accounting technical updates: what has the fasb been focused on?

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ACCOUNTING TECHNICAL

UPDATES

Michael Hoffner, PartnerJanice Snyder, Partner

What has the FASB

been focused on?

PRESENTERS

Michael Hoffner, [email protected]

Janice Snyder, [email protected]

Mike is a Partner with 20 years of experience. He

currently serves as the firm’s Business Unit Director and

is co-leader of the Audit Segment. He serves clients in

various industries, including manufacturing/distribution,

technology, construction, and employee benefit plans. He

also leads the firm’s practice area focused on Service

Organization Control reporting (SOC 1, 2 and 3).

Janice is a Partner with nearly 20 years of experience.

She serves as co-leader of the firm’s Audit Segment.

She specializes in serving clients in various industries,

including manufacturing/distribution, healthcare entities,

human service organizations and nonprofit

organizations. She also conducts audits of employee

benefit plans.

DISCLAIMER

The information contained in this presentation, both that contained in the slides and that expressed by the presenter, is not intended to be complete and comprehensive. To obtain a more detailed understanding of technical literature mentioned, please consult the full standards and interpretations.

There are also many other topics not being covered due to their narrow applicability or time constraints.

FASB ACCOUNTING STANDARDS UPDATES

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17

25

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21 22

8

12

7

12

18 17

20

11

0

5

10

15

20

25

30

2011 2012 2013 2014 2015 2016 2017

Exposure Drafts IssuedAccounting Standards Updates Issued

FASB ACCOUNTING STANDARDS UPDATES

MAJOR INITIATIVES

Revenue Recognition

Leases

Goodwill & Intangibles

Business Combinations

Compensation

Not-for-Profit Entities

REVENUE RECOGNITION (TOPIC 606)In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers

Affects all entities – public, private, and not-for-profit that have contracts with customers

Effective for annual reporting periods beginning after December 15, 2017 (Public Companies) and December 15, 2018 (Private entities)

Eliminates the transaction and industry specific revenue recognition guidance under current GAAP

Numerous ASUs issued subsequent to ASU No. 2014-09.

Transition allows full retrospective or simplified method

• Full Retrospective – Restate all periods presented

• Simplified – Cumulative effect change through equity in year of change with prior period presented without change. Disclosure required to state the amount of change in each line item of financial statements as if presented under prior accounting

Out of Scope contracts include:

• Leases

• Insurance contracts

• Financial instruments

• Nonmonetary exchanges to facilitate sales to customers

• Certain guarantees

REVENUE RECOGNITION (TOPIC 606)

5 STEPS TO REVENUE RECOGNITION

CONTRACT

An agreement between two or more parties that creates enforceable rights and obligations. Contracts may be written, oral, or implied by an entity’s customary business practices. The practices and processes for establishing contracts with customers vary across legal jurisdictions, industries, and entities.


PERFORMANCE OBLIGATIONA promise in a contract with a customer to transfer to the customer either:

A. A good or service (or a bundle of goods or services) that is distinct

B. A series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer


CONTRACT COSTSAn entity should capitalize incremental costs of obtaining a contract and amortize over the life of the contract

Relate directly to a contract that can be identified (i.e. commissions)

Enhances the entity’s ability to complete the contract

Are expected to be recovered

Practical expedient: for contracts to be completed in 12 months entity can elect not to capitalize costs


REVENUE RECOGNITION (TOPIC 606)ASU 2014-09—Revenue from Contracts with Customers ASU 2015-14—Deferral of the Effective DateASU 2016-08—Principal versus Agent Considerations (Reporting Revenue Gross versus Net)ASU 2016-10—Identifying Performance Obligations and LicensingASU 2016-11—Revenue Recognition and Derivatives and Hedging (Topic 815)ASU 2016-12—Narrow-Scope Improvements and Practical ExpedientsASU 2016-20—Technical Corrections and Improvements

AICPA has formed sixteen industry task forces to help develop a new Accounting Guide on Revenue Recognition that will provide illustrative examples for how to apply the new Revenue Recognition Standard.

