2016 Audit & Accounting Update

2016 Audit & Accounting UpdateNovember 15, 2016 | Vince Leo, CPA and Mike Giess, CPA

Insero & Co. CPAs, LLP

Vince Leo, CPA

Vince is a Partner in our Audit and Business Advisory Services Group. He has more than 30 years’ experience serving some of the area’s largest companies. He joined Insero & Company as a Partner during 2002 from Arthur Andersen where he was a Partner in their Rochester office. He has advised his clients on technical accounting matters, private placements, public offerings, and numerous acquisitions, mergers, and divestitures.

www.inserocpa.com | 2


Mike Giess, CPA

Mike is a Partner in the Audit and Business Advisory Services Group. He has more than 25 years’ experience servicing private and public companies in the manufacturing, service, retail, and wholesale/distribution sectors. Mike frequently consults with companies on technical accounting matters including business combinations, implementation of new accounting pronouncements, equity and debt transactions, pension accounting, and revenue recognition.



Agenda– Overview– FASB Update– FASB Flashback– FASB Pipeline– Economic Outlook– Questions



FASB UPDATE



ACCOUNTING STANDARDS UPDATES



SUMMARYASU 2015-17 —Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes

ASU 2016-01—Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

ASU 2016-02—Leases (Topic 842)

– Section A—Leases: Amendments to the FASB Accounting Standards Codification®– Section B—Conforming Amendments Related to Leases: Amendments to the FASB

Accounting Standards Codification®– Section C—Background Information and Basis for Conclusions

ASU 2016-03—Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance (a consensus of the Private Company Council)


http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB/Document_C/DocumentPage&cid=1176167636650







SUMMARY (continued)ASU 2016-04—Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the Emerging Issues Task Force)

ASU 2016-05—Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the Emerging Issues Task Force)

ASU 2016-06 —Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force)

ASU 2016-07 —Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting

ASU 2016-08—Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)








SUMMARY (continued)ASU 2016-09—Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

ASU 2016-10—Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

ASU 2016-11 —Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update)

ASU 2016-12—Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients

ASU 2016-13—Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments








SUMMARY (continued)ASU 2016-14—Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities

ASU 2016-15—Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) ASU 2016-16—Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory

ASU 2016-17—Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control







ASU 2015-17• Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes

• Part of the FASB Simplification Initiative

• Current accounting: deferred taxes are presented as a net current asset or liability and net noncurrent asset or liability (for each tax jurisdiction).

• New accounting: classify deferred taxes, and any related valuation allowance, as noncurrent

– May effect financial ratios used in bank covenants

• Effective date:– Public entity—for financial statements issued for annual periods beginning after

December 15, 2016, and interim periods within those annual periods– All others—for financial statements issued for annual periods beginning after

December 15, 2017



ASU 2016-01Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

Affects the accounting for the following:

1. Equity investments

2. Financial liabilities under the fair value option

3. Presentation and disclosure requirements for financial instruments

Note: will have biggest impact on certain financial institutions and companies with large equity investment portfolios not currently measured at fair value through net income



ASU 2016-01 (continued)Equity Investments – Applicable to equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting)

A. Readily determinable fair values

– Will generally be measured at fair value with changes in fair value recognized in net income

– No longer have an available-for-sale classification for equity securities with readily determinable fair values (i.e., changes in fair value reported in other comprehensive income)



ASU 2016-01 (continued)B. Equity investments without readily determinable fair values

– Can elect to measure at cost less impairment, if any, plus or minus subsequent adjustments for observable price changes

– Election only applies to equity investments that do not qualify for NAV practical expedient

– Election can be made on an investment by investment basis

– Changes in carrying value go through net income



ASU 2016-01 (continued)Financial liabilities under the fair value option:

• Changes in fair value of a liability resulting from a change in the instrument-specific credit risk are required to be recognized separately in other comprehensive income

Presentation and disclosure requirements for financial instruments:

• Non public entities—eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost

• Public entities—continue to disclose fair value of financial instruments measured at amortized cost but no longer need to disclose the methods and significant assumptions used to estimate the fair value



