Decosimo Assurance Manager Derek Daniel presented "GAAP Accounting Update" at the 2013 Decosimo Accounting Forum hosted by the University of North Alabama on July 19.

1. A Global Reach with a Local Perspective
www.decosimo.com
UNIVERSITY OF NORTH ALABAMA
2013 ACCOUNTING SEMINAR
ACCOUNTING UPDATE
A REVIEW OF RECENT AND PENDING CHANGES IN GAAP
DEREK DANIEL | July 19, 2013

2.  Subtopic 954-430, Health Care Entities – Deferred
Revenue, requires a continuing care retirement
community to defer revenue when a portion of the
advance fee is refundable if the contract holder’s
unit is reoccupied by a subsequent resident.
 This Update clarifies that if payment of the
refundable fee upon reoccupancy is limited to the
proceeds of reoccupancy, then classify as deferred
revenue.
 If, however, the refundable advance fees that are
contingent upon reoccupancy are not limited to the
proceeds of reoccupancy, classify as a liability.
2
FASB ASC Update No. 2012-01 (Topic 954)
Continuing Care Retirement Communities –
Refundable Advance Fees

3.  This clarification should eliminate diversity in
practice
 The Update is effective for public entities in periods
beginning after 12/15/12
 The effective date for nonpublic entities is 12/15/13
 Update may be adopted early
 The transition should be accounted for as a
cumulative-effect adjustment of retained earnings in
the earliest period shown for comparative purposes
3

4.  An objective of this Update is to reduce cost and
complexity of impairment tests for indefinite-lived
intangible assets
 This also improves consistency for impairment
testing among the various long-lived assets
 Update 2011-08 is similar to this update but for
goodwill only
 Examples of indefinite-lived intangible assets
include indefinite-lived trademarks, licenses and
distribution rights
 This Update applies to all organizations – public,
private and not-for-profit
4
FASB ASC Update 2012-02 (Topic 350)
Testing Indefinite-Lived Intangible Assets for Impairment

5.  This update allows an entity the option of first
assessing qualitative factors such as events and
circumstances to determine whether it is more likely
than not that an indefinite-lived intangible is
impaired.
 If, after the qualitative assessment of factors, the
entity determines that it is not more likely than not
that the asset is impaired, the entity is not required
to perform the quantitative test for impairment.
 If, however, after the qualitative assessment, it is
more likely than not the asset is impaired, the
quantitative test of comparing fair value and carrying
value of the long-lived asset musts be performed.
5

6.  The entity has the option of going directly to the
quantitative test for impairment. This does not
preclude using the qualitative test on this asset for
the next period
 Events and circumstances since the last period must
be considered in the qualitative assessment as well
as any changes during the period in the carrying
amount of the asset
 Both positive and mitigating factors must be
considered
 This Update is effective for impairment tests used
for interims and annual statements beginning after
9/15/12
6

7.  IAS 36, Impairment of Assets, requires and entity to
test an indefinite-lived intangible asset for
impairment by comparing its carrying value with its
recoverable amount.
 Impairment test must be performed annually
regardless of qualitative events/factors.
7

8.  Cash receipts from the sale of donated financial
assets that upon receipt were directed without any
NFP-imposed limitations for sale and were converted
immediately into cash – should be classified as
operating activities
 If, however, the donor restricted the use of the
assets to long-term purposes, these cash inflows
would be financing activities
 Otherwise, cash receipts of this nature should be
classified as cash inflows from investing activities
8
FASB ASC Update 2012-05 (Topic 230)
Not-for-Profit Entities: Classification of the Sale Proceeds
of Donated Financial Assets in the SCF

9.  This Update addresses the diversity in practice
 Amendments effective prospectively for fiscal years
(and interims) beginning after June 15, 2013
 Upon adoption, retrospective application is
permitted
 Early adoption is also permitted
9

10.  This topic is the relevant guidance for assessing impairment of
unamortized film costs.
 Topic 820 is the relevant guidance for fair value accounting and
Topic 855 is relevant for subsequent events accounting.
 This Update eliminates the rebuttable presumption that
conditions arising after the balance sheet leading to write-off of
film costs existed at the balance sheet date.
 It also eliminates the requirement that fair value measurements
used in balance sheet impairment tests should include
considerations of subsequent information.
 This Update effective for impairment assessments on or after
12/15/12 for public companies and 12/15/13 for nonpublic.
10
FASB ASC Update 2012-07 (Topic 926) - Accounting for Fair Value
Information That Arises after the Measurement Date and Its Inclusion in
the Impairment Analysis of Unamortized Film Costs

