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ACCOUNTING UPDATE
Presented by Paul J. Nockels
©2017 RSM US LLP. All Rights Reserved.
Broker-Dealer Accounting
ExchangesPrivate Company Council
Broker-Dealers
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Definition of a Public Business Entity
A public business entity is a business entity meeting the following criteria:
• It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).
• Broker-dealers are public business entities as they meet the above definition
• Other entities meet the definition under separate criteria
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Is a Futures Commission Merchant a PBE?
Entities registered with the Commodity Futures
Trading Commission (CFTC) do not file with the
SEC, unless they are dually registered
• Not public business entities under “criteria a”
• Could be a PBE under other criteria
• If not a PBE, delayed required adoption of new
accounting standards
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Agenda
• Accounting Topics
• Accounting Standards Updates
• Other Topics
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Accounting Topics
• Revenue Recognition
• Leases
• Digital Currencies
• Restricted Cash
• Income Taxes (TCJA)
• Current Expected Credit Loss (CECL)
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Revenue Recognition Standard
• May 2014 – FASB and ISB issued substantially converged final standards
• Eliminates industry specific revenue recognition
• Comparability between industries
• Entity should 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.
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Revenue Recognition Standard
• Entity should apply the following steps:1. Identify the contract(s) with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance
obligation in the contract
5. Recognize revenue when (or as) the entity satisfies a
performance obligation
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Effective Date of ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
Effective Date
As issued As updated
Public entities Annual reporting periods
beginning after December
15, 2016, and the interim
periods within that year
Annual reporting periods
beginning after December
15, 2017, and the interim
periods within that year
Example: Calendar year end Quarter and year beginning
January 1, 2017
Quarter and year beginning
January 1, 2018
Nonpublic entities Annual reporting periods
beginning after December
15, 2017, and the interim
periods within annual periods
beginning after December
15, 2018
Annual reporting periods
beginning after December
15, 2018, and the interim
periods within annual periods
beginning after December
15, 2019
Example: Calendar year end Year ending December 31,
2018 and interim periods in
2019
Year ending December 31,
2019 and interim periods in
2020
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Early Adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
Early Adoption
As issued As updated
Public entities Prohibited Permitted in annual reporting
periods beginning after
December 15, 2016, and the
interim periods within that year
(which was the original effective
date for public entities)
Nonpublic entities Permitted in any of the following
periods: (a) an annual reporting
period beginning after December 15,
2016 or 2017, and the interim periods
within that year or (b) an annual
reporting period beginning after
December 15, 2016, and the interim
periods within annual periods
beginning after December 15, 2017
Permitted in any of the following
periods: (a) an annual reporting
period beginning after December
15, 2016, and the interim periods
within that year or (b) an annual
reporting period beginning after
December 15, 2016 and the
interim periods beginning one
year after that annual reporting
period
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Broker-Dealer Revenue Streams
Revenue Stream Status of Paper
Commission Income Finalized and included in the AIPCA
Guide Revenue Recognition
Commission Income – Trade Date vs
Settlement Date
Finalized and included in the AIPCA
Guide Revenue Recognition
Selling and Distribution Fee Revenue Comment Period Closed – Final Version
Outstanding
Costs associated with underwriting Finalized and included in the AICPA Guide
Revenue Recognition
Costs associated with investment banking
advisory services
Finalized and included in the AICPA Guide
Revenue Recognition
Underwriting and related fee income Finalized to be included in a future edition
of the AICPA Guide Revenue Recognition
Advisory fee income Finalized to be included in a future edition
of the AICPA Guide Revenue Recognition
Soft dollar revenues Finalized to be included in a future edition
of the AICPA Guide Revenue Recognition
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Transition Alternatives Upon Adoption
• Retrospective application to all periods presented
with the option to elect one or more practical
expedients
• Modified retrospective
− No restatement of prior periods
− Apply ASU 2014-09 to in-progress contracts as of the
adoption date going forward and subsequent contracts
− Recognize a cumulative effect adjustment at adoption
