FASB Update

1. FASB Update Presented By: Rodney E. Rice, CPA September 29, 2011

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3. Agenda • Accounting Standards Updates • Intangibles - Goodwill and Other • Multiemployer Plan Disclosures • Comprehensive Income presentation • FASB Projects • Leases • Revenue Recognition • Private Company Financial Reporting • Blue Ribbon Panel

4. A Matter of Perspective ….

5. ASC 350 No. 2011-08 September 2011 (Intangibles - Goodwill And Other) Objective/Reason for the Change • The objective is to simplify how entities, both public and nonpublic, test goodwill for impairment • To reduce the cost and complexity of performing the first step of the two-step goodwill impairment test under ASC 350 • Cost/complexity: FV

6. Significant Changes Qualitative - not quantitative - assessment: Initially Perform Step 1 of impairment analysis only if the entity determines that it is more likely than not (> 50% chance) that fair value is less than carrying amount. More likely than not: Proceed with Step 1 Not “more likely than not”: Done ASC 350 No. 2011-08 September 2011 (Intangibles - Goodwill And Other) (Continued)

7. Flowchart Of New Process ASC 350 No. 2011-08 September 2011 (Intangibles - Goodwill And Other) (Continued)

8. Effective Dates Fiscal years beginning after December 15, 2011 Early adoption is permitted, which includes annual and interim goodwill impairment tests performed as of a date before September 15, 2011 (Q3) ASU 2010-28: Step 2 impairment analysis when FV is negative ASC 350 No. 2011-08 September 2011 (Intangibles - Goodwill And Other) (Continued)

9. Objective/Reason for the Change To address financial statement user concern over lack of financial statement transparency for participation in a multiemployer pension plan ASC 750-80 No. 2011-09 September 2011 (Compensation - Retirement Benefits - Multiemployer Plans)

10. ASC 750-80 No. 2011-09 September 2011 (Compensation - Retirement Benefits - Multiemployer Plans) (Continued) Risks Of Multiemployer Plans • Assets contributed by one employer may be used to provide benefits to employees of other participating employers • If a participating employer fails to make the required contribution, then the unfunded obligations of the plan may be forced upon the remaining participating employers • If an employer voluntarily withdraws from a plan, it may be liable for a final payment (the withdrawal liability)

11. ASC 750-80 No. 2011-09 September 2011 (Compensation - Retirement Benefits - Multiemployer Plans) (Continued) Significant Changes • Enhance disclosures to included the financial health of all significant plans and assist a financial statement user with accessing additional information on the plan

12. ASC 750-80 No. 2011-09 September 2011 (Compensation - Retirement Benefits - Multiemployer Plans) (Continued) Main Provisions/Disclosure Requirements Disclosures Must Include: • The significant multiemployer plans in which an employer participates, including the plan names and identifying number • The level of an employer’s participation in the significant multiemployer plans, including the employer’s contributions made to the plans and an indication of whether the employer’s contributions represent more than 5 percent of the total contributions made to the plan by all contributing employers • The financial health of the significant multiemployer plans, including an indication of the funded status, whether funding improvement plans are pending or implemented, and whether the plan has imposed surcharges on the contributions to the plan • The nature of the employer commitments to the plan, including when the collective-bargaining agreements that require contributions to the significant plans are set to expire and whether those agreements require minimum contributions to be made to the plans

13. ASC 750-80 No. 2011-09 September 2011 (Compensation - Retirement Benefits - Multiemployer Plans) (Continued) Implementation Dates • Public Entities - Annual periods for fiscal years ended after December 15, 2011, with early adoption permitted • Nonpublic Entities - Annual periods for fiscal years ended after December 15, 2012, with early adoption permitted

14. ASC 220 No. 2011-09 June 2011 (Comprehensive Income) Objective/Reason for the Change • Improve comparability/consistency in financial reporting • Two reporting options • Continuous statement of comprehensive income • Two statement approach • Eliminates option to report in statement of changes in stockholder’s equity

15. ASC 220 No. 2011-09 June 2011 (Comprehensive Income) Implementation Dates • Retrospective application • Public Entities - Fiscal years, and interim periods in those years, beginning after December 15, 2011, with early adoption permitted • Nonpublic Entities - Fiscal years ending after December 15, 2012, and interim periods thereafter, with early adoption permitted

16. FASB Projects

17. FASB Projects • Priority Projects • Leases • Revenue Recognition • Other Projects • Financial statement presentation • Disclosures about Risk/Uncertainties and Liquidation Basis of Accounting (Going Concern) • Financial Instruments with Characteristics of Equity • Loss Contingencies

18. Leases Timeline • Exposure draft issued August 17, 2010 • Comment period initially through December 14, 2010 • Re-release of exposure draft expected Q4 2011

19. Leases (Continued) Goals Of The Project • Improve information available to investors about the financial effects of lease contracts • Provide relevant information about a company’s rights and obligations • Remove the ‘bright-line’ distinction between capital and operating leases

20. Leases (Continued) Goals Of The Project (Continued) • Provide more timely information about various lease options to financial statement users • Simplify financial metrics

21. Leases (Continued) Changes From Current Methodology • All leases will be recorded on the balance sheet • Exception for short term leases (12 months, including all options to renew) • Lease term • Non-cancellable periods plus renewal periods with significanteconomic incentive … • ... To renew, or • ... To not exercise an option to terminate

22. Leases (Continued) Changes From Current Methodology (Continued) • Applies to existing and new leases • Initial recognition • Record liability to make lease payments (including residual value guarantees) at NPV of payment stream • Record “a right to use” asset on the balance sheet for the same amount • Variable lease payments

