Post on 16-Apr-2018
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CLAconnect.com
Financial Accounting Standards Board’s (FASB) Organization and Purpose
April 6, 2016
Presentation for the National Association of Federal Credit Unions
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Chuck Kelly • Senior Manager with CliftonLarsonAllen LLP (CLA)
• Over 13 years of experience, working primarily with credit unions and other financial institutions
• Recent presentation and articles: – Presentation: “TDR’s . . . And the Saga Continues” – Presentation: “GAAP Update and Upcoming FASB Guidance to Keep on Your Radar . . .” – Presentation: “Understanding CECL and Current Trends” – Article: “New Guidance May Simplify Goodwill Accounting for Credit Union Mergers” – Article: “Impact of New FASB Financial Instruments Guidance on Credit Unions”
• Master of Accountancy, Virginia Tech
• Member of: – AICPA – Maryland Association of CPAs
Today’s presenters
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Today’s presenters
Craig Brogan • Principal with CliftonLarsonAllen LLP (CLA)
• Over 20 years of experience working with credit unions, CUSOs and other organizations
• Recent presentations: – Presentation: “Financial Literacy Training for Directors” – Presentation: “2016 Accounting Update”
• Bachelors of Science, University of Maryland
• Member of: – American Institute of Certified Public Accountants – Maryland Association of CPAs
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Agenda
• Let’s Meet FASB • Recently Issued & Effective ASU’s • Practice Issues • Private Company Financial Reporting • Other Board Initiatives • Financial Instruments • Other Projects of Interest to
Credit Unions
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History of FASB
• FASB established in 1973 by the Financial Accounting Foundation (FAF)
• First standard was also issued in 1973 • Designated organization for establishing standards of financial
accounting for nongovernmental entities • Standards are officially recognized by the SEC and AICPA • 1991 - FASB participated in an international conference on
global accounting standards • 2009 – FASB Accounting Standards Codification is created
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Let’s Meet FASB
• Financial Accounting Standards Board (FASB) • Seven Member Board • Oversight provided by the Financial Accounting
Foundation (FAF) • Norwalk, CT
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Let’s Meet FASB
• Russell G. Golden, Chairman
• From 2008 to September 2010, he was Technical Director of the FASB, overseeing FASB staff work on accounting standards and technical application and implementation activities.
• He also chaired the FASB’s Emerging Issues Task Force (EITF). • He was initially appointed to the FASB in 2010, after serving for six
years on the FASB staff. Mr. Golden’s term as chairman extends to June 30, 2017, when he will be eligible for appointment to an additional term of three years.
• Before joining the FASB staff, Mr. Golden was a partner at Deloitte & Touche LLP in the National Office Accounting Services department.
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Let’s Meet FASB
• James L. Kroeker, Vice Chairman
• James L. Kroeker was appointed a member and vice chairman of the Financial Accounting Standards Board (FASB) on September 1, 2013.
• Mr. Kroeker joins the FASB from Deloitte, where he served as the Deputy Managing Partner for Professional Practice.
• Prior to joining Deloitte in January 2013, he served as the Chief Accountant of the Securities and Exchange Commission from January 2009 until his departure in 2012. In this capacity, Jim served as the senior accounting professional for the Commission and the principal advisor to the Commission on all accounting and auditing matters.
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Let’s Meet FASB
• Marc A. Siegel, Board Member
• Marc A. Siegel was appointed to the Financial Accounting Standards Board (FASB) in 2008, reappointed to a second five-year term in 2013.
• A recognized expert in forensic accounting, Mr. Siegel has 20 years of experience in diverse and global industries that include technology, media, telecommunications, healthcare, retail, and insurance.
• Prior to his appointment to the FASB, he led the Accounting Research and Analysis team at the RiskMetrics Group in Rockville, Maryland.
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Let’s Meet FASB
• Lawrence W. Smith, Board Member
• Lawrence W. Smith joined the Financial Accounting Standards Board (FASB) in 2007, and was reappointed to a second five-year term effective July 1, 2012.
• Prior to his appointment, Mr. Smith spent five years as Director, Technical Application and Implementation Activities, of the FASB. In this role, he managed FASB activities related to application and implementation issues, and served as Chairman of its Emerging Issues Task Force (EITF).
