2018 Homebuilder CFO Roundtable. Wynn Las Vegas 7 May 2018

Transcription

1 2018 Homebuilder CFO Roundtable Wynn Las Vegas 7 May

2 Disclaimer 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 LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. This presentation is 2018 Ernst & Young LLP. All Rights Reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. 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. 2

3 Accounting update Veronica Vros Ernst & Young LLP Jeff Whitton Ernst & Young LLP 3

4 Agenda Financial Accounting Standards Board standard setting Revenue from Contracts with Customers (Accounting Standards Codification (ASC) 606) Sale of Nonfinancial Assets (ASC ) Leases (ASC 842) Final accounting guidance Statement of Cash Flows Presentation of Restricted Cash (Accounting Standards Update (ASU) ) Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments (ASU ) 4

5 Revenue from Contracts with Customers (ASC 606) 5

6 Learning objectives Discuss the new revenue recognition guidance and how it may affect your financial reporting, including disclosures Discuss how implementation likely will require you to develop new or revised entity-level and/or transaction-level controls 6

7 Revenue from Contracts with Customers Summary of the model Core principle is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations Step 5: Recognize revenue when (or as) each performance obligation is satisfied 7

8 Revenue from Contracts with Customers Accounting implementation observations Contract duration Evaluating termination clauses Identifying performance obligations Assessing whether highly interrelated or highly interdependent Customer options Distinguishing between a customer option and variable consideration Variable consideration Constraining estimates of variable consideration 8

9 Revenue from Contracts with Customers Accounting implementation observations (continued) Variable consideration (continued) Applying the allocation exception Contract costs Capitalizing costs to obtain a contract Capitalizing costs to fulfill a contract Income taxes Measuring changes in temporary differences Assessing requirements for tax method changes 9

10 Revenue from Contracts with Customers Disclosure Key principle is to help financial statement users understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers Entity must present qualitative and quantitative information about: Contracts with customers Significant judgments and changes in judgments made when applying the guidance to those contracts Assets recognized from costs to obtain or fulfill a contract Fewer disclosure requirements for nonpublic entities Most disclosures are required for annual and interim periods These disclosures are an important part of the new revenue standard for investors, and we urge companies to treat them as such and to allocate the appropriate time and resources to them. U.S. Securities and Exchange Commission Chief Accountant Wesley Bricker 10

11 Sale of Nonfinancial Assets ASC (ASU ) Counterparty a customer? No Business or nonprofit activity? No Scope of other guidance? No Nonfinancial assets (and insubstance nonfinancial assets)? No Transferring ownership interest in subsidiary? No Separate parts and apply relevant US GAAP Yes Yes Yes Yes Yes Apply ASC 606 Apply ASC 810 Apply other generally accepted accounting principles (GAAP) Apply ASC Apply ASC to subsidiaries with nonfinancial assets or insubstance nonfinancial assets; apply other guidance to remaining subsidiaries/parts 11

12 Sale of Nonfinancial Assets ASC (ASU ) )(continued) Derecognition Step 1: Evaluate controlling financial interest (ASC 810) Step 2: Determine whether control of asset transfers (ASC 606) Measurement Consideration received is the transaction price determined in accordance with ASC 606 (including variable consideration) Any noncontrolling interest is measured at fair value Seller recognizes a full gain or loss Adoption Concurrent with ASC 606 Effective for public entities for annual reporting periods beginning after 15 December 2017 and interim periods therein Effective for other entities for annual reporting periods beginning after 15 December 2018 and interim periods in annual periods beginning after 15 December 2019 Full or modified retrospective adoption (transition may be different than ASC 606) 12

13 Leases (ASC 842) 13

14 Learning objectives Discuss the new lease accounting standard and analyze how and when it may affect your financial reporting, including disclosures Discuss the lease accounting change process, including the potential effect on internal controls and systems when adopting ASC

15 Leases (ASC 842) Overview Requires lessees to recognize assets and liabilities for most leases but recognize expenses in a manner similar to today s accounting For lessors, modifies the lease classification criteria and leverages certain guidance in the new revenue standard Eliminates today s real estate-specific provisions, and changes sale and leaseback accounting Will likely have a significant effect on financial statements, business processes and internal controls for some entities 15

16 Leases (ASC 842) Effective date and transition Staff Accounting Bulletin (SAB) Topic 11.M disclosures Effective Leases standard issued, and early adoption permitted Prior periods presented Modified retrospective application (calendar-year public entities*) Prior periods presented Modified retrospective application (all other calendaryear entities) * Public entities include public business entities, and certain not-for-profit entities and employee benefit plans Full retrospective adoption is prohibited An entity that adopts ASC 842 before it adopts ASC 606 may need to apply certain concepts in ASC 606 when accounting for leases 16

17 Leases (ASC 842) Lease accounting change process 1. Understand current state of leasing activities (e.g., lease procurement, administration, accounting, reporting) 4. Implement new accounting policies, processes, controls and systems, as well as changes to financial statements and disclosures Current state 2. Identify what needs to change to implement the new standard (e.g., data gaps, processes, controls, systems, tax) 3. Design solution for accounting change (e.g., new accounting policies, processes, controls, systems) to capture new lease data requirements and understand financial statement effect Understand the new leases standard 5. Transition to the new standard Future state 17

18 Final accounting guidance 18

19 Learning objectives Identify accounting standards issued in recent years that some companies may not have implemented yet that may be relevant to your financial reporting 19

20 Statement of Cash Flows Presentation of Restricted Cash (ASU ) Entities will be required to: Show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows Entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows Reconcile the total of cash, cash equivalents, restricted cash and restricted cash equivalents on the statement of cash flows to amounts on the balance sheet Disclose the nature of their restricted cash and restricted cash equivalents balances Effective for public business entities (PBEs) in annual periods beginning after 15 December 2017 and interim periods therein For other entities, effective for annual periods beginning after 15 December 2018 and interim periods within annual periods beginning after 15 December 2019 Early adoption is allowed 20

21 Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments (ASU ) Clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows Also clarifies how the predominance principle should be applied when transactions have aspects of more than one class of cash flows Effective for PBEs in annual periods beginning after 15 December 2017 and interim periods therein For other entities, effective for annual periods beginning after 15 December 2018 and interim periods within annual periods beginning after 15 December 2019 Early adoption is allowed, but all of the guidance must be adopted in the same period 21

22 Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments (ASU )(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 Operating Financing Investing Financing Operating Proceeds from settlement of insurance claims Nature of the loss Proceeds from settlement of company-owned life insurance, including bank-owned life insurance: Settlement proceeds Premiums 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. Beneficial interests in securitization transactions: Interest retained Subsequent receipts Investing Operating, investing or both Operating Investing Noncash disclosure Investing 22

23 Q&A 23

24 EY Assurance Tax Transactions Advisory About EY 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 Ernst & Young LLP. All Rights Reserved ED None ey.com 24