1 45 pm gaap update

GAAP UpdateNovember 14,2013

Ron Copher – EVP/CFO, Glacier Bancorp, Inc.Fred Peterson – Partner, Moss Adams LLPMark Reis – Partner, Moss Adams LLP

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Fred Peterson has over 14 years of experience in public accounting and is a business assurance partner specializing in audits and reviews of both privately held and publicly registered institutions, including being involved with one of the firm’s largest public companies. Fred also performs effectiveness reviews of governance committees, performs FDICIA attestations and consulting engagements, and prepares peer analysis reports for his clients in industries where available benchmarking data exists. Fred also has significant experience incorporating data analysis software procedures into his audits and consulting engagements and identification of additional value‐added services, including recommendations for enhancing internal controls and improving efficiencies that provide realizable benefits to his clients.

Mark has been in both public accounting and private industry since 1986 including three years with a national firm and is a tax partner. His experience is working with businesses ranging in size from start‐up to multi‐billion dollar public companies. Mark’s primary focus is working with financial institutions, where he oversees the delivery of tax consulting and compliance. He has extensive experience in equity compensation issues, mergers and acquisitions, audit defense, accounting methods, and accounting for income taxes. Mark leads the firm’s tax practice for the Financial Services Group and is on the advisory board of the Bank Tax Institute.

Agenda

• Hot Topics

• FASB Releases and Projects

• Regulatory Changes Impacting GAAP

M&A Accounting –Highlights and Hurdles

• Issues arising with GAAP and tax treatments of transactions structured as stock purchases versus asset purchases:– Tax basis of assets?– Have all elections been considered?– Financial statement disclosures of the

transaction

M&A Accounting –Highlights and Hurdles (cont.)

• Areas with basis differences to remember:– HTM securities– Loans receivable

• Performing loans• Lines of credit• Credit impaired loans• Customer vs. GAAP vs. tax

– Premises and equipment– Guarantees (i.e. indemnification assets/liabilities)


• Contingent consideration issues– Does it represent a step acquisition from a GAAP basis, and what does that mean from a GAAP‐tax difference perspective?

– Does the settlement of the contingency represent a change in basis for tax purposes?

– Does the level of contingent consideration impact goodwill?


• Ownership changes and Section 382:– In a serial acquiror, does an ownership change occur for the

acquiror after either a significant acquisition or a series of acquisitions using stock?

– Measure the change in control, when relevant, for the acquiror as well as the acquiree

• Change in control considerations (excise tax)• Modifying vs. converting share‐based payment awards

DTA Valuation Allowance Reversals

• GAAP says:– “The measurement of

deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.” ASC 740‐10‐30‐2(b)

• Valuation allowance must be evaluated at each financial reporting date.

DTA Valuation Allowance Reversals (cont.)

• Measurement principle for the valuation of deferred tax assets is “more likely than not… that some portion or all of the deferred tax asset will not be realized.”

• This is a likelihood of more than 50 percent


• Questions to consider:– Does the weight of available evidence significantly

exceed or fall short of 50%?– Does client and/or audit documentation clearly support

the 50% threshold?– Have all four sources of income (ASC 740‐10‐30) been

considered?– How confident is management in its forecasting

abilities? – Has a sensitivity analysis been performed?


• Additional questions to consider:– Do management’s forecasts align with assumptions used for call report Tier‐1 haircut on the DTA?

– Are there regulatory pressures to retain the valuation allowance that are contradictory to the available evidence about income?

– Are there situations when a partial reversal is prudent vs. a full reversal?

Recent FASB Activity

• FASB activity in past 12 months– Final ASUs issued – 11– Exposure drafts issued – 15– Projects in process – 34

• Banking relevant: 29

– News releases – 75+

Relevant ASUs for BanksASU Number Description Effective for years

beginning on or after…

ASU 2012‐06 Relates to accounting for indemnification assets in government‐assisted bank acquisitions

12/15/2012

ASU 2013‐01 Relates to offsetting assets and liabilities

1/1/2013

ASU 2013‐02 Relates to reporting of comprehensive income

12/15/2012

ASU 2013‐03 Clarified fair value disclosures for nonpublic entities

Effective upon issuance

Relevant ASUs for Banks (cont.)

ASU Number Description Effective for years beginning on or after…

ASU 2013‐04 Relates to accounting for joint andseveral liabilities

12/15/2013

ASU 2013‐07 Changes to the reporting requirements under the liquidation basis of accounting

12/15/2013

ASU 2013‐09 Deferral of disclosure requirements for nonpublic ESOPs

Effective upon issuance

ASU 2013‐10 Permits the use of OIS Rate as benchmark rate for hedge accounting purposes

For new or redesignated hedges entered into on/after 7/7/2013

Relevant ASUs for Banks (cont.)

