Blue Ribbon Panel on Standard Setting For Private Companies

1. Blue Ribbon Panel on Standard SettingFor Private Companies William F. Knese MBA CMA CFM CPA

2. Blue Ribbon Panel • Bill Knese • Former VP Finance & Administration & Chief Financial Officer Angus Industries, Inc. Watertown, SD - Retired 5/13 • Responsible for: • Financial accounting & reporting • Finance • Cash and debt management • Cost accounting • Risk management & insurance • Cost estimating • ESOP administration • 401(k) administration • Corporate Secretary

3. Blue Ribbon Panel • Background & Education • St. Cloud, MN native • St. John’s University, Collegeville, MN - BA English • Army duty – Viet Nam era vet • St. Cloud State University – MBA

4. Blue Ribbon Panel • Employment • Coopers & Lybrand- Rockford, IL: predecessor firm to PriceWaterhouseCoopers, now a “Big 4” public accounting firm. • Audit Senior • CLARCOR Inc., Rockford, IL: NYSE listed market-driven manufacturer of quality engineered products and services for the filtration and consumer products markets. • Established Internal Audit function • Controller – Baldwin Filters, brought major private acquisition into publicly held company • Corporate Controller • Treasurer & Controller • Vice President, Treasurer & Controller • Vice President & Treasurer • $278 million in financings • Acquisitions & divestitures • Angus Industries, Inc., Watertown, SD: ESOP-owned designer, manufacturer and marketer of quality ROPs, cabs, cab components and steel fabrications to the construction, material handling, agricultural, truck and recreational vehicle markets • Vice President Chief Financial Officer • Vice President – Finance & Administration, Chief Financial Officer • Purchased company from private equity firm 2004 • $112 million in financings • Acquisitions & divestitures • Sold company to publicly held company 2011 • Professional Certifications • Certified Management Accountant (CMA), 1982 • Certified Financial Manager (CFM) 2008 • Certified Public Accountant (CPA Inactive), 1977

5. Blue Ribbon Panel • Professional Affiliations • Institute of Management Accountants – Current Chair, Governance Committee; Past Chair & Member, Planning & Development Committee; Past Member, Governance Committee; Past Chair, Performance Oversight & Audit Committee (2); Past Chair, ICMA Board of Regents (2); Past President, Rockford IL Chapter • American Institute of Certified Public Accountants - Member • Illinois CPA Society – Member • Community Involvement • Active community volunteer, having served as an officer and board member for a number of cultural, civic, and community not-for-profit organizations in Rockford, IL and Watertown, SD • Recipient of the Rockford, IL Rotary Club’s 2000 “Service Above Self” Award

7. ANGUS INDUSTRIES ANGUS ENGINEERING ANGUS-PALM ACT Focus Design & Manufacture • Operator stations & cabs • Cab components (steel, plastic, acoustical) • ROPS • Complex fabrications Customers Original Equipment Manufacturers • Mobile equipment • Trucks • Busses

8. Angus-Palm Watertown, SD * * European Cooperation ACT Northwood, IA Angus-Palm Greeneville, TN Angus-Palm Florence, SC A dvanced C omponent T echnologies, Inc. (OEM Cabs) (Cab Components) ANGUS INDUSTRIES ANGUS ENGINEERING ANGUS-PALM ACT Locations * *

9. ANGUS INDUSTRIES ANGUS ENGINEERING ANGUS-PALM ACT Customers & Industries Served CONSTRUCTION Caterpillar Champion Deere-Hitachi Grove Kawasaki Komatsu Spandeck-Mantis UTILITIES Alamo (Gradall) Ditch Witch Prinoth (Camoplast) Seagrave Tennant FORESTRY Caterpillar Deere-Hitachi John Deere MINING Atlas Copco Bucyrus Caterpillar Liebherr COMMERCIAL Jacobsen-Textron LANDFILL Terex-CMI AGRICULTURE AGCO CNH Equipment Technologies Gehl John Deere TRUCK AM General American LaFrance Navistar Oshkosh MATERIAL HANDLING Gehl JLG (Trak, Lull, CAT) NACCO (Hyster, Yale) MEC RECREATIONAL Winnebago Yamaha MILITARY Caterpillar JCB JLG AFTER MARKET Enclosure Kits

10. ANGUS INDUSTRIES ANGUS ENGINEERING ANGUS-PALM ACT Facts Founded: 1969 Litchfield MN … 1988 Watertown SD Stockholders: Former ESOP Trust (Employees), Now public – Worthington Industries Inc. Space: 1,000,000 square feet Employees: Over 1,000 in 4 Operations Financial: $226 Million (Engineered Cabs segment)

