Quarterly accounting roundup: An update on important developments

Transcription

1 The Dbriefs Financial Reporting series presents: Quarterly accounting roundup: An update on important developments Bob Uhl, partner, Deloitte & Touche LLP Rob Comerford, partner, Deloitte & Touche LLP Chris Cryderman, senior manager, Deloitte & Touche LLP Amy Steele, partner, Deloitte & Touche LLP December 15, 2015

2 Agenda 2015 AICPA conference PCAOB update FASB update Revenue Question and answer 2 Copyright 2015 Deloitte Development LLC. All rights reserved.

3 Keep in mind This webcast does not provide official Deloitte & Touche LLP interpretive accounting guidance. Check with a qualified advisor before taking any action. See later slides for information on obtaining written summaries of issues discussed today. Copyright 2015 Deloitte Development LLC. All rights reserved.

4 Learning objective To enhance participants understanding of important accounting issues and developments pertaining to recent actions of the FASB, IASB, EITF, and others. 4 Copyright 2015 Deloitte Development LLC. All rights reserved.

5 Poll question #1 Did you attend (live or via webcast) the AICPA National Conference on SEC and PCAOB Developments this year? Yes No Copyright 2015 Deloitte Development LLC. All rights reserved.

6 AICPA National Conference on Current SEC and PCAOB Developments 2015

7 Highlights of the 2015 AICPA conference Something for everyone on your list Registrants - Accounting & financial reporting updates - Disclosure effectiveness - Non-GAAP measures - Audit committees - Independence - ICFR Auditors - ICFR, Inspections & new standards Oh My! 7 Copyright 2015 Deloitte Development LLC. All rights reserved.

8 Highlights of the 2015 AICPA conference Accounting and financial reporting updates Revenue ASC 606 (new standard) Successful implementation critical for financial reporting system SEC expects consistent application within and across industries Strong project management critical to successful implementation Focus on SAB Topic 11.M disclosures Required irrespective of whether company has completed evaluating implications of new standard Disclosures should increase in detail as effective date approaches Companies should disclose planned adoption date 8 Copyright 2015 Deloitte Development LLC. All rights reserved.

9 Highlights of the 2015 AICPA conference Accounting and financial reporting updates Revenue ASC 605 (existing standard) Payments by a vendor to parties outside of distribution chain may not be subject to guidance for customer payments & incentives Classification of payments by a vendor to its customer s customer could qualify for classification as an expense Consider whether: Vendor was granting payments to customer s customer as insubstance concession to its own direct customer Contractual arrangements require vendor to pass along consideration to customer of direct customer Vendor was acting as agent of its direct customer in passing along consideration to customer s customer 9 Copyright 2015 Deloitte Development LLC. All rights reserved.

10 Highlights of the 2015 AICPA conference Accounting and financial reporting updates Consolidation (ASU ) Decision-maker fees Parent 51% 51% Sub A Sub B 2% fee arrangement Partnership 30% equity interest 10 Copyright 2015 Deloitte Development LLC. All rights reserved.

11 Highlights of the 2015 AICPA conference Accounting and financial reporting updates Consolidation other topics Foreign exchange restrictions Deconsolidation may be appropriate Effective ICFR to identify changes that may cause consolidation to be appropriate again VIE-related disclosures Series funds No prescriptive guidance for determining whether a series is a legal entity View through a judgement-based lens Risk retention 11 Copyright 2015 Deloitte Development LLC. All rights reserved.

12 Highlights of the 2015 AICPA conference Accounting and financial reporting updates Discontinued operations A disposal of a component of an entity or a group of components of an entity shall be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity s operations and financial results [ASC B] Financial result: Primary metrics (revenue, total assets, net income) Other metrics (operating metrics and alternative measures) should be evaluated with an eye toward what is relevant from an investor s perspective. Major effect: Consider impact on historical, current and forecasted results 12 Copyright 2015 Deloitte Development LLC. All rights reserved.

