BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

November 14, 2019

BDO YEAR END TECHNICAL UPDATE

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AccountingUpdate

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FASB Update

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2019 Final ASUs IssuedASU

2019-TITLE BDO ALERT

01 Leases (Topic 842): Codification Improvements 2019-01 Alert

02Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials

N/A

03 Not-for-Profit Entities (Topic 958): Updating the Definition of Collections N/A

04Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

2019-04 Alert

05 Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief 2019-05 Alert

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Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities

2019-06 Alert

Current as of November 12, 2019

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2019 Final ASUs IssuedASU

2019-TITLE BDO ALERT

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Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities

2019-06 Alert

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Codification Updates to SEC Sections—Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates (SEC Update)

N/A

08Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer

N/A

Current as of November 12, 2019

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Proposed ASU, Credit Losses, Derivatives and Hedging, and Leases: Effective Dates

Reflects new FASB viewpoint about effective dates that would stagger the implementation dates of new major accounting standards:1. Larger public entities, followed by 2. All other entities, including smaller public companies, private companies,

employee benefit plans, and not-for-profit organizations

Expected1 deferrals of pending standards as follows:

1 FASB affirmed its decision on 10/16/19; a final ASU is expected shortly

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New Revenue Standard - Lessons Learned

Key takeaways Thoughtful analysis is required for implementation of 606 Remember to scope based on revenue streams and different contracts within

those streams Document analyses supporting conclusions, particularly in judgmental areas

such as principal vs agent and determination of the transaction price

Do not underestimate disclosures Avoid terminology from 605 when disclosing 606 Required to keep 605 disclosures if using a modified retrospective approach

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BDO Knows Newsletters Topic 606 – Presentation and Disclosure

(October 2017) Topic 606 – Exploring Transition Methods

(October 2017) Overview of Topic 606 (March 2017)

Self-Study Programs ASC 606, Revenue from Contracts with Customers Applying the New Revenue Standard, Part 1 Applying the New Revenue Standard, Part 2

BDO Revenue Resource Center https://www.bdo.com/services/assurance/revenu

e-recognition/overview

Revenue Standard Implementation: BDO Resources

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ASU 2019-01, Leases (Topic 842): Codification Improvements

Clarifies certain aspects of new leases guidance• Allows non-manufacturer/dealer lessors to use cost, reflecting any volume

or trade discounts, as the fair value of the underlying asset• Lessors that are depository/lending institutions will present all principal

payments received under leases as investing cash flows. Other lessors will present all cash receipts from leases as operating cash flows.

• Provides an exception to the paragraph 250-10-50-3 interim disclosure requirements in the ASC 842 transition disclosure requirements (applies to lessees and lessors).

1 Refer to subsequent slide on proposed deferral for nonpublic entities

Effective Dates Public Business Entities Other Entities

FYs beginning after 12/15/2019 FYs beginning after 12/15/20191

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ASU 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials

Aligns accounting for production costs of an episodic television series with accounting for production costs of films by removing the content distinction for capitalization

Provides guidance on reassessing estimates of the use of a film, assessing impairments, and relevant presentation and disclosures.

Effective Dates Public Business Entities Other Entities

FYs beginning after 12/15/2019 FYs beginning after 12/15/2020

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ASU 2019-03, Updating the Definition of Collections

Updates the definition of “collections” to align with commonly used code of ethics terminology:Works of art, historical treasures, or similar assets that meet all of the following criteria:a. They are held for public exhibition, education, or research in furtherance of public

service rather than financial gain.b. They are protected, kept unencumbered, cared for, and preserved.c. They are subject to an organizational policy that requires the use of proceeds

from items that are sold to be for the acquisitions of new collection items, the direct care of existing collections, or both.

Applies to all entities, including business entities, that maintain collections, but primarily affects not-for-profit entities such as museums, historic sites, art galleries, etc.

Certain incremental disclosures required.Effective Dates Public Business Entities Other Entities

FYs beginning after 12/15/2019 FYs beginning after 12/15/2019

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ASU 2019-04, Financial Instruments Codification Improvements

Narrow improvements and clarifications to scope, recognition, measurement, presentation, and disclosure guidance issued in the following recent ASUs:

See summary – next slide

•Effective for FYs beginning after 12/15/19, including interim periods within those fiscal years

ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial

Liabilities

•Effective concurrent with ASU 2016-13 (or FYs beginning after 12/15/19 if already adopted 2016-13)

ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

•Effective concurrent with ASU 2017-12 (or beginning of first annual period after issuance of 2019-04 if already adopted 2017-12)

ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

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ASU 2019-04, Financial Instruments Codification Improvements

Topic Issues addressed

Financial Instruments(ASU 2016-01)

HTM debt security FV disclosures; applying ASC 820 to the FV measurement alternative; and remeasuring equity securities at historical f/x rates.

