fasb update - presented by mcgladrey at june 2011 nysscpa private company accounting & auditing...

0©2011 McGladrey & Pullen, LLP. All Rights Reserved.

Brian H. Marshall, Partner, McGladrey & Pullen, LLPRichard K. Stuart, Partner, McGladrey & Pullen, LLPJune 16, 2011

FASB Update

1 ©2011 McGladrey & Pullen, LLP. All Rights Reserved.

Agenda

The Big Picture Certain Significant ASUs issued in 2010-2011 Selected EITF-debated ASUs issued in 2010-

2011 Certain Other FASB-only Projects


The Big Picture


People Matters

FASB- Board back to 7 members- Leslie Seidman appointed chairman- Two new board members

• One with private company focus


Blue Ribbon Panel (BRP) - Private Company Financial Reporting

In January, the BRP issued its recommendations to the Financial Accounting Foundation (FAF) Significant recommendations include:

- creation of a separate private company standards board- a new standard-setting model that follows GAAP with

exceptions for private companies

In March, the FAF formed a Trustee Working Group to:- conduct outreach to stakeholders- seek input on improvements, including BRP’s

recommendations


Certain Significant ASUs Issued in 2010-2011


ASU 2010-20 – Disclosures about the Credit Quality of Financing Receivables and Allowance for Credit Losses

Objective is to provide disclosure information that allows the users of the financial statements to understand the following:- The nature of credit risk inherent in the entity’s portfolio of financing

receivables- How that risk is analyzed and assessed in arriving at the allowance for

loan losses- The changes, and reasons for those changes, in the allowance for

loan losses

Defines two levels of disaggregation:- Portfolio segment - Class of financing receivable

Provides additional implementation guidance to determine the appropriate level of disaggregation of information


ASU 2010-20 - Existing Disclosures - Amended

Rollforward schedule of the allowance for loan losses (ALL) on a portfolio segment basis, with the ending balance further disaggregated based on impairment method- For each disaggregated ending balance, the related

recorded investment in financing receivables

The nonaccrual status of financing receivables by class of financing receivables Impaired financing receivables by class of

financing receivables


ASU 2010-20 - Additional Disclosures

Credit quality indicators by class of financing receivable

Aging of past due by class of financing receivable Troubled debt restructurings (TDRs) that occurred

during the period and effect on the ALL TDRs that re-defaulted during the period Significant purchases and sales of financing

receivables during the period, by portfolio segment


ASU 2010-20

For nonpublic entities, the disclosures are effective for annual reporting periods ending on or after December 15, 2011


ASU 2011-02 – Creditor’s Determination of Whether a Restructuring Is a TDR

Provides additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a TDR TDR has occurred if both of the following exist:

- Debtor is experiencing financial difficulties- Restructuring constitutes a concession Clarifies the guidance on a creditor's evaluation

of whether a debtor is experiencing financial difficulties - A borrower that is not currently in default may still be

considered to be experiencing financial difficulty if default is probable in the foreseeable future without the modification


ASU 2011-02

Clarifies the guidance on a creditor’s evaluation of whether it has granted a concession:- If a debtor does not otherwise have access to funds

at a market interest rate, the restructuring would be considered to be at a below-market rate, which may indicate the creditor has granted a concession

- A restructuring that results in a temporary or permanent increase in the contractual interest rate does not preclude the restructuring from being considered a concession

- A restructuring that results in a delay in payment that is insignificant is not a concession


ASU 2011-02

A creditor is precluded from using the borrower’s effective interest rate test in its evaluation of whether a restructuring constitutes a TDR Effective date

- For nonpublic entities, annual periods ending on or after December 15, 2012, including interim periods within those annual periods


ASU 2011-03 – Reconsideration of Effective Control for Repurchase Agreements (Repos)

Repos are agreements whereby a transferor transfers financial assets (e.g.; securities) to a transferee in exchange for cash collateral Concurrently, the transferor agrees to repurchase

the financial assets (or equivalent assets) in the future for a fixed price Transfers and related repurchases typically occur in

a very short time frame Accounted for as sales of financial assets when

transferor no longer maintains effective control over the transferred asset


ASU 2011-03

ASU removes one of the conditions required to be met for transferor to be considered to have maintained effective control: - No longer need to have the ability to repurchase or

redeem financial assets on substantially the agreed terms, even if transferee defaults

- With removal of this condition, level of cash collateral received by the transferor is irrelevant when determining whether sale accounting is appropriate

Effective prospectively in first interim or annual period beginning on or after December 15, 2011 for new or modified transactions


Selected EITF-debated ASUs Issued in 2010-2011


ASU 2010-23 – Measuring Charity Care

Affects health care entities that provide charity care Currently diversity in practice regarding the measure of

charity care used for disclosure purposes:- Cost measurement- Revenue measurement

Requires that cost be used as the measurement basis for charity care disclosure purposes and that cost be identified as the direct and indirect costs of providing the charity care

Requires disclosure of the method used to identify or determine such costs

Effective for fiscal years beginning after December 15, 2010


ASU 2010-24 – Insurance Claims and Recoveries Affects health care entities Currently diversity in accounting for medical

malpractice liabilities and the related anticipated recoveries- Most health care entities net insurance recoveries against

the liability- Some present the anticipated insurance recovery and the

liability on a gross basis Clarifies that a health care entity should not net

insurance recoveries against a related claim liability- Also, the amount of the claim liability should be

determined without consideration of insurance recoveries


ASU 2010-24

Eliminates industry exception- Amendments are consistent with existing guidance

in ASC 210-20 on determining whether assets and liabilities can be offset and presented on a net basis

