1. FASB Update Rahul Gupta Project Manager
Financial Accounting Standards Board
August 13, 2014
The views expressed in this presentation are those of the presenter.
Official positions of the FASB are reached only after extensive due process & deliberations.

2. Today’s Agenda Recent Standards FASB projects EITF projects
PCC projects

3. Recent Standards

4. Recent Accounting Standards Updates
No.
Title
Definition of a Public Business Entity
Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the EITF)
Accounting for Goodwill (a consensus of the PCC)
Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach (a consensus of the PCC)
Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the EITF)
Service Concession Arrangements (Topic 853) (a consensus of the EITF)
Technical Corrections and Improvements Related to Glossary Terms
Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (a consensus of the PCC)

5. Recent Accounting Standards Updates
No.
Title
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
Revenue from Contracts with Customers (Topic 606)
Development Stage Entities (Topic 915)
Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the EITF)

6. ASU 2014-02, Accounting for Goodwill (a consensus of the PCC)

7. ASU 2014-02: Goodwill Final Alternative Do not amortize goodwill
Current U.S. GAAP
Do not amortize goodwill
Test for impairment at least annually or more frequently
Reporting unit level
Two-step test
Optional qualitative assessment
Final Alternative
Amortize over 10 years or less
Test for impairment upon occurrence of triggering event
Entity level or reporting unit level
One-step test
Optional qualitative assessment

8. & interim periods thereafter
ASU : Goodwill
Transition: Amortize existing goodwill prospectively over 10 years or less if the private company can demonstrate that another useful life is more appropriate.
Effective Date: Applied prospectively for existing goodwill and new goodwill recognized in the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. Early adoption is permitted.
1st annual period
Private Companies
& interim periods thereafter Q1 Q2 Q3 YE Q1 Q2 Q3
Dec. 15, 2014
2015

9. ASU , Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach (a consensus of the PCC)

10. ASU 2014-03: Interest Rate Swaps
Impact of interest rate swap
Current GAAP
PCC Alternative
No hedge accounting
Hedge accounting
Combined instruments (Not pursued)
Simplified hedge accounting (Final)
Income statement
Volatility in interest expense as result of changes in FV
Interest expense approximates fixed rate debt
Balance sheet
Asset or liability at fair value
Only disclosure of settlement value
Asset or liability at settlement value (or FV)
Other comprehensive income
No impact
Includes changes in fair value of effective portion of hedge
Includes changes in settlement value (or FV) of the swap

11. ASU 2014-03: Interest Rate Swaps
Transition: Private companies may apply either the modified retrospective approach or the full retrospective approach upon adoption. Existing swaps as of the date of adoption may qualify for the simplified hedge accounting approach.
Effective Date: Effective for the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. Early adoption is permitted.
1st annual period
Private Companies
& interim periods thereafter Q1 Q2 Q3 YE Q1 Q2 Q3
Dec. 15, 2014
2015

12. ASU , Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (a consensus of the PCC)

13. ASU 2014-07: Common Control Leasing & VIE
Typical private company common control leasing arrangement
Owner
Manufacturing Company
Leasing Company
100% Interest
Pays Rent
Leases Land & Building
Bank
Mortgage
Debt

14. ASU 2014-07: Criteria to qualify for scope exception
1) Lessor entity & private company lessee (reporting entity) are under common control
2) Private company lessee has leasing arrangement with lessor entity
3) Substantially all activity between two entities is related to leasing activity between lessor entity to the private company lessee
4) If the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor related to the asset leased by the private company, then the principal amount of the obligation at inception does not exceed the value of the asset leased by the private company from the lessor.

15. ASU 2014-07: Common Control Leasing & VIE
Transition: Full retrospective approach
Effective Date: Effective for the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. Early adoption is permitted.
1st annual period
Private Companies
& interim periods thereafter Q1 Q2 Q3 YE Q1 Q2 Q3
Dec. 15, 2014
2015

16. ASU 2014-09, Revenue from contracts with customers (Topic 606)

17. Revenue Recognition
Objective: single, principle-based revenue standard
Improve accounting for contracts with customers
More robust framework for recognizing revenue
Increased comparability across industries & capital markets
Better disclosures
Excludes contributions and collaborative arrangements
Substantially converged on major decisions
Final standard issued on May 28, 2014

18. Core Principle and Application
Core principle: 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 or services 1
Identify contract(s) with the customer 2
Identify performance obligations 3
Determine the transaction price 4
Allocate the transaction price to the identified performance obligations 5
Recognize revenue when performance obligation is satisfied