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12. Blue Ribbon Panel • December 2009 • American Institute of Certified Public Accountants, Financial Accounting Foundation (FAF), National Association of State Boards of Accountancy (NASBA) established Blue Ribbon Panel (BRP). • BRP • Address how accounting standards can best meet the needs of users of private company financial statements. • Charged with providing recommendations on the future of standard setting for private companies

13. Blue Ribbon Panel • Blue Ribbon Panel Membership • FAF: CEO & 1 Trustee • AICPA: CEO • NASBA: Board Chair • Preparers: 3 Private company CFOs, 1 private company CEO • Practitioners: 2 CPA firm CEOs • Banks: 2 CEOs, 1 Sr. VP • Private equity firms: 2 partners • Academics: 2 (1 former surety executive) • US Chamber of Commerce: 1 CEO Capital Markets • Participating Observers • US Federal Financial Institution Regulatory Agencies Group • National Association of Insurance Commissioners • US Small Business Administration • FASB Private Company Financial Reporting Committee • FASB Small Business Advisory Committee • FASB Board member

14. Blue Ribbon Panel • Met 5 times in person, also by phone • Conclusions • Urgent & systemic issues that need to be addressed in current system of US standard setting • System has not done sufficient job of understanding information that users of private company financial statements consider decision-useful and how differ from public company financial statements • Weighing costs and benefits of GAAP for use in private company financial reporting • Issues caused lack of relevance of a number of accounting standards for many users of private company financial statements • Overall level of complexity in US GAAP concerns preparers and practitioners.

15. Blue Ribbon Panel • Proposed major and other enhancements • Aimed at fostering accounting standard setting system seeking to maintain high degree of financial reporting comparability for business entities • Significantly increase the chances of effecting potential differences (where warranted) in measurement, recognition and presentation, not just disclosure • Near-term: • System should focus on making exceptions to US GAAP for private companies that better respond to their needs • Not move toward separate self-contained GAAP for private companies • Establish separate private company standards board (under FAF oversight) to help ensure appropriate and sufficient exceptions made: new, old

16. Blue Ribbon Panel • Proposed major and other enhancements, continued • New Board to work closely with FASB for coordinated and efficient process BUT have final authority • Comprehensive review in 3 to 5 years: • still needed? • sunset? • Create differential framework to facilitate • Certain short-term and transitional actions by FAF, FASB to provide near-term relief and ensure smooth transition

17. Blue Ribbon Panel • Recommended Model • US GAAP with exceptions and modifications • Financial statements provide relevant, decision-useful information • Meets needs of users of private company financial statements • Cost-effective • Contemplates US GAAP, perhaps with different standards of • Measurement • Disclosure • Presentation • Recognition • Modifications, exceptions justified with differential framework • Cost-benefit • Costs: preparation, report on, use financial statements • Benefit: users able to make appropriate decisions, have access to management? • Differential framework – guide to evaluate differences appropriate

18. Blue Ribbon Panel • Recommended structure • FAF create new accounting standards board with ultimate standard-setting authority • Mission: establish appropriate exceptions and modifications • Monitor FASB activities and deliberations and work “alongside” • All differences reside in one GAAP codification • FAF comprehensive review of new Board in 3-5 years • Collect qualitative information – users, preparers, practitioners • Obtain quantitative information – reports GAAP exceptions, OCBOA financial statements

19. Blue Ribbon Panel • The Problem: • 28 million private companies • Significant number prepare GAAP financials • Lenders or regulators require • 14,000 public companies • GAAP required • BRP: • US standard-setting process has systemic issues • Insufficient understanding of needs of users of private co financial stmts • Insufficient weighing of cost and benefits of GAAP to private companies • Leads to lack of relevance • Least relevant are often most complex – leads to unnecessary cost • Cost has led to increases in qualified opinions • If so, is GAAP generally accepted?

