the ernst & young q4 2012 financial reporting update

The Ernst & Young Q4 2012 financial reporting update Co-sponsored with Financial Executives International 13 December 2012

Presentation title Ernst & Young Q4 2012 financial reporting update © 2012 Ernst & Young LLP

Disclaimer

► Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a member firm serving clients in the US.

► This presentation is ©2012 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young and its member firms expressly disclaim any liability in connection with use of this presentation or its contents by any third party.

► The views expressed by panelists in this webcast are not necessarily those of Ernst & Young.


Circular 230 disclaimer

► Any US tax advice contained herein was not

intended or written to be used, and cannot

be used, for the purpose of avoiding

penalties that may be imposed under the

Internal Revenue Code or applicable state or

local tax law provisions.

► These slides are for educational purposes

only and are not intended, and should not be

relied upon, as accounting advice.

Ernst & Young Q4 2012 financial reporting update © 2012 Ernst & Young LLP

Today’s moderator

Danita Ostling Partner, Professional Practice Director

Ernst & Young LLP

Americas IFRS Leader

Ernst & Young organization


Today’s agenda

►AICPA conference

►Year-end matters to consider

►Joint projects update

►Future considerations


Today’s presenters

► Steven Jacobs Ernst & Young LLP Partner, Professional Practice

► Jackson Day Ernst & Young LLP Partner, Professional Practice Director Accounting Standards Leader

► Alison Spivey Ernst & Young LLP Partner, Professional Practice

The information contained herein is a summary in nature. Viewers should consult their

own professional advisors to address their individual circumstances and concerns.


Today’s agenda

►AICPA conference





AICPA conference Key remarks on IFRS

► Paul Beswick, Acting Chief Accountant

► “Please stay tuned”

► Julie Erhardt, International Deputy Chief Accountant

► Domestic upgrade

► Foreign investment needs

► Public capital market conformity

► Leslie Seidman, FASB Chairman

► FASB understands the unique needs of US stakeholders

and regulators

► US system cannot function with only broad principles


AICPA conference SEC Staff discussion topics

► Income taxes

► Significant judgments to establish or reverse a

valuation allowance

► Guarantor financial statements

► Subsidiary release provisions

► Form and content of condensed consolidating information

► Contractual obligations table

► If timing and amounts are:

► Fixed and determinable – include in table (e.g., fixed-rate

debt interest payments)

► Uncertain – describe in a footnote (e.g., variable-rate debt

interest payments, uncertain tax positions)


AICPA conference SEC Staff discussion topics (continued)

► Other recurring areas

► Segment reporting

► Variable interest entities

► MD&A disclosures

► Non-GAAP financial measures

► Goodwill impairment

► Iran Threat Reduction and Syria Human Rights Act

► Effective for any periodic report due after 6 February 2013

► Address all specified activities in calendar 2012

► Includes affiliates, which includes any person that directly

or indirectly controls, is controlled by or is under common

control with, the issuer


AICPA conference Audit considerations

► Auditor independence, objectivity, skepticism and

mandatory audit firm rotation

► Continuing to evaluate feedback on concept release

► Pursuing other initiatives:

► PCAOB Release, Information for audit committees about

the PCAOB inspection process

► PCAOB Auditing Standard No. 16, Communications with

audit committees

► PCAOB Staff Audit Practice Alert No. 10, Maintaining

and applying professional skepticism in audits

► PCAOB comments on SOX 404 reporting

► Precision of review/monitoring controls


Today’s agenda

►AICPA conference





Current events

Fis

cal clif

f risks

Stock market volatility

US credit rating downgrade

Decline in government spending

Recession

Potential:

► Impairment

of long-lived

assets,

intangible

assets, and

goodwill

► Decrease in

investment

valuations

► Changes in

rule-making

Regulatory environment

S

Scrutiny of cost-benefit analyses


Opinion check

Which potential event is most likely to affect

your company:

A. Decline in government spending

B. Stock market volatility

C. Recession

D. Other

E. Does not apply (Ernst & Young, faculty, alumni,

other)