AICPA INDUSTRY TASK FORCES

Construction Contractors Healthcare Not-for-ProfitAerospace Gaming Power and UtilityAirlines Hospitality SoftwareAsset Management Insurance TelecommunicationsBroker-Dealers Oil and Gas TimeshareDepository Institutions


Source: aicpa.org/FRC Updated as of June 1, 2017

LEASES (TOPIC 842)

ASU 2016-02—Leases

Effective Date: Public Companies - effective for fiscal years beginning after December 15, 2018Private Companies - effective for fiscal years beginning after December 15, 2019

After a decade of discussion and deliberation, final standard was issued in February 2016.

Nearly all leases will be recorded on the balance sheet!

LEASES (TOPIC 842)

Lease Definition:

A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.

LEASES (TOPIC 842)

Dual model for leases• Finance leases – Similar to capital lease – record asset, liability,

amortization and interest expense.

• Operating leases – any lease that is not a finance lease – record single line lease expense (similar to rent).

LEASES (TOPIC 842)Balance Sheet Income Statement Cash Flows

All LEASES

Assets - Record ROU

Asset (increases long-

term assets)

Liabilities - Record NPV

of lease payments as a

long-term liability

(increases liabilities)

FINANCE LEASE

Expenses –Increases interest and

amortization expense

OPERATING LEASE

Expenses –Single lease cost on a

straight line basis

FINANCE LEASE

Operating –Cash payments for interest

Financing – Cash payments for

principal portion of the lease liability

OPERATING LEASE

Operating –All cash payments

LEASES (TOPIC 842)

• Inclusion of extension options in term if “significant economic incentive to exercise”.

• Exemption for short-term leases (12 months or less).

• Includes all related party leases at legally enforceable terms.

• Incremental borrowing rate of lessee or implicit rate in the lease (nonpublic entities and not-for-profit entities can use risk-free rate)

LEASES (TOPIC 842)

NEXT STEPS

1. Develop a list of all existing contracts.

2. Carefully assess existing and new lease agreements.

3. Determine the method to capture the lease accounting.

4. Evaluate the financial implications.

5. Communicate implications with the users of the financial statements.

BUSINESS COMBINATIONS (TOPICS 805 & 810)

ASU 2015-16—Simplifying the Accounting for Measurement Period AdjustmentsASU 2016-17—Interests Held Through Related Parties that are Under Common ControlASU 2017-01—Clarifying the Definition of a Business ASU 2017-02—Clarifying When a Not-For-Profit that is a General Partner or a Limited Partner should Consolidate a For-Profit Limited Partnership

BUSINESS COMBINATIONS (TOPICS 805 & 810)Simplifying the Accounting for Measurement Period Adjustments

Effective 12/15/15 (Public); 12/15/16 (Private); ProspectiveAdjustments made to provisional amounts recognized in a business combination are now recorded in the reporting period in which the amounts are determined (rather than retrospectively as previously required).

Interests Held Through Related Parties that are Under Common Control

Effective 12/15/16 (Public); 12/15/17 (Private); RetrospectiveChanges the VIE model for entities under common control and related parties.

If the single decision maker and its related parties that are under common control, as a group, have the characteristics of a primary beneficiary, then the party within the related party group that is most closely associated with the VIE is the primary beneficiary.


Clarifying the Definition of a Business Effective 12/15/17 (Public); 12/15/18 (Private); Prospective

• An integrated set of assets and activities inputs, processes, & outputs (same as before)

• Applies a required screen when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business.

Fewer transactions will qualify as business combinations!