CECL(ASU 2016-13)

Accrued interest; transfers between classifications or categories of loans and securities; asset recoveries; reinsurance recoverables; projecting variable interest rates; effect of prepayments on effective interest rate; costs to sell when foreclosure is probable; vintage disclosures for LOC arrangements converted to term loans; and contract renewals.

Hedging(ASU 2017-12)

Partial-term FV hedges of interest rate risk; amortization and disclosure of FV hedge basis adjustments; consideration of hedged contractually specified interest rate in the hypothetical derivative method; scope of NFP entities; hedge documentation for private companies; first-payments-received cash flow hedging technique; and transition.

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ASU 2019-05, Credit Losses: Targeted Transition Relief

Provides alternative to irrevocably elect the fair value option for eligible financial assets measured at amortized cost upon adoption of ASU 2016-13 (credit losses standard)

For an instrument to be eligible:• Asset must be within the scope of the new credit losses standard, and • Asset must be eligible for applying the fair value option in ASC 825-10

Apply on instrument-by-instrument basis Not available for available-for-sale or held-to-maturity debt securities Effective concurrent with ASU 2016-13, or FYs beginning after

12/15/19 if already adopted 2016-13

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ASU 2019-06, Extending Private Company Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities

Allows NFPs to elect private company accounting alternatives: Goodwill (ASC 350)

• Option to amortize goodwill on a straight line basis over a period of 10 years (or less if appropriate)

• If elected, entity must test goodwill when a triggering even occurs at either the entity level or reporting level.

Certain identifiable intangible assets in a bizcom (ASC 805)• Option to subsume the following into goodwill:

- Customer-related intangible assets that are incapable of being sold or licensed independently from other assets acquired, and

- All non-complete agreements • If elected, must also elect ASC 350 goodwill alternative

Effective immediately with same open-ended one-time election available to private companies

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ASU 2019-07, Codification Updates to SEC Sections

Updated disclosure requirements from SEC’s 2018 release of Disclosure Update and Simplification into the codification Part of a continuous update process Reminder

• The codification does not include all SEC content, such as items outside of the basic financial statements such as MD&A, NON-GAAP, Government Accounting Standards, Auditing, or Independence Matters

Effective immediately, just an updates to the codification for existing SEC guidance

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ASU 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer

Impacts companies that issue share-based payments (e.g., options or warrants) to customers. ASU 2018-07 aligned nonemployee share-based payment accounting with

employee accounting• However, share-based payments to nonemployee customers (as a reduction to

revenue), but no guidance on measurement or balance sheet classification (liability/equity).

• Lack of guidance resulted in diversity in practice.

Guidance requires companies follow the ASC 718 to measure and classify share-based payments to customers• Fewer measurement dates, fewer liability instruments, and consistency with share-

based payments to nonemployees.

Effective dates• PBEs beginning after December 15, 2019• Other than PBEs for the years after December 15, 2019 and interim periods thereafter• Early adoption permitted, but not before the adoption of ASU 2018-07

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2019 Select Proposals

TITLE COMMENT DEADLINE

Invitation to Comment, Identifiable Intangible Assets and Subsequent Accounting for Goodwill

October 7, 2019BDO comment letter

Proposed ASU, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

October 14, 2019BDO comment letter

Proposed ASU, Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent)

October 28, 2019*

*BDO comment letter coming soon

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Invitation to Comment, Identifiable Intangible Assets and Subsequent Accounting for Goodwill

Solicits feedback on: Whether to change the subsequent accounting for goodwill

• Explores possibilities of amortizing goodwill, modifying the impairment test, costs and benefits of recent simplifications to goodwill model

Whether to modify the recognition of intangible assets in a business combination • Explores whether to subsume all or some intangible assets into goodwill,

principles-based approach, or status quo

Whether to add or change disclosures about goodwill and intangible assets

Comparability and scope Other topics for consideration

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Overview of Proposed ASU – Convertible Instruments and Contracts in an Entity’s Own Equity

Reduce the number of models in ASC

470-20 (convertible instruments)

Revise the guidance in ASC 815-40

(derivatives scope exception)

Update diluted EPS models (ASC 260)

Expand related disclosures

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Proposed ASU – Convertible Instruments and Contracts in an Entity’s Own Equity

Convertible Instruments* - Existing GAAP Proposed GAAPEmbedded derivative model (ASC 815-15) to account for convertible debt instruments with embedded conversion features that are not clearly and closely related to the host contract, meet the definition of a derivative, and do not meet the criteria for the derivatives scope exception. Conversion features are bifurcated as derivatives from the host contract and measured at fair value.