date for effects of applying ASU 2014-09 to in-progress
contracts
− Disclose in the year of adoption the effect on each line
item in the financial statements as a result of adoption
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Required Disclosures
• Objective is to help financial statement users understand the nature, amount, timing and uncertainty of the related revenue and cash flows
• Annual and interim disclosures required of public entities − Less on an interim basis, but mostly quantitative in nature
• More disclosures required of public business entities and certain nonprofit entities and employee benefit plans − However, disclosures for all others are still significant
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Required Disclosures
• Detailed quantitative and qualitative information
about the following must be disclosed:
− Disaggregated revenue
− Contract assets, contract liabilities and receivable
− Performance obligations in general and the transaction
price allocated to the remaining performance obligations
at the end of the reporting period
− Significant judgments related to when performance
obligations are satisfied and used to estimate and
allocate the transaction price − Capitalized customer
contract costs
− Capitalized customer contract costs
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ASC Topic 606 disclosure requirements
• Entities that adopted ASC Topic 606 on a modified retrospective
basis must disclose what accounting treatment would have
been under legacy revenue guidance
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General tax revenue recognition rules (accrual method)
• Under an accrual method of accounting,
income is includable when all the events to
fix the right to receive the income and the
amount can be determined with
reasonable accuracy
− Revenue is fixed for tax when (1) the payment
is earned through performance, (2) payment is
due to the taxpayer, (3) payment is received by
the taxpayer, or (4) the item of gross income, or
any portion thereof, is taken into account as
revenue in the AFS, whichever happens earliest
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Tax considerations of ASC 606
• Direct impacts
− Federal current tax
− State current tax
• Indirect impacts
− Sales tax
− Excise taxes
− Transfer pricing
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ASC 606 – assessment of tax impact
Define scope
Financial reporting assessment
Determine tax process
Review data and calculate
adjustments
Prepare deliverables
Implement
• Reflects company’s industry,
complexity and internal resources
• Work collaboratively with financial reporting team
to identify potential tax issues and opportunities
• Addresses level of analysis, specific
action steps, and implementation needs
• Involves determining proper tax
methods and calculating adjustments
• Provides summary of analysis and
implementation recommendations
• Includes assistance with
forms and ASC 740 tax-
related items
©2017 RSM US LLP. All Rights Reserved.
What about SIPC Revenue?
• Definition of SIPC Revenue unchanged by ASC
606
• It is not clear how to address the cumulative
effect adjustment at adoption date in the SIPC-6
− Broker-dealers that are impacted could contact SIPC
to clarify
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Leases
• Upon its effective date, FASB Update 2016-02,
Leases, will require a lessee to recognize on its
balance sheet assets and liabilities for all leases
other than those that meet the definition of short-
term leases.
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Treatment of Operating Leases under SEC Rule 15c3-1
• In a letter to SIFMA dated November 8, 2016, the
staff of the Division of Trading and Markets stated
it would not recommend enforcement action to the
SEC under Exchange Act Rule 15c3-1 if a broker-
dealer computing net capital adds back an
operating lease asset to the extent of the
associated operating lease liability.
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Treatment of Operating Leases under SEC Rule 15c3-1
• Further, the Division will not recommend
enforcement action to the SEC if a broker-dealer
determining its minimum net capital requirement
using the AI standard does not include in its
aggregate indebtedness an operating lease
liability to the extent of the associated operating
lease asset.
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Treatment of Operating Leases pursuant to Rule 1.17 under the Commodity Exchange Act
• SIFMA issued a no-action letter request to the
CFTC dated February 8, 2018
− Includes appendix of examples
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Leases
• Overview
• Scope
• Disclosures
• Effective date and transition
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Related Party Leases
• No distinction between leases with related parties vs. third parties
• Application of Step 1 – determine if contract contains a lease− Included in expense sharing agreements?
− Determination of contract terms, including length, renewal options, etc.?
− Form over substance… if there is no contract that is enforceable, is there no lease?
− NOW is a good time to revisit to clarify arrangements
©2017 RSM US LLP. All Rights Reserved.
