FASBU pdate

Document Sample
FASBU pdate Powered By Docstoc
					August 14, 2012




                                                                           FASB Update


                                                                Rahul Gupta, Practice Fellow, FASB



  The views expressed in this presentation are my own and not the positions of the Financial Accounting
  Standards Board (FASB).

  Positions of the FASB are arrived at only after extensive due process and deliberations.
Agenda

• Recently completed FASB standards
• Convergence efforts and FASB project plan
• Private Company Financial Reporting
• Update on joint projects
• Update on FASB only projects
• Emerging Issues Task Force (EITF) agenda
• Questions & Answer Session



                                              2
   Recently completed
  FASB standards and
implementation issues
 Recently issued standards
• Presentation of Comprehensive income
    – ASU 2011-05: Presentation of Comprehensive Income
    – 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

• Goodwill Impairment
    – ASU 2011-08: Testing Goodwill for Impairment

• Impairment of indefinite-lived intangible assets
    – ASU 2012-02: Testing Indefinite-Lived Intangible Assets for Impairment




                                                                                    4
Presentation of Comprehensive Income

• ASU 2011-05: Objective was to increase prominence of
  Comprehensive Income
   – Eliminated the option to report OCI and its components in the
     statement of changes in stockholder’s equity
   – Required to present comprehensive income and its components in
     either a single continuous statement or in two separate but
     consecutive statements
   – Components of OCI and reclassifications to net income to be
     reported on the face of the financial statements
• ASU 2011-12: Deferred the requirement to present effects of
  reclassifications of AOCI on components of net income


                                                                      5
Goodwill Impairment (ASU 2011-08)

• Objective is to simplify impairment assessment of
  goodwill
• Entities can choose to qualitatively assess goodwill
  before performing Step 1
    – If more likely than not that the carrying value (CV) of
      goodwill exceeds its fair value (FV), then proceed to
      Step 1
    – Otherwise, no further analysis is required
• Option to carry forward detailed calculation of a reporting
  unit’s fair value from prior period is no longer allowed

                                                                6
Goodwill Impairment (ASU 2011-08)

• Standard includes examples of facts and
  circumstances to consider in performing qualitative
  assessment
• Quantitative disclosures no longer required for
  significant unobservable inputs used to measure
  goodwill impairment
• High-quality documentation will be important to
  support judgments supplemented by policies and
  controls
• Effective date: January 1, 2012, for calendar year-
  end filers. Early adoption permitted
                                                        7
Impairment of Indefinite-Lived Intangible
Assets (ASU 2012-02)

• Objective is to simplify impairment assessment of
  indefinite-lived intangible assets, other than goodwill
• Entities would have the option to first assess
  qualitative factors to determine if it is more likely
  than not that an impairment exists
   – No further action if the entity concludes it is not more
     likely than not that impairment exists
   – Quantitative test would be performed otherwise




                                                                8
Impairment of Indefinite-Lived Intangible
Assets (ASU 2012-02)

• Qualitative assessment will focus on factors that
  impact significant inputs to the asset’s fair value
  calculation, including asset level indicators
• Exempts nonpublic entities from disclosing
  quantitative information about significant
  unobservable inputs used to measure the fair value
  in case an impairment is recorded
• Standard would apply to all entities, both public and
  nonpublic


                                                          9
Convergence efforts
   and project plan
FASB Project Plan (as of July 2012)
                          Expected Date                                         2012             2012       2013

                          Project                                               3Q                4Q        1H

Accounting for Financial Instruments (Joint):

  - Classification and Measurement                                                                 E
  - Impairment                                                                                     E
  - Liquidity and Interest Rate Risk Disclosures (FASB Only)                     C
  - Hedging

Consolidation: Policy and Procedures (Joint)                                                                 F
Investment Companies (Joint); Investment Property Entities (FASB Only)                             F
Revenue Recognition (Joint)                                                                                  F
Leases (Joint)                                                                                     E
Insurance Contracts (Joint)                                                                        E

     E Exposure Draft            F Final Document          C Comment Deadline     R Roundtable Discussion
FASB Project Plan (as of July 2012)
                              Expected Date                                       2012              2012      2013

                              Project                                             3Q                 4Q       1H

Liquidation Basis of Accounting                                                                       C
Going Concern                                                                                         E
Disclosure Framework                                                                                  C
Impairment of Indefinite-Live Intangible Assets                                    F
Not-for-Profit Financial Reporting: Financial Statements

