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Winter 2014 FASB Update

The views expressed in this presentation are those of the presenter. Official positions of the FASB are reached only after extensive due process and deliberations.

AGC Financial Issues ForumJanuary 9, 2014

Cullen D. Walsh, Assistant Director

FASB’s Agenda Prioritization Joint Project on Leases Joint Project on Revenue Recognition Definition of a Nonpublic Entity Private Company Council Reporting Discontinued Operations EITF: Presentation of Unrecognized Tax Benefits (FIN

48) What to Expect in 2014

Agenda

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FASB’s Agenda Prioritization

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Joint Project on Leases

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Reason for project

Overview of proposals Lessee accounting Lessor accounting

Feedback received on 2013 Exposure Draft Users Preparers, practitioners, and others

Path forward

Project overview and path forward

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Joint Project on Revenue Recognition

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The revenue standard aims to improve accounting for contracts with customers by:- Providing a more robust framework for addressing revenue

issues as they arise- Increasing comparability across industries and capital

markets- Requiring better disclosure

Project objective

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Objective: To develop a single, principles-based revenue standard for U.S. GAAP and IFRSs

June 2010

Exposure draft

Revenue from Contracts with Customers

974 comment letters

Project status

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2010 20142011

November 2011

Revised exposure draft

Re-exposure of Revenue from Contracts with Customers

358 comment letters

March 2012

Comment letter deadline

April 2012

Roundtables

May 2012 onwards

Redeliberations and drafting

Q1 2014

Final ASU for US GAAP and final standard for IFRSs

2012

Scope: An entity should apply the guidance to all contracts with customers, with exceptions outlined in the 2011 ED (e.g. leases, insurance, FI)

Overview

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Core principle: 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

1. Identify the contract(s) with the customer

2. Identify the separate performance obligations

3. Determine the transaction price

5. Recognize revenue when or as a performance obligation is satisfied

4. Allocate the transaction price

Five steps for applying the core principle

Disclosure

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Objective: To enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows

arising from contracts with customers

Quantitative disclosures required for

interim reporting

Notes to the financial

statements

Information about contracts with

customers & PO’s

Information about methods, inputs and assumptions

Contract assets and contract

liabilities

Remaining performance obligations

Disaggregation of revenue

Quantitative & Qualitative DisclosuresQualitative Disclosures

Contract costs (fulfillment and

incremental costs of obtaining)

Apply the revenue standard for annual reporting periods beginning after December 15, 2016, including interim periods therein. IASB for annual reporting periods beginning on or after 1 January 2017.

Early application is prohibited. IASB allows early application.- A nonpublic entity should apply for annual reporting periods beginning after December 15, 2017, and interim and

annual reporting periods thereafter. Early application permitted, but no sooner than the effective date for public entities.

1 = Contracts completed in prior years as determined under legacy revenue guidance2 = Contracts completed under legacy revenue guidance prior to date of initial application are not restated*Full the full retrospective transition method, Topic 250 (paragraphs 250-10-50-1 through 50-3) and IAS 8 (paragraph 8) disclosure requirements apply

Transition, effective date, and early application

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Transition: PY2 PY1 CY CY footnotes*

Retrospective transition method(optional practical expedients - as proposed in the 2011 ED)

Cumulative

catch-up

Completed1 and existing contracts

restated and presented under new

standard

Existing, new, and completed

contracts restated and presented

under new standard

Alternative transition method

Existing contracts restated but not

presented under new standard2

Cumulative catch-

up

Existing and new contracts under new standard

Existing and new contracts presented

under legacy IFRS/US GAAP

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Joint Transition Resource GroupPurpose

Guidance

Limited life

Composition

To solicit, analyze, and discuss stakeholder issues that apply to common transactions that could reasonably create diversity in practice

The group will not issue guidance, but will publicly discuss interpretations of the principles and publish minutes

Primary activities are planned to take place before the standard takes effect

10-15 specialists (users, preparers, auditors) + IASB and FASB members

Definition of a Nonpublic Entity

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Issue: multiple definitions of “nonpublic entity” and “public entity” in U.S. GAAP

