current accounting and reporting developments webcast series q4

Current Accounting and Reporting Developments Webcast Series Fourth Quarter 2015

www.pwc.com

PwC

Welcome

Current Accounting and Reporting Developments

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Beth Paul

Accounting Services Group Team Leader

Daghan Or

Partner, National Professional Services Group

Greg Bakeis


Peter Ferraro


December 16, 2015

PwC

Administrative matters


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December 16, 2015

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CPE administrative details


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To receive full 1.5 CPE credits for today’s webcast, you must be active during the entire 90 minute webcast. You will be required to answer 6 polling questions during the webcast to verify attendance.

You will have 2 minutes to answer each timed poll. CPE is not offered for audio only attendees or viewers of the replay.

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December 16, 2015

PwC

Today’s agenda December 16, 2015


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December 16, 2015

AICPA National Conference on current SEC and PCAOB Developments

Impairment and disposal issues

Measurement period adjustments

Revenue update

Standard setting update

Q&A

Year-end reminders

PwC

Polling question # 1

Which of the following best describes your role or responsibilities within your organization?

A. CFO or Controller/Assistant Controller

B. Financial Reporting Director/Manager

C. Accounting or Finance Manager/Analyst

D. Tax Director/Manager

E. None of the above or PwC staff

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Current Accounting and Reporting Developments December 16, 2015

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PwC

AICPA conference highlights

• Internal control over financial reporting

• Management’s discussion and analysis

• Non-GAAP measures

• Segments

• Disclosure effectiveness

• FAST Act

• Standard setting

• IFRS

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December

9 – 11, 2015 in

Washington, D.C.

PwC


Based on your experience, why do companies include non-GAAP measures in their SEC filings or earnings releases?

A. Because others in their industry include those non-GAAP measures

B. Because analysts are asking for them

C. Because they provide meaningful insight

D. Because management utilizes these measures in running the business and making decisions

E. Not sure or PwC staff

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PwC

Segments – Chief Operating Decision Maker (CODM) • Information reviewed by the CODM is critical to identifying operating

segments

- CODM = the individual(s) responsible for allocating resources and assessing performance

◦ Often the CEO or the COO, but can be a group or a function

• How are resource allocation decisions made? Consider the following:

- Organizational structure

- Internal reporting, communication, meetings

- Management style, culture

- Budgeting, compensation decisions, among other key decisions

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PwC

Segments – Aggregation of operating segments

Operating segments may be aggregated when they have

• Similar economic characteristics (e.g., similar long-term financial performance)

and

• Similar (1) products/services (2) production processes (3) customer types (4) distribution methods, and, (5) regulatory environment

Sanity check: Is aggregation consistent with

• A reasonable Investor’s expectation

• External communications (filings, releases, website, etc.)

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Risk and uncertainties

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Considerations

• Reassess financial statement and MD&A disclosures

• Impact to significant estimates • Evaluate significant concentrations

of risk

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Income tax

Valuation Allowances

• Companies must consider all four sources of income

• More weight is given to information that is objectively verifiable

Indefinite Reinvestment

• The indefinite reversal exception must be re-assessed at each reporting date

• Companies are required to have a plan for reinvestment of undistributed earnings

Uncertain Tax Positions

• Record the benefit for the amount that is more likely than not to be realized

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PwC

Significant equity method investees: Rule S-X 4-08(g)

Considerations

• 10% significance test (individually and in the aggregate)

• Summarized financial information (S-X 1-09(bb))

• Disclose for all periods

- Do not label “unaudited”

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There is no grace period.

The summarized financial information must be included in the notes to the registrant’s financial statements when those financial statements are filed with the SEC.


PwC

Significant equity method investees: Rule S-X 3-09

Considerations

• 20% significance test

• Full financial statements

• Disclose for all periods

- Comparative periods are required but may be unaudited if not significant

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3-09 investee financial statements

• May not be required to comply with certain public company GAAP disclosures

• Required to comply with SEC rules and interpretations

• Generally same period as the registrant

• Required to be filed based on the investee’s reporting requirements


PwC

Significant equity method investees Rules 4-08(g) and 3-09

Key reminders

• Update significance test for retrospective changes

• Rules apply to certain investees accounted for under the fair value option

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PwC

Polling question #3

Where do you think the FASB should focus its standard-setting?

