EKS&H Newsletter 2015 Second Quarter Update (Public Company) This newsletter provides a summary of some of the more important 2015 second quarter accounting and financial reporting activities. The content is not meant to be all inclusive. For a summary of the prior 2015 quarter, see EKS&H Newsletter First Quarter Update 2015. New Accounting Guidance Simplifying the Presentation of Debt Issuance Costs In April 2015, the FASB issued ASU 2015-03, Interest Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The Update was issued as part the Simplification Initiative to reduce complexity in accounting standards. To simplify the presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Subsequent amortization of debt issuance costs shall be reported as interest expense. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. The ASU did not explicitly address the presentation of debt issuance costs when there is no corresponding debt liability. In the basis for conclusions paragraph BC4, the Board acknowledged that costs may be incurred before an associated debt liability is recorded in the financial statements such as when costs are incurred before the proceeds are received on a debt liability or costs are incurred in association with an undrawn line of credit. However, the Board did not consider providing explicit guidance in circumstances in which the proceeds have not yet been received because it observed that in practice entities defer issuance costs and apply them against the proceeds when they are received. The indication seems clear that debt issuance costs incurred before the entity receives the proceeds from the debt should be reported as deferred charges (similar to equity issuances and the related costs). It is not clear how to present debt issuance costs associated with securing revolving lines of credit when amounts are drawn and repaid periodically. In these circumstances, a debt liability may be recorded and settled frequently. At the June 18, 2015 EITF meeting, the SEC observer stated that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to revolving debt arrangements, the SEC staff would not object to an entity deferring and presenting such costs as an asset and subsequently amortizing them ratably over the term of the revolving debt arrangement. We believe that private companies should also apply the SEC guidance. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. ASU 2015-03 should be applied retrospectively to the balance sheets of each period presented with applicable disclosures for a change in accounting principle. Early adoption is permitted for financial statements that have not been previously issued. 1!
Customer s Accounting for Fees Paid in a Cloud Computing Arrangement In April 2015, the FASB issued ASU No. 2015-05, Intangibles- Goodwill and Other- Internal- Use Software (Subtopic 350-40): Customer s Accounting for Fees Paid in a Cloud Computing Arrangement, as part of the Simplification Initiative. Existing GAAP does not include explicit guidance about a customer s accounting for fees paid in a cloud computing arrangement. Examples of cloud computing arrangements include software as a service, platform as a service, infrastructure as a service, and other similar hosting arrangements. The amendments in this Update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer s accounting for service contracts. All software licenses within the scope of ASU will be accounted for consistent with other licenses of intangible assets. For public business entities, the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. For all other entities, the amendments will be effective for annual periods beginning after December 15, 2015, and interim periods in annual periods beginning after December 15, 2016. Early adoption is permitted for all entities. An entity can elect to adopt the amendments either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. For prospective transition, the only disclosure requirements at transition are the nature of and reason for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change. For retrospective transition, the disclosure requirements at transition include the requirements for prospective transition and quantitative information about the effects of the accounting change. Practical Expedient for Measurement Date of Employer s Defined Benefit Plan Assets and Obligations In April 2015, the FASB issued ASU 2015-04, Compensation Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer s Defined Benefit Obligation and Plan Assets that provides a practical expedient for employers with fiscal year-ends that do not fall on a month-end. The ASU permits those employers to measure defined benefit plan assets and obligations as of the month-end that is closest to the entity s fiscal year-end and to follow that measurement date methodology consistently from year to year. The effects of contributions or other significant events could require measurement adjustments when applying the practical expedient. The practical expedient should be applied consistently. The amendments in this Update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2016, 2!
December 15, 2017. Earlier adoption is permitted. The amendments should be applied prospectively.! Technical Corrections and Improvements In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in ASU 2015-10 represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. In addition, some of the amendments are intended to make the Codification easier to understand and easier to apply by eliminating inconsistencies, providing needed clarifications, and improving the presentation of guidance in the Codification. The amendments that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments are effective upon issuance. Revision to Insurance Company Disclosures In May 2015, the FASB issued ASU 2015-09, Financial Services Insurance (Topic 944): Disclosures about Short-Duration Contracts, to make targeted improvements to disclosure requirements for insurance companies liability for unpaid claim adjustment expenses on shortduration contracts in which insurance coverage is provided for a fixed period of short duration (typically one year or less). SEC Guidance on Pushdown Accounting Revised In May 2015, the FASB issued ASU 2015-08, Business Combinations (Topic 805): Pushdown Accounting Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115 to amend various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 115, Topic 5: Miscellaneous Accounting, regarding various pushdown accounting issues. These amendments align with FASB guidance issued in 2014. Revision to Disclosures for Fair Value of Investments Measured Using Net Asset Value per Share In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The amendments remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient and limit those disclosures to investments for which the entity has elected to measure the fair value using that practical expedient. The amendments in this Update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. An entity should apply the amendments retrospectively to all periods presented. The retrospective approach requires that an investment for which fair value is measured using the net asset value per share 3!