Presentation of Comprehensive Income: Reclassifications Out of Accumulated         E
Other Comprehensive Income

Definition of a Nonpublic Entity                                                   D
Transfers and Servicing: Repurchase Agreements and Similar Transactions                               E
Technical Corrections and Improvements                                             F


           E Exposure Draft             F Final Document     C Comment Deadline          D Discussion Paper
  Private Company
Financial Reporting
The Private Company Council
Responsibilities
• Based on criteria agreed on with FASB, PCC identifies,
  deliberates and votes on proposed modifications to existing
  U.S. GAAP for private companies
    – Recommendation subject to FASB process
• PCC is primary advisory body to FASB on private companies
  for active technical agenda issues




                                                                14
 The Private Company Council
Membership and Terms
• 9-12 members, including chair, appointed by FAF
• Chair is not FASB member
• Initial 3-year term
• Members & chair to have considerable experience with private
  company issues
• Serve without compensation




                                                                 15
 The Private Company Council
Meetings and Agenda
• Agenda set by supermajority vote of PCC
• PCC to meet at least five times annually
• Most meetings to be held in Norwalk
• Two meetings per year may be held elsewhere
• All deliberative meetings open to public
• FASB expected to attend




                                                16
 The Private Company Council
Endorsement Process and Voting
• PCC uses agreed upon criteria to identify, deliberate and vote on
  GAAP exceptions
   • Two-thirds (supermajority) vote required
• FASB endorsement process for PCC recommendations by simple
  majority
• FASB expected to act within 60 days




                                                                      17
The Private Company Council
Endorsement Process and Voting
• If FASB endorses:
   • Public comment/due process
   • PCC redeliberates and votes – supermajority
   • FASB makes final endorsement – simple majority
   • FASB issues Accounting Standards Update
• If FASB does not endorse:
   • FASB chair to provide PCC with written notice
   • FASB to outline changes that could result in endorsement




                                                                18
Definition of Nonpublic Business Entity


                                                                Definition of a Nonpublic Business Entity (Private
                                                                                    Company)


                                                                                                                 Differences in:

                                   Decision-Making Framework
 U.S. GAAP




                                                                                         U.S. GAAP for Private
                                                                                                  Companies
             Applies to:                                       Evaluate potential
             • Public companies                                differences based                                 • Recognition and
                                                                                                                   Measurement
             • Private companies                               on:
                                                                                                                 • Disclosure
             • Not-for-profit                                  • Types and number of                             • Display (Presentation)
               organizations                                     users                                           • Transition
                                                               • Access to management                            • Effective Date
                                                               • Investment strategies
                                                               • Ownership structures                            NOTE: Not all differences
                                                               • Accounting resources                            may be applicable to all
                                                                                                                 private companies (e.g.,
                                                               • Education (learning                             financial institutions).
                                                                 cycle)
Definition of Nonpublic Business Entity
Tentative Decisions Reached To Date
•   The Board has tentatively decided that the following types of entities
    should not be included in the definition of a private company for financial
    reporting purposes:
     •   Entities that are required to file or furnish financial statements for purposes of issuing securities to
         be traded in a public market
     •   For-profit entities that are conduit bond obligors for conduit debt securities that are traded in a public
         market
     •   Employee benefit plans.

•   The Board has tentatively decided that a company that otherwise meets the
    characteristics of a private company as defined in this project would be
    deemed a private company for financial reporting purposes if:
     •   It is a privately held financial institution
     •   It is a consolidated subsidiary of an entity that is a public company
     •   One of its controlled and consolidated subsidiaries is a public company.
Private Company Decision Making Framework

      Six significant factors that most differentiate the
        financial reporting considerations of private
             companies from public companies
  •   Types & number of financial statement users
  •   Access to management
  •   Investment strategies
  •   Ownership & capital structures
  •   Accounting resources
  •   Learning about new financial reporting guidance


                                                            21
Private Company Decision Making Framework

Structure of Framework


                     Consists of 5 areas:


    Recognition
                     Display                                      Transition
       and                         Disclosures   Effective Date
                  (Presentation)                                   Method
   Measurement




                                                                               22
Update on joint projects
FASB Project Plan (as of July 2012)
                          Expected Date                                         2012             2012       2013

                          Project                                               3Q                4Q        1H

Accounting for Financial Instruments (Joint):

  - Classification and Measurement                                                                 E
  - Impairment                                                                                     E
  - Liquidity and Interest Rate Risk Disclosures (FASB Only)                     C
  - Hedging

