EY Q1 2013 Financial Reporting Update

The Ernst & Young Q1 2013
financial reporting update
Co-sponsored with Financial
Executives International
20 March 2013

Disclaimer
► This presentation is ©2013 Ernst & Young LLP. All rights reserved. No part of this document may be
reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical,
including by photocopying, facsimile transmission, recording, rekeying or using any information storage
and retrieval system, without written permission from Ernst & Young LLP. Any reproduction,
transmission or distribution of this form or any of the material herein is prohibited and is in violation of
US and international law. Ernst & Young and its member firms expressly disclaim any liability in
connection with use of this presentation or its contents by any third party.
► The views expressed by panelists in this webcast are not necessarily those of Ernst & Young LLP.
► These materials contain summary information for general guidance only. Neither Ernst & Young LLP
nor any other member firm of the global Ernst & Young organization accepts any responsibility for loss
suffered by any person acting or refraining from action as a result of any information contained herein.
On any specific matter, appropriate advisors should be consulted.
Ernst & Young
Assurance | Tax | Transactions | Advisory
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000
people are united by our shared values and an unwavering commitment to quality. We make a difference by
helping our people, our clients and our wider communities achieve their potential.
Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of
which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not
provide services to clients. For more information about our organization, please visit www.ey.com. Ernst &
Young LLP is a member firm serving clients in the US.

© 2013 Ernst & Young LLP Page 2 Ernst & Young Q1 2013 financial reporting update

Circular 230 disclaimer

► Any US tax advice contained herein was not
intended or written to be used, and cannot be used,
for the purpose of avoiding penalties that may be
imposed under the Internal Revenue Code or
applicable state or local tax law provisions.
► These slides are for educational purposes only and
are not intended, and should not be relied upon, as
accounting advice.


Today’s moderator

Danita Ostling
Ernst & Young LLP
Partner, Professional Practice Director

Ernst & Young organization
Americas IFRS Leader

Join today's Twitter discussion:
#EY_Q1Update

Today’s agenda

► Q1 matters to consider
► Convergence projects update
► Future considerations

#EY_Q1Update


Today’s presenters

Rachel Eckstein Lisa Kennedy Robert Wadley
Ernst & Young LLP Ernst & Young LLP Ernst & Young LLP
Partner Partner Partner
Professional Practice Professional Practice Professional Practice

The information in this presentation is a summary. Viewers should consult their
own professional advisors to address their individual circumstances and concerns.


Today’s agenda


#EY_Q1Update


Reporting amounts reclassified out of
accumulated other comprehensive income
► ASU 2013-02 issued in February 2013
Effective dates for calendar year-ends
Transition method Public Private Early adoption?
Prospective 1Q 2013 YE 2014 Yes
► Requires more disclosures about changes in accumulated
other comprehensive income (AOCI)
► Reclassifications from AOCI
► Other current period other comprehensive income
► Requires reporting significant items reclassified out of
AOCI by component in one place
► Components include currency translation and unrealized
gains on available-for-sale securities, etc.

Items reclassified out of AOCI
Significant items that are not
Significant items reclassified
reclassified directly to net
to net income in their entirety
income in their entirety
Identify the effect of Cross reference to other
reclassifications on disclosures that provide
respective line items in the additional information
statement where net income about the effect of the
is presented by component reclassification
► On the face of the financial
statements (if criteria are
met) OR
► In the notes

Details about AOCI Amount reclassified Affected line item in the statement where
components from AOCI1 net income is presented
Unrealized gains and losses on available-for-sale securities
$ 126,000 Realized gain on sale of securities
Insignificant items (1,000)
125,000 Total before tax
(43,750) Tax expense
$ 81,250 Net of tax3
Amortization of defined benefit pension items
Prior service costs $ (10,000) 2
Transition obligation (25,000) 2
Actuarial (losses) (15,000) 2
(50,000) Total before tax
17,500 Tax benefit
$ (33,500) Net of tax3
1
Amounts in parentheses indicate debits in profit/loss
2
These AOCI components are included in the computation of net periodic pension cost.
(See Note X)
3
Amount agrees with amount reported as reclassifications from AOCI in the disclosure
about changes in AOCI balances

Opinion check

Where do you plan to present significant
amounts reclassified out of accumulated
other comprehensive income when adopting
ASU 2013-02:
A. On the face of the income statement
B. In the notes
C. Undecided
D. Does not apply (Ernst & Young, faculty,
alumni, other)


Accounting standards effective for 2013
For calendar year-end companies
Public Private
Accounting standards update companies companies
ASU 2013-03 — Clarifying the Scope and
Applicability of a Particular Disclosure to Not applicable 4
Nonpublic Entities
ASU 2013-02 — Reporting of Amounts
Reclassified out of Accumulated Other 4 2014
Comprehensive Income
ASU 2013-01 — Clarifying the Scope of
Disclosures about Offsetting Assets and 4 4
Liabilities and ASU 2011-11— Disclosures about
Offsetting Assets and Liabilities
ASU 2012-07 — Accounting for Fair Value
Information That Arises after the Measurement
2012 4
Date and Its Inclusion in the Impairment Analysis
of Unamortized Film Costs
4= Effective for 2013

