www.rubinbrown.com fasb update presented by: rodney e. rice, cpa september 29, 2011

www.rubinbrown.comwww.rubinbrown.com

FASB Update

Presented By: Rodney E. Rice, CPA

September 29, 2011

Local Presence… Global Reach

Accounting, tax and business advisory services

Offices in Denver, Kansas City and St. Louis

46th largest firm in the United States

Serve clients across the country and the world

68 partners and more than 400 professionals

12 specialized industry groups

St. Louis

Kansas City

Denver

Eighth largest network of accounting and business consulting firms in the world - $3.07 billion combined revenue

Represented by 150 firms in 120 countries with over 25,000 professionals in 610 offices

Jim Castellano, RubinBrown chairman, is chairman of Baker Tilly International

Agenda

Accounting Standards UpdatesIntangibles - Goodwill and Other

Multiemployer Plan Disclosures

Comprehensive Income presentation

FASB ProjectsLeases

Revenue Recognition

Private Company Financial ReportingBlue Ribbon Panel

A Matter of Perspective ….

ASC 350 No. 2011-08 September 2011 (Intangibles - Goodwill And Other)

Objective/Reason for the Change

The objective is to simplify how entities, both public and nonpublic, test goodwill for impairment

To reduce the cost and complexity of performing the first step of the two-step goodwill impairment test under ASC 350

Cost/complexity: FV


(Continued)

Significant Changes

Qualitative - not quantitative - assessment: Initially

Perform Step 1 of impairment analysis only if the entity determines that it is more likely than not (> 50% chance) that fair value is less than carrying amount.

More likely than not: Proceed with Step 1

Not “more likely than not”: Done


(Continued)

Flowchart

Of New

Process


(Continued)

Effective Dates

Fiscal years beginning after December 15, 2011

Early adoption is permitted, which includes annual and interim goodwill impairment tests performed as of a date before September 15, 2011 (Q3)

ASU 2010-28: Step 2 impairment analysis when FV is negative

ASC 750-80 No. 2011-09 September 2011 (Compensation - Retirement Benefits -

Multiemployer Plans)


To address financial statement user concern over lack of financial statement transparency for participation in a multiemployer pension plan


Multiemployer Plans) (Continued)

Risks Of Multiemployer Plans

Assets contributed by one employer may be used to provide benefits to employees of other participating employers

If a participating employer fails to make the required contribution, then the unfunded obligations of the plan may be forced upon the remaining participating employers

If an employer voluntarily withdraws from a plan, it may be liable for a final payment (the withdrawal liability)



Significant Changes

Enhance disclosures to included the financial health of all significant plans and assist a financial statement user with accessing additional information on the plan



Main Provisions/Disclosure Requirements

Disclosures Must Include:

The significant multiemployer plans in which an employer participates, including the plan names and identifying number

The level of an employer’s participation in the significant multiemployer plans, including the employer’s contributions made to the plans and an indication of whether the employer’s contributions represent more than 5 percent of the total contributions made to the plan by all contributing employers

The financial health of the significant multiemployer plans, including an indication of the funded status, whether funding improvement plans are pending or implemented, and whether the plan has imposed surcharges on the contributions to the plan

The nature of the employer commitments to the plan, including when the collective-bargaining agreements that require contributions to the significant plans are set to expire and whether those agreements require minimum contributions to be made to the plans



Implementation Dates

Public Entities - Annual periods for fiscal years ended after December 15, 2011, with early adoption permitted

Nonpublic Entities - Annual periods for fiscal years ended after December 15, 2012, with early adoption permitted

ASC 220 No. 2011-09 June 2011 (Comprehensive Income)


Improve comparability/consistency in financial reporting

Two reporting options

Continuous statement of comprehensive income

Two statement approach

Eliminates option to report in statement of changes in stockholder’s equity

ASC 220 No. 2011-09 June 2011 (Comprehensive Income)

Implementation Dates

Retrospective application

Public Entities - Fiscal years, and interim periods in those years, beginning after December 15, 2011, with early adoption permitted

Nonpublic Entities - Fiscal years ending after December 15, 2012, and interim periods thereafter, with early adoption permitted


FASB Projects

FASB Projects

Priority Projects

Leases

Revenue Recognition

Other Projects

Financial statement presentation

Disclosures about Risk/Uncertainties and Liquidation Basis of Accounting (Going Concern)

Financial Instruments with Characteristics of Equity

Loss Contingencies

Leases

Timeline

Exposure draft issued August 17, 2010

Comment period initially through December 14, 2010

Re-release of exposure draft expected Q4 2011

Leases (Continued)

Goals Of The Project

Improve information available to investors about the financial effects of lease contracts

Provide relevant information about a company’s rights and obligations

Remove the ‘bright-line’ distinction between capital and operating leases

Leases (Continued)

Goals Of The Project (Continued)

Provide more timely information about various lease options to financial statement users

Simplify financial metrics

Leases (Continued)

Changes From Current Methodology

All leases will be recorded on the balance sheet

Exception for short term leases (12 months, including all options to renew)

Lease term

Non-cancellable periods plus renewal periods with significant economic incentive …

... To renew, or

... To not exercise an option to terminate

Leases (Continued)

Changes From Current Methodology (Continued)

Applies to existing and new leases

Initial recognition

Record liability to make lease payments (including residual value guarantees) at NPV of payment stream

