Accounting Standards Update (big changes now, bigger changes soon)

1. Presented by Kevin Doyle CPA and moderated by Matt Cashion Tuesday, July 23rd from 2:00-3:00pm EDT Accounting Standards Update (big changes now, bigger changes soon)

2. Accounting Standards Update (big changes now, bigger changes soon)

3. Current Changes

4. Multi-Employer Pension Plan Disclosures (in effect for 12/31/2012 year-ends) • Key Disclosures • Plan legal name/employer ID number • Zone Status (based on funded status of plan) – Red/Yellow/Green • Expiration Dates of CBA’s • Amount of employers current year contribution • If employer contribution is greater than 5% of total

5. Multi-Employer Pension Plan Disclosures • How to use this information • Is there a risk of future cash outflows? • Accurate plan identification to allow you to research the plan • Investigate underfunded plans and how the underfunding is being addressed • Investigate current union relationships, or possibility of contractor no longer participating with a union • May trigger current amount due for underfunding

6. Big GAAP/Little GAAP update (significant change June 2013) • Two standard setting organizations: • Financial Accounting Standards Board (FASB) • Provides standards for US GAAP • American Institute of Certified Public Accountants (AICPA) • Provides attest standards (compilation/review/audit (for privately held companies) • Also provides standards for Special Purpose Frameworks (OCBOA) • Cash basis, Income tax basis

7. Big GAAP/Little GAAP updateFASB background • Small Business Advisory Committee (SBAC) • 2004 to present, only meets twice per year • Private Company Financial Reporting Committee (PCFRC) • 2007-2012 • Private Company Council (PCC) • Created 2012, first meeting Dec. 2012, more active

8. Big GAAP/Little GAAP updateFASB - PCC • Private Company Council (PCC) • Released three exposure drafts in June 2013: • Simplified requirements for indentifying intangibles in business combinations • Allow amortization of goodwill/simplified impairment model • Simplified accounting for interest rate swaps

9. Big GAAP/Little GAAP updateAICPA’s FRF for SMEs • American Institute of Certified Public Accountants (AICPA) • AICPA Financial Reporting Framework for Small and Medium-Sized Entities (FRF for SMEs) Task Force • Issued proposal draft of new financial reporting framework (not GAAP) on November 1, 2012 • Final statement issued June 10, 2013 • Fundamentals: • Historical costs (gets away from fair value) • Targeted disclosure requirements • More options/ability to tailor

10. Big GAAP/Little GAAP updateAICPA’s FRF for SMEs • Consolidation – No concept of VIEs – Option to present parent-only financial statements • Leases • Traditional accounting and U.S. tax code • Revenue Recognition • Traditional—Earned and Realizable • Goodwill/Intangibles • Amortization/no impairment testing • Income tax accounting • Option of using taxes-payable or deferred-tax method

11. Big GAAP/Little GAAP updateAICPA’s FRF for SMEs • Must evaluate differences between FRF for SMEs and GAAP (not quantify) and consider disclosure • Goodwill amortized based on income tax period (15 years) • Income taxes • Can choose the Taxes Payable Method • Would not record deferred taxes • Or use the traditional Deferred Income Tax Method

12. Big GAAP/Little GAAP updateAICPA’s FRF for SMEs • Consolidations • Control generally based on voting rights • Can choose to present nonconsolidated bases statements, even when there is control • Leases • Maintains current capital vs. operating lease standards

13. ON THE HORIZION (2017)

14. ON THE HORIZONLeases • Leases • Joint Project between FASB and IASB • Exposure Drafted Released 2010 • Revised Exposure Drafted Issued May 16, 2013

15. ON THE HORIZONLeases • Creates a Right-of-Use model • Lessee recognizes an ROU asset and liability for all leases (other than short-term leases) • Measured based on noncancelable lease terms • Considers account renewal options and termination options • Reassessment of term required when relevant factors change • Asset amortized either by • Type A (financing), or • Type B (straight-line)

16. ON THE HORIZONRevenue Recognition • Original draft issued June, 2010 • Revised Exposure Draft issued November 2011 • Core principal • 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 and services

17. ON THE HORIZONRevenue Recognition - Contractors • Initial concern was that there would be difficult to implement changes for construction contractors. • The 2011 revisions and decisions tentatively reached at the March 20, 2013 board meeting reached many clarifications and revisions that will lesson impact on construction contractors

18. ON THE HORIZONRevenue Recognition - Contractors • Helpful clarifications and revisions: • “Bundled performance obligations” allowed in certain circumstances • Current presumption is that most construction contractors would keep the contract as the profit center • Eliminated presumed preference for output method of revenue recognition. • Input method okay (cost to cost still allowed with certain exceptions)

19. ON THE HORIZONRevenue Recognition - Contractors • Still some changes: • Certain traditional job costs will be removed from percentage of completion calculation (treated as period costs) • Idle time/wasted materials • Bid costs • Mobilization and other early costs would be capitalized and amortized • Practical application will be difficult • Do not want to lose track of job costing for these costs • Difficult to segregate and capture costs

20. Any questions? If you do not have the opportunity to have your question addressed during the seminar, you may contact the presenter directly: