting & Reporting Matters Fourth Quarter Contractual restrictions to transfer The TQA clarifies that restrictions can be explicit in the contract or implicit based on an entity s ownership structure. For example, management preapproval of a resale is an explicit contractual restriction, and provisions that limit transfers of securities to existing shareholders are contractual restrictions because the securities cannot be sold to new investors without the involvement of management. Whereas, an implicit contractual restriction on transfer exists if the entity is wholly owned by a single parent entity that controls it. In effect, the parent entity controls the subsidiary and must approve the transfer of any of the securities currently outstanding, which constitutes an implicit restriction requiring the involvement of management. For more information, refer to the press release on the AICPA s Website here.

10 Significant Accounting & Reporting Matters Fourth Quarter SECURITIES AND EXCHANGE COMMISSION (SEC) FINAL SEC GUIDANCE All SEC Final Rules can be accessed on the SEC website located under the Regulatory Actions section, Final Rules. (Note: The following pertains to significant accounting and reporting SEC releases. For a complete listing of SEC rules, please refer to the SEC website.) SEC Approves PCAOB s New Standard on Auditor Reporting Summary: In October 2017, the SEC approved the Public Company Accounting Oversight Board s (PCAOB) new auditor reporting standard, The Auditor s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, as adopted by the PCAOB in June The SEC also approved related amendments to certain other PCAOB standards. The new standard and related amendments, which will replace portions of AS 3101, Reports on Audited Financial Statements, retain the pass/fail opinion in the existing auditor s report, but significantly change the existing auditor s report to include a discussion of critical audit matters (CAMs) that have been communicated to the audit committee, particularly those that involve especially challenging, subjective or complex auditor judgment. The new standard also requires disclosure of the auditor s tenure (i.e., the year in which the auditor began serving consecutively as the company s auditor) within the auditor s report, and requires other formatting changes to the auditor s report. The standard and amendments generally apply to audits conducted under PCAOB standards; however, certain exceptions apply. The final standard and amendments have various effective dates beginning for audits for fiscal years ending on or after December 15, For additional information, refer to BDO s Alert.

11 Significant Accounting & Reporting Matters Fourth Quarter PROPOSED SEC GUIDANCE All SEC Proposed Rules can be accessed on the SEC website located under the Regulatory Actions section, Proposed Rules. (Note: The following pertains to significant accounting and reporting SEC releases. For a complete listing of SEC rules, please refer to the SEC website.) SEC Proposes Amendments to Regulation S-K Issued: October 2017 Comment Deadline: January 2, 2018 Summary: The SEC has proposed amendments to modernize and simplify certain disclosure requirements in Regulation S-K. The proposal would not make major changes to Regulation S-K. The amendments are based primarily on recommendations made in the staff s November 2016 Report on Modernization and Simplification of Regulation S-K and are intended to update or streamline the disclosure framework while still providing investors with all material information required to make informed decisions. Among other things, the proposed amendments would streamline certain disclosures required by Item 303, Management s Discussion and Analysis, Item 102, Description of Property, and Item 601, Exhibits. The proposal would also make changes to use technology to improve access to information. For additional information, refer to BDO s Alert. OTHER ACTIVITIES The following section provides high level summaries of other relevant SEC publications and activities. SEC Staff Issues Guidance on Accounting for the Tax Cuts and Jobs Act Summary: On Friday, December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act legislation or the Act. Under ASC reporting entities are required to recognize the effect(s) of the Act on current and deferred income taxes in the enactment period s financial statements. For calendar year reporting entities, the enactment period is the fourth quarter of the 2017 annual reporting period. For fiscal year reporting entities, the enactment period is the fiscal quarter within which the December 22 enactment date falls, e.g., second quarter for a June 30 fiscal year reporting entity. The SEC staff released Staff Accounting Bulletin (SAB) No. 118 to address concerns about reporting entities ability to timely comply with the accounting requirements to recognize all of the effect(s) of the Act in the period of enactment. SAB 118: o Outlines approach companies may take if they determine that necessary information is not available (in reasonable detail) to evaluate, compute, and prepare accounting entries to recognize the effect(s) of the Act 7 Income Taxes