13 Highlights of the 2015 AICPA conference Accounting and financial reporting updates Segments Appropriate application of ASC 280 may result in identification of a single operating segment Disclosures should match segment identification Share-based payments Post-vesting transfer restrictions should be considered in estimating grant date fair value If shares are traded in an active market, post-vesting restrictions may have little, if any, effect on the amount at which the shares being valued would be exchanged. 13 Copyright 2015 Deloitte Development LLC. All rights reserved.

14 Highlights of the 2015 AICPA conference Accounting and financial reporting updates Stocking stuffers Leases (proposed standard) Fair value measurement Allowance for loan losses Pension accounting Income taxes Impact of lower oil & gas prices 14 Copyright 2015 Deloitte Development LLC. All rights reserved.

15 Poll question #2 In the song Jingle Bells, who was seated by the singer s side? Miss Fanny Bright Miss Fanny Bride Miss Granny Bright Miss Granny Bride 15 Copyright 2015 Deloitte Development LLC. All rights reserved.

16 Highlights of the 2015 AICPA conference Internal Control Over Financial Reporting Internal Control Over Financial Reporting ( ICFR ) Importance of ICFR PCAOB inspection findings Auditor, management, and audit committee communications New accounting standards 16 Copyright 2015 Deloitte Development LLC. All rights reserved.

17 Highlights of the 2015 AICPA Conference Auditing and PCAOB developments PCAOB inspections recent developments - Continued improvement in audit quality - Improvement in inspection reporting - Increased global cooperation - Inspection staff common findings ICFR Assessing & responding to risks of material misstatement Auditing accounting estimates - Overview of anticipated 2016 areas of focus and looking past Copyright 2015 Deloitte Development LLC. All rights reserved.

18 Audit standard setting PCAOB standard setting agenda, September 2015 Project Action Reorganization of PCAOB auditing standards Effective as of 12/31/2016 Improving transparency through disclosure of engagement partner and certain other participants in the audit Supervision of other auditors and multi-location audit engagements Going concern Auditor s reporting model Auditor s use of the work of specialists Auditing accounting estimates, including FV Adoption Proposal Staff consultation paper Reproposal Proposal Proposal 18 Copyright 2015 Deloitte Development LLC. All rights reserved.

19 Poll question #3 SEC and PCAOB staff discussed the need for frequent communication and dialog between management, auditors and audit committees regarding ICFR. Are you already having these frequent communications? Yes No Probably not frequent enough Not applicable to my role 19 Copyright 2015 Deloitte Development LLC. All rights reserved.

20 Highlights of the 2015 AICPA conference SEC reporting topics Disclosure effectiveness Regulation S-X active item on SEC s Agenda Look for additional output related to Reg. S-K in upcoming year Some simplification for EGC s as a result of FAST Act Rule setting may lie ahead, but registrants can act now Registrants should: - Focus only on material and relevant matters - Reduce or eliminate redundant disclosures - Tailor disclosures to registrant s facts and circumstances 20 Copyright 2015 Deloitte Development LLC. All rights reserved.

21 Highlights of the 2015 AICPA conference SEC reporting topics Non-GAAP measures Chair White: Why are you using the measures/how are they useful to investors? Are you giving the measures no greater prominence? Are your explanations of how you are using non-gaap measures accurate, complete and not boilerplate? Are there appropriate controls over the calculation? Corp Fin: Clearly label and describe measures used Use appropriate conventional accounting terminology Disclose any changes in method of calculating 21 Copyright 2015 Deloitte Development LLC. All rights reserved.

22 Highlights of the 2015 AICPA conference SEC reporting topics Non-GAAP measures Areas of staff focus include: - Pension adjustments - Normalized market prices - System-wide sales 22 Copyright 2015 Deloitte Development LLC. All rights reserved.