Consolidation: Policy and Procedures (Joint)                                                                 F
Investment Companies (Joint); Investment Property Entities (FASB Only)                             F
Revenue Recognition (Joint)                                                                                  F
Leases (Joint)                                                                                     E
Insurance Contracts (Joint)                                                                        E

     E Exposure Draft            F Final Document          C Comment Deadline     R Roundtable Discussion
Leases
Agenda                       26




• Why a leases project?
• Right-of-use model
• Lessee accounting model
• Lessor accounting model
• Classification of leases
• Where we are




                                  26
Why a leases project?                                           27




• Existing lease accounting does not meet users’
  needs
   – accounting depends on classification
   – contractual rights and obligations (assets and liabilities)
     are off balance sheet
   – many users adjust financial statements
• Structuring opportunities
   – current lease classification often based on bright lines
   – significant difference in accounting on either side of
     operating/finance lease line



                                                                     27
Proposed right-of-use model                           28




• A lease contract is one in which the right to control
  the use of an asset (for a period of time) is
  transferred to the lessee.



   Lessor           Right of use          Lessee




                                                           28
     Redeliberations—lessee model                                                           29




      Balance sheet                                                        Income statement
                                                Lessee
                                            consumes more               Amortisation expense
                                           than insignificant
                                           portion of leased              Interest expense
                                                 asset
DR ROU asset 2
CR Lease liability1
                                           Lessee does not
                                            consume more
                                           than insignificant                   Lease expense
                                           portion of leased
                                                 asset




1   Measured at present value of lease payments
2   Initially measured at same amount as liability, plus initial direct costs
                                                                                                 29
The rationale (lessee)                                                            30




                         • Right to use an asset
       What the lessee   • Obligation to pay for that right
          obtains



                         • Not all leases are the same
                           • 10-year airplane lease => paying to acquire the
 Importance of               piece of the airplane consumed plus financing
  leased asset
                           • 3-year real estate lease => paying only for use of
                             the lessor’s asset

         How best to     • Recognise amortisation on ROU asset (and
         reflect those
          contracts in     interest on lease liability) when lessee consumes
       lessee’s income     a more than insignificant portion of leased asset
           statement
                         • Recognise straight-line lease expense when
                           lessee is paying only for use of the lessor’s asset


                                                                                       30
Redeliberations—lessor model                                31




                                     Lessor accounting approach

              Lessee consumes
                  more than             Receivable and residual
             insignificant portion            approach
               of leased asset
  Asset
subject to
  lease
             Lessee does not
              consume more                Approach similar to
             than insignificant         current operating lease
             portion of leased
                   asset                      accounting



                                                                  31
The rationale (lessor)                                                            32




                          • Lessor provides the lessee with the right to use an
                            asset
      What the lessor
        provides


                          • Not all leases are the same
                            • 10-year airplane lease => lessor charges the
                              lessee to recover expected consumption of the
   What the
 right-of-use                 airplane plus financing
  represents                • 3-year real estate lease => lessor charges the
                              lessee only for use of the real estate

        How best to       • Recognise lease receivable and retained interest
       reflect those        in residual asset when lessee consumes a more
        contracts in        than insignificant portion of leased asset
     lessor’s financial
        statements        • No change to accounting for leased asset and
                            recognise straight-line lease income when lessor
                            charges the lessee only for use of the leased asset

                                                                                       32
Receivable and residual approach                                                          33




Balance Sheet                               Income Statement
Right to receive lease                 X    Profit on transfer of right-of-use             X
payments1                                   (gross or net based on business
                                            model)
Residual asset2                        X    Interest income—on receivable and              X
                                            residual3


 1 Present value of lease payments, plus initial direct costs
 2 Measured at an allocation of carrying amount of leased asset
 3 Interest on residual based on estimated residual value—any profit on the residual asset is

 not recognised until asset sold or re-leased at end of lease term




                                                                                                33
Lessor approach similar to current
operating lease accounting                                                                    34




Balance Sheet                                  Income Statement
Leased asset1                             X    Rental income2                               X
                                                  Depreciation3, or                         (X)
                                                  Fair value changes4                      X/(X)


1   Lessor measures leased asset (eg property) at fair value (IFRS) or cost
2 Rental income recognised on a straight-line basis or another systematic basis, if more
representative of pattern of earning rentals
3   If property measured at cost, rental income plus depreciation recognised
4   If property measured at fair value, rental income plus fair value changes recognised