12 Significant Accounting & Reporting Matters Fourth Quarter by the time the financial statements are required to be filed. SAB 118 also prescribes disclosures in these circumstances. o o o Necessitates determination of whether the assessment and quantification of a particular income tax effect(s) is incomplete by the due date of the financial statements. Includes illustrative examples. Requires reporting entities to provide financial statement disclosures about material impact(s) from the Act for which the ASC 740 accounting is incomplete. o Addresses application by Foreign Private Issuers under IAS 12. The staff also issued a Compliance & Disclosure Interpretation which confirms that the remeasurement of a deferred tax asset to incorporate the effects of newly enacted tax rates or other provisions of the Act does not trigger an obligation to file under Item 2.06 of Form 8-K. For additional information, refer to BDO Knows Tax Reform: SEC and Tax Reform, SAB 118. SEC Staff Updates the Financial Reporting Manual Issued: December 2017 Summary: In December, the staff of the SEC s Division of Corporation Finance published an update to the Division s Financial Reporting Manual (FRM). The updates include revisions to guidance related to the impact of adopting new accounting standards on pro forma financial statements and revisions to address the adoption of new accounting standards when emerging growth company status is lost. For additional information, refer to BDO s Alert. Updates to Reflect New Financial Instruments Guidance Issued: November 2017 Summary: In November, the SEC staff released Staff Accounting Bulletin (SAB) No. 117 to amends certain SAB topics to make them consistent with current auditing and accounting guidance, FASB ASC Topic 321. SAB 117 amends SAB Topic 563 to indicate that SAB Topic 5.M is no longer applicable upon adoption of Topic 321. Topic 321 creates new guidance that eliminates the ability to present changes in the fair value of investments in equity securities within other comprehensive income, which eliminates the need for Topic 5.M. SEC Interpretive Releases, Commission Guidance on Pay Ratio Disclosure Issued: October 2017 Summary: The SEC recently adopted interpretive guidance to assist companies in their efforts to make the pay ratio disclosures mandated by the Dodd-Frank Act. The pay ratio rule requires issuers to disclose 1) the median annual total compensation of all employees, except the chief executive officer, 2) the annual total compensation of the CEO, and 3) the ratio of those two amounts in any annual report, proxy, or registration statement that requires disclosure of executive compensation pursuant to Item 402 of Regulation S-K. The rule is effective for issuers with fiscal years beginning on or after January 1, 2017, which means that issuers will begin making the pay ratio disclosures in early For additional information, refer to BDO s Alert.

13 Significant Accounting & Reporting Matters Fourth Quarter PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (PCAOB) FINAL PCAOB GUIDANCE All final and proposed PCAOB guidance can be accessed on the PCAOB website located under the Rules of the Board tab. PCAOB Staff Guidance: Changes to the Auditor s Report (AS 3101) Issued: December 2017 Summary: On December 4, 2017 the PCAOB issued Staff Guidance, Changes To The Auditor s Report Effective For Audits Of Fiscal Years Ending On Or After December 15, 2017 (Staff Guidance), to help firms in implementing changes to the auditor s report under AS 3101, The Auditor s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. This Staff Guidance was subsequently updated as of December 28, The Staff Guidance covers key changes to the auditor s report that are effective this year, including changes relating to the disclosure of auditor tenure, a statement on auditor independence, and a required explanatory paragraph on Internal Control Over Financial Reporting in certain circumstances. The Guidance also provides a high-level overview of the requirements relating to Critical Audit Matters (CAMs). The standard retains the pass/fail opinion of the existing auditor's report but makes significant changes to the report. All of the changes, except those relating to CAMs, are effective for audits of fiscal years ending on or after December 15, These changes make a number of improvements that are primarily intended to clarify the auditor's role and responsibilities related to the audit of the financial statements, provide additional information about the auditor, and make the auditor's report easier to read. This guidance addresses the following key elements of the revised auditor's report: The form of the auditor s report. Addressees Auditor independence Auditor tenure Auditor reporting regarding internal control over financial reporting Explanatory and emphasis paragraphs Information about certain audit participants. In addition, the staff guidance provides a high-level overview of the requirements related to CAMs In addition, the staff guidance provides a high-level overview of the requirements related to CAMs The other significant change, auditor communication of CAMs, is permissible on a voluntary basis but will not be required until audits of fiscal years ending on or after June 30, 2019 (for audits of "large accelerated filers") or December 15, 2020 (for audits of all other companies to which the requirements apply) For additional information, refer to the PCAOB s Staff Guidance.

