2014 audit & accounting update

2014 Audit & Accounting Update

presented by

Vincent Leo, CPAJennifer Martlew, CPA, CFE

November 18, 2014

Insero & Company’s 2014 Accounting & Finance Education Series

Vincent Leo, CPA

Vincent is a Partner in our Audit and Business Advisory Services Group. He has more than 25 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.

Jennifer Martlew, CPA, CFE

Jennifer is a Partner in the Audit Department and has been with Insero & Company since 2000. She leads the planning and execution of audits for large multi-national clients, as well as many closely held middle market corporations. She has also helped to grow the company's benefit plan audit practice into one of the 25 largest benefit plan audit practices in the United States.

Agenda

• Overview

• FASB/IASB Convergence

• Private Company Financial Reporting

• FASB Updates

• 401(k) Plan Trends

• FASB Pipeline

• Questions

Regulatory Initiatives

• Private company vs. public company GAAP

• U.S. GAAP/International Standards convergence

• Simplification of accounting standards

• PCAOB activities

• Auditing Standards Board activities

• Securities and Exchange Commission

• Sarbanes-Oxley/Internal Controls (COSO Update)

FASB/IASB

Convergence

FASB/IASB Convergence

Background

February 2006—The FASB and IASB entered into a memorandum of understanding which identified long-term and short-term projects designed to improve IFRS and U.S. GAAP and bring them closer together.

Major Long-Term Projects

1. Financial instruments

2. Revenue recognition

3. Leases

4. Presentation of other comprehensive income

5. Fair value measurement

6. Insurance contracts

7. Derecognition and consolidation

8. Financial statement presentation (including discontinued operations)

FASB/IASB Convergence(continued)

Short-Term Projects

1. Fair value option, investment properties, R&D, and subsequent events (FASB projects)

2. Income taxes and impairment (joint projects)

3. Borrowing costs, government grants, joint ventures, and segment reporting (IASB projects)

December 2007—SEC announced its intention to consider whether domestic issuers should be required or permitted to use IFRS in their filings.

November 2008—SEC issued a proposed roadmap for the potential use of IFRS by U.S. issuers.

February 2010—SEC issued a statement in support of convergence and global accounting standards with a directive to develop a work plan on how to transition to a system incorporating IFRS.

July 2012—SEC completes work plan related to global accounting standards. The report noted little support for direct incorporation of IFRS into the U.S. financial reporting system but substantial support for exploring other methods of incorporating IFRS, including continued convergence work with the IASB.


December 2013—In decisions moving away from converging accounting for financial instruments, the FASB decided to retain certain U.S. GAAP components, making convergence of U.S. GAAP and IFRS less likely for financial instruments.

February 2014—SEC published its five year strategic plan. Without specifically mentioning IFRS, the plan noted that the SEC intends to consider whether a single set of global accounting standards is achievable.

February 2014—The FASB reached a tentative decision to limit the scope of the insurance accounting standard, departing from the model in the joint exposure drafts.

March 2014—The Boards departed from their joint exposure drafts on the lease accounting model.


Successes: The Boards have been able to converge a number of standards in full or in part.

• Business combinations—standards have similar principle and requirements but some differences remain

• Fair value measurement—standards are generally converged

• Share-based compensation—standards are generally converged

• Consolidated financial statements—converged in part, but not with respect to control as the basis for consolidation

• Segment reporting—generally converged

• Accounting changes—converged

• Derecognition—agreed on disclosures but not on principles for derecognition

• Discontinued operations—converged

• Revenue recognition—converged


Current Status:

• Insurance contracts—convergence unlikely

• Financial instruments—convergence unlikely

• Leases—continue dialog but there are significant differences between the Boards

• Several joint projects were subsequently discontinued (e.g., income taxes, government grants)


Summary:

• FASB and IASB have been working together to converge US GAAP and IFRS for more than a decade.

• Goal is a single set of accounting and reporting standards.

• To date, a number of projects have been successfully completed and many standards have been made more comparable.