ASU Number Description Effective for years beginning on or after…

ASU 2013‐11 Specific issue of accounting for an unrecognized tax benefit when a tax carryforward exists

12/15/2013 – public12/15/14 ‐ nonpublic

Relevant Exposure DraftsASC Topic Description Status

842 ‐ Leases Complete revamping of lease accounting will eliminate notion of operating leases (except for short‐term leases with no extensions) and put assets and liabilities on the balance sheet

Comment period closed 9/13/13; 568 comment letters

310‐40 – TDR’s Clarifies that physical possession of residences collateralizing mortgage loans must be obtained before classification as Foreclosed Real Estate on the balance sheet, with few exceptions

Comment period closed 9/17/13;17 comment lettersLikely to be effective in 2014.

Relevant Exposure Drafts (cont.)

ASC Topic Description Status

ASC Glossary Redefines a “Public Business Entity” globally within US GAAP; there is some discussion about whether privately held banks would be considered public because they are required to file financial statements pursuant to a regulatory requirement

Comments closed 9/20/13;45 comment letters

205 – Financial StatementPresentation

Requires management to disclose uncertainties about an entity’s going concern presumption


Relevant Exposure Drafts (cont.)ASC Topic Description Status

810 –Consolidations

Changes the application of VIE accounting for common control leasing arrangements for companies meeting the scoping requirements being set forth by the Private Company Council


810 –Consolidations

Defines a collateralized financing entity and requires a complex calculation of financial liabilities, including an allocation of the calculated value to separately recognized financial liabilities

Comments closed 10/17/13 (extended from 8/15/13);23 comment letters

Relevant Exposure Drafts (cont.)ASC Topic Description Status

834 – Insurance Contracts

Clarifies the definition of an insurance contract and requires one of two accounting models depending on contract characteristics; expected to impact industries other than the insurance industry, such as banking


323 –Accounting for Investments in Tax Credits

Prescribes the methodology necessary to account for investments in tax credits (i.e.. Low‐income Housing Tax Credits); expected to drive more level yield accounting versus cost or equity‐method accounting

Further discussion to be held by EITF



605 – RevenueRecognition

Designed to develop a common revenue standard between US GAAP and IFRS; creates a five step process to recognize revenue

Comments closed 3/13/12;Over 400 comment letters

825 – Financial Instruments ‐Classification

Removes HTM classification and clarifies the criteria to be met for an instrument to be classified as either held for sale or held for investment; the criteria are largely based on the business model and the intent of management; eliminates the existing OTTI model

Comments closed 5/15/2013; 164 comment letters



825 – Financial Instruments –Credit Losses

Significantly redefines principles for measuring and recognizing credit loss in all financial instruments and removes inconsistency in measurement and recognition between different types of instruments

Comments closed 5/31/13;Over 350 comment letters

Relevant FASB Projects• Hedging of Financial Instruments• Nonpublic Entity• Discontinued Operations• Transfers and Servicing: Repurchase Agreements and Similar Transactions

• Clarifying the Definition of a Business

• Consolidation: Principal versus Agent Analysis

Relevant EITF Projects

• Accounting for Share‐Based Payments When the Terms of an Award Allow a Performance Target to be Achieved After the Requisite Service Period

• Accounting for the Effect of a Federal Housing Administration Guarantee

• Determining Whether the Host Contract in a Hybrid Financial Instrument Is More Akin to Debt or to Equity

• Recognition of New Accounting Basis (Pushdown) in Certain Circumstances

Relevant Private Company Council Projects

• Background on PCC• Projects Outstanding:

• Accounting for Goodwill Subsequent to a Business Combination

• Simplified Hedge Accounting Approach• Applying VIE Guidance to Common Control Leasing Arrangements

• Accounting for Identifiable Intangible Assets in a Business Combination

• Interest Rate Swap Simplified Accounting

Regulatory Interaction with GAAP• Asset Backed Securitizations

– Joint proposal by OCC, FRB, FDIC, FHA, HUD, and SEC– Provisions:

• Defines Qualified Residential Mortgages (QRM) to align with CFPB definition• Risk retention requirement based on FV instead of PV• Risk retention alternatives include a combination of horizontal and vertical risk

retention options• Time periods specify when restrictions on hedging and transfers of retained

interests expire

– Depending on structures of SPEs, the sponsor could end up consolidating the assets and liabilities with the required changes in risk retention

Questions?

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