ASU 2016-01 (continued)Effective Date• Public entities—For fiscal years beginning after December 15,

2017• All other entities– For fiscal years beginning after December 15,

2018



ASU 2016-02: Lease AccountingA lease contract conveys the right to use an asset (the underlying

asset) for a period of time in exchange for consideration


Right-of-use asset

Lease payments

Lessor Lessee


Lease Accounting: Scope Relief


Short-Term Lease Exemption for Lessees

Recognition and measurement exemption for leases with a term of 12 months or less


Lease Accounting: Lessee ModelAll leases are recognized on the lessee’s balance sheet


Current U.S. GAAP New GAAPCapital Leases Finance Leases

Operating Leases Operating Leases

Classification is based on existing

U.S. GAAP


Lessee Accounting

Right-of-use asset and

Lease liability

Amortization expense

Interest expense

Cash paid for principal and

interest payments


Right-of-use asset and

Lease liability

Single lease expense on a

straight-line basis

Cash paid for lease

payments

Finance Leases

Operating Leases

Balance Sheet Income Statement

Cash Flow Statement


Lessee AccountingLessee Accounting

– Operating leases:• Expensed on a straight-line basis

• Straight-line expense to reflect the interest on the liability and amortization of asset

• Amortization = straight line expense less interest expense (amortization will grow as interest declines)

• Lease expense will be presented as a single line item

• Cash payments presented as operating activities on cash flow statement



Lessee AccountingLessee Accounting

– Finance leases:• Declining expense pattern

• Lease expense will equal interest on liability plus amortization of asset (generally straight-line)

• Present interest expense and amortization of asset separately

• No change in cash flow statement presentation



Lessee AccountingExample• Mfg. Corp enters into a lease of non-specialized equipment with

Lessor Corp.


Lease term 3 years (no renewal option)

Economic life 5 years

Purchase option None

Rent payments $5,000 monthly, escalating 3% annually

Interest rate 7%

Fair value of asset $300,000

Residual value guarantee None


Lessee AccountingLease classification - example


Transfer of ownership No – ownership of the asset does not transfer

Option to purchase is reasonably certain No – the lease does not contain a purchase option

Lease term is a major part of the economic life

No – Mfg. Corp is utilizing the asset for only 60% of its economic life (3 year lease/5 year economic life)

Present value of lease payments is substantially all of the fair value

No – present value of the lease payments is $168,000, which is only 56% of the fair value of the leased asset ($168,000/$300,000)

Specialized nature No – asset is non-specialized

Conclusion Operating Lease


Lessee AccountingOperating lease accounting – lesseeInitial recognition entry

Year 1 entry to record the lease payment and expense


Expense Liability Asset

Payment Interest Principal Amortization

Year A B C D A-C

1 61,820 60,000 9,110 50,890 52,710

2 61,820 61,800 6,414 55,385 55,406

3 61,820 63,660 2,350 61,311 59,470

185,460 185,460 17,874 167,586 167,586

Dr. Right-of-use asset 167,586

Cr. Lease liability 167,586

Dr. Lease expense 61,820 A

Dr. Lease liability 50,890 D

Cr. Cash 60,000 B

Cr. Accumulated amortization 52,710 A-C


Lessee AccountingFinance lease accounting - lease Assume the same facts as the lease classification example except lease contains a bargain purchase optionInitial recognition entry

Year 1 Entry to record the lease payment and expense


Asset Liability Expense

Payment Interest Principal Amortization

Year A B C D A+C

1 55,862 60,000 9,110 50,890 64,972

2 55,862 61,800 6,414 55,385 62,276

3 55,862 63,660 2,350 61,311 58,212

167,586 185,460 17,874 167,586 185,460

Dr. Interest expense 9,110 C

Dr. Amortization expense 55,862 A

Dr. Lease liability 50,890 D

Cr. Cash 60,000 B

Cr. Accumulated amortization 55,862 A

Dr. Right-of-use asset 167,586

Cr. Lease liability 167,586


Lessee AccountingFinancial statement impact - lessee


Balance sheet, beginning of year Operating lease Finance lease

Right-of-use asset 167,586 167,586

Lease liability (167,586) (167,586)

Income StatementLease expense 61,820

Amortization 55,862

Interest expense 9,110

Cash flow StatementOperating activities (60,000) (9,110)

Investing activities

Finance activities (50,890)

Balance sheet, end of year

Right-of-use asset 114,876 111,724

Lease liability (116,696) (116,696)


ASU 2016-03Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance (a consensus of the Private Company Council)

• The amendments in this Update make the guidance in Updates 2014-02, 2014-03, 2014-07, and 2014-18 effective immediately by removing their effective dates.