A. Performance reporting (rethinking the presentation of the income statement)

B. Cash flows (comprehensively revisiting the cash flow statement guidance)

C. Liabilities and equity

D. Goodwill and intangibles (post-business combination accounting)

E. Other/PwC staff


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December 16, 2015

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PwC

Equity method of accounting – Basis differences

Basis difference

Cost of the investment (i.e., amount paid by the investor)

- Investee’s net assets (portion attributable to the investor)

Basis difference

Day 1: Perform a purchase price allocation:

• Allocate basis difference to the investee’s net assets (include unrecognized intangibles)

• Assign residual purchase price to equity method goodwill

Day 2: Track basis differences in “memo accounts”:

• Adjust investee earnings for amortization of basis differences (generally lowers investee earnings)

• Equity method goodwill is not amortized and is not separately tested for impairment

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December 16, 2015 Current Accounting and Reporting Developments

PwC

Equity method of accounting – Basis differences Example

• 20% equity interest:


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December 16, 2015

Purchase price $600

Investee’s net assets (20%) 400

Basis difference $200

• 20% of individual assets and liabilities:

Fair Value Carrying Value Difference

Fixed assets $600 $500 $100

Trade name (unrecognized in the f/s)

$50 - $50

Liabilities $(100) $(100) -

• Basis difference allocation:

Fixed assets Trade name Goodwill Total

$100 ($10 incremental amortization over 10 years) 50 (may be indefinite-lived) 50 (not amortized, not impaired separately) $200

PwC

Debt modification with a change in principal – Change in practice


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December 16, 2015

• Relates to the accounting for unamortized costs and new fees when the principal balance changes

• Apply prospectively to loans modified after March 23, 2015

• See section 3.4.5 of our guide, Financing transactions: debt, equity and the instruments in between for further information and examples

Modification accounting

Unamortized cost: No write-off

New creditor fees: Capitalize

New 3rd party fees: Expense

PwC

Debt issuance costs – Line-of-credit arrangements

Line-of-credit arrangements

• ASU 2015-03 does not address costs to secure or maintain line- of- credit arrangements

• It continues to be appropriate to present such fees as an asset on the balance sheet

- For example, if a borrower had a line-of-credit with $0 drawn, it would not be appropriate to present the related commitment fees as a contra liability even if there is other debt outstanding.


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December 16, 2015

PwC

Age of financials (S-X 3-12)

• 45 day limit, regardless when 10-K is due

• Relief under S-X 3-01(c) if all criteria are met

- All required Securities Exchange Act reports filed

- Expect to report net income attributable to the registrant

- Reported net income attributable to registrant in at least one of the two preceding years


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December 16, 2015

If the criteria are not met, audited financial statements for the most recently completed year would need to be filed, even though it is before the Form 10-K due date.

PwC

Polling question #4

Which of the following standards effective in 2016 do you expect to have the most significant impact on your company?

A. Consolidation guidance

B. Cloud computing guidance

C. Debt issuance costs

D. Measurement period adjustments

E. None of the above/PwC staff


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December 16, 2015

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PwC

Impairment of long-lived assets: Held and used model Trigger-based test:

• Are there indicators that asset group may not be recoverable

• A more-likely-than-not disposal is an example trigger

If triggered, perform recoverability test (Step 1):

• Calculate undiscounted cash flows (from the use and eventual disposition of the asset group)

• Compare carrying amount to the sum of undiscounted cash flows

If carrying amount is not recoverable:

• Calculate fair value of the asset group

• Allocate impairment (carrying amount less fair value) to long-lived assets ratably


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December 16, 2015

PwC

Impairment of long-lived assets: Held for sale model

• Consider held-for-sale classification when there is a plan to sell an asset (or a business) or group of assets (or businesses)

- Applies only to a sale transaction.

- Does not apply other disposal transactions (e.g., spin offs or abandonments)

• Specified criteria must be met for held-for-sale classification

- Commitment to a plan that is probable of resulting in a sale within one year

- Other criteria also must be considered

• Measure disposal group at the lower of book value or fair value less costs to sell

- Apply other GAAP first to the assets and liabilities of the disposal group (including goodwill)

- Recognize impairment if carrying amount exceeds fair value less costs to sell


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December 16, 2015

PwC

Discontinued operations

The standard:

A discontinued operation is a component or group of components that has been disposed of or is classified as held for sale, and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.”


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December 16, 2015

Asia (Disc Ops)

Africa

Oceania

Europe

The Americas

Examples of a strategic shift could include disposing of a:

• Major line of business

• Major geographical area of operations

• Major equity method investment

• Other major parts of an entity

PwC

Measurement period adjustments

New standard issued

• Recognize the ‘cumulative’ impact in the period the adjustment is identified

- Do not restate prior periods

- Amount to recognize = cumulative effect on earnings including prior period impact

- Disclose out-of-period impact


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December 16, 2015

Looking forward

• Effective in 2016 for calendar-year-end public companies; an additional year for nonpublic companies

• Early adoption allowed

• To be applied prospectively

PwC


How often does your company early adopt new standards?