11.  Clarifies the scope of FASB ASC 2011-11 to indicate that it applies
to:
 derivatives including bifurcated embedded derivatives
 repurchase agreements and reverse repurchase agreements
 securities borrowing and securities lending transactions
 Main provision of 2011-11 requires an entity to disclose
information about offsetting and related arraignments to enable
users of its financial statement to understand the effect of those
arrangements on its financial position.
 There was concern that the scope was much wider because of this
wording – items included above “that are either offset per sections
of GAAP or subject to a master netting arrangement or similar
agreement.” This wording could include ordinary trade receivables
and payables in some cases which was not the FASB’s intent.
 Effective for fiscal years beginning on or after 1/1/13 (same
effective date of ASC 2011-11).
11
FASB ASC 2013-01 (Topic 210) - Clarifying the Scope of
Disclosure about Offsetting Assets and Liabilities

12.  Requires additional information about reclassification
adjustments from Accumulated Other Comprehensive
Income (AOCI)
 Discloses in one note the effects of these AOCI
component adjustments on the line items in net income
 If reclassification does not affect net income, the entity
should cross-reference other required disclosures
 This is a marked change from the Comprehensive Income
Update, issued in mid-2011, requiring this information to
be shown on the face of the financial statements.
(requirement deferred in December, 2011)
 The effective date is prospectively for periods beginning
after 12/15/12, with nonpublic effective 12/15/13.
12
FASB ASC 2013-02 (Topic 220) - Presentation of Items
Reclassified Out of Accumulated Other Comprehensive Income

13.  Objective is to provide guidance for recognition,
measurement, and disclosure of obligations resulting
from joint and several arrangements for which the total
amount is fixed at the reporting date.
 GAAP guidance did not exist before this update
 Examples of items within the scope of this proposal
include debt arrangements, other contractual obligations,
and settled judicial and litigation rulings.
 These type obligations are to be measured as the total of
 The amount the entity agreed to pay based on
arrangements with co-obligors
 Any additional amount the entity expects to pay in
place of its co-obligors
13
FASB ASC 2013-04 (Topic 405) - Obligations Resulting from
Joint and Several Liability Arrangements for Which the Total
Amount of the Obligation is Fixed at the Reporting Date

14.  Entity must disclose nature and amount and other
information about the obligations
 The amendments are effective for periods beginning
after 12/15/13. The effective date for nonpublics is
12/15/14.
 Amendments should be applied retrospectively to all
prior periods for all liability arrangements that exist
at the date of adoption.
14

15.  Update addresses the release of the cumulate
translation adjustment into net income when a parent
sells all or a part of its investment in a foreign entity or no
longer holds a controlling financial interest
 Subtopic 810-10 (Consolidation) supports releasing
cumulative translation adjustment into net income upon
loss of a controlling interest
 Subtopic 830-30 (Foreign Currency Matters) provides for
the release of cumulative translation adjustment into net
income only when a sale is complete or substantially
complete liquidation of an investment in a foreign entity
15
FASB ASC 2013-05 (Topic 830) - Parent’s Accounting for the
Cumulative Translation Adjustment Upon Derecognition of Certain
Subsidiaries or Groups of Assets within a Foreign Entity or an
Investment in a Foreign Entity

16.  When parent ceases to have controlling financial interest
within a foreign entity, parent is required to follow 830-30
(cumulative translation adjustment should be released into net
income only if sale is complete or substantially complete
liquidation of foreign entity).
 For equity method foreign investments, partial sale guidance
in 830-30-40 still applies (pro rata portion of the cumulative
translation adjustment should be released into net income
upon a partial sale of equity investment).
 If not foreign entity, cumulative translation adjustment is
released into net income only if sale is complete or
substantially complete
 Effective years begging after December 15, 2013 (2014 for
nonpublic entities). Applied prospectively. Early adoption is
permitted.
16

17.  A “contribution” is defined in the Master Glossary of the
FASB Accounting Standards Codification as “an
unconditional transfer of cash or other assets to an entity
or a settlement or cancellation of its liabilities in a
voluntary nonreciprocal transfer by another entity acting
other than as an owner.”
 An “affiliate” is defined in the Master Glossary of the
FASB Accounting Standards Codification as “a party that,
directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with
an entity.”
 So do we recognize revenue as a result of contributed
services from an affiliate and if so, how do we measure?
17
FASB ASC 2013-06 (Topic 958)
Services Received from Personnel of an Affiliate

18.  A not-for-profit entity should recognize all services
provided by an affiliate’s personnel that directly benefit
the not-for-profit entity.
 The services are measured at the cost the affiliate
recognizes for the personnel providing the services.
 However, if using the above measurement, the value of
the service would be over or understated, the not-for-
profit entity may choose to use either
 The cost the affiliate recognized or
 The fair value of the service
Update effective for periods beginning at 6/15/14.
18