Leases overview
• Changes for lessees− Will record lease liability and right-of-use (ROU) asset for
most leases
− Income statement expense presentation will depend on classification of lease
• Changes for lessors− Limited changes to lessor accounting model
− Classification criteria modified
− Leveraged lease accounting prospectively eliminated
• Changes for both− Sale-leaseback criteria
− New presentation and disclosure requirements
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Scope
• Standard is applicable to all leases except:
− Leases of intangible assets
− Leases to explore for or use minerals, oil, natural gas,
and similar nonregenerative resources
− Leases of biological assets
− Leases of inventory
− Leases of assets under construction
• Short-term leases election
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Lessee disclosures
Extensive qualitative and quantitative disclosures
Type Example disclosures
Qualitative • Nature of leases
• Leases that have not yet commenced
• Variable payment arrangements
• Termination/purchase/renewal options
Quantitative • Amortization and interest for finance leases
• Operating lease cost
• Variable lease cost
• Short-term lease cost
• Maturity analysis of lease liabilities
Significant
judgments
and
assumptions
• Determining if a lease exists
• Standalone prices
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Lessor disclosures
Extensive qualitative and quantitative disclosures
Type Example disclosures
Qualitative • Nature of leases
• Variable payment arrangements
• Termination/purchase/renewal options
• Information about management of residual asset risk
Quantitative • Lease income (in tabular format)
• Maturity analysis of undiscounted cash flows
(segregated by finance/operating lease)
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Effective date
Public business entities
• Annual and interim periods
in fiscal years beginning
after 12/15/2018
• Early adoption permitted
• Modified retrospective
transition
− Certain reliefs
Nonpublic business entities
• Fiscal years beginning after 12/15/2019
• Interim periods in fiscal years beginning after 12/15/2020
• Early adoption permitted
• Modified retrospective transition
− Certain reliefs
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Transition
• Modified retrospective transition
− Full retrospective adoption is prohibited
− All comparative periods presented are restated
− “Packaged” transition reliefs
• Expired/existing contracts contain leases
• Lease classification for expired/existing leases
• Whether previously capitalized initial direct costs could still be
capitalized
− Other transition relief
• Hindsight can be used in determining lease term and
assessing impairment of ROU assets
©2017 RSM US LLP. All Rights Reserved.
Leases: Targeted improvements to ASC 842
Transition—Comparative Reporting at Adoption
• Entities will be given an additional option for transition, under which
they will be allowed to elect to recognize a cumulative-effect
adjustment to the opening balance of retained in the period of adoption,
rather than in the earliest period presented.
• Reporting for comparative periods would remain under ASC 840
Separating Components of a Contract
• Lessors would be allowed to apply a practical expedient to not separate
nonlease components from the related lease components
• Lessors applying this expedient would account for the combined
components as a single lease component, if both:
1. The timing and pattern of revenue recognition for the nonlease
component(s) and related lease component are the same
2. The combined single lease component would be classified as an
operating lease Pro
posed
Proposed ASU
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Adoption Readiness
• Review of contracts − Updates to clarify related party lease arrangements
• Updates to policies and internal controls − System updates
− Controls related to adoption
• Interactions with auditors
• Assess quantitative impact prior to January 1, 2019
• First reporting period – January ’19 FOCUS report
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New Lease Accounting Resource Center
• Information about adoption and
implementation of ASU 2016-02,
Leases (Topic 842), including:− Leases: Bring on the balance sheet
− Leases: New accounting requirements for
lessees
− Leases: Overview of the new guidance
− SAB 74 disclosures for new standard on
lease accounting
• A contact form for those who need
help implementing the new standard
• Additional resources on lease
accounting
visit - rsmus.com/asc842
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Accounting and Financial Reporting of Digital Currencies
• Currently no authoritative literature under US GAAP that specifically addresses resulting in diversity in practice
• What is it?− Cash? Financial Instrument? Intangible?
Inventory?
− Security? Commodity? Something New?
• Why is it?− ICOs? Trading? Liquid Asset? Economics
consideration?
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Accounting and Financial Reporting of Digital Currencies
• Recognition and measurement− Trade/execution date?
− Time of day? Close of business?
− Offsetting considerations
− Carrying value (fair value vs. cost, subject to impairment?)
• Disclosure considerations− If fair value, fair value hierarchy?
− Operating risks (keys stolen, lost, destroyed or otherwise compromised)
− Market risks
− Liquidity risks
− Counterparty and credit risks – cryptocurrency platforms/exchanges
©2017 RSM US LLP. All Rights Reserved.
What about SIPC Revenue?
• It is not clear whether revenues earned by a
broker-dealer related to digital asset activities is
included in SIPC revenue
− Is the digital asset a security? Does it matter?
©2017 RSM US LLP. All Rights Reserved.