20. Blue Ribbon Panel • Previous studies BRP reviewed 12: 1972 to 2006 • Wheat Committee Report (AICPA) (1972) • Study process, recommend improvements • Recommended creation of FAF and FASB • Werner Report (AICPA) (1976) • Committee on GAAP for Small/Closely Held • Recommended FASB develop criteria – GAAP vs disclosures that only provide analytical data

21. Blue Ribbon Panel • Previous studies, continued • Derieux Committee (AICPA) (1980) • Recommended special committee to study relief from accounting standards not considered cost effective for small business & development of another comprehensive basis of accounting • FASB forms Small Business Advisory Group (FASB) (1984) • Designed to give Board access to comments from those dealing with small business problems

22. Blue Ribbon Panel • Previous studies, continued • Report of Private Companies Practice Section Special Reporting Task Force on Standards Overload (AICPA) (1996) • Recommended certain actions to lessen the problem of standards overload • Castellano Report (AICPA) (2005) • Determine whether private company GAAP financials meet needs of users • Determine whether cost of GAAP financials justified compared to benefits • Conclusions: • private company needs are different • GAAP exceptions and OCBOA not the resolution to problem • Fundamental changes needed to standard-setting process

23. Blue Ribbon Panel • Models and Structures Reviewed • US GAAP Models • US GAAP w/ exceptions and modifications for private cos. – current system • US GAAP w/ exceptions and modifications for private cos. – w process enhancements • Baseline US GAAP with add-ons for public companies • Separate standalone US GAAP for private companies derived from current US GAAP (the “Canadian” approach) • Separate standalone US GAAP for private companies developed from the ground up based on robust private company framework • IFRS Models • IFRS for SMEs as issued by IASB • IFRS for SMEs customized (“Americanized”) for US private companies

24. Blue Ribbon Panel • Models Rejected by BRP • US GAAP Models • US GAAP w/ exceptions and modifications for private cos. – current system • Separate standalone US GAAP for private companies developed from the ground up based on robust private company framework • IFRS Models • IFRS for SMEs as issued by IASB • IFRS for SMEs customized (“Americanized”) for US private companies

25. Blue Ribbon Panel • Models Rejected by BRP • Rejected because: • Status quo unacceptable • Separate standalone ground too time-consuming to create, could be significantly different from current US GAAP • US private companies should not lead charge en masse to IFRS-based standards prior to SEC decision on US public companies

26. Blue Ribbon Panel • Remaining Models for Consideration • US GAAP Models • US GAAP w/ exceptions and modifications for private cos. – w process enhancements • Baseline US GAAP with add-ons for public companies • Separate standalone US GAAP for private companies derived from current US GAAP (the “Canadian” approach)

27. Blue Ribbon Panel • Primary reasons for BRP Recommendations • Change needs to be made quickly • Other longer term model solutions appealing, but BRP believes these models could not be achieved quickly enough to provide relief for private companies • Baseline GAAP with additional requirements for publics ideal, but development time significant with no near-term relief • Separate set of US GAAP for private companies, but would require much more time to develop due to analysis of all GAAP requirements

28. Blue Ribbon Panel • Primary reasons for BRP Recommendations • Comparability • BRP financial statement users: comparability is important • GAAP with exceptions and modifications for private companies based on single foundation • Independent creation of GAAP for private companies could result in two GAAPs • Result is less comparability and more confusion

29. Blue Ribbon Panel • Primary reasons for BRP Recommendations, continued • New Board • Current or restructured FASB cannot produce needed exceptions and modifications to GAAP for private company financial reporting • Throughout its history FASB has been geared in composition and processes toward public companies • Exceptions and modifications for private companies too rare and difficult to achieve – particularly recognition, measurement, presentation • Members of board with authority to set accounting standards for private companies must possess perspective of stakeholders • New board is most realistic path forward

30. Blue Ribbon Panel • Minority view • Small minority generally agree with recommendation, but believe FAF should not create a new board. • Instead: • Allow sufficient time to determine whether recent changes in FASB staffing and processes have improved systemic issues of relevance, complexity and cost of certain standards. • Restructure Board and processes as necessary to help ensure it produces accounting standards that meet needs of users of private company financial statements in way that is cost-effective • Implement actions: • Fill one open Board position with private company person • FASB work closely with PCFRC • Incorporate concerns expressed at round tables & comment letters • Consider delay in effective dates for private companies • FASB articulate what differentiates private from public • FASB look at public comment processes

31. Blue Ribbon Panel • One Dissent – Major areas • Disagrees with BRP recommendations: • Differential standards • Separate private company standard-setting board • Sees no compelling evidence to suggest objectives of financial reporting not being met: • Assess amount, timing, uncertainty of future cash flows • No evidence that private company financial statements do not meet needs of users • No evidence of difference between private and public company financial statements – just lists of standards not liked • Not presented with evidence of sufficient standards among private companies to warrant general exemptions • Private company statement proponents only focus on cost of audited statements – not benefits • Private company statement will reduce comparability

