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Click to edit Master title styleACCOUNTING UPDATEKRAIG RITTER
Click to edit Master title styleFASB OverviewHighlights
Continued focus on reducing complexityRevenue Transition Resource Group continues to debate implementation issuesPrivate company accounting alternatives available
“With a balance of foundational and simplification projects, we aim tomake financial reporting morerelevant to investors while making financial statements less costly toprepare.”
FASB Chairman, Russ Golden
Click to edit Master title stylePRESENTATION AGENDA
1. FASB Standards Issued Prior to 2015, Effective for 2015 and Thereafter
2. FASB Standards Issued in 2015
3. Proposed “CECL” Allowance Methodology
Click to edit Master title styleSTANDARDS EFFECTIVE IN 2015 FOR COMPANIES
OTHER THAN PUBLIC BUSINESS ENTITIES (PBE)
• PUBLIC BUSINESS ENTITY DEFINITION:
– Entity issued securities that are traded, listed, or quoted on an exchange or an over-the-counter market
• Interdealer quotation or trading system for securities not on an exchange
– OTC Markets Group Inc.
– OTC Pink Markets
– OTC Bulletin Board
– Entity has one or more securities not subject to contractual restrictions on transfer, and is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including footnotes) and make them publicly available on a periodic basis
• Both conditions must be met
• FDICIA
• Subchapter S would not meet at contractual restrictions for transfer of securities
Click to edit Master title styleSTANDARDS EFFECTIVE IN 2015 FOR COMPANIES OTHER THAN PUBLIC BUSINESS ENTITIES (PBE)
• ASU 2014-02: Intangibles – Goodwill and Other (Topic 350): Accounting for Goodwill (Private Company Alternative)
• ASU 2014-03: Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable Pay-Fixed Interest Rate Swaps – Simplified Hedge Accounting Approach (Private Company Alternative)
Click to edit Master title stylePublic business entity standards effective in 2015
• ASU 2014-01: Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (effective for all companies)
• ASU 2014-04: Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (effective for all companies)
Click to edit Master title stylePublic business entity standards effective in 2015
• ASU 2014-11: Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures (effective for all companies)
• ASU 2014-14: Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (effective for public business entities only in 2015)
• ASU 2014-17: Business Combinations (Topic 805): Pushdown Accounting (election to apply standard upon first change-in-control event) (effective for all companies)
Click to edit Master title styleThinking ahead – certain FASB standards issued in 2014 effective after 2015
• ASU 2014-18: Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination (Private Company Alternative)
Click to edit Master title style2015 FASB ISSUANCES RELEVANT TO FINANCIAL INSTITUTIONS
ASU 2015-08BUSINESS COMBINATIONS (TOPIC 805): PUSHDOWN ACCOUNTING – AMENDMENTS TO SEC PARAGRAPHS PURSUANT TO STAFF ACCOUNTING BULLETIN NO. 115
Issued – May 2015Summary
• Removes SEC staff guidance on pushdown accounting from Codification
• SEC staff had previously rescinded its guidance by issuing Staff Accounting Bulletin No. 115 when FASB issued its own pushdown accounting guidance in November 2014
• Effective immediatelyResourcesBKD Thoughtware®: New Pushdown Accounting Guidance
Click to edit Master title stylePROPOSED “CECL” ALLOWANCE METHODOLOGY
• Current Status– Fatal flaw exposure draft issued– FASB reviewing fatal flaw exposure draft comments– Expectation of issuance is likely early 2016– Informal implementation dates
• Public companies 2018• Non-public companies 2019
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Incurred Loss Model• Typically 1-2 years• Based on incurred losses (Income
Statement Approach)• Forecasting and projections have
limited use• Tends to be backward looking
DIFFERENCES IN METHODOLOGIES
Current Expected Loss Model• Contractual life of the loan
– Maturity date not amortization period
• Recognizes future losses now (Balance Sheet Approach)
• Embraces projections and loss forecasting
• A mix of backward looking and forward looking
• Will require more integration with IT department, Loan Accounting, and Accounting
• More disclosures
Click to edit Master title stylePROPOSED “CECL” ALLOWANCE METHODOLOGY
Implementation Recommendations• Become familiar with the standard when issued
– Do not procrastinate• Discuss the changes with external auditors, industry peers, management
team, and regulators• Develop multidisciplinary teams in preparation for implementation• Review current process for current methodology to leverage to proposed
methodology• Consider data availability (i.e., origination, maturity dates, charge-off dates,
lifetime loss amounts by type and vintage)• Use industry available resources• Consider capital adequacy• Keep the regulators up to date
Click to edit Master title stylePROPOSED “CECL” ALLOWANCE METHODOLOGY
Implementation Don’ts• No early incorporation of “expected loss” concepts or “soft
adoption”• No artificial inflation of ALLL to smooth impact
– Regulator will question if ALLL balance decreases or stays the same upon implementation
• Don’t wait to prepare– More than a tweak
• Don’t overload at adoption– No “cookie jar” reserves
Click to edit Master title stylePROPOSED “CECL” ALLOWANCE METHODOLOGY
Regulatory Thoughts• Interagency steering committee• Industry outreach and education
– Conference calls – User input– Potential examples/expectations
• Realize this is significant change• Requires considerable judgment
Click to edit Master title styleCONTINUING PROFESSIONAL EDUCATION (CPE) CREDITS
BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.learningmarket.org.
The information in BKD seminars is presented by BKD professionals for informational purposes only. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor before acting on any matters covered herein or in these seminars.
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