Model retained

Cash conversion model (ASC 470-20) to account for convertible debt instruments that may be settled entirely or partially in cash upon conversion. Host contract is measured at the fair value of a similar debt without conversion features, and conversion features are recorded as equity components at the residual amount.

Model eliminated

Beneficial conversion feature model (ASC 470-20) to account for convertible debt instruments with conversion features that are in the money at the commitment date or that become in the money at a later date after the occurrence of a contingent event. Conversion features are recorded as equity components at intrinsic value, and the host contract is recorded at the residual amount.

Model eliminated

Substantial premium model (ASC 470-20) to account for convertible debt instruments issued at substantial premiums. Conversion features are recorded as equity components.

Model eliminated

Traditional convertible debt model (ASC 470-20) to account for other convertible debt instruments as a single debt instrument measured at amortized cost.

Model retained

*Proposed amendments have a similar effect on convertible debt and convertible preferred stock guidance

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Proposed ASU – Convertible Instruments and Contracts in an Entity’s Own Equity

Revise the guidance in ASC 815-40 (derivatives scope exception), as follows: Layer a likelihood threshold to existing indexation guidance

• Evaluating any potential adjustments that have a remote likelihood of occurring no longer would be required

• Will create new requirement for companies and auditors to analyze and document whether a triggering event is probable, involving time, effort, and judgment.

Remove the following from the settlement guidance:• Requirement to evaluate provisions that could require net cash settlement

but have a remote likelihood or occurring • Condition regarding settlement in unregistered shares• Condition regarding collateral• Condition regarding shareholder rights

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Proposed ASU – Convertible Instruments and Contracts in an Entity’s Own Equity

Update EPS guidance to align with amendments to convertible debt and derivatives scope exception, as follows: Require the if-converted method for convertible instruments (versus treasury

stock method); should not change practice in most cases

Require share settlement presumption for calculating diluted EPS when an instrument may be settled in cash or shares (i.e., remove current guidance allowing a rebuttable presumption)

Include equity-classified convertible preferred stock that includes a down round feature in the scope of the recognition and measurement guidance for down-rounds in EPS guidance.

Require average market price to calculate diluted EPS denominator when the exercise price or number of shares to be issued varies based on share price.

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Proposed ASU – Convertible Instruments and Contracts in an Entity’s Own Equity

Expand convertible debt (instrument) disclosures to compensate for reduction in accounting models: Add disclosure objective Add information about events or conditions that occur during the

reporting period that significantly affect the conversion conditions Add information on which party controls the conversion rights Align disclosure requirements for contingently convertible

instruments with other convertible instruments Require that existing fair value disclosures in ASC 825, Financial

Instruments, be provided at the individual instrument level rather than in the aggregate

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Proposed ASU, Simplifying the Classification of Debt (Current versus Noncurrent)

Proposes a principles-based model for determining classification: An entity would classify an instrument as noncurrent if either of the

following criteria is met as of the balance sheet date: 1. Liability is contractually due to be settled more than one year (or

operating cycle, if longer) after B/S date2. Entity has a contractual right to defer settlement of the liability for a

period greater than one year (or operating cycle, if longer) after B/S date

Continue to classify debt as noncurrent (separate from other noncurrent) if waiver received for covenant violation

Additional disclosures proposed Would apply to all debt arrangements, including convertible debt

instruments, liability-classified mandatorily redeemable financial instruments, and lease liabilities

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PCAOBUpdate

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PCAOB Recently Completed Standard-Setting

PROJECT CURRENT STAGE TIMING

Auditing Accounting Estimates, Including Fair Value Measurements, and Amendments to PCAOB Auditing Standards

Final Standard issued on 12/20/2018 – approved by SEC on 7/1/2019

Effective for audits of fiscal years ending on or after December 15, 2020.

Amendments to Auditing Standards for Auditor’s Use of the Work of Specialists

Final Standard issued on 12/20/2018 – approved by SEC on 7/1/2019

Effective for audits of fiscal years ending on or after December 15, 2020.

Refer to: https://pcaobus.org/Standards/Pages/recently-completed-standard-setting-activities.aspx

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PCAOB Current Projects – Standard Setting

PROJECT CURRENT STAGE

Quality Control Standards, Including Assignment and Documentation of Firm Supervisory Responsibilities

Developing a concept release for public comment for the Board’s consideration in Q4 2019.