Restricted Cash
• ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash
• Effective for public business entities for fiscal years ending after December 15, 2017
• Designed to reduce diversity in practice in cash flow presentations
• Entities must include restricted cash and cash equivalents in the reconciliation from beginning to end-of-period total cash amounts
• Entities must disclose the nature of restrictions on restricted cash
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Broker-Dealer Considerations
• ASU does not include a definition – covers “…
amounts generally described as restricted cash
or restricted cash equivalents”
• Broker-dealers would consider proper
presentation of disclosure of cash segregated
under SEC 15c3-3/PAB requirements and
CFTC regulations
• Several broker-dealers adopted for Q1 2018
10-Q
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Financial statement impacts of Tax Cuts and Jobs Act
• On December 22, the Tax Cuts and Jobs Act (the “Act”) was
signed into legislation
• Most significant change in U.S. tax law since 1986
• Significant financial statement impacts on a number of
areas as a result of the Act including:
─ Deferred tax assets and liabilities
─ Accumulated Other Comprehensive Income (AOCI)
─ Net operating losses (NOLs)
─ Alternative minimum tax
─ Foreign operations
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The Act
• New law changes the discussion on tax impacts of revenue recognition
• New tax revenue recognition rules for entities with applicable financial statements (AFS)
• Significant changes− Revenue is fixed for tax when (1) the payment is earned through
performance, (2) payment is due to the taxpayer, (3) payment is received by the taxpayer, or (4) the item of gross income, or any portion thereof, is taken into account as revenue in the AFS, whichever happens earliest
• Tax will also follow the allocation of the transaction price
• Does not apply to special methods of accounting (e.g., percentage-of-completion, installment sales)
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Deferred tax assets and liabilities under the Act
• ASC 740 requires that the effects of a change in tax law and rates be accounted for in the period of enactment
− Deferred tax assets and liabilities are required to be adjusted to reflect the effect of a change in tax rates in the period of enactment
• The Act reduces corporate tax rates from 35% to 21% for tax years beginning after 12/31/17
− In financial statements for interim or annual periods after 12/22/17, deferred tax assets and liabilities should be determined based on the new corporate tax rate in effect when they will reverse
− Changes to deferred taxes would be recorded in continuing operations and would not be subject to the intraperiod allocations
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Non-calendar year-end public business entities
• Non-calendar year-end public entities must reflect the
changes under the Act in the quarter that includes
12/22/17
• Estimated annual effective tax rate for the current year
should be adjusted in the quarter of enactment
• Estimated change in the deferred tax items as of the
beginning of the year should be treated as a discrete
item in the quarter of enactment
• Scheduling of deferred tax items may be needed to
determine the appropriate tax rate for reversal
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ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
• Changes in rates for items included in AOCI go through
income taxes from continuing operations
• This results in a disproportionate tax effect being
recorded in AOCI (referred to as stranded tax effects)
• Historically this disproportionate impact would have
been reversed based upon an accounting policy election
• The ASU allows for reclassification from AOCI to
retained earnings for stranded tax effects resulting from
the Tax Cuts and Jobs Act
©2017 RSM US LLP. All Rights Reserved.
ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
Permitted
2019
If elected, the effective date for calendar year-ends
Required
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NOLs under the Act
• NOLs arising in taxable years beginning after 12/31/17
may only offset 80% of current year taxable income
• NOLs arising in taxable years ending after 12/31/17
may not be carried back but can be carried forward
indefinitely
• The Act does not change the pre-2018 NOL usage,
carryover or carryback periods
• These changes will affect a company’s assessment of
the ability to utilize NOLs against deferred tax liabilities
©2017 RSM US LLP. All Rights Reserved.
Corporate alternative minimum tax under the Act
• Corporate alternative minimum tax is repealed for
taxable years beginning after 12/31/17
• Existing AMT credits will continue to be allowed to
offset regular tax liability after other credits
• Any AMT credits not used to reduce regular tax will
begin to be refunded starting in years beginning after
2017
• These changes will result in a release of a valuation
allowance against any AMT credits
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Foreign operations under the Act
• U.S. companies will be required to include in U.S. taxable income the total amount of unremitted foreign earnings of its controlled foreign subsidiaries
− Effective for a foreign corporation’s final year beginning prior to 2018, which would include years ending 12/31/17
− As a result, the concept of permanent reinvestment in a foreign subsidiary would no longer be relevant as it relates to potential U.S. tax on foreign earnings
• Tax due on deemed repatriation may be paid over an eight-year period
− An entity that elects to pay the tax related to repatriation over eight years will need to record a portion of the payable as a current liability and a portion as a non-current liability
− Amount should not be recorded as a deferred tax item as it represents an actual tax liability
©2017 RSM US LLP. All Rights Reserved.