• Efforts to conclude several major convergence projects, including financial instruments, leases, and insurance contracts, have run into significant roadblocks.

• SEC has yet to indicate when it will make a decision on the use of IFRS in the United States.

• Future of convergence and U.S. adoption of IFRS is uncertain.


Private Company Reporting

http://bcove.me/q3se0vy5




Private Company Reporting

At the end of 2013, the FASB and the Private Company Council (PCC) issued the final Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies(the Guide).

The Framework discusses factors that may differentiate the financial reporting considerations of private companies from public companies.

The Guide is intended to assist the FASB and the PCC in determining whether and when to provide alternative recognition, measurement, disclosure, display, effective date, or transition guidance for private companies reporting under U.S. generally accepted accounting principles (GAAP).

Private companies may select the alternatives that they believe are appropriate to apply.

Private Company Reporting (continued)

The FASB and PCC have identified certain factors that differentiate the financial reporting considerations of private companies from public companies:

• The number of primary financial statement users and their access to management;

• The investment strategies of primary users;

• The ownership and capital structures;

• Accounting resources; and

• The manner in which preparers learn about new financial reporting guidance.


1. The number of primary financial statement users and their access to management

• Types of financial statement users are generally the same for private and public companies.

• Private company may have fewer users and those users may have access to management and may receive information throughout the year.

• This factor is more relevant to disclosure matters than recognition and measurement matters.

2. The investment strategies of primary users

• Most private company investors indicate that they are more interested in accounting guidance that affects reported cash amounts or probable future cash flows.


3. The ownership and capital structures

• Capital structure and capital funding of private companies vary from

public companies.

• Many private companies also have multiple entities under common

ownership, which often results in transactions with affiliates and other

related parties, as well as guarantees and cross-collateral arrangements

with lenders.

4. Accounting resources

• Private companies generally have resource constraints and less

specialized accounting personnel.

5. The manner in which preparers learn about new financial reporting guidance

• Generally learn about new guidance from their public accountants.

• Receive education updates in the second half of the year.

• Should be considered when effective dates are established.


The Guide also sets forth five areas (known as modules) where financial accounting and reporting guidance might differ for private and public companies:

• Recognition and measurement;

• Disclosures;

• Display (presentation);

• Effective dates; and

• Transition method

FASB Updates

Summary of New Accounting Standards Updates Since September 2013

ASU 2013-12

Definition of a Public Business Entity—An Addition to the Master Glossary

• This guidance amends the Glossary of the Codification to include one definition of a public business entity for future use in U.S. GAAP.

• The definition of a public business entity will be used in considering the scope of new financial guidance and will identify whether the guidance does or does not apply to public business entities.

• In general, a public business entity is any entity that is subject to SEC/Regulatory filing requirements. Excludes not-for-profit entities.

ASU 2014-01

Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force)

Applies to all reporting entities that invest in qualified affordable housing projects through limited liability entities. These amendments permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Disclosures for a change in accounting principle are required upon transition.

ASU 2014-02

Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill (a consensus of the Private Company Council)

Current GAAP:

• Goodwill is not amortized.

• Requires that goodwill of a reporting unit be tested for impairment at least annually or more frequently if certain conditions exist. An entity can choose to either perform a qualitative assessment to determine whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or proceed directly to step one of the impairment test, which is to compare the carrying amount of the reporting unit with its fair value. In calculating the amount of the impairment, an entity must compare the implied fair value of the reporting unit’s goodwill with its carrying amount. That necessitates performing a hypothetical application of the acquisition method to determine the implied fair value of goodwill after measuring the reporting unit’s identifiable assets and liabilities.

ASU 2014-02 (continued)

Private Company Alternative:

• These amendments permit a private company to subsequently amortize goodwill on a straight-line basis over a period of ten years, or less if the company demonstrates that another useful life is more appropriate. It also permits a private company to apply a simplified impairment model to goodwill.

• A private company that elects the accounting alternative is further required to make an accounting policy election to test goodwill for impairment at either the company level or the reporting unit level.