Record “a right to use” asset on the balance sheet for the same amount

Variable lease payments

Leases (Continued)


Subsequent recognition

LiabilityMeasure using effective interest rate method

‹ Rate stated in the lease‹ Incremental borrowing rate

Lease AmortizationSystematic basis reflecting the pattern of consumption of expected future economic benefits

Leases (Continued)


Disclosures

Reconciliation of beginning/ending right-of-use assets - by class

Reconciliation of beginning/ending liability - in total

Maturity schedule (same as currently required for debt)

Detail of lease related expenses - in tabular formatAmortization of the asset

Interest expense

Incremental variable lease payments

Lease expense on short term leases (scope exception)

Principal and interest paid

Leases (Continued)

Impact/Considerations

Will affect most every company’s balance sheet and its financial ratios

EBITDA: Rent expense replace with interest and depreciation

Cannot report interest expense + amortization expense as rent/lease expense

Could affect debt covenants

Revenue Recognition

Goal is to clarify the principles for recognizing revenue and develop a common revenue standard for U.S. GAAP and IFRS

Proposed guidance would replace most of the guidance in ASC 605

Revenue Recognition (Continued)

Also contains guidance for accounting for contract costs

Application of Principle

Identification of contract

Identification of performance obligations

Determination of transaction price

Allocation of transaction price to performance obligations

Recognition of revenue on satisfaction of each performance obligation


Presentation

Separate Disclosure of Contract Assets / Liabilities

Don’t have to use those exact titles, but must be able to distinguish between contract assets and receivables

Liabilities for onerous performance obligations must be presented separate from contract liabilities


Presentation (Continued)

Disaggregation of Revenue

Revenue should be disaggregated on face of statements or in footnotes

Disaggregation criteria will be disclosed, based on entity accounting policy - example categories:

Type of good or service (e.g., major product lines)

Geography

Customer or contract type


Disclosure of Remaining Performance Obligations

Disclose the amount of the transaction price allocated to remaining performance obligations for contracts that have both of the following:

A) An original expected contract duration of more than one year, and

B) Terms and conditions that result in the entity, in practice, being required to apply each step of the revenue model in order to recognize revenue

Disclose when amounts are expected to be recognized, either in quantitative time bands or by using both quantitative and qualitative information


Disclosures about Assets from Contract Acquisition or Fulfillment Costs

Rollforward disclosure from beginning to end of period, including:

Additions

Amortization

Impairments

Disclose accounting policy for amortization of costs


Implications

Debt covenants and other GAAP-based agreements

May impact IT systems, in order to collect data required for additional financial statement disclosures

Processes and controls may change to capture appropriate accounting data / estimates

May impact how budgets are developed and updated

Don’t forget to consider tax implications of any changes

Possible retrospective application could require dual sets of books


Implementation date is to be determined

Public entities: No earlier than annual periods beginning on or after January 1, 2015

Nonpublic entities: At least one year after public entities.


Private Company Financial Reporting

Private Company Financial Reporting - Blue Ribbon Panel

Blue Ribbon Panel formed in December 2009 to address U.S. accounting standards for users of private company financial statements

18 members

Cross-section of people involved in financial reporting

Lenders, investors, owners, preparers, auditors, regulators

Private Company Financial Reporting - Blue Ribbon Panel (Continued)

Board’s mission - “establish exceptions and modifications to US GAAP for private companies while ensuring that such exceptions and modifications provide decision-useful information to lenders and other users of private company financial reports”

Assumption is that lenders constitute the largest user base of private company financial reports

The new board would have authority to modify existing and future GAAP for private entities


Sponsored by:

AICPA

Financial Accounting Foundation (FAF) which oversees FASB

National Association of State Boards of Accountancy (NASBA)


Private company GAAP has been a long-time issue

Big GAAP / Little GAAP debate

Financial information needs are much different from large

public entities

AICPA Private Company Financial Reporting Task Force

(2005)

Private Company Financial Reporting Committee (2007) -

sponsored by AICPA and FASB

Blue Ribbon Panel


Examples of standards likely not relevant for private companies (based upon input to the Panel)

Uncertain tax positions (FIN 48)

Consolidation of VIEs (FIN 46R)

Goodwill impairment


Possible solutions

Majority of the Panel favors a separate private company standards board under the FAF

AICPA supports a separate standard setter under FAF

FAF and NASBA support fixing private company guidance but don’t feel a separate board is necessary

NASBA favors a reconstituted FASB


Panel recommendations:

New private company accounting standard-setting board

5-7 members with private company reporting experience

Sunset provision of 5 years or less to evaluate overall process


Future activity

The FAF Trustees’ action plan subject to further input from constituents

Expose the plan for public comment prior to implementation

Comment letters - unsolicited (~3,000 rec’d)

Financial Accounting Foundation

401 Merritt 7

P.O. Box 5116

Norwalk, Connecticut 06856-5116

Remember where we started?

Questions?

Contact InformationRodney E. Rice, CPA

Partner

1660 Lincoln Street, Suite 2000

Denver, CO 80264

P: 303.698.1883

[email protected]

www.rubinbrown.com fasb update presented by: rodney e. rice, cpa september 29, 2011

Documents

fv slide

negative slide

test goodwill

withdrawal liability

significant plans

impairment analysis

financial health

largest network of accounting