accounting update - chris rouse

ACCOUNTING UPDATEWhat You Need to Know

Chris Rouse, CPA

November 13, 2014

Accounting Update - 2015

Agenda

• Current environment for financial reporting

• New accounting pronouncements since Insights 2013

• Revisiting a couple of ASUs becoming effective in 2014

• An update on FASB exposure drafts for tomorrow

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Current environment for financial reporting• FASB and IASB Convergence Project

– 2002 Norwalk Agreement, and 2006 Memorandum of Understanding

– Projects remaining include leases, financial instruments and insurance• Only revenue recognition project was issued in the

past year

– The Chair of the IASB has said that when the current projects are completed, no more will be undertaken

– The Financial Accounting Foundation funded $3 million to IASB in 2014

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Current environment for financial reporting • SEC recognition of International Financial Reporting

Standards

– 2008 Roadmap is suspended

– SEC Staff Study is marking time

– Current situation

• Issuance of converged revenue recognition is a substantial event for SEC’s consistency objective

• If a converged financial instruments standard can be achieved, the SEC will have much better “consistency”

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Current environment for financial reporting • The Private Company Council has issued 3 new

standards setting different measurement GAAP for private companies

– Covered in Breakout Session

– Can amortize goodwill over 10 years

– Not required to consider whether leasing entities under common control are VIEs

– Plain vanilla swaps don’t require effectiveness assessment to account for hedges

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New Accounting Pronouncements Since Insights 2013

• 2014 – 15 ASUs issued thru Nov 13th

• 2013 – 12 ASUs issued (1 after Insights 2013)

• Check out FASB web site for ASUs at http://www.fasb.org/home, click on “Standards” tab

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http://www.fasb.org/home


New Accounting Pronouncements • ASU 2013-12—Definition of a Public Business Entity

– Necessary to define for application of GAAP for private companies

– Includes entities the SEC requires to file or furnish financial statements, and entities required by Securities Exchange Act of 1934 to file or furnish financial statements with regulatory authorities

• Includes broker/dealers, non-public entities being acquired by public entities if filings include the entities financials, etc.

– Effective upon issuance7

http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB/Document_C/DocumentPage&cid=1176163702930


New Accounting Pronouncements • ASU 2014-01—Investments— Accounting for

Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force)

– Deals with accounting for tax credits from investments in low income housing

– Permits use of proportional amortization method under specified circumstances

– Effective FY beginning after 12-15-14 for publics, 12-15-15 for non-publics

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New Accounting Pronouncements • ASU 2014-02—Intangibles—Goodwill and Other:

Accounting for Goodwill (a consensus of the Private Company Council)

– Can amortize goodwill over 10 years, or less

– Only test for impairment if triggering event occurs

– Effective 12-15-14; early application permitted

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New Accounting Pronouncements • ASU 2014-03—Derivatives and Hedging: Accounting for

Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach (a consensus of the Private Company Council)

– Applies to “plain vanilla” hedges that effectively converts variable rate debt to fixed rate

– Simplifies hedge qualification criteria

– All disclosures still apply

– Effective FY beginning after 12-15-14; early adoption permitted

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New Accounting Pronouncements• ASU 2014-04—Receivables—Troubled Debt Restructurings

by Creditors: Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)

– Deals with when to de-recognize the loan and recognize the foreclosed property as an asset

– De-recognize/Recognize when either …• Legal title is obtained• A deed in lieu of foreclosure is obtained

• Effective FY beginning after 12-15-14 for publics, 12-15-15 for non-publics

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New Accounting Pronouncements• ASU 2014-05—Service Concession Arrangements

(a consensus of the FASB Emerging Issues Task Force)

– Entities that operate government roads, bridges, airports, etc.

– Not a lease, and infrastructure is not an operating entity asset

– Use other relevant GAAP to account for transaction(s)

– Effective FY beginning after 12-15-14; early application permitted

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New Accounting Pronouncements• ASU 2014-06—Technical Corrections and Improvements

Related to Glossary Terms

– Just glossary

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New Accounting Pronouncements• ASU 2014-07—Consolidation: Applying Variable Interest

Entities Guidance to Common Control Leasing Arrangements (a consensus of the Private Company Council)– As an option, a private company may elect not to

apply the VIE Guidance to a leasing entity under common control

– Disclosures of quantitative info about lessor entity and qualitative disclosures re exposure to financial support to lessor


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New Accounting Pronouncements • ASU 2014-08— Reporting Discontinued Operations and

Disclosures of Disposals of Components of an Entity

– Narrows application of discontinued ops and disposal of segment

• “strategic shift” that has “major effect” on operations


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New Accounting Pronouncements• ASU 2014-09—Revenue from Contracts with Customers

– Covered in earlier presentation

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http://www.fasb.org/jsp/FASB/Document_C/DocumentPage&cid=1176164076098


New Accounting Pronouncements• ASU 2014-10—Development Stage Entities: Elimination

of Certain Financial Reporting Requirements

– Simplifies accounting for DSEs by removing all “incremental financial reporting requirements”