• Goodwill should be tested for impairment when a triggering event occurs that indicates that the fair value of a company (or a reporting unit) may be below its carrying amount.

• Further simplifies goodwill impairment by eliminating step two of the current impairment test, which requires the hypothetical application of the acquisition method to calculate the goodwill impairment amount.

• Effective for annual periods beginning after December 15, 2014.

ASU 2014-03

Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach (a consensus of the Private Company Council)

• These amendments offer private companies (other than financial institutions) the option to use a simplified approach to account for interest rate swaps that are entered into for the purpose of converting variable-rate interest payments to fixed-rate payments.

• Provides a practical expedient to apply a more simplified cash flow hedge accounting approach to account for interest rate swaps in a less costly and complex manner.

• Allows the swap to be measured at its settlement value instead of fair value.


• Reduces private companies’ income statement volatility while still providing relevant information for lenders and investors.


ASU 2014-04

Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)

• These amendments are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized.

ASU 2014-05

Service Concession Arrangements (Topic 853) (a consensus of the FASB Emerging Issues Task Force)

• Applies to an operating entity of a service concession arrangement entered into with a public-sector entity grantor.

• Update states that an operating entity should not account for a service concession arrangement as a lease in accordance with ASC Topic 840. An operating entity should refer to other Topics as applicable to account for various aspects of a service concession arrangement. The amendment also specifies that the infrastructure used in a service concession arrangement should not be recognized as property, plant, and equipment of the operating entity.


ASU 2014-06

Technical Corrections and Improvements Related to Glossary Terms

The amendments in this Update represent changes to clarify the Master Glossary of the Codification, consolidate multiple instances of the same term into a single definition, or make minor improvements to the Master Glossary that are not expected to result in substantive changes to the application of existing guidance or create a significant administrative cost to most entities. Additionally, the amendments will make the Master Glossary easier to understand, as well as reduce the number of terms appearing in the Master Glossary.

ASU 2014-07

Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (a consensus of the Private Company Council)

• Current U.S. GAAP, requires a reporting entity to consolidate an entity in which it has a controlling financial interest using either the voting interest model or the variable interest entity (VIE) model.

• These amendments allow a private company to elect (when certain conditions exist) not to apply variable interest entity guidance to a lessor under common control. Instead, the private company would make certain disclosures about the lessor and leasing arrangement.


• A private company lessee could elect the alternative when:

1) The private company lessee and the lessor are under common control;

2) The private company lessee has a leasing arrangement with the lessor;

3) Substantially all of the activity between the private company lessee and the lessor is related to the leasing activities between those two companies; and

4) If the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor related to the asset leased by the private company, and the principal amount of the obligation at inception does not exceed the value of the asset leased by the private company from the lessor.


• Alternative needs to be applied to all common control leasing arrangements.

• Still need to review leasing arrangement to determine classification as operating or capital.

• Effective for annual periods beginning after December 15, 2014. If elected, the accounting alternative should be applied retrospectively to all periods presented.

ASU 2014-08

Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

• Part of the FASB/IASB convergence project.

• Changes the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP.

• Narrows the scope of what is considered a discontinued operation.

• Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area or a major line of business.


• In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations.

• The amendments in the ASU are effective in the first quarter of 2015 for public organizations with calendar year ends. For most nonpublic organizations, it is effective for annual financial statements with fiscal years beginning on or after December 15, 2014. Early adoption is permitted.

ASU 2014-09

Revenue from Contracts with Customers (Topic 606)

• In May 2014, FASB and IASB both issued new revenue recognition guidance. The guidance is nearly identical and represents a single, global revenue recognition model.

• This project to converge revenue recognition guidance took almost a decade.

• Applies to revenue from contracts with customers unless those contracts are within the scope of other standards (e.g., insurance contracts or leases).

• Principles based model replacing virtually all the U.S. GAAP guidance that currently exists on revenue recognition, including disclosure requirements.

• Effective for public entities for annual periods beginning after 12/15/16; Annual periods beginning after 12/15/17 for nonpublic entities.