32. Blue Ribbon Panel • Blue Ribbon Panel Members: • Rick Anderson (FAF Trustee) – CEO, Moss Adams LLP • Billy Atkinson – Board Chair, NASBA • Daryl Buck* - Sr. VP & CFO, Reasor’s Holding Co., Inc • Steve Feilmeier – CFO, Koch Industries • Hubert Glover – (IMA BoD) – President & CEO, REDE, Inc. • David Hirschmann - President & CEO, Center for Capital Markets Commpetitiveness, US CoC • William F. Knese - (IMA BoD) VP & CFO, Angus Industries, Inc. • Kewsong Lee - Managing Director, Warburg Pincus • Paul Limbert - President & CEO, WesBanco, Inc • Krista McMasters – CEO, Clifton Gunerson

33. Blue Ribbon Panel • Blue Ribbon Panel Members, continued: • Barry Melancon, President & CEO, AICPA • Jason Mendelson – Mging Director & Co-Founder, Foundry Grp • Michael Menzies – President & CEO, Easton Bank & Trust Co. • David Morgan – Co-Mnging Partner, Lattimore, Black, Morgan & Cain, PC • Terri Polley -President & CEO, FAF • Dev Strischek - Sr. VP and Sr. Credit Officer, SunTrust Banks • Mark Vonnahme – Professor, U of Illinois, former surety exec • Terri Yohn – Associate Professor, Indiana U

34. Blue Ribbon Panel • Participating Observers: • Karen Kelbly – US Federal Financial Regulatory Group • Dan Daveline – National Association of Insurance Commissioners • Dillon Taylor – US Small Business Association • Judith O’Dell – Chair, FASB Private Company Reporting Committee • Mark Ellis – Member & Subcommittee Chair, FASB Small Business Advisory Committee • Russ Golden – FASB Board Member, former Technical Director

35. Blue Ribbon Panel • Staff • Jeffry Mechanick – FASB/FAF • Meredith Vogel – Grant Thornton LLP • Robert Durak – AICPA • Paul Glotzer – FAF/FASB • Daniel Noll - AICPA

36. Blue Ribbon Panel • Models • Model 1: US GAAP with Exclusions for Private Companies • Current US GAAP (Codification) used by all companies and improved as necessary through FASB’s regular standard-setting activities • Use the current FASB Nonpublic Entity Staff working with FASB project staff and FASB board in close consultative capacity and with PCFRC and FASB’s Small Business Advisory Committee • Differences for private companies would continue to b e determined on a standard-by-standard basis • Model does not contemplate creation of separate conceptual framework for private companies • Could undertake project to simplify standards, esp in disclosures, perhaps with FASB’s Disclosure Framework Project

37. Blue Ribbon Panel • Models, continued • Model 2: US GAAP with Exclusions for Private Companies – with enhancements • Current US GAAP (the Codification) would be used by all companies and improved as necessary through FASB’s regular standard-setting activities • Differences (exclusions) for private companies would continue to be determined on a standard-by-standard basis • A conceptual framework for private companies would be created to serve as a basis for making exceptions. This framework would be based on user needs but would be modest (like “Concepts and Pervasive Principles” chapter IASB put into IFRS for SMEs. • Various other enhancements such as to board structure, staffing and other elements of standard-setting. i.e., expand FASB to include private co member • Enhancements plus private company conceptual framework ensure focus on private company issues

38. Blue Ribbon Panel • Models, continued • Model 3: US GAAP – baseline GAAP with Public Company Add-Ons • Current US GAAP (the Codification) would be reviewed and reorganized into baseline GAAP for all entities, with additional GAAP requirements for public companies • Approach to standards under development changed to establish baseline standard for all, and additional requirements for public companies even before overall baseline separation project • Model contemplates need to create separate conceptual framework for private companies, or re-examine/revise conceptual framework to serve as basis for making decisions

39. Blue Ribbon Panel • Models, continued • Model 4: Separate Standalone GAAP Based on Current US GAAP (the “Canadian” Approach) • US GAAP reviewed, modified, developed into comprehensive and self-contained set of accounting standards for private companies • Contemplates major overhaul project to review and significantly streamline current US GAAP, as well as ongoing activities to update but keep simplified • Like what IASB and Canadian AcSB will be doing with private company standards • Contemplates need to create conceptual framework for private companies to serve as yardstick for making streamlining and other simplification decisions

40. Blue Ribbon Panel • Models, continued • Model 5: Separate Standalone GAAP from the Ground up Based on New Framework • Model focused solely on private company sector and begins with the creation of a new private company conceptual framework based on private company user needs • Not a differential framework, but • A ground-up framework • Major project to create • Could be significantly different from current GAAP conceptual framework • i.e. like draft white paper released by FEI’s Committee on Private Companies-Standards • Comprehensive set of standards developed based on new framework – would constitue separate self-contained set of standards for privates