Supervision of Audits Involving Other Auditors

Analyzing comments to determine next steps.

Going Concern Monitoring effect on audits of the changes to the relevant accounting standards. Reminder: AS 2415, Consideration of an Entity's Ability to Continue as a Going Concern, and Staff Audit Practice Alert No. 13 continue to provide the applicable requirements and guidance.

Refer to: https://pcaobus.org/Standards/research-standard-setting-projects/Pages/default.aspx

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PCAOB Research Agenda

PROJECT STATUS

Changes in the Use of Data and Technology in the Conduct of Audits

Researching whether impediments exist in PCAOB audit standards.

Auditor’s Role Regarding Other Information and Company Performance Measures, Including Non-GAAP Measures

Summarizing research findings and developing recommendations for next steps.

Auditor’s Consideration of Noncompliance with Laws and Regulations

Summarizing research findings and developing recommendations for next steps.

Refer to: https://pcaobus.org/Standards/research-standard-setting-projects/Pages/default.aspx

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PCAOB: Critical Audit Matters

Audit Committees are reminded Critical Audit Matter (CAM) auditor reporting requirements are effective for large accelerated filers (LAFs) as of June 30, 2019 and for Other than LAFs as of December 15, 2020.

Frequent communication and education are critical to the successful implementation of this standard.

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Critical Audit Matters• CAM often relate to matters identified as significant risks; however, there is not a 1:1 relationship.

• Since CAM are defined as matters that involve especially challenging, subjective, or complex auditor judgment, not every significant risk identified by an engagement team would necessarily meet that definition and accordingly would not result in a CAM communication. Conversely, matters other than significant risks may also rise to the level of a CAM. One such example may be a nonrecurring transaction.

• Number of identified CAM vary and are unique to the nature of each audit. Since CAM are unique to a particular audit and are based on the facts and circumstances of each audit, there may be CAM even in an audit of a company with limited operations or activities.

PCAOB Resources: https://pcaobus.org/Standards/Implementation-PCAOB-Standards-rules/Pages/new-auditors-report.aspx#resources

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Observations from 6/30/19 Large Accelerated Filers

Average of 1.8 CAMs per company

No reports where no CAMs were identified

Includes:• First 44 LAF reports filed• 10 of the S&P 500

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Observations from 6/30/19 Large Accelerated Filers

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Critical Audit Matters Resources CAQ Resources:

Recommended Resources

BDO Future of Auditor’s Reporting is Here Resources Continually Updated

PCAOB New Auditor’s Report Resource Site Continually UpdatedBDO Webinar: Demystifying Critical Audit Matter (CAM) Reporting October 2019

Intelligize Critical Audit Matters: Public Company Adaptation of Enhanced Auditor Reporting September 2019

PCAOB Implementation of CAM: A Deeper Dive on the Communication of CAMs May 2019

PCAOB Webinars on Critical Audit Matters - 4/25 and 5/8PCAOB Webinar on Critical Audit Matters - 5/15 April/May 2019

CAQ Webinar: The Enhanced Auditor’s Report is Here: Get the Facts on CAMs and More April 2019

PCAOB Additional CAM Resources for Audit Committees March 2019

CAQ Critical Audits Matters: Lessons Learned, Questions to Consider, and an Illustrative Example December 2018

CAQ Issues “Critical Audit Matters: Key Concepts and FAQs for Audit Committees, Investors, and Stakeholders” July 2018

The Future of Auditor Reporting is Here December 2017CAQ Tool: The Auditor’s Report: Considerations for Audit Committees December 2017

SEC Approves the New PCAOB Auditor Reporting Model November 2017

PCAOB Adopts New Standard to Enhance the Auditor’s Report June 2017

PCAOB Staff Guidance Updated August 2018

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Private Company Auditor’s Report

In May 2019, AICPA issued SAS No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements. Key changes include: Opinion section presented first Basis for Opinion section required to follow the opinion section (includes

statement that auditor is required to be independent) Enhanced auditor reporting relating to going concern. When substantial doubt

exists, heading will be:• “Substantial Doubt About the entity’s Ability to Continue as a Going

Concern”. Expanded description of auditor’s responsibilities Key Audit Matters (KAMs) when engaged to report on KAMs (NOT required) Clarifies relationship between Emphasis-of-Matter paragraphs and KAMs Effective for periods ending on or after December 15, 2020

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BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.

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