• Mr. Smith joined the FASB staff in 2002 after a distinguished 25-year career at KPMG.
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Let’s Meet FASB
• Daryl E. Buck, Board Member
• Daryl E. Buck was named to the Financial Accounting Standards Board (FASB) by the Financial Accounting Foundation (FAF) effective February 28, 2011.
• Prior to joining the Board, he spent eighteen years as Senior Vice President & Chief Financial Officer of Reasor’s Holding Company, a privately-owned retail grocery company.
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Let’s Meet FASB
• Thomas J. Linsmeier, Board Member
• Thomas J. Linsmeier was appointed as a member of the Financial Accounting Standards Board (FASB) in July 2006, reappointed to a second term in 2011.
• Dr. Linsmeier was formerly Russell E. Palmer Endowed Professor and Chairperson of the Department of Accounting and Information Systems at Michigan State University.
• He also has served as Academic Fellow and Special Consultant to the Office of the Chief Accountant at the U.S. Securities and Exchange Commission (SEC).
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Let’s Meet FASB
• R. Harold Schroeder, Board Member
• R. Harold “Hal” Schroeder joined the FASB in February 2011, reappointed to a second term in 2015.
• Mr. Schroeder is a CPA who brings over 30 years of diverse experience in investing and financial reporting to the FASB.
• Most notably, he brings a strong investor perspective to the FASB, with more than 15 years of experience working with all facets of the investment community.
• Prior to joining the Board, Mr. Schroeder was a partner at Carlson Capital, L.P., a Dallas-based money manager with assets under management of over $6 billion.
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What Does FASB Produce?
• US GAAP (why is this important) • Annual budget of $24 million • FASB Standards (old) • Accounting Standards Updates (ASU) • Accounting Standards Codification (ASC) • Not IFRS (International Financial Reporting
Standards) • PCC (Private Companies Council)
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What is IFRS?
• International Financial Reporting Standards • IFRS replaced IAS (International Accounting
Standards) • Significant Change from US GAAP • The goal of IFRS is to provide a global framework for
how public companies prepare and disclose their financial statements.
• Who has not adopted IFRS?
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Who has not adopted IFRS? • There are only 10 out of 140 jurisdictions that neither permit,
not require IFRS for any domestic publicly accountable entities, including: – United States
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LLP Who Does Not Require or Permit IFRS for
Domestic Public Entities? • United States • Nigeria
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LLP Who Does Not Require or Permit IFRS for
Domestic Public Entities? • United States • Nigeria • Bolivia
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LLP Who Does Not Require or Permit IFRS for
Domestic Public Entities? • United States • Nigeria • Bolivia • China
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LLP Who Does Not Require or Permit IFRS for
Domestic Public Entities? • United States • Nigeria • Bolivia • China • Egypt
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LLP Who Does Not Require or Permit IFRS for
Domestic Public Entities? • United States • Nigeria • Bolivia • China • Egypt • Guinea-Bissau
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LLP Who Does Not Require or Permit IFRS for
Domestic Public Entities? • United States • Nigeria • Bolivia • China • Egypt • Guinea-Bissau • Macau
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LLP Who Does Not Require or Permit IFRS for
Domestic Public Entities? • United States • Nigeria • Bolivia • China • Egypt • Guinea-Bissau • Macau • Vietnam
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LLP Who Does Not Require or Permit IFRS for
Domestic Public Entities? • United States • Nigeria • Bolivia • China • Egypt • Guinea-Bissau • Macau • Vietnam • Thailand (in the process of adopting IFRS in full)
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LLP Who Does Not Require or Permit IFRS for
Domestic Public Entities? • United States • Nigeria • Bolivia • China • Egypt • Guinea-Bissau • Macau • Vietnam • Thailand (in the process of adopting IFRS in full) • Indonesia (in the process of convergence)
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Differences Between GAAP and IFRS
• GAAP is rule-based, whereas IFRS is principle-based • Inventory - LIFO vs FIFO • Intangibles – Future Economic Benefit? • Write downs
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What does FASB issue?
