Accounting & Auditing Update

2014 A&A update for private companies, and other changes on the immediate

1/36 Documents & Tips - Sharing is our passion

Share This Page

  1. Cohen and Company
    2014 A&A update for private companies, and other changes on the immediate
    Transcript Header:
    Accounting & Auditing Update
    Transcript Body:
    • 1. A&A Update Jami Blake, CPA Partner, Cohen & Company
    • 2. Objectives • Participants will obtain a general understanding of: – Standards issued in 2014 relating to private companies: • Accounting for Goodwill • Accounting for Interest Rate Swaps • Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements
    • 3. Objectives (Continued) • Participants will obtain an overview of: – Proposals currently being considered by the PCC • Accounting for Identifiable Intangible Assets in a Business Combination – Standards issued in 2014 relating to all entities: • Financial Reporting Requirements of Development Stage Entities • Revenue Recognition – Other changes on the immediate horizon
    • 4. ASU 2014-02: Intangibles – Goodwill and Other (Topic 350) • Issued in January 2014 – Simplified Goodwill Accounting • Why did the FASB issue this Standards update? • Who does the update apply to? • What are the main provisions? • How does this compare to current U.S. GAAP? • Why is it an improvement? • When is it effective?
    • 5. Why Issued? • Feedback from private company stakeholders, users of private company f/s, and preparers and auditors regarding current accounting for goodwill: – Benefits of current accounting do not justify costs – Provides limited useful information in analyzing an entity’s financial position and operating performance – Goodwill impairment test costly and complex
    • 6. Who is Affected? • Applicable to all entities except: – Public businesses – Not-for-profit entities – Employee benefit plans • Applicable to: – Goodwill existing at the beginning of the annual period in which it is elected – New goodwill recognized after the beginning of the annual period of adoption
    • 7. What are the main provisions? • Gives an alternative to amortize goodwill on a straight-line basis over 10 years (or less if demonstrate another useful life is more appropriate) • Make an accounting policy election to test goodwill impairment at either the entity level or the reporting unit level • Goodwill should be tested for impairment upon occurrence of a triggering event (can first assess qualitative factors)
    • 8. How is this different? Alternative • Amortize over 10 years • Impairment tested only upon occurrence of a triggering event • One step impairment test • Test impairment at entity level or reporting unit level • Disclosure of gross carrying amounts, A/A, amortization expense, and accumulated impairment loss Existing U.S. GAAP • No amortization • Impairment tested at least annually (or more frequently) • Two step impairment test • Must test impairment at the reporting unit level • Tabular reconciliation of changes in goodwill disclosed
    • 9. Improvement? • Cost savings in not having to fair value goodwill each year • Expect no loss of relevant information for users of f/s
    • 10. When is this effective? • Applied prospectively to goodwill existing as of the beginning of the period of adoption • For new goodwill recognized in annual periods beginning after 12/15/2014 (2015 calendar year) and interim periods within annual periods beginning after 12/15/2015 • Early application is permitted for any period the f/s have not yet been made available for issuance
    • 11. ASU 2014-03: Derivatives and Hedging (Topic 815) • Issued in January 2014: Simplified Hedge Accounting Approach • Why did the FASB issue this Standards update? • Who does the update apply to? • What are the main provisions? • How does this compare to current U.S. GAAP? • Why is it an improvement? • When is it effective?
    • 12. Why Issued? • Feedback from private company stakeholders regarding current accounting for interest rate swaps: – Hedge accounting is difficult to understand and apply – Private companies lack the expertise to comply with requirements to qualify for hedge accounting – Question the relevance and costs associated with determining and presenting the fair value of a swap entered into in order to convert a variable rate borrowing to a fixed rate borrowing
    • 13. Who is Affected? • Applicable to all entities except: – Public businesses – Not-for-profit entities – Employee benefit plans – Financial institutions (banks, savings and loan associations, savings banks, credit unions, finance companies, and insurance entities)
    • 14. What are the main provisions? • Allow use of simplified hedge accounting approach for swaps that are entered into for the purpose of economically converting a variable-rate borrowing into a fixed-rate borrowing • Option to measure designated swap at settlement value instead of fair value
    • 15. What are the main provisions? • Must meet following criteria: – Swap and borrowing based on the same index and reset period – Terms of swap are “typical” (plain vanilla) – Re-pricing and settlement dates for swap and borrowing are the same or differ by no more than a few days – Swap’s FV at inception is at or near zero – The notional amount of the swap matches the principal amount of the borrowing being hedged (amount being hedged can be less than total principal amount being borrowed) – All interest payments occurring on the borrowing during the term of the swap are designated as hedged
    • 16. What are the main provisions? • Can elect this approach to any qualifying swap, whether existing at the date of adoption or entered into after that date • Disclosure requirements under Topics 815 and 820 continue to apply • Exempt from Topic 825 disclosures if all the following conditions are met: – Entity is a nonpublic entity – Total assets of the entity are less than $100M on the date of the financial statements – The entity has no instrument that, in whole or in part, is accounted for as a derivative instrument under Topic 815 other than commitments related to the origination of mortgage loans to be held for sale during the reporting period.
    • 17. How is this different? Alternative • Practical expedient for measurement of the swap (settlement value) • Certain disclosures under ASC 825 are not required as is not considered a derivative instrument under this alternative Existing U.S. GAAP • Must measure swap at FV • Must comply with disclosures in ASC 825
    • 18. Improvement? • Continue to provide useful information to users • Provide reduction in cost and complexity in accounting for such swaps by preparers • Should alleviate some cost and complexity concerns with regard to estimating fair value