Accounting standards effective for 2013
For calendar year-end companies (continued)

Public Private
Accounting standards update companies companies
ASU 2012-06 — Subsequent Accounting for an
Indemnification Asset Recognized at the Acquisition 2014
Date as a Result of a Government-Assisted 4
Acquisition of a Financial Institution
ASU 2012-04 — Technical Corrections and 4 2014
Improvements
ASU 2012-02 — Testing Indefinite-Lived Intangible
Assets for Impairment 4 4

ASU 2012-01 — Continuing Care Retirement 4 2014
Communities — Refundable Advance Fees
ASU 2011-10 — Derecognition of in Substance
Real Estate — a Scope Clarification 4 4

4= Effective for 2013

Proxy update
Reminders for this proxy season

► Disclose whether use of compensation consultants raised
conflicts of interest
► Describe conflict and explain how it is being addressed
► Applies to compensation consultants engaged by
management or the compensation committee
► No definition of ―conflict of interest‖
► Smaller reporting companies now required to hold ―say-
on-pay‖ shareholder votes on executive compensation
► Report shareholder vote results on Form 8-K within
four days
► Disclose how frequently say-on-pay votes will occur in
an amendment to the initial Form 8-K within 150 days


Proxy update
Trends in shareholder proposals
% put to %
Topics of shareholder proposals in 2013 vote voter
(through 15 March 2013)
in proxy support
(% from 2012 votes
per SEC filings)

Environmental/social
► Disclose political spending and 57% 22%
lobbying activities
► Enhance sustainability reporting 33% 29%
Board of directors
► Hold annual elections of all directors 48% 81%
► Appoint independent director as chair 73% 37%
Compensation-related
► Eliminate accelerated vesting of equity 43% 36%
awards, payments grossed-up for taxes

Estimated annual effective tax rate (EAETR)
General reminders

► Make the best estimate of the annual effective tax rate
for the full fiscal year at the end of each interim period
► Use estimated annual effective tax rate to record tax on
a current year-to-date basis
► Project year-end temporary differences and
valuation allowance
► Changes in enacted tax legislation can affect EAETR
► 2 January 2013 – Retroactive reinstatement of the tax
extenders (they’re set to expire again on
31 December 2013)
► Recognized in the interim period of enactment (Q1 2013
for companies with calendar year-ends)


Estimated annual effective tax rate
Interim period events

► Changes to indefinite reinvestment assertion
► Record in the interim period the change in assertion occurs
► Record tax effects related to undistributed earnings of prior
years – discrete
► Record tax effects related to current year undistributed
earnings – adjust EAETR
► Discontinued operations
► Revise EAETR applied to income from continuing
operations in current and subsequent interim periods of
current fiscal year
► Recast income taxes related to prior interim periods (as
applicable) between continuing and discontinued operations


Opinion check

Which of the following events is likely to most
significantly affect your EAETR for 2013?
A. American Taxpayer Relief Act of 2012
B. Acquisitions (e.g., change in indefinite
reinvestment assertion)
C. Divestitures (e.g., discontinued operations)
D. Other or not sure
E. Does not apply (Ernst & Young, faculty,
alumni, other)


Today’s agenda


#EY_Q1Update


Convergence projects update

Current stage Q2 2013
Financial Instruments
FASB Exposure Draft Comment letter deadline
Classification and
measurement Exposure Draft
IASB Deliberate comments
(limited amendments)
FASB Exposure Draft Comment letter deadline
Impairment
IASB Exposure Draft Comment letter period
FASB On hold
Hedging Final Standard
Review draft
IASB (except macro hedging to be
(except macro hedging)
included in discussion paper)
FASB Drafting Exposure Draft Exposure Draft
Leases
IASB Drafting Exposure Draft Exposure Draft
FASB Drafting Final Standard Final Standard
Revenue recognition
IASB Drafting Final Standard Final Standard

Financial instruments project
Classification and measurement
► Financial assets classified and Proposed
classification and
measured in one of three categories measurement
based on: model
► Instrument’s cash flow characteristics Amortized cost
► Entity’s business model for Solely principal
and interest
managing the instrument Hold to collect
► Equity instruments measured at
fair value through net income (NI) Fair value – OCI
Solely principal
► Exception: nonmarketable and interest
equity securities measured at Hold to collect and sell
―modified‖ cost
► Reclassifications permitted only Fair value – NI
upon a change in business model Residual category