19. Disclosure requirements*19
Disaggregate revenue into categories that depict how revenue and cash flows are affected by economic factors
Explain the relationship with segment disclosures
Disaggregation of revenue
Opening & closing balances
Amount of revenue recognized from contract liabilities
Explanation of significant changes in contract balances
Information about contract balances
Transaction price allocated to remaining performance obligations
Quantitative or qualitative explanation of when amounts will be recognized as revenue
Remaining performance obligations
Interim requirements
All quantitative disclosures in annual and interim
(Public companies only)
* Most quantitative disclosures are optional for nonpublic entities

20. Rev Rec—Issuance & Effective Dates: Timeline
Issue final standard
May 2014
Establish Transition Resource Group
June 2014
Effective Date – Public Entity
Jan. 2017
Effective Date – Nonpublic Entity Jan. 2018
A nonpublic company/not-for-profit has the option to early adopt (no earlier than a public company)
Transition alternatives:
Retrospective for all periods presented
Apply when effective
For year of adoption, disclose amounts of financial statement line items under old method accounting (to allow trend analysis)

21. Transition Resource Group (TRG) – Overview
To solicit, analyze, and discuss stakeholder issues arising from implementation of the new guidance
To inform the FASB and the IASB about those implementation issues, which will help the Boards determine what, if any, action will be needed to address those issues
To provide a forum for stakeholders to learn about the new guidance from others involved with implementation
TRG will not issue guidance

22. How to Submit an Issue
Any stakeholder can submit a potential implementation issue
We encourage submissions as soon as possible
Issue submitted about new revenue guidance should
Involve guidance that can be applied in different ways resulting in diversity in practice
Be pervasive (relevant to wide group of stakeholders)
Submission forms will not be public
Issues may be discussed in public
FASB and IASB staff will read all submissions and decide priority of discussing issues

23. Additional Information
Additional information on TRG website
Submission form and instructions
Meeting dates and materials
Replay of meetings
Staff contact information
TRG members

24. FASB projects

25. Topics Current FASB projects Current Agenda Simplification Initiative
Accounting for Financial Instruments

26. New FASB Agenda: 3 Types of Projects
Foundational projects
Promote transparency
Promote simplification

27. Current FASB Agenda Framework Projects Stage
Conceptual Framework: Measurement
Initial Deliberations
Conceptual Framework: Presentation
Disclosure Framework: Board’s Decision Process
Exposure Draft Redeliberations

28. Current FASB Agenda Recognition and Measurement Projects Stage
Accounting for Financial Instruments: Classification and Measurement
2nd Exposure Draft Redeliberations
Accounting for Financial Instruments: Impairment
Insurance: Improvements to accounting for long-duration contracts
Exposure Draft Redeliberations
Leases
Accounting for Goodwill for Public Business Entities and Not-for-Profits
Initial Deliberations
Clarifying the definition of business
Consolidations: Principal Versus Agent Analysis
Customer’s Accounting for Fees in a Cloud Computing Arrangement
Simplifying the Subsequent Measurement of Inventory
Exposure Draft Outstanding
Technical Corrections

29. Current FASB Agenda Presentation and Disclosure Projects Stage
Clarifying Certain Existing Principles on Statement of Cash Flows
Initial Deliberations
Disclosure Framework—Entity’s Decision Process
Discussion Document Redeliberations
Disclosure Framework—Disclosure Reviews
- Defined Benefits Plans
- Fair Value
- Income Taxes
- Inventory
- Interim Reporting
Financial Statements of Not-for-Profit Entities
Going Concern
Final Standard Drafting

30. Current FASB Agenda Presentation and Disclosure Projects Stage
Government Assistance Disclosures
Initial Deliberations
Insurance: Disclosures about Short-duration Contracts
Investment Companies: Disclosures about Investments in Another Investment Company
Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items
Exposure Draft Outstanding

31. Current FASB Agenda Research Projects
Accounting Issues in Employee Benefit Plan Financial Statements
Accounting for Financial Instruments: Hedging
Accounting for Financial Instruments: Interest Rate Risk Disclosures
Financial Performance Reporting
Liabilities & Equity—Short-term Improvements
Pensions—Cash Balance Plans

32. Reducing Complexity - Two Issues
Complicated, unclear standard obscures its meaning
Accounting treatment is clear, but applying it is lengthy, difficult & expensive

33. How FASB is Addressing the Problem
Progress made and in process
Developing internal Board policy on complexity
Broaden thinking on complexity through outreach
Research project on Simplification Initiative

34. Simplification Initiative Objective
Objective is to reduce cost and complexity while maintaining or improving the usefulness of the information
Projects would include narrow- scope items that the Board can complete in the short term
Welcome input on ideas

35. Simplification Initiative: Tentative Decisions
Measurement of inventory
Inventory would be measured at the lower of cost and net realizable value. A reporting entity would no longer consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory.
Prospective application
Eliminating extraordinary items
Removed the concept of extraordinary items from U.S. GAAP
Unusual or infrequent items would be retained