• e.g., inception to date info

• e.g., eliminates “sufficiency of equity at risk” criterion for determining VIE status

– Staged effective dates for elements, FY beginning after 12-15-14

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New Accounting Pronouncements• ASU 2014-11—Repurchase-to-Maturity Transactions,

Repurchase Financings, and Disclosures

– Changes accounting for repos to a single method, “secured borrowing accounting”

– Revises disclosures accordingly

– Effective FY beginning after 12-15-14 for publics, 12-15-15 for non-publics

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New Accounting Pronouncements• ASU No. 2014-12— 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)

– Applies to stock options that provide for performance targets that can be achieved after the service period

• e.g. Retirement

– Accounting driven by terms


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New Accounting Pronouncements• ASU No. 2014-13—Measuring the Financial Assets and

the Financial Liabilities of a Consolidated Collateralized Financing Entity (a consensus of the FASB Emerging Issues Task Force)

– Applies to special purpose entities of financial institutions

– Fine tunes the fair value accounting differences required for VIEs and for financing entities that carry loans at fair value

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New Accounting Pronouncements

• ASU 2014-14—Receivables—Troubled Debt Restructurings by Creditors: Classification of Certain Government-Guaranteed Mortgage Loans

– Primarily affects banks

– Requires loans with guarantee to remain classified as loans until title is passed

– Requires government guarantee amounts to be classified as receivables

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New Accounting Pronouncements• ASU 2014-15—Going Concern: Disclosure of Uncertainties

about an Entity’s Ability to Continue as a Going Concern

– Prior to this, going concern accounting was in audit Standards

– FASB started out with a “Business Risks” approach to going concern

– FASB later moved to a 12 month – 24 month model

– FASB ended with a Standard very similar to current GAAS/SSARS Standard

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New Accounting Pronouncements• ASU 2014-15—Going Concern (continued)

– Requires management to assess going concern for a period of 12 months from date financial statements are available to be issued

– Disclosures “more” than current GAAS requirements

• More qualitative information

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Revisiting a couple of ASUs becoming effective in 2014• ASU 2013-07—Liquidation Basis of Accounting

– Calls for liquidation accounting when liquidation is “imminent”

– Calls for assets to be carried at the amount of cash expected to be received, and liabilities to be carried at GAAP

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Revisiting a couple of ASUs• ASU 2013-06—Not-for-Profit Entities: Services Received

from Personnel of an Affiliate (a consensus of the FASB Emerging Issues Task Force)

– Calls for such services to be recognized as a contribution at their cost to the affiliate, or fair value if cost not determinable

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Revisiting a couple of ASUs• ASU 2013-04—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)

– Measure at the sum of …

• The amount the entity has agreed to pay

• Any additional amount the entity expects to pay on behalf of co-obligors

– Also requires disclosure of nature and amount of obligation, and other information

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Revisiting a couple of ASUs• ASU 2013-02—Comprehensive Income: Reporting of

Amounts Reclassified Out of Accumulated Other Comprehensive Income

– Must display changes in other comprehensive income in income statement, or separate statement of comprehensive income

– Permits presentation of reclassifications on face of statement or in footnote

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Some important accounting exposure drafts for tomorrow• Financial instruments

– Too complicated to cover in this year’s Insights

– FASB and IASB having a difficult time on Convergence matters

• Bad debt and loan loss reserves are hard to converge

• Hedging is hard to converge

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Some important accounting exposure drafts• Leases

– Not much change in exposure draft during 2013

– Core principle – All leases will be capitalized based on the present value of future lease payments

• Payments based on contract and contingent payments that are likely to occur

• Indexed changes recognized as they occur

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Some important accounting exposure drafts• Leases (continued)

– Core principles (continued)

• Lease term includes non-cancellable period plus renewal periods when “significant economic incentive” to renew is present

• Discount rate is rate charged by lessor or lessee’s incremental borrowing rate

–Non-publics could use risk-free discount rate option

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– No specific guidance for measuring related party leases

– Financial statements

• Balance sheet, income statement and cash flow geography changes

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– Disclosures

• Reconcile opening and closing asset and obligation, by class

–Still considering non-public exemption

• Undiscounted maturities for 5 years and thereafter, less interest portion

• Have added disclosures (vs. measurement) for service elements of leases

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– Disclosures (continued)

• Lease expense in tabular format, including:

–Amortization – Interest –Variable payments not in amortization –Expense for any non-capitalized leases

• Future commitment for services or non-asset component of leases

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Some important accounting exposure drafts• Financial statements

– No more balance sheet

• Present financial condition using operating, investing and financing aggregation and display of assets and liabilities

–Equity is the “balancing” element

– Income statement would also use operating, investing and financing display approach

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In Conclusion….

Bon Auditpetite!Questions??

Contact any WB professional, or contact Chris Rouse

[email protected]

404-898-2000

mailto:[email protected]

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