• Although the accounting for most revenue transactions (e.g., retail sales to consumers) will likely remain the same, many companies will see changes to their revenue recognition policies.

• Impact will vary depending on the nature and terms of an entity's revenue-generating transactions.

• Entities in the software, telecommunications, and real estate industries may be significantly affected and are likely to recognize revenue earlier. Some entities in the asset management industry may be significantly affected and recognize revenue later.

• Entities in those industries where the industry specific guidance was eliminated will be affected.


• While most of the legacy U.S. GAAP revenue recognition guidance will be removed from the Codification, the following guidance will remain:

• Agricultural cooperatives in the agricultural industry;

• Insurance contracts for insurance entities;

• Contributions for not-for-profit entities; and

• Alternative revenue programs for rate regulated entities.

• The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.


The application of the following five steps guides the recognition of revenue pursuant to the core principle:

1. Identify the contract with a customer;

2. Identify the separate performance obligations;

3. Determine the transaction price;

4. Allocate the transaction price to the performance obligations;

5. Recognize revenue when (or as) the performance obligation is satisfied.


Action Items:

1. Review current revenue recognition process.

2. Identify contracts, customers, and performance obligations and determine the effect of the new guidance.

3. The following factors should be considered when implementing the new guidance:

• Transition method to be used

• Which disclosures are applicable and what data needs to be collected

• Changes in internal controls/processes that may be required

• Effect on compensation plans

4. Communicate potential impact to investors/lenders (e.g., consider impact on debt covenants)

ASU 2014-10

Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation

• Removes the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP.

• Eliminates the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

ASU 2014-11

Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures

• Repurchase agreements are transactions in which the transferor transfers a financial asset to a transferee in exchange for cash and concurrently agrees to reacquire that financial asset at a future date for an amount equal to the cash exchanged plus or minus a stipulated interest factor.

• Repurchase agreements are used by some companies and institutions as a source of short-term financing on a collateralized basis, allowing lenders in this market to invest money on a secured, short-term basis.


• The amendments in this update require two accounting changes:

• First, they change the accounting for repurchase-to-maturity transactions to secured borrowing accounting (eliminates sale accounting for such transactions).

• Second, for repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement.

• Brings U.S. GAAP into greater alignment with IFRS for repurchase-to-maturity transactions.

ASU 2014-12

Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period

• Clarifies treatment of certain stock awards with performance targets.

• Requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.

• Consistent with existing GAAP, performance conditions that affect vesting should not be reflected in estimating the grant date fair value of the award.

• Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.

ASU 2014-13

Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (a consensus of the FASB Emerging Issues Task Force)

• Provides an alternative for measuring the financial assets and the financial liabilities of a consolidated collateralized financing entity to eliminate the difference in the fair value of the financial assets of a collateralized financing entity, as determined under GAAP, when they differ from the fair value of its financial liabilities even when the financial liabilities have recourse only to the financial assets.

• When the measurement alternative is elected, both the financial assets and the financial liabilities of the collateralized financing entity should be measured using the more observable of the fair value of the financial assets or the fair value of the financial liabilities.

ASU 2014-14

Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)

• Affects creditors that hold government-guaranteed mortgage loans, including those guaranteed by the FHA and the VA.

• Requires that a mortgage loan be derecognized and a separate other receivable be recognized upon foreclosure if the following conditions are met:

1. The loan has a government guarantee that is not separable from the loan before foreclosure.

2. At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim.

3. At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.

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

• Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances.

• This ASU defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.

• Should reduce diversity in the timing and content of footnote disclosures.

• Effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

ASU 2014-16

Derivatives and Hedging (Topic 815) Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity

Certain classes of shares include features that entitle the holders to preferences and rights (such as conversion rights, redemption rights, voting powers, and liquidation and dividend payment preferences) over the other shareholders. Shares that include embedded derivative features are referred to as hybrid financial instruments, which must be separated from the host contract and accounted for as a derivative if certain criteria are met.

ASU clarifies how to make this determination and eliminates the use of different methods in practice.

Questions ?

Are you meeting your fiduciary responsibilities?

