Presentation

Report
Relationships backed by performance.
Accounting and Financial Reporting
Trends
T.J. Boyle
June 20, 2013
What’s New
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Leases
Revenue Recognition
Derivatives
Other Comprehensive Income
AICPA Accounting for Small and Midsize
Companies (SME’s)
Leases
• Potentially biggest accounting changes in
decades!!
• What’s the big deal
– Debt covenants
– Industries – leasing companies
Lease Accounting
• Biggest item – capitalize all leases
• Slow moving to finalize
– 2010 – exposure draft
– May 2013 – updated exposure draft
• Comment period until September
Lease Accounting
• Core principle – Entity would recognize
assets and liabilities for all leases
• Right to use asset – which is depreciated
• Lease liability – which has an interest
component
Types of Leases
• Type A lease – leases other than property
(ex. Equipment, vehicles, etc.)
– Recognize a right-of-use asset and a lease
liability, initially measured at the present
value of lease payments
– Recognize the unwinding of the discount on
the lease liability as interest separately from
the amortization of the right-of-use asset.
Types of Leases (cont.)
• Type B lease - leases of property (land
and/or a building or part of a building)
– Recognize a right-of-use asset and a lease
liability, initially measured at the present
value of lease payments
– Recognize a single lease cost, combining the
unwinding of the discount on the lease liability
with the amortization of the right-of-use
asset, on a straight-line basis.
Leases – Income Statement
• Type A - Lessees may present
amortization and interest expense
separately or combined with other amort.
& int. If combined must disclose in notes.
• Type B- Lessees would present lease
expense as a single line item of lease
expense.
Leases – Cash Flows
• Type A – would be recorded with interest
in operating and principal in financing
(similar to debt)
• Type B – Cash payments for lease
payments would be presented in
operating.
Short term leases
• As an accounting policy decision, a lessee
may recognize the lease payments in
profit or loss on a straight-line basis over
the lease term.
• Similar to an operating lease.
• At the commencement date has a
maximum possible term, including any
options to extend of 12 months or less.
• Cannot have purchase option.
Lessors - Practical View
• For lessors the practical classification for
type A and type B leases is whether or not
the lease term is expected to consume a
significant portion of the economic benefits
embedded in the underlying assets
Lessor
• Type A lease
– Derecognize the underlying asset and
recognize a right to receive lease payments
and a residual asset
– Recognize the unwinding of the discount on
both the lease receivable and the residual
asset as interest income over the lease term
– Recognize any profit relating to the lease at
the commencement date.
Lessor
• Type B lease
– Continue to recognize underlying asset
– Recognize lease income over the term,
typically a straight line basis
Revenue Recognition
• Entity should 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
• Overall should not effect pork producers
significantly
Revenue
• 1. Step 1: Identify contract w/ customer.
• 2. Step 2: Identify separate performance
obligations in the contract.
• 3. Step 3: Determine the transaction price.
• 4. Step 4: Allocate the transaction price to
the separate performance obligations
• 5. Step 5: Recognize revenue when (or
as) performance obligation is satisfied.
Derivatives
• Changes in the last few years are for
disclosures
• Must track transactions through year
Derivatives – Key disclosures
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Reason for derivative instrument
Volume of activity
Fair value on a gross basis
By type (cash flow hedges, fair value
hedges, undesignated positions)
• Gains and loss (for cash flow hedge must
show by effective and ineffective portion)
Other Comprehensive Income
• Presentation Change
– No longer allowed to include in Statement of
Equity
– Options
• Continuous part of income statement
• Separate but consecutive statement
• Must show by components
• In future must disclose in OCI – additional
reclassification information
Other New GAAP Pronouncements
• Most are very industry or event specific.
• 2013-01 – Balance Sheet – Offsetting
– Show gross amounts as disclosure
• 2012 - Goodwill and indefinite lived
intangibles – now can use qualitative
assessment
New Basis of Reporting
• 2013 – AICPA release Financial Reporting
Framework for Small & Midsized Entities
(SME’s)
• Purpose – To be a more usable framework
for small business owners and their users
• This is not GAAP
Benefits
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Cost beneficial
Stable framework
Designed for SME’s
Concepts based
Who is a SME?
• For profit company
• Does not have regulatory reporting
requirements
• Owners and management do not intend
on going public
• Does not engage in overly complex
accounting
• Does not have significant foreign ops.
Key Similarities GAAP
• Financial statements include Financial
Position, Income, Equity and Cash flow
(although it is allowed to just have one
such as financial position)
• Notes are still required to make them
understandable
• Many of the basics remain the same
Key Differences to U.S. GAAP
• Start-up costs –
– GAAP – expense as incurred.
– SME- policy decision – expense or amortize
over 15 years
• Goodwill –
– GAAP do not amortize, assess for impairment,
– SME – amortize on income tax method or 15
years
Key Differences (cont.)
• Stock Compensation
– GAAP – measure expense at FV, numerous
disclosures and calculations
– SMEs – no recognition
• Taxes
– GAAP – deferred tax method
– SMES – policy decision for deferred tax or
taxes payable method
• Taxes payable – only current amounts due/owed
Key Differences (cont.)
• Consolidation –
– GAAP – based on control
– SMEs – policy decision to consolidate or use
equity method
• Leases
– GAAP – looking to change as discussed earlier
– SME’s – essentially no change from current
GAAP
Key Differences (cont.)
• Push-down accounting
– GAAP – little info, SEC allows when control
changes 80%
– SME’s allows when change is 50%
• Derivatives
– GAAP – record at fair value
– SME’s - recognize the net cash paid or
received at settlement.
Key Differences (cont.)
• Investments
– GAAP – Equity Method, Cost Method and Fair
Value Option
– SME’s – no fair value option, fewer required
disclosures for Equity Method
• Changes in accounting policies
– GAAP – retrospective application required
– SME’s – retrospective application not required
when it is impracticable
Questions?
Relationships backed by performance.
Thank you!
T.J. Boyle
FROST, PLLC
[email protected]
501-376-9241

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