• The amendments also include transition provisions that provide that private companies are able to forgo a preferability assessment the first time they elect the accounting alternatives within the scope of this Update. Any subsequent change to an accounting policy election requires justification that the change is preferable under Topic 250, Accounting Changes and Error Corrections.



ASU 2016-04Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the Emerging Issues Task Force)

• Eliminates diversity in practice

• Applies to entities that offer certain prepaid stored value products that can be redeemed for goods, services or cash (for example, prepaid gift cards, prepaid telecommunication cards, and traveler’s checks).

• The issuers frequently experience breakage whereby consumers do not redeem the entire balance of their prepaid stored value cards.

• New guidance requires issuers to recognize the expected breakage amount (derecognize the liability) either 1) proportionately in earnings as redemptions occur, or 2) when redemption is remote, if issuers are not entitled to breakage.



ASU 2016-05Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the EITF)

• The term novation, as it relates to derivative instruments, refers to replacing one of the parties to a derivative instrument with a new party.

• Issue: whether a change in the counterparty to a derivative instrument that has been designated as a hedging instrument, in and of itself, results in a requirement to de-designate that hedging relationship and therefore discontinue the application of hedge accounting.

• Answer: No



ASU 2016-06Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force)

• Intended to eliminate current diversity in practice

• Simplifies the embedded derivative analysis for debt instruments containing contingent call or put options

• Clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts



ASU 2016-07Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting

• Part of the Simplification Initiative

• Eliminates the requirement to retrospectively apply the equity method of accounting when an investment qualifies for equity method accounting as a result of an increase in the level of ownership interest or degree of influence.

• No longer required to adjust the investment, results of operations, and retained earnings retroactively as if the equity method had been in effect during all previous periods.



ASU 2016-07 (continued)Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting

• New accounting requires the cost of acquiring the additional interest in the investee to be added to the current basis and adopt the equity method as of the date the investment becomes qualified for equity method accounting.

• Effective for all entities for fiscal years beginning after December 15, 2016.



ASU 2016-08Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

• Amendment to new revenue recognition guidance issued in 2014

• Clarifies implementation guidance on principal versus agent consideration when another party is involved in providing goods or services to a customer

• An entity is a principal if it controls the good or service prior to it being transferred to a customer



ASU 2016-08 (continued)Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

• Indicators that an entity controls the good or service:

– Entity is primarily responsible for providing the good or service

– Entity has inventory risk before transfer of good or service

– Entity has discretion in establishing price



ASU 2016-08 (continued)Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

Principal• Nature of an entity’s promise is to provide a specified good or

service itself• Recognize revenue in the gross amount of consideration

Agent• Nature of an entity’s promise is to arrange for a good or service to

be provided by another party• Recognize revenue in the amount of any fee or commission



ASU 2016-09Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

• Includes provisions intended to simplify various aspects of how share-based payments are accounted for and presented in the financial statements

• Key provisions include:– Income tax effects – Forfeitures– Minimum statutory tax withholding requirements

• Some provisions apply only to nonpublic entities



ASU 2016-09 (continued)Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

Income tax effects


Current GAAP SimplificationExcess tax benefits are recognized in APIC; tax deficiencies are recognized either as an offset to accumulated excess tax benefits, if any, or in the income statement. Excess tax benefits are not recognized until the deduction reduces taxes payable.

All excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement (eliminates need to track a windfall pool).

The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur.

An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period.



Forfeitures


Current GAAP SimplificationAccruals of compensation cost are based on the number of awards that are expected to vest.