23 Poll question #4 In The Dreidel Song, what is the only material not used to make dreidels? Sand Clay Wood Glass Gold 23 Copyright 2015 Deloitte Development LLC. All rights reserved.

24 PCAOB update

25 PCAOB update Other hot topics Staff Inspections Brief, October 2015 Information about 2015 inspections PCAOB Report, October 2015 Encourages auditors to take action in response to risk assessment deficiencies identified in inspections Auditing Standard on Related Parties and Related Amendments to PCAOB Auditing Standards Effective for audits of financial statements for fiscal years beginning on or after 12/15/2014, including reviews of interim financial information within these fiscal years 25 Copyright 2015 Deloitte Development LLC. All rights reserved.

26 Standard on related parties Key changes Aligns the timing and focus of the auditor s related party procedures with other risk assessment procedures [PCAOB AS 18.3] Additional procedures to understand related party relationships and transactions and to identify/assess risk Related parties Understand and evaluate management s processes and controls [PCAOB AS 18.4] Inquiries of a broader range of people, and more in-depth inquiries of management, others within the company, and the audit committee [PCAOB AS 18.5-PCAOB AS ] Additional procedures to respond to identified risks and evaluate management s identification of related parties [PCAOB AS ] 26 Copyright 2015 Deloitte Development LLC. All rights reserved.

27 Standard on related parties Key changes Scalable approach for testing related party transactions with basic required procedures and more in-depth procedures based on assessed risks [PCAOB AS 18.12] Related parties (cont.) Additional procedures when previously undisclosed related parties are identified [PCAOB AS ] Required procedures to test accuracy and completeness of the related parties and relationships and transactions with related parties [PCAOB AS 18.14] Enhanced focus on evaluating the accounting for and disclosure of related party relationships and transactions [PCAOB AS 18.17] Adds new communications with the audit committee [PCAOB AS 18.19] 27 Copyright 2015 Deloitte Development LLC. All rights reserved.

28 Significant unusual transactions Key changes Significant unusual transactions Understand the process and controls [added as PCAOB AS 12.73A] Perform procedures to specifically address the risk of management override of controls, including evaluating whether the business purpose for SUTs indicates that the transaction may have been entered into to engage in fraud [added as PCAOB AS 13.15C] Take into account information obtained from other areas of the audit [Note to PCAOB AU Section ] Definition: A significant unusual transaction ( SUT ) is defined as a significant transaction that is outside the normal course of business for the company or that otherwise appears to be unusual due to their timing, size or nature. 28 Copyright 2015 Deloitte Development LLC. All rights reserved.

29 Significant unusual transactions Key changes Significant unusual transactions (cont.) Inquiries of: Management regarding whether the company has entered into any SUTs and, if so, the nature, terms, and business purpose (or lack thereof) and whether such transactions involved related parties [added as PCAOB AS 12.56a item (8)] The audit committee whether the company has entered into any SUTs [added as PCAOB AS 12.56b item (5)] Internal audit personnel whether the company has entered into any SUTs [added as PCAOB AS 12.56c item (5)] Others within the company whom may be involved in initiating, recording, or processing complex or unusual transactions, about their views regarding fraud risks, including whether they have knowledge of fraud, alleged fraud, or suspected fraud [added as PCAOB AS 12.57] 29 Copyright 2015 Deloitte Development LLC. All rights reserved.

30 Relationship & transactions with executive officers Key changes Required procedures to understand the entity s financial relationships and transactions with its executive officers including: - Reading compensation arrangements Relationships & transactions with executive officers - Reading proxy statements or other relevant filings [Added as PCAOB AS 12.10A] New procedures to consider performing: - Inquiring of the chair of the compensation committee - Obtaining an understanding of established policies and procedures regarding the authorization and approval of executive officer expense reimbursement [Added as PCAOB AS 12.11] 30 Copyright 2015 Deloitte Development LLC. All rights reserved.