practical expedient be removed from the fair value hierarchy in all periods presented in an entity s financial statements. Earlier application is permitted. Considerations in Retrospective and Modified Retrospective Adoptions for New Accounting Guidance Public companies should carefully consider the method of adoption when there is a choice between full retrospective and modified retrospective adoption in new guidance. Under the retrospective method, all prior reporting periods presented are revised to reflect adoption. Under the modified retrospective method, there is a cumulative effect adjustment to equity as of the beginning of the period of the adoption. There are implications in connection with the adoption methodology as follows: 1.! Registration statements that are amended or newly filed on Form S-3 (i.e.: incorporates a Form 10-Q prepared under new accounting guidance): A Company applying full retrospective adoption must revise prior annual financial statements for the affected historical periods. The historical revised financial statements would be filed in a Form 8-K (i.e.: then incorporated by reference into the registration statement). The timing of preparing the prior year revisions could be a factor in choosing the adoption methodology as well as early adoption. Alternatively, historical financial statements would not require revisions under the modified retrospective method. 2.! Selected financial data table: Companies are not required to recast periods prior to the earliest adoption period. However, disclosure should be provided, under either adoption method, about the lack of comparability among the periods presented. 3.! Equity method investments and required reporting under S-X Rules 3-09 and 4-08 (g): Companies choosing retrospective adoption must recalculate the significance test for their equity method investee for prior periods affected by the adoption. Update on New Revenue Recognition Rules On April 1, 2015, the FASB issued a proposed ASU (with a 45-day comment period) on determining the nature of licenses and identifying performance obligations. The two issues have been discussed frequently at meetings and the FASB decided clarification was needed in order to effectively evaluate whether licenses transferred benefits to a customer over a period of time or at a point in time. The FASB, IASB and the Joint Transition Resource Group (TRG) are scheduled to discuss the comments at the upcoming July 13 th meeting. Also, on April 1, 2015, the FASB voted for a one-year deferral of the effective date of the new revenue recognition standard for both public and private entities and issued a proposed ASU (with a 30-day comment period). The proposal would defer the adoption to 2019 (it was 2018) for calendar-year nonpublic companies and would require public entities to apply the new standard in annual reporting periods beginning after December 15, 2017, including interim reporting periods therein, and (i.e., January 1, 2018, for a calendar year entity). Under the proposal, both private and public entities would be permitted to elect early adoption as of the original effective date for public companies (i.e., for annual reporting periods beginning after December 15, 2016). Companies can adopt using the retrospective adoption or cumulative effect adoption method. 4!
On July 9, 2015, the FASB discussed comments received on the proposed ASU and approved issuance of a final ASU. Reporting Impact for Quarter Ended June 30, 2015 As a reminder, SAB 74 requires disclosures about the new revenue standard. SEC staff has indicated they will monitor disclosures about the expected effects of the new standard in the coming year. Required transitional disclosures in MD&A and the financial statements include the following information to the extent the effects are known:! Details of the new standard, the methods the company plans to adopt when implementing the principles and the date of planned adoption by the company.! Details about the estimated effect of the guidance on the company s reporting or a statement detailing that the effect is not yet known or reasonably estimable.! Any significant impacts of adoption on the company. See discussion under Considerations in Retrospective and Modified Retrospective Adoptions for New Accounting Guidance for further adoption considerations. Status of Certain FASB Open Projects Financial Instruments The financial instruments project (classification, measurement and impairment) was originally a joint project of the FASB and IASB. However, the FASB has moved away from convergence and continues to redeliberate certain issues. A final ASU is expected to be issued in the fourth quarter of 2015 for both classification and measurement and impairment issues. The FASB also expects to issue an exposure draft in the fourth quarter of 2015 on hedge accounting. We will include more information on developments to this project in future EKS&H Newsletters Lease Standard The FASB continues to deliberate a number of key items related to the 2013 exposure draft that proposed that substantially all leases be reported on a company s balance sheet including subleases. A final standard is not expected before the fourth quarter of 2015. We will include more information on developments to this project in future EKS&H Newsletters. Exposure Drafts (ED) Issued To Date under the Simplification Initiative: 1.! Measurement of Inventory. Under the proposed guidance, inventory would be measured at the lower of cost and net realizable value. This compares to existing GAAP that indicates organizations should consider net realizable value, replacement cost, and net realizable value less a normal profit margin when measuring inventory. The Board decided to scope out inventory measured using LIFO and the retail method from the proposed guidance. Comments were due September 30, 2014 and a final standard is expected in the third quarter of 2015. 2.! Accounting for Income Taxes. The two proposed Updates would (1) eliminate the classification of deferred tax assets and liabilities and classify all deferred taxes as noncurrent and (2) eliminate the prohibition on the recognition of income taxes for the 5!