Clarifying When a Not-For-Profit that is a General Partner or a Limited Partner should Consolidate a For-Profit Limited PartnershipEffective 12/15/16; Retrospective• NFPs that are general partners continue to be presumed to control a for-

profit limited partnership• Exceptions: kick-out rights and substantive participating rights

GOODWILL AND INTANGIBLES (TOPIC 350)

ASU 2017-04—Simplifying the Test for Goodwill ImpairmentEffective 12/15/19 (Public-SEC); 12/15/20 (Public- Non-SEC); 12/15/21 (NFP & Other); May early adopt!

“an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.”

GOODWILL AND INTANGIBLES (TOPIC 350)

ASU 2017-04—Simplifying the Test for Goodwill Impairment

• Eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.

• An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

• An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets.

Goals: Reduce the cost & complexity of evaluating goodwill for impairment

COMPENSATION (TOPICS 715 & 718)

ASU 2016-09—Improvements to Employee Share-Based Payment AccountingASU 2017-07—Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit CostASU 2017-09—Stock Compensation: Scope of Modification Accounting


ASU 2016-09—Improvements to Employee Share-Based Payment Accounting Effective 12/15/16 (Public); 12/15/17 (Private)1. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-

based payment awards) should be recognized as income tax expense or benefit in the income statement.

2. An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur.

3. A nonpublic entity can make an accounting policy election to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that meet certain conditions.


ASU 2017-07—Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost Effective 12/15/17 (Public); 12/15/18 (Private); Retrospective1. Requires that an employer report the service cost component in the same line item or

items as other compensation costs arising from services rendered by the pertinent employees during the period.

2. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.

3. Allows only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset).


ASU 2017-09—Stock Compensation: Scope of Modification AccountingEffective 12/15/17 (All entities); Prospective; Early adoption permitted1. Provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when

applying the guidance to a change to the terms or conditions of a share-based payment award.

2. An entity should account for the effects of a modification unless all the following are met:

• The fair value of the modified award is the same as the fair value of the original award.

• The vesting conditions of the modified award are the same as the vesting conditions of the original award.

• The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award.

NOT-FOR-PROFIT ENTITIES (TOPIC 958)ASU 2016-14, Not-For-Profit Entities

• Released August 18, 2016 (Finally!)

The most significant changes to Not-For-Profit Financial Reporting in over 2 decades!

• FASB Statement No. 117 in 1993

Significant outreach within the industry when developing this ASU.

Effective for fiscal years beginning after December 15, 2017!

NOT-FOR-PROFIT ENTITIES (TOPIC 958)

Affects essentially all not-for-profits, including charities, foundations, private colleges and universities, nongovernmental health care providers, religious organizations, trade associations, etc.

Goal is to meet the evolving needs of the industry, and to provide better and more consistent information to donors, grantors, creditors, and other users of financial statements.

NOT-FOR-PROFIT ENTITIES (TOPIC 958)

5 Major Changes

Net Asset Classification

With and WithoutDonor Restrictions

Investment ReturnUnderwater Endowment Funds –

more disclosures!Investment return net of all related

external and direct internal expenses

Statement of Cash Flows

Free choice between direct or indirect method.

ExpensesPresent expenses by both

the natural and functional classifications.

Liquidity & Availability of Resources

Qualitative & quantitative information about the availability of resources to meet cash needs within one year of

the balance sheet date.

AICPA EXPOSURE DRAFT – EMPLOYEE BENEFIT PLANSItem Proposed Major Changes – Effective after December 15, 2018

1 Engagement acceptance – Shifts more responsibility to management

2 New performance requirements – new form of opinion including findings and procedures performed

3 DOL limited scope audit – new required procedures and new form/content of the auditor’s report (includes expanded auditor responsibilities regarding the certification)

4 Additional management representations

5 Form 5500 – additional procedures required

6 Expanded description of management’s responsibilities

7 Expanded communication on the ERISA supplemental schedules

8 Required emphasis-of-matter paragraphs

QUESTIONS?



BUILDING SUCCESSFUL

EMPLOYEE


and Risk Management

BUILDING SUCCESSFUL

EMPLOYEE


and Risk Management

www.macpas.com/collaborate2017

QUESTIONS?