An entity can make an entity-wideaccounting policy election to eitherestimate the number of awardsthat are expected to vest or recognize forfeitures when they occur.



Nonpublic entity only provisions


Current GAAP Simplification

Practical Expedient—Expected Term:Entities are required to estimate the period of time that an option will be outstanding.

Can make an accounting policy election to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that meet certain conditions.

Intrinsic Value: At initial adoption of Topic 718, Compensation—Stock Compensation, nonpublic entities were provided an option to measure all liability-classified awards at intrinsic value. Some entities were not aware of that option.

Can make a one-time accounting policyelection to switch from measuring all liability-classified awards at fair value to intrinsic value.


ASU 2016-10Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing


Identifying Performance Obligations

• Clarifies how to determine whether a good or service is “separately identifiable” from other promises in the contract and, therefore, should be accounted for separately

• Not required to identify promised goods or services that are immaterial in the context of the contract

• May elect to account for shipping and handling activities after the customer has obtained control of a good as a fulfillment cost rather than as an additional promised service



ASU 2016-10 (continued)Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

Licensing• Categorizes IP into “functional” or “symbolic.”

– Functional IP has significant standalone functionality (e.g., software, completed media content, drug formulas)—revenue generally recognized at a point in time

– All other IP is considered symbolic IP (e.g., trade names, logos, franchise rights)—revenue recognized over time.



ASU 2016-11Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update)



ASU 2016-12Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients


• Amendments cover the following:– Collectibility – Presentation of sales tax– Noncash consideration



ASU 2016-12 (continued)Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients

• Collectibility– When assessing collectibility, entities should consider their

ability to cease providing goods or services in the event of nonpayment

– Also clarifies when revenue would be recognized for non-refundable consideration received for a contract that fails to meet the collectibility threshold




• Presentation of sales tax– Can elect to present sales taxes collected from customers

on a net basis

– Entities not making the election need to evaluate each type of tax to determine which amounts to present as revenue on a gross basis and which amounts to exclude from revenue as amounts collected on behalf of third parties




• Noncash consideration– Amendments specify that the measurement date for determining

the fair value of noncash consideration is contract inception

– Also clarifies that the variable consideration guidance applies only to variability from reasons other than the form of the consideration



ASU 2016-13Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Credit Losses:• Current US GAAP—companies generally recognize credit losses

when it is probable that a loss has been incurred

• New guidance—recognize an allowance for credit losses for the difference between amortized cost basis and the amount expected to be collected (aka Current Expected Credit Losses or CECL)

• Estimate should consider historical and current information, and supportable forecasts



ASU 2016-13 (continued)Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Available for sale debt securities:• Credit losses should be measured similar to current GAAP

• Credit losses should be presented as a allowance rather than as a write-down

• Change will allow for recording of reversals of credit losses in current period net income (current GAAP prohibits reflecting reversals in current earnings)



ASU 2016-14 Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities

Net Asset Classification

• Replaces the current presentation of three classes of net assets with two classes—net assets with donor restrictions and net assets without donor restrictions

• Net asset classification of underwater amounts of donor restricted endowment funds will be classified as part of net assets with donor restrictions



ASU 2016-14 (continued)Statement of Activities

• Present the amount of the change in each of the two classes of net assets

• Present investment return net of external investment expenses and direct internal investment expenses (narrower than what is permitted today)—requirement to disclose the amount of the netted expenses is eliminated

• Present expenses by nature and function—can be presented on face of the statement of activities, as a separate statement, or in the notes



ASU 2016-14 (continued)Cash Flows

• Retains option to present cash flows using either the direct method or indirect method

• If direct method is used—no longer need indirect method reconciliation



ASU 2016-14 (continued)Enhanced Disclosures

• Information about donor restricted net assets

• Qualitative and quantitative information about liquidity resources

• Methods used to allocate costs among program and support functions



ASU 2016-15Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments

• Intended to reduce diversity in practice in how certain items are classified in the cash flow statement

• Main provisions:1. Debt prepayment or debt extinguishment costs

• Cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities

2. Settlement of zero-coupon debt instruments• Classify as cash outflows for operating activities for the portion attributable to interest

and as cash outflows for financing activities for the portion attributable to principal