SEC guidance
• In late December, the SEC issued SAB 118 (codified in SAB Topic
5.EE) which addresses the application of ASC 740 in the reporting
period that includes the date on which the Act was signed into law
• While ASC 740 provides accounting and disclosure guidance on
accounting for income taxes, it does not address the treatment
when the accounting for certain income tax effects of the Act is
incomplete at the time financial statements are issued
• SAB 118 provides that in cases in which the accounting for certain
income tax effects of the Act is incomplete but companies can
make a reasonable estimate of the effects of the tax law change,
that estimate should be recorded with appropriate disclosures
─ The estimate would be reported as a provisional amount in the company’s
financial statements during the one-year measurement period
─ Any adjustments during the measurement period should be included in
income from continuing operations as a tax expense/benefit in the
reporting period the adjustments are determined
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SEC guidance (cont.)
─ If a company does not have the necessary information
available, prepared, or analyzed regarding certain
income tax effects of the Act to determine a reasonable
estimate to be included as provisional amounts:
• No related amounts should be included in an entity’s
financial statements for those specific income tax effects for
which a reasonable estimate cannot be determined
• A company should continue to apply ASC Topic 740 (e.g.,
when recognizing and measuring current and deferred
taxes) based on the provisions of the tax laws in effect
immediately prior to the Act being enacted
©2017 RSM US LLP. All Rights Reserved.
January 10th FASB meeting
• FASB issued a Q&A indicating that
− Private companies could follow the SAB 118 guidance
− Deemed repatriation payments and refundable AMT
credits should not be discounted
©2017 RSM US LLP. All Rights Reserved.
Challenges?
• Since enacted date of Act is tax years
beginning after 12/31/17, tax
acceleration for ASC 605/various other
GAAP guidance in 2017 (private
companies)
• Then additional potential change in
2018/2019 as ASC 606 is fully
implemented across all required entities
• IRS has not yet commented on how to
effect any of these changes
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BBA Audit Rules
IRS – amended partnership audit rules for tax years beginning in 2018
• TEFRA partnership audit rules replaced by the “BBA audit rules” (Bipartisan Budget Act of 2015)
• IRS will generally collect tax at partnership level on adjustments at the highest corporate or individual rate
• Accounting for uncertain tax positions will become more complex
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Tax reform resource center
Additional information on how legislation can affect your business and
tax planning
visit - rsmus.com/taxreform
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CURRENT EXPECTED CREDIT LOSS (CECL)
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CECL: Not Just for Banks
• Consideration of accounting for various
receivables
− Brokerage
− Margin loans
− Securities lending
− Reverse repurchase agreements
− Related party arrangements?
• Additional disclosure requirements
©2017 RSM US LLP. All Rights Reserved.
Overview of the credit losses standard
• ASU 2016-13, Measurement of Credit Losses on
Financial Instruments
• Creates ASC Topic 326 • Subtopic 326-20 applies to financial assets measured at
amortized cost
− Supersedes impairment guidance in ASC 310 on
receivables/loans and ASC 320 on debt securities
(amongst other changes)
©2017 RSM US LLP. All Rights Reserved.
Effective dates of the credit losses standard
• SEC filers – fiscal years beginning after 12/15/19 (including interim periods) – 2020 for calendar year-end entities (“CYE”)
• Public Business Entities that are not SEC filers – fiscal years beginning after 12/15/20 (including interim periods) – 2021 for CYE
• All others – fiscal periods beginning after 12/15/20 (interim periods beginning after 12/15/21) – 2021 for CYE
• Early adoption is permitted for fiscal years beginning after 12/15/18 – 2019 for CYE
• Adopt through a cumulative effect adjustment to retained earnings− Special rules for other-than-temporary impairment (“OTTI”), purchased
financial assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) and beneficial interests
©2017 RSM US LLP. All Rights Reserved.
