Accounting Developments (PowerPoint, 2.68 MB)

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Transcript of Accounting Developments (PowerPoint, 2.68 MB)

  • 1. Accounting Developments SEC Hot Topics Institute September 10, 2008

2. SEC accounting developments

  • Josh Forgione, SEC Associate Chief Accountant
  • Chris Holmes, E&Y National Director of SEC Matters
  • Sue Main, VP & Controller, Teledyne Technologies

3. SEC accounting developments

  • International Financial Reporting Standards (IFRS)
  • Newbusiness combination accounting standards
  • Other topics of interest

4. International Financial Reporting Standards 5. SEC Proposed IFRS roadmap

  • SEC proposes roadmap for requiring U.S. issuers to use IFRS for financial reporting beginning in 2014
    • Identifies milestones that the SEC will consider before making a final decision in 2011 about whether to proceed with mandatory adoption of IFRS
    • Further rulemaking will be required by the SEC if it decides to mandate the use of IFRS

6. IFRS Roadmap Milestones

  • Improved accounting standards (i.e., continued convergence)
  • Accountability and funding of IASCF
  • XBRL readiness (i.e., IFRS taxonomy)
  • Education and training (e.g., preparers, auditors, users)
  • Timing
      • 2009: early adoption by limited number of US public companies
      • 2011: SEC decision regarding the mandatory use of IFRS
      • 2014: US issuers might be required to use IFRS instead of US GAAP

7. IFRS Timetable

  • Mandatory IFRS adoption: possible sequence
    • Large accelerated filers (public float > $700M) 2014
    • Accelerated filers (public float > $75M, < $700M) 2015
    • Non-accelerated filers (public float < $75M) 2016
  • Early adoption of IFRS in 2009 limited to:
    • Industries in which IFRS is more prevalent than any other accounting basis
    • The 20 largest companies in those industries (based on global market cap)
      • The SEC is soliciting comment on whether early adopters should provide (a) just the IFRS 1 disclosures (i.e., a one-time audited one year reconciliation to US GAAP in the year of adoption), or (b) more extensive disclosures (i.e., an ongoing unaudited three-year reconciliation to US GAAP)

8. The IFRS journey illustrative timeline 2012 and 2013 statements filed under US standards Run US GAAP and IFRS parallel IFRS statements arepublished withcomparatives for 2013and potentially 2012Fiscal 2011 Fiscal 2012 Fiscal 2013 Fiscal 2010 Awareness andknowledge of IFRS Preparation of convergence plan New IFRS standards There are significant steps to consider including planning, training, current convergence of US and IFRS standards and resourcing among others. Change Management, Project Structure and Governance (budget implications, resourcing, etc.) Impact assessment Training Design & implementation ofprocess, control and systems Modification of business operations,tax, regulatoryand HR programs Drafting newaccounting policies Restateopeningbalance sheet Fiscal 2014 Firstyear of IFRSReporting 2014 Fiscal 2009 9. IFRS planning considerations

  • Information technology
    • Data capture & conversion / migration
    • IT change management
  • Tax
    • Data collection
    • Tax planning
    • Existing tax return positions
    • IRS / tax controversy
  • Human resources
    • Share-based payments
    • Impact upon existing and new incentive compensation plans
  • Marketing, communications and investor relations
    • Early education
    • Underlying business performance
    • Volatility of earnings and equity
    • Re-benchmarking relative to global peer group

10. New business combination accounting standards 11. Business combinations

  • Business Combinations - FASB Statement No. 141(Revised)
  • Noncontrolling Interests in Consolidated Financial Statements - FASB Statement No. 160
  • Issued December 2007, effective for annual periods beginning after December 15, 2008
      • Prospective adoption
      • Early adoption not permitted for US GAAP

12. Key changes

  • Definition of business and business combination
  • Transaction costs
  • Contingent consideration
  • Purchase price allocation
    • Preacquisition contingencies
    • Measurement period adjustments
    • Income taxes
    • Intangibles the acquirer does not intend to use
    • Acquired in-process R&D
  • Restructuring costs
  • Noncontrolling interests

13. Other topics of interest 14. Other topics of interest

  • Fair Value Measurements
    • Application of SFAS 157, Fair Value Measurements, to non-financial assets and liabilities in fiscal years beginning after November 15, 2008
  • Proposed statement on disclosures for loss contingencies
    • Expand the population of loss contingencies required to be disclosed
    • Require disclosure of specific quantitative and qualitative information about those loss contingencies
    • Require a tabular reconciliation of recognized loss contingencies
    • Provide an exemption from disclosing certain required information if disclosing that information would be prejudicial to an entitys position in a dispute
    • Proposed statement would be effective for financial statements issued for fiscal yearsending after December 15, 2008 and for interim and annual periods in subsequent fiscal years
  • Proposed statement on earnings per share
    • Basic earnings per share would include shares currently issuable for little or no cost to the holder (e.g. shares issuable on exercise of a warrant with a nominal strike price)
    • Modify the treasury stock method to require period end stock prices, rather than average stock price
    • Require diluted effect for instruments that may be settled in stock to be calculated using the if-converted method

15. Questions? 16. Appendix Business combinations key areas with rule changes 17. Broadened definition of a business

  • Current rules
    • Under EITF 98-3, a business is aself-sustainingintegrated set of activities and assets conducted/managed to provide a return to investors
    • Consists of (a) inputs, (b) processes applied to inputs and (c) outputs to generate revenue
    • Must contain all of the above to conduct normal operations after separation from transferor
  • New rules
    • Business An integrated set of activities that iscapableof being conducted and managed for the purpose of providing (a) a return to investors, or (b) lower costs or other economic benefits directly and proportionately to owners, members, or participants
    • Consists of (a) inputs and (b) processes applied to those inputs
      • Perspective of a market participant
    • Development stage company can be a business

18. Broadened definition of a business combination

  • Current rules
    • A business combination occurs when an entity obtains control of a business by acquiring its net assets, or some or all of its equity interests
  • New rules
    • Business combinations include all transactions and other events in which control of one or more businesses is obtained.
    • Could occur without the transfer of consideration.For example:
      • A contractual arrangement
      • The lapse of minority veto rights that previously prevented a majority owner from controlling (and therefore consolidating) a business
      • An investee share buy-back that results in an existing investor obtaining control

19. Transaction costs

  • Current rules
    • Fees/costs of raising acquisition debt capitalized separately and amortized
    • Fees/costs of raising new equity netted against proceeds received