• Pre 2008 – Statements of Financial Reporting Standards (FASB Standards) FAS 91, FAS 115
• Post 2008 – ASU (Accounting Standards Updates)
• Post 2008 – ASC (Accounting Standards Codification)
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Reporting Standards • Statements of Standards on Financial Reporting • Issued sequentially • Remained stand alone authoritative guidance • Messy – amendments • Two libraries –As originally Issued, As amended,
Current Text
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Standard Codification 2008
• All FASB standards moved into: Accounting Standards Codification (ASC)
• All new standards issued as Accounting Standards Updates (ASU)
• Accounting Standards Updates will not be amended (rather, changes would be included in future ASU’s)
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True or False: As of December 31, 2015, U.S. generally accepted accounting
principles merged with international financial reporting standards.
Polling Question
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FASB Standards 1-168 (old)
• Intro
• Standard of Financial Accounting and Reporting
• Effective date and transition
• Appendix
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Accounting Standards Updates (new)
• Named by year and number (ASU 2014-1) • 2009 – 17 • 2010 – 29 • 2011 – 12 • 2012 – 7 • 2013 – 12 • 2014 – 16 • 2015 – 17 • 2016 – 8 so far
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Accounting Standards Update - Format
• Why is the FASB issuing this ASU?
• Who is affected by this ASU?
• What are the main provisions?
• How do the main provisions differ from current GAAP?
• When will it be effective
• How do the provisions compare with IFRS?
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Evolution of New Accounting Standards Updates
• Key Principle – FASB will only issue standards when the expected
benefits of a change justify the perceived costs of that change.
– For this reason, accounting standard updates are subjected to a Cost-Benefit Analysis.
– So how is this accomplished?
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LLP Evolution of New Accounting Standards Updates
Cost Benefit Analysis for New ASU’s
How Does the FASB Gather Information About Potential Costs And Benefits of Standards?
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Cost–Benefit Differs from an Analysis of Economic Consequences
Evolution of New Accounting Standards Updates
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• High level overview of the process for a new ASU:
Evolution of New Accounting Standards Updates
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Accounting Standards Codification • General Principals
– 105 Generally Accepted Accounting Principles
• Presentation – 205 Presentation of Financial Statements – 210 Balance Sheet – 215 Statement of Shareholder Equity – 220 Comprehensive Income – 225 Income Statement – 230 Statement of Cash Flows – 235 Notes to Financial Statements – 250 Accounting Changes and Error Corrections – 255 Changing Prices – 260 Earnings Per Share
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Accounting Standards Codification • Presentation (continued)
– 270 Interim Reporting – 272 Limited Liability Entities – 274 Personal Financial Statements – 275 Risks and Uncertainties – 280 Segment Reporting
• Assets – 305 Cash and Cash Equivalents – 310 Receivables – 32X Investments – 330 Inventory – 340 Other Assets and Deferred Costs – 350 Intangibles—Goodwill and Other – 360 Property, Plant, and Equipment
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Accounting Standards Codification • Liabilities
– 405 Liabilities – 410 Asset Retirement and Environmental Obligations – 420 Exit or Disposal Cost Obligations – 430 Deferred Revenue – 440 Commitments – 450 Contingencies – 460 Guarantees – 470 Debt – 480 Distinguishing Liabilities from Equity
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Accounting Standards Codification • Equity
– 505 Equity
• Revenue – 605 Revenue Recognition – 606 Revenue from Contracts with Customers – 610 Other Income
• Expenses – 705 Cost of Sales and Services – 71X Compensation – 720 Other Expenses – 730 Research and Development – 740 Income Taxes
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Accounting Standards Codification • Broad Transactions
– 805 Business Combinations – 808 Collaborative Arrangements – 810 Consolidation – 815 Derivatives and Hedging – 820 Fair Value Measurement – 825 Financial Instruments – 830 Foreign Currency Matters – 835 Interest – 840 Leases – 845 Nonmonetary Transactions – 850 Related Party Disclosures – 852 Reorganizations – 853 Service Concession Arrangements – 855 Subsequent Events – 860 Transfers and Servicing
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Accounting Standards Codification • Industry
– 905 Agriculture – 908 Airlines – 91X Contractors – 915 Development Stage Entities – 92X Entertainment – 93X Extractive Activities – 9XX Financial Services – 952 Franchisors – 954 Health Care Entities – 958 Not-for-Profit Entities – 96X Plan Accounting – 97X Real Estate – 980 Regulated Operations – 985 Software – 995 U.S. Steamship Entities
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Recently Issued / Effective Guidance
• FASB ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”
• Alters the accounting for equity security investments, essentially removing available-for-sale accounting
• Debt Security investment accounting is not impacted by this update
• There is a provision available for early adoption to eliminate the disclosure of fair values for financial instruments presented at amortized cost on the Balance Sheet.