Year-end closing reminders Revenue recognition

► Evolving business model examples

► Sale of intangible items, which may be bundled with

physical goods

► Free online gaming with offer to sell virtual goods

► Hosted software arrangements

► Revenue recognition considerations

► Consider existing policies

► Analogize to other business models

► Update internal controls over financial reporting


Year-end closing reminders Revenue recognition (continued)

► Multiple-element arrangements

► Review units of accounting

► Update allocation of arrangement consideration

► Disclosure considerations

► Warranties and rights of return

► Consider significant estimates

► Update key assumptions

► Consider changes in business (e.g., new products,

new markets)

► Perform look-back analysis


Year-end closing reminders Allowance for doubtful accounts

► Be wary of overreliance on historical trends and data

► Disclose process and concentrations of credit risk

Example SEC Staff comment: “We note your disclosure regarding your allowance for

doubtful accounts [and] your concentration of sales to

European countries. Considering the European sovereign

debt crisis and economic conditions and your concentration

of sales in these foreign countries, please explain to us in

more detail how you have assessed your outstanding

accounts receivable balances for potential impairment.”


Year-end closing reminders Postretirement benefits

► Discount rate

► Objective is to determine best estimate of effective

settlement rate; varies by company and plan

► Method of estimating the discount rate should be applied

consistently unless facts and circumstances change

► Continued low interest rate environment

► Fewer high-quality bonds available, particularly in Europe

► Expected rate of return

► Management should reconsider whether expected rate of

return is appropriate given current economic environment


Year-end closing reminders Accounting for natural disasters

► Asset impairments

► Insurance proceeds

► Up to the recognized loss – recognize when probable

of being received and costs have been incurred

► In excess of the recognized loss – follow gain

contingency guidance

► Future operating losses

► Recognize when related costs are incurred

► Loss contingencies

► Hedge accounting

► Disclosures


Year-end closing reminders Other areas to consider

► Inventory

► Adjustments to reduce to the lower of cost or market

► Investments

► Other-than-temporary impairments

► Fair value measurements

► Update for current market conditions

► Restructuring

► Changes in structure of business operations and

internal reporting

► Accruals for reductions in workforce


Opinion check

Which of the areas that we discussed do you

expect to most affect your company at year-end:

A. Revenue recognition

B. Allowance for doubtful accounts

C. Pensions

D. Impairment

E. Other

F. Does not apply (Ernst & Young, faculty, alumni, other)


Accounting standards update Public

companies

Private

companies

ASU 2012-07 — Accounting for Fair Value Information That

Arises after the Measurement Date and Its Inclusion in the

Impairment Analysis of Unamortized Film Costs

4

ASU 2012-04 — Technical Corrections and Improvements

4

ASU 2011-09 — Disclosures about an Employer’s

Participation in a Multiemployer Plan

4

ASU 2011-08 — Testing Goodwill for Impairment 4

4

ASU 2011-07 — Presentation and Disclosure of Patient

Service Revenue, Provision for Bad Debts, and the

Allowance for Doubtful Accounts for Certain

Health Care Entities

4

4

ASU 2011-05 — Presentation of Comprehensive Income

and ASU 2011-12 — Deferral of the Effective Date for

Amendments to the Presentation of Reclassifications of

Items Out of Accumulated Other Comprehensive Income

in Accounting Standards Update No. 2011-05

4

4

*These ASUs were effective for public companies in 2011

Accounting standards effective for 2012

*


Accounting standards update Public

companies

Private

companies

ASU 2011-04 — Amendments to Achieve Common Fair

Value Measurement and Disclosure Requirements in U.S.

GAAP and IFRSs

4 4

ASU 2011-03 — Reconsideration of Effective Control

for Repurchase Agreements

4 4

ASU 2011-02 — A Creditor’s Determination of Whether

a Restructuring Is a Troubled Debt Restructuring

4

ASU 2010-28 — When to Perform Step 2 of the Goodwill

Impairment Test for Reporting Units with Zero or Negative

Carrying Amounts

4

ASU 2010-26 — Accounting for Costs Associated with

Acquiring or Renewing Insurance Contracts 4 4



SEC enforcement

► Guide to the US Foreign

Corrupt Practices Act (FCPA)