19.  Before this Update, very minimal guidance in US GAAP that
address when it is appropriate to apply, or how to apply the
liquidation basis of accounting
 An entity should prepare statements on a going concern basis
unless liquidation is imminent
 Liquidation occurs when an entity converts its assets to cash
and settles its obligations with creditors in anticipation of
ceasing activity
 Liquidation is imminent when likelihood is remote that the
entity will exit the liquidation and either:
(a) A liquidation plan has been approved by one with authority
and it is remote that liquidation will not occur
(b) A liquidation plan is imposed by others (involuntary
bankruptcy)
 If liquidation plan is part of governing documents, liquidation
basis of accounting is only applied if approved liquidation plan
is different than original plan since entity’s inception.
19
FASB ASC 2013-07 (Topic 205)
Liquidation Basis of Accounting

20.  Assets and liabilities should be shown at the amount of cash
expected to be received or paid
 Also includes assets not recognized under GAAP but
expected to sell in liquidation (example, trademarks).
 Costs expected to accrue or income to be earned during
liquidation are included, as well as disposal costs
 Financial statements in this situation should have titles such
as “Statement of Net Assets in Liquidation” and “Statement of
Changes in Net Assets in Liquidation”
 Disclosure should include liquidation plan and significant
assumptions used in measurement of accounts
 Disclose expected duration of the liquidation
 Effective for periods beginning after 12/15/13. Apply
prospectively from date liquidation is imminent.
20

21. Selected FASB Exposure Drafts
21

22.  Stakeholders claim that too many disposals of assets qualify
for discontinued operations presentation under current
definition.
 Only disposals representing a significant strategic shift in
operations should be presented in discontinued operations.
 Currently, continuing involvement criterion is difficult to apply
and does not result in consistent application.
 Currently, a component of an entity that is a reportable
segment, an operating segment, a reporting unit, a subsidiary,
or an asset group is eligible for discontinued operations
presentation (not decision useful for users and higher costs for
preparers).
22
Proposed Accounting Standards Update (Topic 205) – Reporting
Discontinued Operations (Issued April, 2013)

23.  Under the new update, a discontinued operation would be
either of the following:
1) A component of an entity or a group of components that
represents a separate major line of business or major
geographical area of operations that either has been disposed
or is part of a plan to be classified as held for sale (in
accordance with criteria in paragraph 360-10-45-9)
2) A business that, on acquisition, meets the criteria to be
classified as held for sale (in accordance with criteria in
paragraph 360-10-45-9)
23

24. ASC 360-10-45-9
A long-lived asset (disposal group) to be sold shall be classified as held for sale in the period in
which all of the following criteria are met:
a. Management, having the authority to approve the action, commits to a plan to sell the asset
(disposal group).
b. The asset (disposal group) is available for immediate sale in its present condition subject only to
terms that are usual and customary for sales of such assets (disposal groups).
c. An active program to locate a buyer and other actions required to complete the plan to sell the
asset (disposal group) have been initiated.
d. The sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is
expected to qualify for recognition as a completed sale, within one year, except as permitted by
paragraph 360-10-45-11 .
e. The asset (disposal group) is being actively marketed for sale at a price that is reasonable in
relation to its current fair value. The price at which a long-lived asset (disposal group) is being
marketed is indicative of whether the entity currently has the intent and ability to sell the asset
(disposal group). A market price that is reasonable in relation to fair value indicates that the asset
(disposal group) is available for immediate sale, whereas a market price in excess of fair value
indicates that the asset (disposal group) is not available for immediate sale.
f. Actions required to complete the plan indicate that it is unlikely that significant changes to the plan
will be made or that the plan will be withdrawn.
24

25.  Update requires expanded disclosures for discontinued
operations and for disposals of individually material
components of an entity that do not qualify for discontinued
operations presentation.
 Some additional disclosures include
1) Major income and expenses of pretax profit (loss) from a
discontinued operations
2) Major classes of cash flow from discontinued operations
3) If the discontinued operation includes a noncontrolling
interest, the pretax profit (loss) attributable to the parent
4) A reconciliation of major classes of assets and liabilities
from discontinued operations
25

26. The core principle requires an entity to recognize
revenue to depict the transfer of goods or services
to customers in an amount that reflects the
consideration that it receives, or expects to receive,
in exchange for those goods and services.
26
FASB Exposure Draft (Topic 605)
Revenue from Contracts with Customers
(Revised November, 2011 but expected revisions reflected)

27.  To apply the core principle, an entity must:
a) identify the contract(s) with a customer
b) identify the separate performance obligations in
the contract
c) determine the transaction price
d) allocate the transaction price to the separate
performance obligations
e) recognize revenue when (or as) the entity
satisfies each performance obligation
27

28.  Identify the contract(s) with a customer
 An agreement between two or more parties that
creates enforceable rights and obligations
 Contracts can be written, oral or implied by
customary business practices
 Guidance is included, however, to specify when an
entity would combine two or more contracts
28

