Accounting Standards Update (big changes now, bigger changes soon)Presented by Kevin Doyle CPA and moderated by Matt

CashionTuesday, July 23rd from 2:00-3:00pm EDT

Presented by:Kevin Doyle, CPALanigan, Ryan, Malcolm and Doyle, P.C.

Kevin Doyle, CPA is Senior Partner at Lanigan, Ryan, Malcolm & Doyle with 30 years of experience working with closely-held businesses providing, tools, advice and perspective to allow clients to fulfill their vision, reach their goals and prosper. He has worked with over 300 clients in commercial construction, manufacturing, wholesale/distribution and government contracting industries. He has extensive working knowledge and experience in taxation, accounting, merger and acquisition and closely held business growth, performance and succession issues. Mr. Doyle has been an expert witness and has experience in litigation support, fraud investigation, and claims analysis. He frequently presents at local and national conferences.

Moderated by:Matt Cashion , Cashion Company, Inc

Matt Cashion has been with The Cashion Company, Inc. since 1981. In 2011 he was awarded the Distinguished Service Award for the Arkansas Chapter of AGC. He is past president of NASBP and is in on the faculty of the NASBP William J. Angell Surety School. He serves on NASBP Professional Development & Education, Risk Management & Insurance, and Finance committees and is on the NASBP Virtual Seminar Editorial Board. Mr. Cashion is a recipient of NASBP’s top three awards: President’s Award for officer service, John ‘Jack’ J. Curtin President’s Award for distinguished service, and the Bruce T. Wallace Award for demonstrating service characterized by commitment, consistency, intensity, and impact.

Accounting Standards Update (big changes now, bigger changes soon)

3

Current Changes

4

Multi-Employer Pension Plan Disclosures (in effect for 12/31/2012 year-ends)

• Key Disclosures– Plan legal name/employer ID number– Zone Status (based on funded status of plan) –

Red/Yellow/Green– Expiration Dates of CBA’s– Amount of employers current year contribution– If employer contribution is greater than 5% of

total

5

Multi-Employer Pension Plan Disclosures

• How to use this information– Is there a risk of future cash outflows?

• Accurate plan identification to allow you to research the plan

• Investigate underfunded plans and how the underfunding is being addressed

• Investigate current union relationships, or possibility of contractor no longer participating with a union– May trigger current amount due for underfunding

6

Big GAAP/Little GAAP update (significant change June 2013)

• Two standard setting organizations:– Financial Accounting Standards Board (FASB)

• Provides standards for US GAAP– American Institute of Certified Public Accountants

(AICPA)• Provides attest standards (compilation/review/audit (for

privately held companies)• Also provides standards for Special Purpose Frameworks

(OCBOA)– Cash basis, Income tax basis

7

Big GAAP/Little GAAP updateFASB background

• Small Business Advisory Committee (SBAC)– 2004 to present, only meets twice per year

• Private Company Financial Reporting Committee (PCFRC)– 2007-2012

• Private Company Council (PCC)– Created 2012, first meeting Dec. 2012, more

active

8

Big GAAP/Little GAAP updateFASB - PCC

• Private Company Council (PCC)– Released three exposure drafts in June

2013:1. Simplified requirements for indentifying

intangibles in business combinations2. Allow amortization of goodwill/simplified

impairment model3. Simplified accounting for interest rate swaps

9

Big GAAP/Little GAAP updateAICPA’s FRF for SMEs

• American Institute of Certified Public Accountants (AICPA)– AICPA Financial Reporting Framework for Small and

Medium-Sized Entities (FRF for SMEs) Task Force• Issued proposal draft of new financial reporting framework (not

GAAP) on November 1, 2012• Final statement issued June 10, 2013

– Fundamentals:a. Historical costs (gets away from fair value)b. Targeted disclosure requirementsc. More options/ability to tailor

10

Big GAAP/Little GAAP updateAICPA’s FRF for SMEs

• Consolidation– No concept of VIEs– Option to present parent-only financial statements

• Leases– Traditional accounting and U.S. tax code

• Revenue Recognition– Traditional—Earned and Realizable

• Goodwill/Intangibles– Amortization/no impairment testing

• Income tax accounting– Option of using taxes-payable or deferred-tax method

11

Big GAAP/Little GAAP updateAICPA’s FRF for SMEs

• Must evaluate differences between FRF for SMEs and GAAP (not quantify) and consider disclosure

• Goodwill amortized based on income tax period (15 years)

• Income taxes– Can choose the Taxes Payable Method

• Would not record deferred taxes– Or use the traditional Deferred Income Tax Method

12

Big GAAP/Little GAAP updateAICPA’s FRF for SMEs

• Consolidations– Control generally based on voting rights– Can choose to present nonconsolidated bases

statements, even when there is control• Leases– Maintains current capital vs. operating lease

standards

13

ON THE HORIZION (2017)

14

ON THE HORIZONLeases

• Leases– Joint Project between FASB and IASB– Exposure Drafted Released 2010– Revised Exposure Drafted Issued May 16,

2013

15

ON THE HORIZONLeases

• Creates a Right-of-Use model– Lessee recognizes an ROU asset and liability for all

leases (other than short-term leases)– Measured based on noncancelable lease terms

• Considers account renewal options and termination options

• Reassessment of term required when relevant factors change

• Asset amortized either by– Type A (financing), or– Type B (straight-line)

16

ON THE HORIZONRevenue Recognition

• Original draft issued June, 2010• Revised Exposure Draft issued November

2011• Core principal

– 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 and services

17

ON THE HORIZONRevenue Recognition - Contractors

• Initial concern was that there would be difficult to implement changes for construction contractors.– The 2011 revisions and decisions tentatively

reached at the March 20, 2013 board meeting reached many clarifications and revisions that will lesson impact on construction contractors

18

ON THE HORIZONRevenue Recognition - Contractors• Helpful clarifications and revisions:– “Bundled performance obligations” allowed

in certain circumstances• Current presumption is that most construction

contractors would keep the contract as the profit center

• Eliminated presumed preference for output method of revenue recognition.– Input method okay (cost to cost still allowed with

certain exceptions)

19

ON THE HORIZONRevenue Recognition - Contractors

• Still some changes:– Certain traditional job costs will be removed from

percentage of completion calculation (treated as period costs)• Idle time/wasted materials• Bid costs• Mobilization and other early costs would be capitalized and

amortized– Practical application will be difficult

• Do not want to lose track of job costing for these costs• Difficult to segregate and capture costs

Any questions?If you do not have the opportunity to have your question addressed during the seminar, you may contact the presenter directly:

Kevin Doyle, CPA555 Quince Orchard Road, Suite 600Gaithersburg, MD 20878Email: kdoyle@lrmd-cpa.comPh: 301-258-8900  Fax: 301-258-1020