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Recently Issued / Effective Guidance
• FASB ASU 2016-02, “Leases (Topic 842)” • Effective for fiscal years beginning after December 15, 2019 • Requires lessee recognition of a right-of-use asset and a lease liability,
initially measured at the present value of the lease payments, in the statement of financial position.
• Lessee finance leases will recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income.
• Lessee operating leases will recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis.
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Recently Issued / Effective Guidance
• ASU No. 2014-14, “Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure”
• The amendments clarify when an in-substance repossession or foreclosure occurs, and require disclosure of both the amount of foreclosed residential real estate property held by a creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.
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Current Projects and Expected Updates
• Current Expected Credit Loss model – expected Q2 2016
• Simplification of Equity Method Accounting – initial deliberations
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Polling Question
• What best describes your plan of preparation (or for the majority of credit unions you audit or regulate) for the forthcoming standard credit losses? a) Followed the issue closely and prepared an estimate of
the impact on the institution b) Are aware of the issue and plan to begin preparation in
2016 when a final standard is issued c) Will deal with it when our accounting firm gives us some
guidance d) Who is the CECL guy and how is he involved?
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Private Company Council (PCC)
• The PCC is an advisory body for FASB on private company matters
• PCC recommends alternative accounting treatments for private companies
• Private Company Financial Reporting – Private company framework – Definition of a Public Business Entity (ASU 2013-12) – Goodwill Amortization (ASU 2014-02) – Interest Rate Swaps (ASU 2014-03) – Variable Interest Entities (VIEs) in Leasing Arrangements
(ASU 2014-07)
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LLP Public Business Entity (ASU 2013-12):
Current GAAP Definition: A business entity that meets any one of the following –
1 •Files or furnishes financial statements with SEC (or is included in a filing)
2 •Securities Exchange Act of 1934 required to file or furnish financial statements with a
regulatory agency, other than the SEC
3 •Required to file financial statements with a foreign or domestic regulatory agency for
the sale of securities that are not subject to contractual restrictions or transfers
4 •Has issued or is a conduit obligor for, securities that are traded, quoted, or listed on
an exchange or an over-the-counter market
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PCC Specific Projects
Goodwill (completed – ASU 2014-02)
Interest Rate Swaps (completed – ASU 2014-03)
Common Control Leases (completed – ASU 2014-07)
Identifiable intangible Assets (alternative approved, pending FASB endorsement)
Other “look-back” projects
Advising the FASB
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Current U.S. GAAP Do not amortize goodwill Test for impairment at least
annually or more frequent Reporting unit level Two-step test Optional qualitative
assessment
Final Alternative Amortize over 10 years or
less Test for impairment upon
occurrence of triggering event
One-step test Optional qualitative
assessment
Goodwill – Solution
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Goodwill – Benefits of Alternative
• Significant cost savings for many private companies that carry goodwill on their balance sheet
• Amortization reduces likelihood of impairments, private companies will test goodwill for impairment less frequently
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PCC Advising on FASB Projects
• Revenue recognition • Going concern • Reporting discontinued operations • Leases • Accounting for financial instruments • Government assistance disclosures • Pushdown accounting (AITF) • Simplification initiative • Disclosure framework: Disclosure reviews
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True or False: Credit Unions are categorized as Not-for-Profits according to
Generally Accepted Accounting Principles.
Polling Question
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Craig Brogan, CPA Principal (301) 902-8566 Craig.Brogan@CLAconnect.com Chuck Kelly, CPA Senior Manager (410) 308-8076 Chuck.Kelly@CLAconnect.com