Objectives:- Clarify organization within the scope of the Private Company

Decision-Making Framework for potential modifications to U.S. GAAP

- Simplify and increase comparability In defining a nonpublic entity, the Board specified criteria

that are characteristic of a public business entity

Definition of a Nonpublic Entity

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A business entity that meets any one of the following criteria:- Required by the SEC to file/furnish financial statements, or does

file/furnish financial statements, with the SEC (including entities whose financial statements or financial information are required to be or are included in a filing)

- Required by the Securities Exchange Act of 1934, as amended, or rules and regulations promulgated thereunder, to file/furnish financial statements with a regulatory agency, other than the SEC

- Required to file/furnish financial statements with a regulatory agency (foreign or domestic) in preparation for the sale of or for purposes of issuing securities not subject to contractual restrictions on transfer

- Has (or is a conduit bond obligor for) securities that are traded, listed, or quoted on an exchange or an OTC market

- Securities are not subject to contractual restrictions on transfer and required to prepare U.S. GAAP financial statements to be made publicly available on a periodic basis pursuant to a legal, contractual, or regulatory requirement

Public Business Entity Definition

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Private Company Council (PCC)

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Completed and endorsed by FASB Accounting for goodwill after an acquisition Simplified hedge accounting

In process Related-party leases and VIEs Intangible assets Combined instruments approach to hedge accounting

PCC Issues

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Reporting Discontinued Operations

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Change the definition so that only major strategic shifts are reported in discontinued operations

Reduce complexity of the extensive continuing involvement guidance in the current definition of discontinued operations

Improve disclosures about the balance sheet and cash flows of a discontinued operation

Goals of the Project

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The definition of a discontinued operation would be changed as follows:- Only those components of an entity (organization) that

represent a separate major line of business or major geographic area of operations that either is held for sale or disposed of in a single coordinated plan would be eligible for discontinued operations presentation in the financial statements

- A business that, on acquisition, meets the criteria to be classified as held for sale would be a discontinued operation

- Disposals of equity method investments that meet the definition of a discontinued operation would be eligible for discontinued operations presentation

Proposed Definition of Discontinued Operations

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The major income and expense items constituting the pre-tax profit or loss from a discontinued operation

The major classes of cash flows (operating, investing and financing) If the discontinued operation includes a noncontrolling interest, the

income or loss attributable to the parent A reconciliation of the major classes of assets and liabilities of the

discontinued operation classified as held for sale that are disclosed in the notes to the financial statement to total assets and total liabilities of the discontinued operation classified as held for sale that are presented separately on the face of the statement of financial position

A reconciliation of the major income and expense items from the discontinued operation that are disclosed in the notes to the financial statements to the after-tax income or loss from the discontinued operation presented on the face of the income statement

Proposed Disclosures

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EITF: Presentation of an Unrecognized Tax Benefit

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Issue: No explicit guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists

Scope: Applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date

Conclusion: Present unrecognized tax benefit as a reduction to a deferred tax asset- Present as a liability in certain circumstances

Presentation of an Unrecognized Tax Benefit

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Adoption- Effective for fiscal years (and interim periods within those

years) beginning after December 15, 2013 for public entities and for fiscal years beginning after December 15, 2014 for nonpublic entities

- Early adoption is permitted- Propsective application is required for all unrecognized tax

benefits that exist at the effective date Retrospective application is permitted

Presentation of an Unrecognized Tax Benefit

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What to Expect in 2014

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Active Projects 1H 2014 2H 2014Revenue Recognition FLeases

Insurance ContractsFinancial Instruments: Classification & Measurement FFinancial Instruments: Impairment FFinancial Instruments: HedgingDevelopment Stage EntitiesReporting Discontinued Operations FConsolidation: Principal versus Agent AnalysisTransfers and Servicing: Repurchase Agreements and Similar Transactions

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Clarifying the Definition of a BusinessDisclosure Framework: Board’s Decision Process EDisclosure Framework: Entity’s Decision Process

Project Roster and Status

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Active Projects 1H 2014 2H 2014Not-for-Profit Financial Reporting: Financial Statements EGoing Concern

Investment Companies: Disclosures about Investments in Another Investment Company

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Accounting for Goodwill for Public Business Entities and Not-for-Profits

Project Roster and Status

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Questions or Comments?

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