intra-entity differences between the tax basis of the assets in a buyer s tax jurisdiction and their cost as reported in the consolidated financial statements, and instead require recognition of the income tax consequences associated with an intra-entity transfer when the transfer occurs. Comments were due May 29, 2015. 3.! Equity Method of Accounting. The proposed guidance would (1) eliminate the requirement that an entity account for the difference between the cost of an investment and the amount of underlying equity in net assets of an investee as if the investee were a consolidated subsidiary and related disclosures and (2) eliminate the requirement that an entity retroactively adopt the equity method of accounting if an investment that was previously accounted for on other than the equity method becomes qualified for use of the equity method by an increase in the level of ownership interest. Comments are due August 4, 2015. 4.! Accounting for Measurement-Period Adjustments. The proposed guidance would eliminate the requirement to retrospectively account for measurement-period adjustments in a business combination. Instead, entities would recognize measurement-period adjustments in the period they are determined and would recognize the resulting effect on earnings, if any, in the same period s income statement. Comments were due July 6, 2015. 5.! Stock-based Compensation. The proposed guidance would make some relatively narrow simplifications and improvements to accounting for stock compensation to employees. The areas for simplification in this proposed Update involve several aspects of the accounting for share-based payment transactions, including removing the requirement to delay recognition of excess tax benefits until realized, aligning the classification guidance for put and call rights embedded in a share that are contingent on an event within the employee s control, permitting forfeitures to be estimated or recognized as they occur, changing the threshold to qualify for equity classification to permit withholding up to the employee s maximum individual statutory tax rate in the applicable jurisdictions, and revising certain classification guidance on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. Comments are due August 14, 2015. 6!
Standards Issued in 2015 Final ASU Early Adoption Effective Date Update No. 2015-10 - Technical Corrections and Improvements The amendments that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. All other amendments are effective upon issuance. Update No. 2015-9 - Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts Nonpublic: fiscal years beginning after December 15, 2016, December 15, 2017. Public business entities: fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Update No. 2015-8 - Business Combinations (Topic 805): Pushdown Accounting Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115 N/A N/A Update No. 2015-7 - Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) Nonpublic: fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. within those fiscal years, beginning after December 15, 2015. Update No. 2015-6 - Earnings per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions Annual periods and interim periods within those periods, beginning after December 15, 2015. Update No. 2015-5 - Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer s Accounting for Fees Paid in a Cloud Computing Arrangement Update No. 2015-4 - Compensation - Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer s Defined Benefit Obligation and Plan Assets Update No. 2015-3 - Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs Nonpublic: fiscal years beginning after December 15, 2015, December 15, 2016. within those fiscal years, beginning after December 15, 2015. Nonpublic: fiscal years beginning after December 15, 2016, December 15, 2017. within those fiscal years, beginning after December 15, 2015. Nonpublic: fiscal years beginning after December 15, 2015, December 15, 2016. within those fiscal years, beginning after December 15, 2015. 7!
Update No. 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis Nonpublic: fiscal years beginning after December 15, 2016, December 15, 2017. within those fiscal years, beginning after December 15, 2015. Update No. 2015-01 - Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items Annual periods and interim periods within those periods, beginning after December 15, 2015. Standards Issued in Prior Years Effective 2015 or After 8!