Do you even know what they are?

DOL Definition

The Employee Retirement Income Security Act (“ERISA”) of 1974 sets forth general rules which fiduciaries are required to follow. Below is a summary of the Prudent Man Rule:

A fiduciary must act “with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity” would act.

Who is a Fiduciary?

A plan’s fiduciaries will ordinarily include:

• the trustee,

• investment advisers,

• all individuals exercising discretion in the administration of the plan, all members of a plan’s administrative committee (if it has such a committee), and those who select committee officials.

• Attorneys, accountants, and actuaries generally are NOT fiduciaries when acting solely in their professional capacities.

• The key to determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over the plan.

What Is The Significance?

Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. These responsibilities include:

• Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;

• Carrying out their duties prudently;

• Following the plan documents (unless inconsistent with ERISA);

• Diversifying plan investments; and

• Paying only reasonable plan expenses.

What is the Risk?

• With these fiduciary responsibilities, there is also potential liability. Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of the plan’s assets resulting from their actions.

How Can You Reduce the Risk?

• Fiduciaries can limit their liability in certain situations

• Document the processes used to carry out fiduciary responsibilities

• Provide participants with diversified investment options and sufficient information to make informed decisions

• Hire a Co-Fiduciary

Sample Documentation Cycle

• Q1− Investment Review

− Administrative Fee Review

− Investment Expense

Analysis

− Benchmarking and Trends

− Recordkeeping Negotiations


− Record keeper Services

Update

− Plan Demographic Review

− Educational Advice Plan

− Plan Design


− Investment Policy Statement

Review

− Regulatory and Legislative

Update

− Committee Best Practices

− Bonding and Fiduciary

Insurance


− Investment Menu Review

− Trends and Best Practices

Fees

Fees are just one of several factors fiduciaries need to consider in deciding on service providers and plan investments.

• When the fees for services are paid out of plan assets, fiduciaries will want to understand the fees and expenses charged and the services provided.

• While the law does not specify a permissible level of fees, it does require that fees charged to a plan be “reasonable.”

• After careful evaluation during the initial selection, the plan’s fees and expenses should be monitored to determine whether they continue to be reasonable.

Monitoring Service Providers

An employer should establish and follow a formal review process at reasonable intervals to decide if it wants to continue using the current service providers or look for replacements. When monitoring service providers, actions to ensure they are performing the agreed-upon services include:

• Evaluating any notices received from the service provider about possible changes to their compensation and the other information they provided when hired (or when the contract or arrangement was renewed);

• Reviewing the service providers’ performance;

• Reading any reports they provide;

• Checking actual fees charged;

• Asking about policies and practices (such as trading, investment turnover, and proxy voting); and

• Following up on participant complaints.

Participant Education

• Hire investment advisers to offer specific advice. These advisers are fiduciaries and have a responsibility to the plan participants.

• Hire a service provider to provide general financial and investment education, interactive investment materials and information based on asset allocation models

• Participation Campaigns

Important Reminders for 2014

• IRS has increased some of the limits applicable to qualified plans for 2015

• Participant-directed defined contribution plans must provide annual notices regarding plan expenses and investments. These are due 12 months from the last notice.

• If you have an automatic enrollment 401(k) or 403(b) plan, regardless of whether it is a “safe harbor” plan, you must provide your automatic enrollment annual notice by December 1, 2014 if you have a calendar year plan.

• If you want to make any amendments to your plan, you may need to adopt them before the end of the current plan year. Generally, an amendment to a qualified retirement plan that takes effect during a plan year must be adopted before the end of the plan year, unless Congress or the IRS has granted an extension.

• If you expect to have assets remaining in your defined contribution plan’s forfeiture account at the end of the year, you should review your options and obligations under the plan document to determine whether you can (and whether you must) make arrangements to use up your forfeiture account this year. The IRS has emphasized that plans generally should not be carrying forfeiture balances over from year to year.