Applicability of ASC 326-20
• The following are in-scope:− Financial assets measured at amortized cost (AC)
including:• Financing receivables (loans)
• Held to maturity debt securities
• Receivables from revenue transactions with customers and other income
• Reinsurance receivables
• Receivables related to repo and securities lending agreements
− Net investment in leases
− Off-balance-sheet credit exposures• Loan commitments
• Standby letters of credit
• Financial guarantees/similar instruments
©2017 RSM US LLP. All Rights Reserved.
Applicability of ASC 326-20
• The following are out of scope:
− Financial assets measured at fair value (FV)
• Available-for-sale securities
• Other
− Loans made to participants by defined contribution
employee benefit plans
− Policy loans receivable of an insurance entity
− Promises to give (pledges receivable) of a not-for-
profit entity
− Loans and receivables between entities under
common control
©2017 RSM US LLP. All Rights Reserved.
Major provisions of ASC 326-20
• Recognize expected (rather than incurred) credit losses− Through allowance for recognized financial assets
(including held-to-maturity ("HTM”) debt securities)
− Through liability for off balance sheet exposures
− Results in day 1 life of asset expected loss recognition
• Exception: Initial allowance recorded as increase to purchase price for PCD assets (Assets that as of the date of acquisition have experienced a more-than-insignificant deterioration in credit quality since origination – “Purchased with credit deterioration”)
− Changes in the allowance (plus and minus) are recorded immediately through credit loss expense
©2017 RSM US LLP. All Rights Reserved.
Major provisions of ASC 326-20
• Measure expected losses on a pool basis
whenever similar risk characteristics exist
• No one method required. Some examples:
− Discounted cash flows
− Loss rate methods
− Roll-rate methods
− Probability of default methods
− Based on an aging analysis
©2017 RSM US LLP. All Rights Reserved.
Major provisions of ASC 326-20
• Consider relevant available information (internal and/or external) when estimating expected losses
• Don’t rely solely on past events – Adjust historical loss information for− Differences in current asset specific risk
characteristics
− Circumstances when historical info is not reflective of contractual term
− Current conditions
− Reasonable and supportable forecasts
©2017 RSM US LLP. All Rights Reserved.
Major provisions of ASC 326-20
• When estimating losses for periods beyond reasonable and supportable forecast, revert to historical loss information− Input level or based on the entire estimate
− Immediately, straight line basis or another rational and systematic basis
• Include measure of expected risk of loss even if remote− May reach conclusion expected credit loss is zero if
justified based on historical loss info adjusted for current conditions and reasonable and supportable forecasts
©2017 RSM US LLP. All Rights Reserved.
Major provisions of ASC 326-20
• Collateral dependent practical expedient (PE)
available when:
− Borrower is experiencing financial difficulty
− Repayment is expected substantially through the
operation or sale of the collateral
• Base estimate of credit loss on amortized cost
less fair value of collateral
− Adjust for selling costs if expect repayment through
sale of collateral
• Must be used if foreclosure is probable
©2017 RSM US LLP. All Rights Reserved.
Major provisions of ASC 326-20
• Collateral maintenance provisions PE
− Borrower required to continually adjust the amount of
collateral as a result of fair value changes in the collateral
− Limit allowance to excess of amortized cost of asset over
fair value of collateral
• Through PEs only, could conclude expected loss is
zero solely on the basis of the current collateral
value. Absent PE, would need to consider potential
future changes in collateral value and historical loss
info for assets with similar collateral
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ACCOUNTING STANDARDS UPDATES
©2017 RSM US LLP. All Rights Reserved.
Final standards recently issued
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities
ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing
Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic
815): (Part I) Accounting for Certain Financial Instruments with
Down Round Features, (Part II) Replacement of the Indefinite
Deferral for Mandatorily Redeemable Financial Instruments of
Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests with a Scope Exception
©2017 RSM US LLP. All Rights Reserved.
Final standards recently issued
ASU 2017-15, Codification Improvements to Topic 995, U.S.