    • 19. When is this effective? • Annual periods beginning after 12/15/2014 (2015 calendar year) and interim periods within annual periods beginning after 12/15/2015 • Early application is permitted • One of two approaches may be used: – Modified retrospective approach (adjustments made to opening balances of the current period presented to reflect the effects of applying from the date the swap was entered into) – Full retrospective approach (adjustments made to opening balances of the earliest period presented to reflect the effects of applying from the date the swap was entered into)
    • 20. ASU 2014-07: Consolidation (Topic 810) • Issued in March 2014 – Applying VIE Guidance to Common Control Leasing Arrangements • Why did the FASB issue this Standards update? • Who does the update apply to? • What are the main provisions? • How does this compare to current U.S. GAAP? • Why is it an improvement? • When is it effective?
    • 21. Why Issued? • Feedback from private company stakeholders and users of private company f/s regarding current accounting for lessor entities under common control: – Benefits of applying VIE guidance do not justify the related costs – Provides limited useful information to users who are focused on cash flow and tangible worth of the stand- alone lessee entity and distorts the f/s as those assets are not available to satisfy the obligations of the lessee entity
    • 22. Who is Affected? • Applicable to all entities except: – Public businesses – Not-for-profit entities – Employee benefit plans • Accounting policy election that, when elected, is applicable to all current and future lessor entities under common control that meet the criteria for applying this approach
    • 23. What are the main provisions? • Permit a private company lessee to elect an alternative not to apply VIE guidance to a lessor entity if: – The entities are under common control, – The private company lessee has a lease arrangement with the lessor entity, – Substantially all of the activities between the two entities are related to leasing activities, and – If the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor entity related to the asset leased by the private company - the principal amount of that obligation at inception of such arrangement cannot exceed the value of the asset leased.
    • 24. What are the main provisions? • No VIE disclosures would be required about the lessor entity • Disclosures needed: – Amount and key terms of liabilities recognized by the lessor entity that expose the private company lessee to providing financial support to the lessor entity, and – A qualitative description of circumstances not recognized in the f/s of the lessor entity that expose the private company lessee to providing financial support to the lessor entity
    • 25. How is this different? Alternative • No application of VIE model if certain conditions exist – no consolidation when this determination is made (still must consider consolidation under voting interest model) Existing U.S. GAAP • Requires consolidation of an entity which the reporting entity has a controlling financial interest (voting interest or VIE model)
    • 26. Improvement? • Potential to improve financial reporting for the users of private company f/s • Potential to reduce the cost and complexity associated with financial reporting
    • 27. When is this effective? • Applied retrospectively to all periods presented • Annual periods beginning after 12/15/2014 (2015 calendar year) and interim periods within annual periods beginning after 12/15/2015 • Early application is permitted for any period the f/s have not yet been made available for issuance
    • 28. PCC Issue No 13-01A: Accounting for Identifiable Intangible Assets in a Business Combination • Most recent discussions end of April 2014 (no final decision reached) • Four alternatives for recognition of intangible assets in a business combination are being discussed (regarding not separately identifying certain intangibles) • PCC expected to resume discussions at July 2014 meeting – Expected to consider expanding scope to intangible assets acquired in an asset acquisition (to avoid differences between that and assets acquired in a business combination)
    • 29. ASU 2014-10: Development Stage Entities (Topic 915) • Issued in June 2014 • Who does the update apply to? • What are the main provisions? • Why is it an improvement? • When is it effective?
    • 30. Who is Affected? • Entities considered development stage entities under U.S. GAAP – Planned principal operations have not commenced or have commenced, but there has been no significant revenue • Entities with consolidation decisions due to an interest in an entity that is a development stage entity
    • 31. What are the main provisions? • Removes definition of development stage entity from glossary of ASC, removing distinction between them and other reporting entities • Remove all incremental financial reporting requirements from U.S. GAAP for development stage entities • Eliminate an exception provided to development stage entities in Topic 810 (Consolidation) for determining whether an entity is a VIE on basis of amount of equity investment at risk
    • 32. Improvement? • Reduce data maintenance and audit costs for presentation of inception-to-date information in the statements of income, cash flows, and shareholder equity • Provide consistent consolidation analyses among reporting entities
    • 33. When is this effective? • For public entities: Annual periods beginning after 12/15/2014 (2015 calendar year) and interim periods therein • Other entities: Annual periods beginning after 12/15/2014 (2015 calendar year) and interim periods beginning after 12/15/2015 • Early application is permitted for any period the f/s have not yet been issued or made available for issuance • Effective dates one year later for elimination of the exception in 810-10-15-16
    • 34. ASU 2014-09: Revenue from Contracts with Customers (Topic 606) • Revenue Recognition – Issued May 2014 – Effective date • Public companies – annual reporting periods beginning after 12/15/2016, including interim periods within that period • Non public companies - annual reporting periods beginning after 12/15/2017, including interim periods within that period
    • 35. Change on the Immediate Horizon • Going Concern – Look-forward period to assess information about conditions and events will be one year from the date the financial statements are issued (or available to be issued – private companies) rather than from the f/s date – Expected to be effective prospectively for annual periods beginning after 12/15/2015, and in interim periods thereafter
    • 36. Questions?
    View More