                                                                                                   34
 Classification of leases*   35




* Both lessee and lessor
                                  35
Classification of leases—examples                                                      36




                                Truck (4yrs)3                         Comm. property
      Vessel   (20yrs)1
                                                  Vessel (5yrs)1      (10yrs)1

             More than insignificant                               Insignificant
                                                Comm. property
         Car (3yrs)4
                                                (30yrs)1
                          Airplane (8yrs)2




Assumed economic life of:
1 40 years
2 25 years
3 10 years
4 6 years


                                                                                            36
 Where we are

                         2012                    2012/
  2010                                                             TBD
                                                 2013




August 2010            Q4 2012                  Consultation      TBD
Exposure Draft         Second Exposure                            Final Standard
Leases                 Draft                                      Leases
                       Leases

Comment period 4       Re-expose proposals      Outreach          Effective date: TBD
months                 Comment period 120       Working group     Will contain guidance
786 comment letters    days                     meetings          for both lessees and
received                                                          lessors
                       Focus on revisions to    Redeliberations
Contained proposals    2010 proposals
for both lessees and   Will contain proposals
lessors                for both lessees and
                       lessors


                                                                                          37
Update on FASB only
            projects
FASB Project Plan (as of July 2012)
                              Expected Date                                       2012              2012      2013

                              Project                                             3Q                 4Q       1H

Liquidation Basis of Accounting                                                                       C
Going Concern                                                                                         E
Disclosure Framework                                                                                  C
Not-for-Profit Financial Reporting: Financial Statements

Presentation of Comprehensive Income: Reclassifications Out of Accumulated         E
Other Comprehensive Income

Definition of a Nonpublic Entity                                                   D
Transfers and Servicing: Repurchase Agreements and Similar Transactions                               E
Technical Corrections and Improvements                                             F




           E Exposure Draft             F Final Document     C Comment Deadline          D Discussion Paper
The Liquidation Basis of Accounting
• Requires use when liquidation is “imminent,” that a plan for
  liquidation
    – is approved and the likelihood is remote that its
      execution will be blocked by other parties or
    – is imposed by other forces and the likelihood of return
      from liquidation is remote
• For limited life entities, liquidation is imminent when
  significant management decisions are substantially limited to
  carry out a plan for liquidation other than the plan specified
  at inception
• Financial statements to reflect the amount of cash that the
  entity expects to collect or pay during liquidation
• Comment period on Exposure Draft ends October 1, 2012            40
Emerging Issues Task
       Force Update
 EITF Update
                                Issue                                    Current Status
11-A: Parent's Accounting for the Cumulative Translation Adjustment    Consensus Exposed in
upon the Sale or Transfer of a Group of Assets That Is a Nonprofit     December 2011. Will be
Activity or a Business within a Consolidated Foreign Entity            discussed at a future
                                                                       EITF meeting

12-A: Not-for-Profit Entities: Classification of the Sale of Donated   Consensus Exposed
Securities in the Statement of Cash Flows                              (Comment period ended:
                                                                       July 16, 2012)

12-B: Not-for-Profit Entities: Personnel Services Received from an     Consensus Exposed
Affiliate for Which the Affiliate Does Not Seek Compensation           (Comment period ends:
                                                                       September 20, 2012)

12-C: Business Combinations: Subsequent Accounting for an              Consensus Exposed
Indemnification Asset Recognized at the Acquisition Date as a          (Comment period ended:
Result of a Government-Assisted Acquisition of a Financial             July 16, 2012)
Institution



                                                                                                42
 EITF Update
                              Issue                                    Current Status
12-D: Accounting for Obligations Resulting from Joint and Several      Consensus Exposed
Liability Arrangements for which the Total Amount of the Obligation Is (Comment period ends:
Fixed at the Reporting Date                                            September 20, 2012)


12-E: Entertainment—Films: Accounting for Fair Value Information     Consensus Exposed
That Arises after the Measurement Date and Its Inclusion in the      (Comment period ended:
Impairment Analysis of Unamortized Film Costs                        July 16, 2012)


12-F: Recognition of New Accounting Basis (Pushdown) in Certain      Will be discussed at a
Circumstances                                                        future meeting


12-G: Accounting for the Excess in the Fair Value of Assets over     Will be discussed at a
Liabilities of a Consolidated Collateralized Financing Entity        future meeting




                                                                                               43
Question & Answer
          Session

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:13
posted:9/11/2012
language:Unknown
pages:44