► From SEC and Department

of Justice

► Provides FCPA enforcement

examples

► Defines key terms and

explains priorities

► Does not provide

interpretative guidance

or bright lines

► Provides examples of

matters not pursued

FCPA 4%

Other 33%

Offering

fraud

19%

Manipulation

15%

Corporate

disclosures

and

financials

18%

Trading

and pricing

11%

SEC tips under

whistleblower program


Changes in auditor report for private companies

Other reporting responsibilities,

when applicable

Opinion (basis for modification

paragraph, when applicable)

Additional paragraphs,

when applicable:

► Emphasis-of-matter

► Other-matter

Headings and subheadings

Management’s responsibilities

Auditor’s responsibilities


PCAOB Auditing Standard No. 16 Communications with Audit Committees

► Effective in 2013 for calendar-year public companies,

subject to SEC approval

► Management may make certain communications

to the audit committee (with auditor involvement)

► Key changes include:

► Processes and significant assumptions used in

making critical accounting estimates

► Significant unusual transactions, including

business rationale

► Difficult or contentious matters resulting in consultations

► Discussion of corrected and uncorrected misstatements


Today’s agenda

►AICPA conference





Joint projects update

Current stage Q1-Q2 2013

Financial Instruments

Classification and

measurement

FASB Deliberating Exposure Draft

IASB Exposure Draft

(limited amendments) Deliberate comments

Impairment FASB Drafting Exposure Draft Exposure Draft

IASB Deliberating comments Exposure Draft

Hedging

FASB On hold

IASB Review draft (except macro hedging)

Final standard (except macro hedging to be

included in a Discussion

paper)

Leases FASB Drafting Exposure Draft Exposure Draft

IASB Drafting Exposure Draft Exposure Draft

Revenue Recognition FASB Deliberating comments Final standard

IASB Deliberating comments Final standard


► Time value of money

► Contracts with customers that contain nonrecourse,

seller-based financing

► Contract issues – contract combinations and distribution

► Identifying separate performance obligations

► Satisfying separate performance obligations

► Onerous performance obligations

July

September

► Contract modifications

► Measures of progress

► Licenses – rights vs. access

► Constraining the amount of revenue recognized

► Collectibility, including presentation of customer credit risk

November

October

Revenue recognition project Redeliberations

P

P

P

P

P

P

P

P

P

P

Future meeting Complete P

In process


► Nonfinancial assets

► Contract issues – credit cards

► Disclosures

► Transition, effective date and early adoption

► Sweep issues and consequential amendments

► Cost-benefit analysis

Upcoming

topics

Revenue recognition project Next steps

► Allocating the transaction price

► Costs

► Scope

December

Future meeting


Opinion check

As the debate over implementation

guidance continues, do you think that

the Boards should provide:

A. Less implementation guidance

B. More implementation guidance

C. No opinion


Today’s agenda

►AICPA conference





*These ASUs were effective for public companies in 2012


Accounting standards update

Public

companies

Private

companies

ASU 2012-07 — Accounting for Fair Value Information That

Arises after the Measurement Date and Its Inclusion in the

Impairment Analysis of Unamortized Film Costs

* 4

ASU 2012-06 — Subsequent Accounting for an

Indemnification Asset Recognized at the Acquisition

Date as a Result of a Government-Assisted Acquisition

of a Financial Institution

4

4

ASU 2012-04 — Technical Corrections and Improvements

4

ASU 2012-02 — Testing Indefinite-Lived Intangible Assets

for Impairment

4

4

ASU 2012-01 — Continuing Care Retirement

Communities — Refundable Advance Fees 4

ASU 2011-11 — Disclosures about Offsetting Assets

and Liabilities 4 4

ASU 2011-10 — Derecognition of in Substance Real

Estate — a Scope Clarification

4

4


SEC rulemaking update

Topic Current status

Conflict minerals and

payments by resource

extraction issuers

(Dodd-Frank)

► Final rules issued August 2012

► Effective 2013

► Current legal challenges

Clawbacks and other

compensation matters

(Dodd-Frank)

► Awaiting proposals

General solicitation and

advertising (JOBS Act)

► Proposed rule – August 2012

► SEC Staff deliberating

comments received

Crowdfunding and “Reg. A+”

(JOBS Act) ► Awaiting proposals


Liquidity and interest rate risk disclosures

► Significant issues identified:

► Disclosures focused on providing information about risks

already addressed by the SEC

► Disclosures do not represent how a company manages risk

► Standardized disclosures reduce relevancy because

financial institutions manage risk in different ways

► Benefits don’t appear to exceed costs

► Nonpublic and not-for-profit entities should be exempt

Companies would be required to provide extensive

disclosures about liquidity and interest rate risks


Private company reporting

► Private Company Council

► Plans a “look-back” analysis of existing US GAAP

► Review of private company decision-making framework

► Will address definition of a nonpublic entity

► We believe the FASB should consider:

► Disclosure and transition relief

► Increasing the transparency of its cost-benefit analysis

► Single, straight-forward definition of a non-public entity

We applaud the FASB’s commitment also to

consider the effects on public companies


Disclosure projects Comment letter views

► We support decision to develop a framework

► Primary focus should be reducing existing disclosures

► Flexible disclosure requirements would result in second-

guessing of preparers by regulators and legal community

► Certain principles should be challenged and debated

► Strong reliance on cash flows as a basis for disclosure

► Boundary of the notes to the financial statements

► Materiality as applied to note disclosure

► Cost benefit analysis of disclosure

► FASB should continue to coordinate with SEC

and PCAOB

© 2012 Ernst & Young LLP

Ernst & Young Q4 2012 financial reporting update

Other standard-setting activities

Active projects Current stage

Reclassifications out of accumulated

other comprehensive income ► Final standard expected 1Q 2013

Consolidation: policy and procedures ► Final standard expected 1H 2013

Investment companies ► Final standard expected 1H 2013

Repurchase agreements and

similar transactions ► Exposure draft expected Q4 2012

Liquidation basis of accounting

► Deliberating comments received on

Proposed Update

► Final standard expected 1H 2013

Going concern ► Exposure draft expected 1H 2013

Scope clarification of disclosures about

offsetting of financial instruments

► Comments due 21 December 2012

► Final standard expected Q4 2012

AccountingLink What you need to know.

When you need to know it.

Because change is constant in the financial

reporting world, you need the latest

information, analysis and insight, first.

Register free at:

www.ey.com/us/accountinglink

http://www.ey.com/us/accountinglink

The Ernst & Young Q4 2012 financial reporting update Co-sponsored with Financial Executives International

Thanks for participating!



Connect with us

Watch us on YouTube Search on

Ernst & Young webcast

Follow us on Twitter @EY_Webcasts



Viewing tips

To make the current slide

appear larger, click the

SLIDE SIZE button.

Click it again to reduce.

Media

player

(increase

volume) Download slides

Related

links

Launch at end of

webcast to get your

CPE/CE certificate

Feedback

form

Need more help?

► Click the yellow help/tips icon

► Then click the red QA icon and request assistance

Media Player

Ask

panelists a

question



Receiving CPE/CE

► To be eligible for CPE/CE credit, you must meet all

of the minimum eligibility criteria:

► Participate for a minimum of 50 minutes to start

earning credit

► Respond to ALL polling questions

► Submit feedback

► Webcast technology automatically determines whether

participants qualify for credit based on the eligibility

requirements above

► Certificates will be available for qualified participants

to print at the conclusion of the webcast by clicking

on the purple CPE icon at the bottom of this interface



If you are participating in a group

► Each person who logged into the webcast should:

► Register for and log into the live webcast

► Respond to the required number of poll questions

► Complete the feedback form

► At the end of the webcast, the group leader can:

► Print certificates for ALL qualified participants by clicking

on the purple CPE icon at the bottom of this interface

OR

► Complete the CPE/CE attendance sheet available on the Thought

Center Webcast site and include all requested information

► Submit the attendance sheet within 72 hours of the completion

of the webcast by email to [email protected]

► Certificates will then be emailed to participants

mailto:[email protected]



Special notice for 13 December 2013

Ernst & Young professionals

who are logging in from an EY office:

Clients and all others

participating from outside an EY office:

You will receive an audio-only webcast today

Will have the option to view a video webcast

the ernst & young q4 2012 financial reporting update

Economy & Finance

purple cpe icon

accounting standards effective

young llp partner

implementation guidance

public companies

young llp

measurement date

ernst