14 Significant Accounting & Reporting Matters Fourth Quarter PROPOSED PCAOB GUIDANCE All final and proposed PCAOB guidance can be accessed on the PCAOB website located under the Rules of the Board tab. The PCAOB did not issue any significant proposed guidance during the quarter. OTHER ACTIVITIES The following section provides high level summaries of other publications and activities related to PCAOB, auditing, and governance matters. PCAOB Staff Audit Practice Alert No. 15 Matters Related to Auditing Revenue from Contracts with Customers Summary: In October 2017, the PCAOB issued Staff Audit Practice Alert No. 15, Matters Related to Auditing Revenue from Contracts with Customers, (the Alert ). The auditing matters discussed in this Alert are relevant to the auditor's consideration of implementation of the new revenue standards issued by both the FASB and IASB, and are applicable for both upcoming interim reviews and year-end audits. Additionally, the Alert points out that certain matters discussed in the Alert may be applicable to auditing the implementation of the new accounting standards on leases and credit losses. The Alert contains reminders and considerations that may be applicable in the conduct of any audit, not just those of issuers and broker-dealers. The Alert discusses the following: Auditing management s transition disclosures in the notes to the financial statements Auditing transition adjustments Considering internal control over financial reporting Identifying and assessing fraud risks Evaluating whether revenue is recognized in conformity with the applicable financial reporting framework Evaluating whether the financial statements include the required disclosures regarding revenue. For additional information, refer to the practice alert available here. Updated COSO Framework Summary: In October 2017, COSO released its updated Enterprise Risk Management Integrating with Strategy and Performance Framework, highlighting the importance of considering risk in both the strategy-setting process and in driving performance. Within the framework are considerations for boards in defining and addressing their risk oversight responsibilities with respect to: governance and culture; strategy, risk appetite and business objective-setting; performance; information; communications and reporting; as well as review and revision of practices to enhance entity performance. This publication is intended to complement the widely used COSO Internal Control-Integrated Framework and further help companies in the longer term enhance enterprise resilience in the ability to anticipate and respond to change.

15 Significant Accounting & Reporting Matters Fourth Quarter INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB) FINAL IASB GUIDANCE All final IASB guidance can be accessed on the IASB website located under the IFRS tab, Standards and Interpretations. Annual Improvements to IFRS Standards Cycle Issued: December 2017 Summary: The IASB has issued its annual improvements to IFRS Standards Cycle. The improvements affect four standards as follows: IFRS 3, Business Combinations: Remeasurement of an investor s previously held interest in a joint operation that is a business when it obtains control of the business. IFRS 11, Joint Arrangements: when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business. IAS 12, Income Taxes: Accounting for the income tax consequences of dividend payments. IAS 23, Borrowing Costs: Clarifying which borrowing costs are eligible for capitalization. Effective Date: The amendments are all effective for annual periods beginning on or after January 1, Amendments to IFRS 9 Financial Instruments and to IAS 28 Investments in Associates and Joint Ventures to Aid Implementation Issued: October 2017 Summary: The amendments IFRS 9 allow companies to measure particular prepayable financial assets with so-called negative compensation at amortized cost or at fair value through other comprehensive income if a specified condition is met instead of at fair value through profit or loss. The Amendments also include clarifications to the accounting for a modification or exchange of a financial liability that does not result in derecognition. The amendments to IAS 28 clarify that companies account for long-term interests in an associate or joint venture to which the equity method is not applied using IFRS 9. The Board has also published an example that illustrates how companies apply the requirements in IFRS 9 and IAS 28 to long-term interests in an associate or joint venture. Effective Date: The amendments are effective as of January 1, 2019, with early application permitted.

16 Significant Accounting & Reporting Matters Fourth Quarter PROPOSED IASB GUIDANCE The following is a summary of all significant proposed guidance that was issued or was open for comment during the quarter. All proposed IASB guidance can be accessed on the IASB website located under the Get Involved tab, Comment on a Proposal. The IASB did not issue any proposed guidance during the quarter.

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21 Significant Accounting & Reporting Matters Fourth Quarter CONTACTS FASB Adam Brown National Partner - Accounting abrown@bdo.com PCAOB Jan Herringer National Assurance Partner jherringer@bdo.com SEC Liza Prossnitz National SEC Partner lprossnitz@bdo.com IFRS Julie Valpey National Assurance Partner jvalpey@bdo.com Corporate Governance Amy Rojik National Partner - Communications & Governance arojik@bdo.com