31 PCAOB AS 18 Lessons learned to date Re-challenging definition of related parties Reevaluating management s processes and controls around related parties - Formalizing control documentation - Enhancing existing controls to include related party considerations Assessing accuracy and completeness of related party and related party transactions listing Educating board of directors, the audit committee and others within the company regarding the requirements of AS Copyright 2015 Deloitte Development LLC. All rights reserved.

32 Poll question #5 Although AS 18 is framework neutral and has not changed the accounting definition of a related party, has AS 18 resulted in revisiting the definition of related parties for your organization? Yes No Have not yet considered Not applicable to my role 32 Copyright 2015 Deloitte Development LLC. All rights reserved.

33 FASB standard setting

34 FASB standard-setting activities Major projects Revenue Leases Major project Financial instruments: classification & measurement Financial instruments: impairment Financial instruments: hedging Effective date* 1st quarter st quarter st quarter st quarter 2019 TBD Transition Issuance date Early adoption Retrospective or cumulative effect Issued May 2014 Modified retrospective 1 st quarter 2016 Cumulative effect (prior periods not affected) Cumulative effect (prior periods not affected) TBD Late December 2015 Permitted as of the original effective date Permitted Portions are permitted 1 st quarter 2016 Not permitted 1 st quarter 2016 (ED) TBD * Effective dates are for public business entities **Certain practical expedients and/or exceptions may apply. 34 Copyright 2015 Deloitte Development LLC. All rights reserved.

35 Poll question #6 Do you believe the effective dates for the four major new standards are reasonable? Yes, my organization will have sufficient time to adopt the changes that apply to us No, my organization will find it challenging to apply these new standards by their effective dates Not sure N/A 35 Copyright 2015 Deloitte Development LLC. All rights reserved.

36 Final standards Balance Sheet Classification of Deferred Taxes (ASU ) Key provisions: Deferred taxes will be classified as noncurrent within a classified balance sheet Netting of DTAs and DTLs within the same tax jurisdiction is still required For public business entities, the guidance is effective for annual periods beginning after December 15, 2016, with a one year delay for all other entities. Early adoption is permitted and the guidance is applied on a retrospective or prospective basis. Accounting for Measurement Period Adjustments (ASU ) Key provisions: Adjustments to provisional amounts will be recognized in the period in which the adjustments were identified (rather than retrospectively) Adjustments to the provisional amounts, by line item, recognized in the current period would be disclosed For public business entities, the guidance is effective for annual periods beginning after December 15, 2015, with a one year delay for all other entities. Early adoption is permitted and the guidance is applied on a prospective basis. 36 Copyright 2015 Deloitte Development LLC. All rights reserved.

37 Proposed accounting standards Disclosures by Business Entities About Government Assistance Require disclosures of: - Nature of assistance and the related accounting policies - The amounts, per line item, impacting the income statement and balance sheet - Significant terms and conditions - Amount of government assistance received, but not directly recognized in the financial statements Covers legally enforceable agreement[s] with a government to receive value Does not apply to government assistance that is provided to all entities that meet certain eligibility criteria Guidance will not apply to not-for-profit entities Comments are due by February 10, 2016 Clarifying the Definition of a Business Key provisions: Definition of a business remains unchanged Single or similar asset threshold Substantive process Outputs Comments are due by January 22, Copyright 2015 Deloitte Development LLC. All rights reserved.

38 Proposed accounting standards (cont d) Fair value measurement disclosures Adds a disclosure objective to ASC 820 New disclosures Change in unrealized gains and losses within the fair value hierarchy (level 1, 2, and 3) (public companies)** The time period used to develop significant unobservable inputs (public companies)** *Prospective transition **Retrospective transition Eliminated or modified disclosures Amend the level 3 roll forward requirements to include only transfers into and out of level 3 and purchases (or issues) of level 3 instruments (for private companies only)* Clarify disclosures should include both range and weighted average of unobservable inputs (public companies) and information regarding measurement uncertainty as of the reporting date (not for future sensitivity)** Remove disclosures of transfers between level 1 and level 2* Remove the valuation process disclosures for level 3 fair value measurements* Remove the requirement for disclosing the policy on timing of transfers between levels* Modify when disclosures for investments measured at NAV that can never be redeemable with the investee are required* The effective date will be discussed at a future meeting after considering stakeholder feedback. Comments are due by February 29, Copyright 2015 Deloitte Development LLC. All rights reserved.