ASU 2016-15 (continued)3. Contingent consideration payments made after a business

combination• Cash payments made soon after the acquisition date (generally 3 months or

less) should be classified as cash outflows for investing activities

• Beyond that, payments made up to the amount of the contingent consideration liability should be classified as financing activities; any excess should be operating activities

4. Proceeds from the settlement of insurance claims• Classify based on the nature of the loss

5. Proceeds from settlement of corporate owned life insurance policies• Classify as investing activities



ASU 2016-15 (continued)6. Distributions received from equity method investees

• Provides an accounting policy election to classify distributions received using either the cumulative earnings approach or nature of the distribution approach

• Cumulative earnings approach:– Compare the distributions received to cumulative equity-method

earnings since inception – Distributions received up to the amount of cumulative equity

earnings are considered a return on investment and classified in operating activities

– Any excess distributions would be considered a return of investment and classified in investing activities



ASU 2016-15 (continued)• Nature of distribution approach:

– Classify on the basis of the nature of activities of the investee that generated the distribution

– Either a return on investment (operating activity) or return of investment (investing activity)

7. Beneficial interests in securitization transactions• A transferor’s beneficial interest obtained in a securitization of financial

assets should be disclosed as a noncash activity

• Cash receipts from a transferor’s beneficial interests in securitized trade receivables should be classified as cash inflows from investing activities



ASU 2016-16Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory

• Under current GAAP, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to an outside party.

• The new guidance eliminates this exception for all intra-entity sales of assets other than inventory.

• A reporting entity should recognize the tax expense from the sale of an asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation.

• Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer.



ASU 2016-17Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control

• Amendment to the consolidation guidance that was issued in 2015 (ASU-2015-12)

• Under ASU 2015-12, a single decision maker of a variable interest entity (VIE) is required to consider indirect interests in the VIE held through related parties on a proportionate basis when assessing whether it is the primary beneficiary of that VIE, unless the single decision maker and its related parties are under common control. For common control situations, the single decision maker was required to consider indirect interests in an entity held through a common control related party to be equivalent of direct interests.



ASU 2016-17 (continued)Example:

No common controlSingle decision maker owns a 20% interest in a related party and that related party owns a 40% interest in the VIE being evaluated. The decision maker’s indirect interest in the VIE would be considered equivalent to an 8% direct interest (20% x 40%) in that VIE.

Common controlAssume the same facts as above except the related party is under common control. The interest in the VIE would be 40%, instead of 8%.



ASU 2016-17 (continued)• ASU 2016-17 changes how an entity considers indirect interests in a

variable interest entity held through an entity under common control by applying the proportionate basis approach to all situations

• May make it less likely that an entity, in its standalone financial statements, will consolidate a VIE when it holds only a minor indirect interest in the VIE through a non-consolidated common control affiliate


FASB FLASHBACK


FASB Flashback


ASU Effective DateASU 2015-16—Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments

Public entities: Years beginning after December 15, 2015

All others: Years beginning after December 15, 2016

ASU 2015-11—Inventory (Topic 330): Simplifying the Measurement of Inventory

Effective for years beginning after December 15, 2016


FASB Flashback


ASU Effective DateASU 2015-07—Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (a consensus of the FASB Emerging Issues Task Force)



ASU 2015-05—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement



FASB Flashback


ASU Effective DateASU 2015-04—Compensation—Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets



ASU 2015-03—Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs



FASB Flashback


ASU Effective DateASU 2015-01—Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items


ASU 2014-15—Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern



ASU 2015-11Inventory (Topic 330): Simplifying the Measurement of Inventory

• Current accounting requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less a normal profit margin.

• ASU requires measurement of inventory at the lower of cost and net realizable value.

• Net realizable value = estimated selling price less reasonably predictable costs of completion, disposal and transportation.

• Does not apply to inventory measured using LIFO or the retail inventory method.



ASU 2015-07Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)

• Applies to reporting entities that elect to measure the fair value of an investment using the net asset value (NAV) per share (or its equivalent) practical expedient.