22 Significant Accounting & Reporting Matters Fourth Quarter EFFECTIVE DATES OF U.S. ACCOUNTING PRONOUNCEMENTS This appendix was prepared with a calendar year-end company in mind. Therefore standards with an initial effective date in 2016 have been included since many companies applied them for the first time in 2017, e.g., the first interim or annual period beginning on or after December 15, Standards that do not require adoption before 2018 are highlighted in gray. Also, refer to BDO s IFRS Bulletin summarizing effective dates of IFRS pronouncements. PRONOUNCEMENT EFFECTIVE DATE - PUBLIC EFFECTIVE DATE NON PUBLIC ASC 230, Statement of Cash Flows ASU , Restricted Cash December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. December 15, 2018, and interim periods within fiscal years beginning after December 15, Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. ASU , Classification of Certain Cash Receipts and Cash Payments Effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, Early adoption is permitted. December 15, 2018, and interim periods within fiscal years beginning after December 15, Early adoption is permitted. ASC , Receivables Nonrefundable Fees and Other Costs ASU , Premium Amortization on Purchased Callable Debt Securities Effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. December 15, 2019, and interim periods within fiscal years beginning after December 15, Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.

23 Significant Accounting & Reporting Matters Fourth Quarter PRONOUNCEMENT EFFECTIVE DATE - PUBLIC EFFECTIVE DATE NON PUBLIC ASC 323, Investments Equity Method and Joint Ventures ASU , Simplifying the Transition to the Equity Method of Accounting ASC 326, Credit Losses The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the application of the equity method. Early adoption is permitted. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the application of the equity method. Early adoption is permitted. ASU , Measurement of Credit Losses on Financial Instruments ASC 330, Inventory For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, ASU , Simplifying the Measurement of Inventory Effective prospectively for fiscal years, and for interim periods within those fiscal years, beginning after December 15, Early adoption is permitted as of the beginning of an interim or annual reporting period. If an entity has previously written down inventory (within the scope of the ASU) below its cost, that reduced amount is considered the cost upon adoption. Upon adoption, the change from the lower of cost or market to the lower of cost and net realizable value for inventory within the scope of the ASU will be accounted for as a change in accounting principle December 15, 2016, and for interim periods within fiscal years beginning after December 15, Early adoption is permitted as of the beginning of an interim or annual reporting period. If an entity has previously written down inventory (within the scope of the ASU) below its cost, that reduced amount is considered the cost upon adoption. Upon adoption, the change from the lower of cost or market to the lower of cost and net realizable value for inventory within the scope of the ASU will be accounted for as a change in accounting principle

24 Significant Accounting & Reporting Matters Fourth Quarter PRONOUNCEMENT EFFECTIVE DATE - PUBLIC EFFECTIVE DATE NON PUBLIC ASC 350, Intangibles Goodwill and Other ASU , Simplifying the Test for Goodwill Impairment ASC 405, Liabilities A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, A public business entity that is not an SEC filer should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, All other entities, including not-for-profit entities, should adopt the amendments for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, ASU , Liabilities Extinguishments of Liabilities (Subtopic ): Recognition of Breakage for Certain Prepaid Stored-Value Products December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. December 15, 2018, and interim periods within fiscal years beginning after December 15, Early adoption is permitted.

25 Significant Accounting & Reporting Matters Fourth Quarter PRONOUNCEMENT EFFECTIVE DATE - PUBLIC EFFECTIVE DATE NON PUBLIC ASC 606, Revenue; and ASC , Other Income Gains and Losses from the Derecognition of Nonfinancial Assets ASU , Revenue from Contracts with Customers ASU , Revenue from Contracts with Customers: Deferral of the Effective Date ASU , Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ASU , Identifying Performance Obligations and Licensing ASU , Narrow-Scope Improvements and Practical Expedients ASU , Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers ASU , Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets Effective for annual periods beginning after December 15, 2017, including interim periods therein. Entities may adopt using a retrospective approach (with certain optional practical expedients) or a cumulative effect approach. Under the this alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. GAAP at the date of initial application (e.g. January 1, 2018) and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings. That is, prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. GAAP. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year. Effective for annual periods beginning after December 15, In addition, the new standard is effective for interim periods within annual periods that begin after December 15, The same transition alternatives apply. Early adoption is permitted as of either: An annual reporting period beginning after December 15, 2016, including interim periods within that year, or An annual reporting period beginning after December 15, 2016 and interim periods within annual reporting periods beginning one year after the annual period in which the entity first applies the new standard. ASC 715, Compensation Retirement Benefits ASU , Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost Effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted as of the beginning of an annual period. Effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, Early adoption is permitted as of the beginning of an annual period. ASU , Practical Expedient for the Measurement Date of an Employer s Defined Benefit Obligation and Plan Assets Effective prospectively for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. Effective prospectively for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, Early adoption is permitted.