23. Leases (Continued) Changes From Current Methodology (Continued) • Subsequent recognition • Liability • Measure using effective interest rate method • Rate stated in the lease • Incremental borrowing rate • Lease Amortization • Systematic basis reflecting the pattern of consumption of expected future economic benefits

24. Leases (Continued) Changes From Current Methodology (Continued) • Disclosures • Reconciliation of beginning/ending right-of-use assets - by class • Reconciliation of beginning/ending liability - in total • Maturity schedule (same as currently required for debt) • Detail of lease related expenses - in tabular format • Amortization of the asset • Interest expense • Incremental variable lease payments • Lease expense on short term leases (scope exception) • Principal and interest paid

25. Leases (Continued) Impact/Considerations • Will affect most every company’s balance sheet and its financial ratios • EBITDA: Rent expense replace with interest and depreciation • Cannot report interest expense + amortization expense as rent/lease expense • Could affect debt covenants

26. Revenue Recognition • Goal is to clarify the principles for recognizing revenue and develop a common revenue standard for U.S. GAAP and IFRS • Proposed guidance would replace most of the guidance in ASC 605

27. Revenue Recognition (Continued) • Also contains guidance for accounting for contract costs • Application of Principle • Identification of contract • Identification of performance obligations • Determination of transaction price • Allocation of transaction price to performance obligations • Recognition of revenue on satisfaction of each performance obligation

28. Revenue Recognition (Continued) • Presentation • Separate Disclosure of Contract Assets / Liabilities • Don’t have to use those exact titles, but must be able to distinguish between contract assets and receivables • Liabilities for onerous performance obligations must be presented separate from contract liabilities

29. Revenue Recognition (Continued) • Presentation (Continued) • Disaggregation of Revenue • Revenue should be disaggregated on face of statements or in footnotes • Disaggregation criteria will be disclosed, based on entity accounting policy - example categories: • Type of good or service (e.g., major product lines) • Geography • Customer or contract type

30. Revenue Recognition (Continued) • Disclosure of Remaining Performance Obligations • Disclose the amount of the transaction price allocated to remaining performance obligations for contracts that have both of the following: • A) An original expected contract duration of more than one year, and • B) Terms and conditions that result in the entity, in practice, being required to apply each step of the revenue model in order to recognize revenue • Disclose when amounts are expected to be recognized, either in quantitative time bands or by using both quantitative and qualitative information

31. Revenue Recognition (Continued) • Disclosures about Assets from Contract Acquisition or Fulfillment Costs • Rollforward disclosure from beginning to end of period, including: • Additions • Amortization • Impairments • Disclose accounting policy for amortization of costs

32. Revenue Recognition (Continued) • Implications • Debt covenants and other GAAP-based agreements • May impact IT systems, in order to collect data required for additional financial statement disclosures • Processes and controls may change to capture appropriate accounting data / estimates • May impact how budgets are developed and updated • Don’t forget to consider tax implications of any changes • Possible retrospective application could require dual sets of books

33. Revenue Recognition (Continued) • Implementation date is to be determined • Public entities: No earlier than annual periods beginning on or after January 1, 2015 • Nonpublic entities: At least one year after public entities.

34. Private Company Financial Reporting

35. Private Company Financial Reporting - Blue Ribbon Panel • Blue Ribbon Panel formed in December 2009 to address U.S. accounting standards for users of private company financial statements • 18 members • Cross-section of people involved in financial reporting • Lenders, investors, owners, preparers, auditors, regulators

36. Private Company Financial Reporting - Blue Ribbon Panel (Continued) • Board’s mission - “establish exceptions and modifications to US GAAP for private companies while ensuring that such exceptions and modifications provide decision-useful information to lenders and other users of private company financial reports” • Assumption is that lenders constitute the largest user base of private company financial reports • The new board would have authority to modify existing and future GAAP for private entities

37. Private Company Financial Reporting - Blue Ribbon Panel (Continued) • Sponsored by: • AICPA • Financial Accounting Foundation (FAF) which oversees FASB • National Association of State Boards of Accountancy (NASBA)

38. Private Company Financial Reporting - Blue Ribbon Panel (Continued) • Private company GAAP has been a long-time issue • Big GAAP / Little GAAP debate • Financial information needs are much different from large public entities • AICPA Private Company Financial Reporting Task Force (2005) • Private Company Financial Reporting Committee (2007) - sponsored by AICPA and FASB • Blue Ribbon Panel

39. Private Company Financial Reporting - Blue Ribbon Panel (Continued) • Examples of standards likely not relevant for private companies (based upon input to the Panel) • Uncertain tax positions (FIN 48) • Consolidation of VIEs (FIN 46R) • Goodwill impairment

40. Private Company Financial Reporting - Blue Ribbon Panel (Continued) • Possible solutions • Majority of the Panel favors a separate private company standards board under the FAF • AICPA supports a separate standard setter under FAF • FAF and NASBA support fixing private company guidance but don’t feel a separate board is necessary • NASBA favors a reconstituted FASB

41. Private Company Financial Reporting - Blue Ribbon Panel (Continued) • Panel recommendations: • New private company accounting standard-setting board • 5-7 members with private company reporting experience • Sunset provision of 5 years or less to evaluate overall process

42. Private Company Financial Reporting - Blue Ribbon Panel (Continued) • Future activity • The FAF Trustees’ action plan subject to further input from constituents • Expose the plan for public comment prior to implementation • Comment letters - unsolicited (~3,000 rec’d) Financial Accounting Foundation 401 Merritt 7 P.O. Box 5116 Norwalk, Connecticut 06856-5116

43. Remember where we started?

44. Questions? Contact Information Rodney E. Rice, CPA Partner 1660 Lincoln Street, Suite 2000 Denver, CO 80264 P: 303.698.1883 rodney.rice@rubinbrown.com