• Eliminates the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV practical expedient.

• Change is being made to eliminate inconsistencies in presentation of these investments.



ASU 2015-07 (continued)Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)

• Eliminates certain disclosure requirements, primarily the roll forward for level 3 investments valued using NAV as a practical expedient.

• Does not affect all other investments and a roll forward is still required for level 3 investments not valued using NAV.



ASU 2015-07 (continued)Assets at Fair Value as of December 31, 2016

Level 1 Level 2 Level 3 Total

Cash & Cash Equivalents 250,000 - - 250,000

Equity Securities 1,500,000 - - 1,500,000

US Government Securities - 5,000,000 - 5,000,000

Corporate Bonds - 6,000,000 50,000 6,050,000

Real Estate - - 3,000,000 3,000,000

Derivatives - - 500,000 500,000

Total assets in FV Hierarchy 1,750,000 11,000,000 3,550,000 16,300,000

Investments Measured at Net Asset Value (a)

- - - 2,225,000

Investments at Fair Value $1,750,000 $11,000,000 $3,550,000 $18,525,000

(a) In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.



ASU 2015-03Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs

• Requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.



ASU 2015-01Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items

• Eliminates from U.S. GAAP the concept of extraordinary items.

• Event or transaction that is considered to be unusual or infrequent (or both):– Report as a separate component of income from

continuing operations– Disclose nature and financial effects of each event



FASB PIPELINE



FASB Pipeline


Project Status Timing

Financial Instruments: Hedging Exposure draft Comment period ends November 22, 2016

Improvements to accounting for long-duration insurance contracts

Exposure draft Comment period ends December 15, 2016

Accounting for goodwill impairment

Drafting final standard Q4 2016

Accounting for interest income associated with the purchase of callable debt securities

Exposure draft Comment period ends November 28, 2016

Clarifying the definition of a business

Drafting final standard Q4 2016


FASB Pipeline


Project Status TimingLiabilities & equity—targeted improvements

Drafting ED Q4 2016

Non-profit general partner consolidation of a for-profit limited partnership

ED redeliberations

Nonemployee share-based payment accounting

Initial deliberations

Revenue recognition of grants and contracts by NFP entities

Initial redeliberations


FASB Pipeline


Project Status Timing

Presentation and Disclosures

• Pension and post retirement benefit cost Final standard Q1 2017

• Restricted cash Final standard Q4 2016

• Debt classification Exposure draft Q4 2016

• Inventory Exposure draft Q4 2016

• Defined benefit plans ED redeliberations

• Fair value measurement ED redeliberations

• Income taxes ED redeliberations

• Interim reporting Initial deliberations

• Entity’s decision process ED redeliberations

• Financial statements for NFP (phase 2) ED redeliberations


FASB PipelineSimplifying the accounting for goodwill impairment

• Simplifies subsequent measurement of goodwill

• Eliminates step 2 of the impairment test, which requires a hypothetical purchase price allocation to measure impairment loss

• Impairment loss would instead be measured as the excess of the reporting unit’s carrying value over its fair value

• Will apply to all entities except non-public entities that adopted the private company goodwill accounting alternative



FASB PipelineImproving the presentation of net periodic pension cost and postretirement benefit cost

• ASU as proposed:– Would require an employer to report the service cost component

in the same line item(s) on the income statement as other compensation costs

– Other components pension/benefit cost would be presented in the income statement separately from the service cost component and outside of income from operations



Q3 2016 ECONOMIC OUTLOOK - AICPA


Source: https://www.aicpa.org/InterestAreas/BusinessIndustryAndGovernment/NewsAndPublications/DownloadableDocuments/3Q_2016_EOS_ES.pdf

https://www.aicpa.org/InterestAreas/BusinessIndustryAndGovernment/NewsAndPublications/DownloadableDocuments/3Q_2016_EOS_ES.pdf




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For more information regarding the topics discussed today, please feel free to contact:

Vince Leo, [email protected]

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Mike Giess, [email protected]

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Economy & Finance

2016 Audit & Accounting Update