Final ASU Early Adoption Effective Date Update No. 2014-18 -!Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination, if ASU 2014-02 has been adopted Private companies only: IF ELECTED, applied prospectively to transactions occurring in annual periods beginning after December 15, 2015, and if the first transaction occurs in annual periods beginning after December 15, 2016, the qualifying transaction should be reflected in the interim period in which it occurs. Update No. 2014-17 - Business Combinations (Topic 805): Pushdown Accounting Effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future events or to its most recent event. However, if the financial statements for the period in which the most recent event occurred already have been issued or made available to be issued, the application of this guidance would be treated as a change in accounting principle. Update No. 2014-16 -!Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity Nonpublic: fiscal years beginning after December 15, 2015, December 15, 2016. Public: fiscal years, and interim periods within those years, beginning after December 15, 2015. Update No. 2014-15 - Presentation of Financial Statements Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity s Ability to Continue as a Going Concern Annual periods and interim periods within those periods, beginning after December 15, 2016. Update No. 2014-14 - Receivables Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure, if ASU 2014-04 has been adopted Nonpublic: fiscal years, and interim periods within those years, beginning after December 15, 2015. Public: fiscal years, and interim periods within those years, beginning after December 15, 2014. Update No. 2014-13 - Consolidation (Topic 810) - Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity Nonpublic: fiscal years, and interim periods within those years, beginning after December 15, 2016. Public: fiscal years, and interim periods within those years, beginning after December 15, 2015. Update No. 2014-12 - Compensation Stock Compensation (Topic 718): Accounting for Share- Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force) Annual periods, and interim periods within those periods, beginning after December, 15, 2015. Update No. 2014-11 - Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures Nonpublic for interim periods after December 15, 2014 Public business entity No Nonpublic: fiscal years beginning after December 15, 2014, and interim periods after December 15, 2015. within those years, beginning after December 15, 2014. 9!
Update No. 2014-10 - Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation Nonpublic: As of the first annual period beginning after December 15, 2014, the presentation and disclosure requirements in Topic 915 will no longer be required. The revised consolidation standards are effective in annual periods beginning after December 15, 2016. Public Business Entities: As of the first annual period beginning after December 15, 2014, the presentation and disclosure requirements in Topic 915 will no longer be required. The revised consolidation standards are effective in annual periods beginning after December 15, 2015. Update No. 2014-09 - Revenue from Contracts with Customers (Topic 606) Nonpublic under certain circumstances Public business entity - No Nonpublic: fiscal years beginning after December 15, 2017, and interim periods after December 15, 2018. Public business entities, not for profit and conduit bond obligors: fiscal years, and interim periods within those years, beginning after December 15, 2016. Update No. 2014-08 - Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity Nonpublic: All disposals (or classifications as held for sale) that occur within annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. Public business entities and conduit bond obligors: All disposals (or classifications as held for sale) that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Update No. 2014-07 - Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements Private companies only: IF ELECTED, annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Apply retrospectively to all periods presented. Update No. 2014-05 - Service Concession Arrangements (Topic 853) (a consensus of the FASB Emerging Issues Task Force) Nonpublic: annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Public business entities: annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Update No. 2014-04 - Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure Nonpublic: annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Public business entities: annual periods, and interim periods within those annual periods beginning after December 15, 2014. Update No. 2014-03 - Derivatives and Hedging (Topic 815): Accounting for Certain Receive- Variable, Pay-Fixed Interest Rate Swaps - Simplified Hedge Accounting Approach Update No. 2014-02 - Intangibles - Goodwill and Other (Topic 350): Accounting for Goodwill Private companies only: IF ELECTED, applied retrospectively to certain types of swaps using either a modified retrospective approach or a full retrospective approach, in annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Private companies only: IF ELECTED, applied prospectively to goodwill existing as of the beginning of the period of adoption and new goodwill recognized in annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Update No. 2014-01 - Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force) Nonpublic: annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Public: annual periods, and interim periods within those annual periods, beginning after December 15, 2014. 10!
Update No. 2013-11 - 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) Nonpublic: fiscal years, and interim periods within those years, beginning after December 15, 2014.* Public: fiscal years, and interim periods within those years, beginning after December 15, 2013. Update No. 2013-06 - Not-for-Profit Entities (Topic 958): Services Received from Personnel of an Affiliate (a consensus of the FASB Emerging Issues Task Force) Prospectively for fiscal years beginning after June 15, 2014, and interim and annual periods thereafter. Update No. 2013-05 - Foreign Currency Matters (Topic 830): 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 (a consensus of the FASB Emerging Issues Task Force) Update No. 2013-04 - Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force) *Effective 2015 for nonpublic companies No Nonpublic: prospectively for the first annual period beginning after December 15, 2014, and interim and annual periods thereafter.* Public: prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. Nonpublic: fiscal years ending after December 15, 2014, and interim periods and annual periods thereafter.* Public: fiscal years, and interim periods within those years, beginning after December 15, 2013. 11!