39 Proposed accounting standards (cont d) Employee shared based payment accounting Key provisions: Accounting for excess tax benefits and tax deficiencies in the income statement Classification of excess tax benefits in the cash flow statement Accounting for forfeitures Tax withholding requirements Presentation of employee taxes paid on the cash flow statement when an employer withholds shares to meet the minimum statutory withholding requirements Expected-term practical expedient (nonpublic entities only) Intrinsic value practical expedient (nonpublic entities only) Eliminating the indefinite deferral in ASC Copyright 2015 Deloitte Development LLC. All rights reserved.

40 Other projects Projects Contingent Put and Call Options in Debt Instruments (EITF 15-E) Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (EITF 15-D) Liabilities & Equity: Targeted Improvements (phase 1) Recognition of Breakage for Prepaid Stored-Value Cards (EITF 15-B) Simplifying the Transition to the Equity Method of Accounting Disclosure Framework: Disclosure Review Defined Benefit Plans Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost Simplifying the Balance Sheet Classification of Debt Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (EITF 15-F) Expected Issuance date Q Final standard Q Final standard Q Exposure draft Q Final standard Q Final standard Q Exposure draft Q Exposure draft Q Exposure draft Q Exposure draft 40 Copyright 2015 Deloitte Development LLC. All rights reserved.

41 Poll question #7 Which team will win the college football national championship? Michigan State Alabama Clemson Oklahoma 41 Copyright 2015 Deloitte Development LLC. All rights reserved.

42 Revenue recognition Transition Resource Group (TRG)

43 Revenue ASC 606 update TRG November 2015 meeting: Licenses Specific application issues about restrictions and renewals Pre-production activities Whether fixed-odds wagering contracts are included or excluded from the scope of Topic 606 Customer options for additional goods and services Proposed accounting standard updates Narrow scope improvements and practical expedients Principal versus agent (reporting revenue gross versus net) Identifying performance obligations and licensing 43 Copyright 2015 Deloitte Development LLC. All rights reserved.

44 Question and answer

45 Join us March 8 at 2 PM ET as our Financial Reporting series presents: EITF roundup: Highlights from the March meeting

46 Eligible viewers may now download CPE certificates. Click the CPE icon in the dock at the bottom of your screen. 46 Copyright 2015 Deloitte Development LLC. All rights reserved.

47 Contact info Rob Comerford Partner, Deloitte & Touche LLP Chris Cryderman Senior manager, Deloitte & Touche LLP Amy Steele Partner, Deloitte & Touche LLP Bob Uhl Partner, Deloitte & Touche LLP 47 Copyright 2015 Deloitte Development LLC. All rights reserved.

48 Acronyms used in presentation AICPA: American Institute of Certified Public Accountants ASU: Accounting Standards Update DTA: Deferred Tax Assets DTL: Deferred Tax Loss EITF: Emerging Issues Task Force FAS: Financial Accounting Standards FASB: Financial Accounting Standards Board IASB: International Accounting Standards Board ICFR: Internal Control Over Financial Reporting IFRS: International Financial Reporting Standards NOL: Net Operating Loss OCA: Office of the Chief Accountant PCAOB: Public Company Auditor Oversight Board PCC: Private Company Council SEC: Securities and Exchange Commission 48 Copyright 2015 Deloitte Development LLC. All rights reserved.

49 This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. 49 Copyright 2015 Deloitte Development LLC. All rights reserved.

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