36. FI: Classification & Measurement—Model
Topic
Redeliberated Model (decisions since ED)
Cash flow Test
Current GAAP - No cash flow test. Revert to the current embedded derivative guidance in Topic 815. Keep existing bifurcation requirements that apply to hybrid financial assets and liabilities
Business model
Current GAAP - Retain existing separate accounting models to determine the classification and measurement of loans and securities (based on management’s intent)
Equity Securities
From ED - All equity securities measured at fair value through net income (except equity method and nonmarketable securities)
FVO
Current GAAP - Unrestricted for financial assets and liabilities subject to Topic 825
Practicability Exception
Equity securities with no readily determinable fair value are measured at cost, adjusted for impairment and any observable price changes.

37. FI: Classification & Measurement
“FAS 107” Disclosures:
FV information for assets & liabilities carried at amortized cost
Public Business Entities – required, either parenthetically on face of statements or in notes
Excluded: receivables and payables due in less than one year, demand deposit liabilities
Other Entities – no presentation or disclosure requirement
Regardless of asset size or presence of derivatives

38. FI: Impairment (Credit Losses)
Expected credit loss model reflecting more forward-looking information
Immediate recognition of lifetime expected credit losses on income statement
Measurement of expected credit losses (ECL)
Reflects management’s expectation based on past events, current conditions, & reasonable and supportable forecasts
Reflect the risk of loss (i.e., the possibility that a loss will occur) as opposed to reflecting the most likely outcome (statistical mode)
Provide enhanced disclosures compared to current GAAP (still to be redeliberated)

39. FI: Impairment (Credit Losses)
The proposal applies to the following:
Debt instruments (e.g., loans and securities) measured at:
Loan commitments
Lease receivables
Trade receivables
Pledge receivables (to be redeliberated)
Amortized cost
FV - OCI

40. EITF projects

41. EITF―Open Issues Issue Status Issue 12-F: Pushdown Accounting
Exposure Draft Redeliberations
Issue 12-G: Measuring the Financial Liabilities of a Consolidated Collateralized Financing Entity
Final Standard Drafting
Issue 13-F: Accounting for the Effect of Federal Housing Administration Guarantee
Issue 13-G: Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity

42. Pushdown Accounting (EITF Issue 12-F) Exposure Draft Issued – Comment period ended July 31, 2014
Background
Current U.S. GAAP offers limited guidance about when and how pushdown accounting should be applied.
Pushdown accounting governed by SEC staff guidance (for SEC registrants)
Pushdown accounting required when 95% (or more) of reporting entity (SEC registrant) is acquired; optional between 80% to 95%; and prohibited below 80% ownership.
Perceived as complex because of different thresholds, exceptions and other related rules.
Pushdown accounting optional for entities other than SEC registrants.
Exposure Draft Issued on April 28, 2014
Provides option to apply pushdown accounting when acquirer (as defined in Topic 805) obtains control of reporting entity.
Utilizes existing US GAAP concepts of “control” from Consolidations (Topic 810), and “acquisition method” from Business Combinations (Topic 805)
Scope and Transition
An acquired entity, both public and nonpublic, that is a business or nonprofit activity. Effective only for future acquisitions after effective date (yet TBD).

43. Pushdown Accounting (EITF Issue 12-F) Exposure Draft Main Provisions – Comments period ended July 31, 2014
Reflect new basis of accounting established by acquirer for individual assets and liabilities of acquired entity by applying Topic 805 on business combinations (mostly fair value)
Recognize goodwill that arises due to application of Topic 805
Do not recognize bargain purchase gains
Disclose information that enables users to evaluate effect of pushdown accounting
Elects pushdown accounting
Do not elect pushdown accounting
Disclose that entity has:
undergone a change-in-control event, and
elected to continue to prepare its financial statements using its historical basis
Entities will evaluate at each period whether they’ve gone through a change-in-control event

44. PCC projects

45. Private Company Council: Open Projects
Issue
Status
13-01A: Accounting for Identifiable Intangible Assets in a Business Combination
Exposure Draft Redeliberations
14-01: Definition of a Public Business Entity (phase 2)
Initial Deliberations

46. Identifiable Intangible Assets (in a Business Combination): Stakeholder Feedback
User Relevance
Some question that the requirement for separate recognition & measurement of certain identifiable intangible assets from goodwill does not provide users with decision-useful information
Cost & Complexity
Estimating fair value of certain assets, including some identifiable intangible assets, e.g. customer relationships

47. Identifiable Intangible Assets: Proposal
At April 29 meeting, PCC discussed various alternatives, including:
Recognizing & measuring only intangible assets capable of being sold or licensed independently
Principle-based vs rules-based approach
Next steps: directed staff to perform more analysis and outreach

48. Questions & Answers