Steamship Entities: Elimination of Topic 995
ASU 2017-14, Income Statement—Reporting Comprehensive
Income (Topic 220), Revenue Recognition (Topic 605), and
Revenue from Contracts with Customers (Topic 606) (SEC
Update)
ASU 2017-13, Revenue Recognition (Topic 605), Revenue from
Contracts with Customers (Topic 606), Leases (Topic 840), and
Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to
the Staff Announcement at the July 20, 2017 EITF Meeting and
Rescission of Prior SEC Staff Announcements and Observer
Comments (SEC Update)
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Final standards recently issued
ASU 2018-02, Income Statement—Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income
ASU 2018-01, Leases (Topic 842): Land Easement Practical
Expedient for Transition to Topic 842
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Final standards recently issued
ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC
Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SEC
Update)
ASU 2018-04, Investments—Debt Securities (Topic 320) and
Regulated Operations (Topic 980): Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release
No. 33-9273 (SEC Update)
ASU 2018-03, Technical Corrections and Improvements to Financial
Instruments—Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities
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ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities
• ASU brings relief to the rigors of hedge accounting,
including:
− Reduced upfront documentation requirements for certain
private companies and ability to wait until financial
statements are available to be issued to assess
effectiveness
− Other entities can wait until the quarterly effectiveness
testing to perform the initial assessment of effectiveness
− Can apply long-haul method if short cut method was not or
no longer is appropriate
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ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities
• Expanded risks eligible for hedging:
− Contractually specified component in cash flow hedge of
commodities
− Contractually specified interest rate in cash flow hedge of
interest rate risk
− Changes in fair value attributable to changes in SIFMA for
fair value hedge of interest rate risk
• Additional flexibility for fair value hedges of interest
rate risk
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ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities
• Less quantitative analysis will be required
− If initial quantitative assessment indicates relationship is
highly effective, can elect to perform subsequent
assessments qualitatively absent a significant change in
facts and circumstances
− Can assume dates match if forecasted transaction
occurs, and derivative matures, within same 31 day
period
− Ineffectiveness is no longer separately measured and
recognized
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ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities
• Certain transition elections permitted including:
− Switch from quantitative assessment to qualitative
− Indicate quantitative method to be used in the event short
cut method fails
− Redesignate hedged risk as contractually specified
component
− Reclassify debt security from HTM to AFS if eligible to be
hedged under last-of-layer method
• PBEs and certain private companies must make
elections in quarter of adoption, others before next
financial statements are available to be issued
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ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10)
The amendments clarify certain aspects of the guidance issued in
ASU 2016-01
Issue Summary of amendment
Equity Securities without a Readily
Determinable Fair Value –
Discontinuation: Once an entity elects
the measurement alternative in ASC
321-10-35-2, the entity must continue to
apply the alternative until the investment
has a readily determinable fair value or
becomes eligible for the net asset value
practical expedient.
Are there additional situations that may
allow for an entity to discontinue the
measurement alternative?
An entity measuring an equity
security using the measurement
alternative may change its
measurement approach to a fair
value method, through an
irrevocable election that would apply
to that security and all
identical or similar investments of
the same issuer.
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On the Horizon
FASB is working on various projects including
targeted improvements and clarifications:
Related party guidance for VIEs
Leases
Disclosures of fair value measurements
Digital currencies?
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Segment Reporting
Are broker-dealers subject to the segment reporting requirements under ASC 280?
− PBEs are encouraged but not required to provide disclosures in Topic 280, unless those entities also meet the definition of a “public entity” as defined in Section 280-10-20
− Public entity is a business entity… that is required to file financial statements with the SEC
− When issued, SFAS 131 superseded FASB Technical Bulletin No. 79-8, which scoped out broker-dealers
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Going Concern
Statement on Auditing Standards No. 132
effective for audits of financial statements for
periods ending on or after December 15, 2017
• Includes consideration of management’s
evaluation (now required post ASU 2014-15)
• Assumption that the entity will continue its
operations for a reasonable period of time
− Generally one year from when financial statements
are issued or available to be issued, where
applicable
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Resources
• AICPA Expert Panel - Stockbrokerage and
Investment Banking website (Minutes)
• FASB Website (fasb.org)
• FINRA - Annual Regulatory and Examination
Priorities Letter
• SEC Examination Priorities
• SEC No-Action Letter dated November 8, 2016
• RSM Financial Reporting Resource Center
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FOR MORE INFORMATION PLEASE CONTACT:
PAUL J. NOCKELSPARTNER, GREAT LAKES FINANCIAL SERVICES PRACTICE LEADER
RSM US LLPONE SOUTH WACKER DRIVE, SUITE 800CHICAGO, ILLINOIS 60606OFFICE: [email protected]
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