29.  A performance obligation is an enforceable promise in a
contract with a customer to transfer a good or service to
the customer
 If more than one good or service is provided, account for
each distinct good or service as a separate performance
obligation
 A good or service is distinct if:
 the entity or another entity sells an identical or similar
good or service separately or
 The customer can benefit from the good or service
either on its own or with other readily available
sources
29
Identify the separate performance obligations in
the contract

30. Goods or services in a bundle are not distinct if both
the following are met:
 The goods or services are highly interrelated and the
entity (the seller) must provide significant service to
integrate the goods or services into the contracted
item
 The bundle of goods or services is significantly
modified to fulfill the contract (you’re not done)
The entity must determine whether its performance
obligation requires acting as a principal or as an
agent
30

31.  The transaction price is the amount of consideration
that an entity receives, or expects to receive, from a
customer in exchange for transferring goods and
services promised in the contract. In many instances
this price is readily determinable because it is a fixed
amount (this has really not been an issue)
 If the amount is variable, an entity would recognize
revenue from satisfying an obligation if the
transaction price can be reasonably estimated.
(continued)
31
Determine the transaction price

32. A transaction price can be reasonably estimated only
if:
 the entity has experience with similar types of
contracts (or access to information) and
 the entity’s experience is relevant to the contract
because the entity does not expect significant
changes in circumstances
32

33. When considering the transaction price, an entity would
consider:
 variable consideration – expected value or most likely
amount
 time value of money – significant financing?
 noncash consideration – fair value
 consideration payable to the customer
Do not consider customer credit risk when determining the
transaction price (this time a year ago the ED said you did
consider customer credit risk).
Bad debt expense will be prominently displayed in operating
expense.
33

34.  Allocate the transaction price to all separate
performance obligations in proportion to the
standalone selling prices of the goods and services.
If standalone price not observable, it should be
estimated
 If circumstances change, the entity would update the
transaction price and allocate the changes to the
separate obligations
34
Allocate the transaction price to the separate
performance obligations

35.  Recognize revenue when performance obligation is
settled by transferring the promised goods or
services. A good or service is considered settled
when the customer has control of that good or
service
 Entity must determine whether performance
obligation settled over time or at a point in time
(continued)
35
Recognize revenue when a performance obligation
is satisfied

36.  A performance obligation is settled over time if:
 The entity’s performance creates or enhances an
asset that customer controls during creation or
enhancement
 The entity’s performance does not create an asset
with an alternative use to the entity and the customer
does not have control over the asset created, and
the entity has the right to payment for performance
completed to date and it expects to fulfill the
contract
36

37.  When the entity satisfies the performance obligation,
it would recognize revenue in the amount of the
transaction price that was allocated to the settled
obligation
 When the performance obligation is satisfied over
time, progress is measured using either output
methods or input methods
 An entity should select a method that shows the
transfer of control of the goods or services to the
customer
 This might be during production or upon the delivery
of the goods or services
37

38. If not settled over time, the performance obligation is
settled at a point in time. This determination should be
made by considering the following indicators of control:
 Entity has present right to payment
 Customer has legal title
 Entity has transferred physical possession
 Customer has significant risks and rewards
of ownership
 Customer has accepted the asset
38

39.  This proposal also specifies the accounting for some
costs.
 An entity would recognize as an asset the incremental
costs of obtaining a contract if the entity expects to
recover those costs.
 If no other standard covers a cost incurred in fulfilling a
contract (example Topic 330 on inventory), the cost
would have to be expensed unless it relates 1) rectly to a
contract, 2) generates resources that will be used to
satisfy future obligations or 3) is expected to be
recovered
39

40.  This proposed standard applies to all entities that have
contracts with customers – public, private and not-for-
profit
 Certain contracts with customers would be excluded. For
example, those covered by the lease guidance,
investments in debt and equity securities, receivables,
debt, insurance contracts, financial instruments,
derivatives and guarantees
40

41. Disclosures include quantitative and qualitative
information:
 Reconciliation of contracts with customers
 Significant judgments and changes
 Any assets recognized from contracts
Nonpublic entities can omit reconciliations
For public entities, the effective date would be for periods
beginning after 12/15/16. Private companies would have
an additional year. Final pronouncement expected by
mid- 2013.
The Board no longer plans to require full retrospective
application.
41

42. DEREK DANIEL, CPA
Assurance Manager | derekdaniel@decosimo.com
Derek Daniel is an assurance manager with ten
years of experience in public accounting. Derek
leads Decosimo’s Huntsville office.
Derek manages audit engagements for clients in various
industries including manufacturing, government contractors,
and healthcare. He has experience in assisting clients to
achieve compliance with the requirements of the Sarbanes-
Oxley Act. He also performs due diligence and agreed-upon
procedures.

43. Questions