Effective for fiscal years, and interim periods within those years, beginning after December 15, 2010


ASU 2010-25 – Participant Loans

Affects any defined contribution pension plan that allows participant loans

Clarifies how loans to participants should be classified and measured by defined contribution pension benefit plans. - Participant loans are currently classified as investments in

accordance with the defined contribution pension plan guidance - ASC 962-325 requires most investments held by a plan,

including participant loans, to be presented at fair value - In practice, most participant loans are carried at their unpaid

principal balance plus any accrued but unpaid interest, which was considered a good faith approximation of fair value • May not conform to ASC 820


ASU 2010-25

ASU requires participant loans be classified as notes receivable from participants- Segregated from plan investments - Measured at their unpaid principal balance plus any

accrued but unpaid interest More meaningful classification and measure of

participant loans as:- A participant taking out such a loan essentially borrows

against its own individual vested benefit balance- Participant loans cannot be sold by the plan- In default, there would be no effect on the plan’s

investment returns or any other participant’s account balance


ASU 2010-25

Amendments should be applied retrospectively to all prior periods presented, effective for fiscal years ending after December 15, 2010 Early adoption is permitted


ASU 2010-26 – Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

Affects entities under ASC 944, Financial Services - Insurance, that incur costs in the acquisition of new and renewal insurance contracts Addresses diversity in practice regarding the

interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral


ASU 2010-26

The following costs incurred in the acquisition of new and renewal contracts should be capitalized:- Incremental direct costs of contract acquisition- Certain costs related directly to the following

acquisition activities performed by the insurer for the contract:• Underwriting• Policy issuance and processing• Medical and inspection• Sales force contract selling


ASU 2010-26

Direct-response advertising costs should be included in deferred acquisition costs only if the capitalization criteria in the direct-response advertising guidance in ASC 340-20 are met

All other acquisition-related costs should be charged to expense as incurred, including costs incurred by the insurer for:- soliciting potential customers, market research, training,

administration, unsuccessful acquisition or renewal efforts, and product development

If the initial application of this ASU results in the capitalization of acquisition costs that had not been capitalized previously, the entity may elect not to capitalize those types of costs


ASU 2010-26

Effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 The amendments in this ASU should be applied

prospectively upon adoption - Retrospective application to all prior periods

presented upon the date of adoption also is permitted, but not required

- Early adoption is permitted, but only at the beginning of an entity’s annual reporting period


ASU 2010-27 – Fees Paid to the Federal Government by Pharmaceutical Manufacturers

Affects entities that are subject to the pharmaceutical fees mandated by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (the Acts) and how they should recognize and classify these fees- The Acts impose an annual fee on the pharmaceutical

manufacturing industry for each calendar year beginning on or after January 1, 2011

- An entity’s portion of the annual fee becomes payable to the U.S. Treasury once the entity has a gross receipt from branded prescription drug sales to any specified government program or in accordance with coverage under any government program for each calendar year beginning on or after January 1, 2011


ASU 2010-27

The liability for the fee should be estimated and recorded in full upon the first qualifying sale - Record corresponding deferred cost that is

amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable

Effective for calendar years beginning after December 31, 2010, when the fee initially becomes effective


ASU 2010-28 – When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts

Affects entities that have recognized goodwill in a reporting unit (RU) whose carrying amount is zero or negative Testing for goodwill impairment is a two-step

test - Step 1 - An entity must assess whether the carrying

amount of a RU exceeds its fair value - Step 2 - If it does, an entity must determine whether

goodwill has been impaired and calculate the amount of that impairment


ASU 2010-28

Some entities with RUs that have zero or negative carrying amounts historically concluded that Step 1 of the test is automatically satisfied because the fair value of the RU will generally be greater than zero - As a result, Step 2 of the test was not performed

despite factors indicating that goodwill may be impaired


ASU 2010-28

The ASU modifies Step 1 of the goodwill impairment test for RUs with zero or negative carrying amounts - Would be required to perform Step 2 of the goodwill

impairment test if adverse qualitative factors indicate that goodwill impairment is more likely than not

For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011


ASU 2010-28

Upon adoption of the amendments, an entity with a RU whose carrying amount is zero or negative is required to assess whether it is more likely than not that the goodwill of the RU is impaired- If determined that it is more likely than not that the

goodwill is impaired, the entity should perform Step 2 of the goodwill impairment test

- Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption


Certain Other FASB-only Projects


Proposed ASU – Testing Goodwill for Impairment

Issued in April with comments due in early June Specifically addresses private company

concerns regarding cost/complexity of goodwill impairment testing ASU allows an entity to qualitatively evaluate

whether it is more likely than not that the fair value of a RU is less than its carrying amount prior to performing step one



Qualitative factors (examples of events or circumstances) to consider are included in ASU and replace existing guidance Carryforward of RU’s prior year fair value would no

longer be allowed If not more likely than not that the fair value of a RU

is less than its carrying amount, then goodwill is not considered impaired If it is more likely than not that the fair value of a RU

is less than its carrying amount, then must complete step one of the impairment test



Effective for annual and interim impairment tests performed for fiscal years beginning after December 15, 2011 Earlier adoption permitted


Certain Other FASB-only Projects

Investment properties Disclosures about an employer’s participation in

a multiemployer pension plan Presentation of the provision for bad debts and

disclosures of net revenue and the allowance for doubtful accounts for health care entities Fees paid to the federal government by health

insurers Accounting for deconsolidation of a subsidiary

that is in-substance real estate


QUESTIONS?

fasb update - presented by mcgladrey at june 2011 nysscpa private company accounting & auditing...

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