A. Virtually never

B. Occasionally

C. Frequently

D. Don’t know/PwC staff


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December 16, 2015

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PwC

Revenue recognition update – Proposed amendments to principal vs agent guidance (PwC In transition No. US2015-05)


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December 16, 2015

Principal vs Agent

Assessment

Unit of Account

Clarify Indicators

Control in a Service Arrangement

PwC

Narrow scope improvements and practical expedients – Proposed amendments


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December 16, 2015

FASB proposed amendments

Transition to the new standard

• Adds a practical expedient for contracts that are modified before the date of initial application

• Clarifies that a completed contract is one for which all (or substantially all) of the revenue was recognized under legacy GAAP

PwC

Narrow scope improvements and practical expedients – Proposed amendments (continued)


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December 16, 2015

FASB proposed amendments

Collectibility

• Clarifies that the collectibility assessment is not based on collecting all the consideration promised in the contract

Noncash consideration

• Clarifies that measurement date is at contract inception

• Clarifies that variable consideration guidance only applies to variability resulting from reasons other than form of consideration

Sales tax presentation

• Adds a practical expedient that allows companies to present revenue net of taxes collected from customers

PwC

Polling question #6

When does your company plan to adopt the new revenue standard?

A. We plan to early adopt (2017) - public company

B. We plan to adopt at effective date (2018) – public company

C. We plan to early adopt (2017 or 2018) - private company

D. We plan to adopt at effective date (2019) – private company

E. Not sure/PwC staff


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December 16, 2015

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PwC

Transition resource group update

• Meeting was held November 9, 2015

• Topics discussed:

- Customer options for additional goods and services

- Pre-production activities

- License restrictions and renewals

• Next steps


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December 16, 2015

PwC

EITF issues


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December 16, 2015

Issue Title Status

15-B Recognition of Breakage for Certain Prepaid Stored-Value Cards Final Consensus

15-D Effect of Derivative Contract Novations on Existing Hedge

Accounting Relationships

Final Consensus

15-E Contingent Put and Call Options in Debt Instruments Final Consensus

15-F Statement of Cash Flows: Classification of Certain Cash Receipts and

Cash Payments

Consensus-for-exposure (8 issues)

and Deliberation (1 issue)

Added

to agenda Deliberation

Consensus

for exposure Deliberation

Final

Consensus Final ASU

PwC

EITF exposure draft on statement of cash flows


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December 16, 2015

Impact: Reduce diversity in practice in the classification of cash flows (i.e., operating, investing,

financing) on eight issues out for exposure

Issue Consensus-for-exposure

1) Debt prepayment or extinguishment costs Financing

2) Settlement of zero-coupon bonds Operating – Interest

Financing – Principal

3) Contingent consideration payments Financing – FV of initial liability

Operating – Excess amount

4) Restricted cash None reached; in deliberation

PwC

EITF exposure draft on statement of cash flows (continued)


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December 16, 2015

Issue Consensus-for-exposure

5) Proceeds from insurance claims Classify based on nature of the insured loss

6) Corporate-owned life insurance policies Investing – proceeds

Operating and/or investing – premiums

7) Distributions from equity method investees Operating up to cumulative equity method

earnings, excess as investing

8) a) Beneficial interests in securitizations Disclose beneficial interests received as

noncash activity

8) b) Cash receipts from beneficial interests in securitized trade AR

Investing

9) Predominance principle Apply when there is no specific guidance and cash

flows are not separately identifiable

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PwC

Leasing project Tentative effective date


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December 16, 2015

Public Private

Effective Date Periods beginning after December 15, 2018

Fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020

Early adoption Upon issuance of the standard Upon issuance of the standard

Transition Modified retrospective with the ability for lessees to elect a package of reliefs

Modified retrospective with the ability for lessees to elect a package of reliefs

PwC

Polling question #7

Based upon your experience and preference, select the area of the audit where you would MOST like to see changes:

A. Increased automation of audit testing (e.g., data auditing)

B. Global consistency of audit processes

C. Greater auditor understanding of the company’s business and its industry

D. Smoother audit workflow

E. Enhanced transparency into the audit

F. Not applicable


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December 16, 2015

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PwC

Q&A session

Download The quarter close at:

http://www.pwc.com/us/qc


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December 16, 2015

PwC

CPE credit reminders


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December 16, 2015

Please turn off all pop up blockers before downloading and printing your own CPE certificate. For manual responses, you will be unable to download your certificate. You can return to the event once archived and download the certificate if eligible.

To download the slides and polling questions, click on Resources.

You can still respond to missed polls before the webcast closes. Note: you will be unable to download your certificate. You can return to the event once archived and download the certificate if eligible.

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December 16, 2015

PwC personnel that have met the requirements do not need to submit for CPE certificates as credit will be automatically posted to Learning @ PwC

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PwC webcasts

• Upcoming webcasts:

- Leasing - on issuance of final standard

- Debt modifications and extinguishment – Spring 2016

- Standard setting update - Spring 2016

- Impairment - on issuance of final standard

- For a full list of upcoming webcasts, please visit CFOdirect


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December 16, 2015

• Webcasts on demand:

- CPE credit available for the replay upon passing a quick knowledge check

• On-demand library of CPE-eligible webcasts

mailto:http://www.pwc.com/us/en/cfodirect/multimedia/webcasts.html

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current accounting and reporting developments webcast series q4

Economy & Finance