41. Blue Ribbon Panel • Models, continued • Model 6: Unmodified IFRS for SMEs • Use IFRS for SMEs as exists today • IFRS for SMEs, as promulgated by IASB, not intended for entities with public accountability • Part of this could be a recommendation about whether IFRS for SMEs should be permitted to be used by private companies with public accountability • IFRS for SMEs includes a group of Concepts and Pervasive Principles that serves as a framework for the simplifications made from full IFRS

42. Blue Ribbon Panel • Models, continued • Model 7: IFRS for SMEs Customized (“Americanized”) for Private Companies • IFRS for SMEs standards would be tailored to suite the needs of private company stakeholders in the US • Model contemplates initial project to review and modify IFRS for SMEs as appropriate, possibly significant • depending on modifications, may not be able to refer to as IFRS for SMEs • Ongoing decisions would be required to elect to accept IASB revisions to SME document veratim or elect to modify them for US private companies

43. Blue Ribbon Panel • Private Company Council: • FAF Board of Trustees approved establishment of Private Company Council on May 23, 2012 • Primary Responsibilities: • Work jointly with FASB • Mutually agree on set of criteria to decide whether and when alternatives within US GAAP warranted for private companies • PCC will review and propose alternatives within US GAAP to address needs of users of private company financial statements • PCC serves as primary advisory body to FASB on appropriate treatment for private companies for items under active consideration on FASB’s technical agenda

44. Blue Ribbon Panel • Private Company Council: PCC Members • Billy Atkinson, Chair. Retired PWC Partner. Past Chairman of National Association of State Boards of Accountancy • George Bechwith – VP & CFO National Gypsum Co. • Steven Brown – VP US Bank • Jeffery Bryan – Partner, Professional Standards Group, Dixon Hughes Goodman LLP • Mark Ellis – CFO BabyGanics, PawGanics, KAS Direct LLC • Thomas Groskopf – Owner, Barnes, Dennig & Co. Ltd. • Neville Grusd – President Merchant Financial Corp. • Carlton Olmanson – Manageing Principal GMB Mezzanine Capital

45. Blue Ribbon Panel • Private Company Council: PCC Members • Thomas Groskopf – Owner, Barnes, Dennig & Co. Ltd. • Neville Grusd – President Merchant Financial Corp. • Carlton Olmanson – Manageing Principal GMB Mezzanine Capital • Diane Rubin – Retired Partner Novogradac & Co., LLP • Lawrence Weinstock – VP Finance Mana Products • FASB Liaison: Daryl Buck, FASB Board • FAF Trustee Observer: Mack Lawhon, Weaver LLP • PCC Coordinator: Michael Cheng

46. Blue Ribbon Panel - Private Company Council: Operating Procedures • PCC and FASB work jointly, mutually agree on set of criteria to decide whether and when alternatives within US GAAP are warranted for private cos. • PCC conduct review of existing US GAAP, identify standards requiring reconsideration • PCC votes on proposed alternatives (2/3 needed) • Proposed modifications or exceptions to US GAAP approved by PCC submitted to FASB • If approved by simple majority of FASB members, modifications exposed for public comment • Following public comment, PCC will consider changes and take final vote • Final vote then submitted to FASB for final decision.

47. Blue Ribbon Panel - Private Company Council: Operating Procedures • If FASB does not endorse proposal, FASB Chairman will provide to PC, Chair written document with reasons • Will include possible changes for PCC to consider for FASB endorsement • Document becomes part of public record

48. Blue Ribbon Panel - Private Company Council: PCC Chair • Works cooperatively with • FASB liaison member • FASB Chairman • FASB Technical Director FASB Liaison • Serve as liaison between FASB and PCC • Main point of contact to facilitate communication & integration FASB Staff Support • Research, reference, stakeholder views, alternatives, etc. • Main point of contact to facilitate communication & integration

49. Blue Ribbon Panel - Private Company Council: Decision Making Framework • Final Guide, Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies • Critical project: creates roadmap for future projects • Assist Board and PCC in what circumstances alternatives should be provided: • Recognition • Measurement • Disclosure • Display • Effective date • Transitional guidance

50. Blue Ribbon Panel - Private Company Council: Pronouncements: • Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements • Accounting for Goodwill • Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps – Simplified Hedge Accounting Approach and Combined Instruments Approach Currently Being Discussed: • Accounting for Identifiable Intangible Assets in a Business Combination