A Look Ahead at 2015

If your plan uses an “individually designed” document and the

plan sponsor EIN on your plan’s Form 5500 ends in “4” or “9,”

your plan must be submitted to the IRS for re-approval by

January 31, 2015 unless you have taken the necessary steps

by then to document your plan’s conversion to an IRS

pre-approved prototype or volume submitter document for the

future. A plan sponsor whose EIN ends in “5” or “0” must

submit an individually designed plan document for re-approval

by January 31, 2016. Special rules may apply if you are part

of a group of companies that has opted to use the same cycle

for all determination letter applications, or in certain other

limited circumstances.

Important Development in 2014

• Supreme Court Rules in Favor of Contractual Statutes of Limitations in ERISA Plans

• Supreme Court Will Hear More Employee Benefits Cases Next Term

• Plan Loans

• Lifetime Income Options for Defined Contribution Plans

• IRA Rollovers

Questions ?

FASBPipeline

FASB Pipeline

Recognition and Measurement

• Inventory Measurement—In Process

• Leases—Exposure Draft

• Pension Plan Asset Measurement Date—Comment Period

• Accounting for Financial Instruments—Exposure Draft

• Goodwill for Public Entities and Not-for-Profits—In Process

• Consolidation: Principal versus Agent Analysis—Final Standard Q4 2014

• Identifiable Intangible Assets in a Business Combination (PCC Issue 13-01A)—Final Standard Q4 2014

• Cloud Computing Arrangements—Comment Period

• Pushdown Accounting—Final Standard Q4 2014

FASB Pipeline (continued)

Presentation and Disclosure

• Investment Companies: Disclosures about Investments in Another

Investment Company – ED Q4 2014

• Presentation of Debt Issuance Cost—Comment Period

• Disclosure Framework—In Process

• Insurance: Disclosures about Short-Term Contracts—Final

Standard Q1 2015

• Simplifying Income Statement Presentation by Eliminating the

Concept of Extraordinary Items—Drafting Final Standard

• Simplifying the Balance Sheet Classification of Debt—In Process

• Certain Investments Measured at Net Asset Value—Comment

Period

• Financial Statements of Not-for-Profits—ED Q1 2015

Pushdown Accounting

• On October 8, 2014, the Financial Accounting Standards Board (FASB) agreed to issue new guidance on pushdown accounting.

• Pushdown accounting refers to pushing down the acquirer's accounting and reporting basis (which is recognized in conjunction with its accounting for a business combination) to the acquiree's standalone financial statements.

• Will apply to both public and private companies. Upon issuance of the final ASU, private companies will have pushdown accounting guidance directly applicable to them and will no longer have to analogize to the SEC staff's guidance on the subject.

Pushdown Accounting (continued)

• Pushdown accounting will be optional for an acquiree once the acquirer in a business combination obtains control over the acquiree and will not be required in any circumstances. This is different than the SEC staff's existing pushdown accounting guidance, which does not permit pushdown accounting until the acquirer obtains at least an 80% interest in the acquiree and generally requires pushdown accounting when the acquirer obtains more than a 95% interest in the acquiree.

• Will require additional disclosures.

• Effective upon issuance of the final ASU. The FASB's website indicates that the drafting of the final ASU is expected to take place in the fourth quarter of 2014.

Presentation of Debt Issuance Cost

• The FASB has received feedback that having different balance sheet presentation requirements for debt issuance cost and debt discount or premium creates unnecessary complexity.

• If finalized, this proposed ASU would require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums.

• The proposed guidance would be adopted on a retrospective basis, wherein the balance sheet of each individual period presented would be adjusted to reflect the period-specific effects of applying the new guidance.

• The proposed ASU is available for comment until December 15, 2014.

Not-for-Profit Financial Statements

The objective of this project is to reexamine existing standards for financial statement presentation by not-for-profit entities (NFP), focusing on improving:

1. Net asset classification requirements

2. Information provided in financial statements and notes about liquidity, financial performance, and cash flows.

http://bcove.me/35ip7053

http://bcove.me/35ip7053

Lease Accounting Update

Refresher:

• August 2010 joint exposure drafts would have required the recognition of assets and liabilities arising under all leases (this proposal received significant criticism from certain parties).

• May 2013 revised exposure drafts issued. For leases of more than 12 months duration, lessees would be required to recognize assets and liabilities for the rights and obligations created by the lease. Leases where a more than insignificant amount of the value of the asset is consumed during the lease period would be treated as Type A leases, while leases under which an insignificant amount of the value of the underlying asset is consumed would be treated as Type B leases. Type B leases would report lease expense on a straight-line basis (this proposal was also met with significant criticism).

Lease Accounting Update (continued)

Update:

• The Boards have continued to deliberate, although their positions have become less converged rather than moving closer together.

• Boards continue work on this project and have found common ground on several issues but have not been able to resolve their fundamental differences on lessee accounting.

• While both Boards believe that leases should be included on the balance sheets, they now differ on their approaches.

• The FASB is taking a dual approach, with lease classification similar to the existing model assessing whether a lease is effectively an installment purchase (i.e., a capital lease) or an operating lease.

• The IASB decided on a single approach for all leases treating them essentially as capital leases, with the lessee required to recognize amortization of the lease asset separately from interest on the lease liability.

For the most part, the FASB’s redeliberations on its leases project have been conducted on a joint basis with the International Accounting Standards Board (IASB). Recent discussions have focused on separation of lease and nonlease components, subleases, sale-leaseback transactions and financial statement presentation and disclosure matters. While the lease project remains a joint project, decisions reached on certain issues during redeliberations have not been converged.

While no formal indication of timing is provided on the FASB’s website, the earliest that this project will be completed is 2015. Delayed effective dates will most likely be provided.

Lease Accounting Update (continued)

Identifiable Intangible Assets in a Business Combination (PCC Issue 13-01A)

• A private company could choose to elect an accounting policy under which it would not separately recognize the following intangible assets in the accounting for a business combination: (a) intangible assets that would otherwise arise from noncompete agreements or (b) customer-related intangible assets that cannot be separately sold or licensed. The value of these intangible assets would effectively be subsumed into goodwill.

• The PCC also decided that a private company would only be able to elect this alternative if it also elects (or has already elected) the private-company goodwill alternative.

• To become part of U.S. generally accepted accounting principles (GAAP), the alternative must be endorsed by the Financial Accounting Standards Board (FASB) and issued in a final Accounting Standards Update (ASU). This alternative was endorsed by FASB on November 5, 2014 and the final ASU is expected in Q4 2014.

Customer’s Accounting for Fees in a Cloud Computing Arrangement

• Proposed ASU issued. Comment period expires November 18, 2014.

• Current GAAP addresses the accounting for cloud service providers but does not include explicit guidance about a customer's accounting for its fees paid to the cloud service provider. Cloud computing arrangements include software as a service, platform as a service, infrastructure as a service and other similar hosting arrangements.

• The proposed guidance would help customers determine whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer would account for the software license consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer would account for the arrangement as a service contract.

Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets

• If finalized, this proposed ASU would provide a practical expedient for employers with fiscal year-ends that do not fall on a month-end by permitting those employers to measure defined benefit plan assets and obligations as of the month-end that is closest to the entity's fiscal year-end and to follow that measurement date methodology consistently from year to year. The proposed amendments would be applied prospectively.

• The proposed ASU is available for comment until December 15, 2014.

Extraordinary Items

The FASB has decided to eliminate the concept of extraordinary items from U.S. GAAP and is drafting a final Accounting Standards Update (ASU). The amendments in the ASU are expected to: (1) be effective for annual periods beginning after December 15, 2015; (2) allow early application; and (3) be applied prospectively, with optional retrospective application.

Questions ?

Thank You

Thank you for your attendance attoday’s program.

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

Vincent Leo, CPA Michael Giess, CPA

[email protected] [email protected]

585.697.9683 585.697.9639

Jennifer Martlew, CPA, [email protected]

585.697.9624

Insero & Company CPAs, P.C.

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Insero & Company CPAs, P.C.

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Business & Financial Advisors

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2014 audit & accounting update

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