Classification and measurement

► Financial liabilities would generally be classified and
subsequently measured at amortized cost
► Limit on the use of the fair value option
► Changes in instrument-specific credit risk (i.e., own credit)
for financial liabilities measured at FV-NI would be
presented separately in OCI
► Public companies would parenthetically present fair value
for most instruments at amortized cost
► Comments on the proposal are due 15 May 2013

Thought Center Webcast on 21 March 2013 at 1 p.m. Eastern


Credit losses (impairment)

► Applies to all financial assets that are debt instruments
measured at amortized cost or fair value through other
comprehensive income
► Examples: loans, debt securities, trade receivables
► Expected credit losses would be defined as the
contractual cash flows an entity does not expect to collect
► An estimate of expected credit losses includes:
Time value of money

Reasonable
Information Information
and
about past about current
supportable
events conditions
forecasts

At least two possible outcomes, one of which reflects a credit loss

Credit losses (impairment)

► Receivables
► Historical loss rates for aging buckets may need to be
adjusted for economic forecasts
► Allowances would be required for all receivables, including
those (1) classified as current and (2) from significant
customers that have always paid
► Debt securities
► ―Most likely‖ approach prohibited for estimating credit losses
► Record allowance instead of adjusting cost basis
► Stop accruing interest when collection of substantially all of
principal and interest is no longer probable

Comments are due 30 April 2013

Revenue recognition project
Status

► All major topics have been redeliberated as of February
meeting; open items include:
► Sweep issues
► Consequential amendments
► Analysis of cost versus benefit
► Final drafting to begin
► Plan to issue final standard in summer 2013


Recent decisions

Variable Contract Nonfinancial Licenses
consideration costs assets

Eliminated Reaffirmed Reaffirmed Decided to
specific decision to decision to treat licenses
guidance for require apply control as either
sales-based capitalization and ―rights‖
royalties on of direct, measurement transferred at
licensed incremental, requirements a point in time
intellectual recoverable to transfers of or promises to
property costs to nonfinancial provide
acquire a assets ―access‖ over
long-term time
contract


Disclosures

► Disaggregation of revenue
► Contract assets, liabilities and costs
► Narrative disclosures rather than tabular reconciliations
as previously proposed
► Key judgments related to variable consideration
► Remaining performance obligations (backlog)
► Interim financial statements – many of the annual
disclosures also will be required
► IASB plans to specifically require only disaggregated
revenue at interim periods


Transition and effective date

► Transition choice
► Full retrospective
► Modified retrospective approach
► Modified retrospective approach
► Prior year amounts not restated
► New guidance applied to new and existing contracts as of
effective date with a cumulative catch-up adjustment
► Disclose current-year amounts as if they were prepared
under previous revenue guidance

Tentatively effective for annual periods beginning on or
after 1 January 2017


Opinion check

Which transition approach is your company
most likely to use:
A. Fully retrospective
B. Modified retrospective
C. Undecided
D. Does not apply (Ernst & Young, faculty,
alumni, other)


Today’s agenda


#EY_Q1Update


Private Company Council activities
Private company decision-making framework

Changes to Staff
recommendations Next steps

► Removed presumption ► Exposure draft expected
that industry-specific soon, framework to be
guidance is relevant finalized later this year
► Clarified that ―all or ► Consider exceptions
nothing approach‖ and modifications to
would not be required US GAAP
for exceptions or ► Continue work on a
modifications single definition of a
► Clarified ―red flag‖ nonpublic entity
approach for disclosures (private company)

Private Company Council activities
Topics of focus

Initial agenda Research initiatives

► Recognizing and ► Stock-based compensation
measuring identifiable ► Development-stage
intangible assets acquired enterprises
in business combinations ► Accounting for interest-rate
at fair value swaps with multiple
► Consolidation of variable counterparties
interest entities
► Accounting for ―plain The PCC decided not to
vanilla‖ interest-rate swaps pursue accounting for
with single counterparties uncertain tax positions
FASB Exposure Final FASB Changes to
Deliberations Redeliberations
endorsement draft endorsement US GAAP


Other standard-setting activities

Active projects Current stage

Investment companies ► Final standard expected Q1
Consolidation ► Final standard expected Q2
Liquidation basis of
► Final standard expected Q1
accounting
Repurchase agreements
► Exposure draft issued Q1
and similar transactions
Discontinued operations ► Exposure draft expected Q1
Going concern ► Exposure draft expected Q2
Disclosure framework ► FASB is evaluating next steps


EITF update

No. Issue addressed Status
11-A Release of cumulative translation adjustment when a parent no longer Final ASU
controls a consolidated foreign entity 2013-05
12-B Personnel services received from an affiliate of a not-for-profit entity Final
for which the affiliate does not seek compensation consensus
12-D Recognition, measurement, and disclosure of obligations resulting Final ASU
from joint and several liability arrangements 2013-04
12-F Application of pushdown accounting in certain circumstances Discussions
12-G Accounting for the excess in the fair value of assets over liabilities of a Final
consolidated collateralized financing entity consensus
12-H Accounting for service concession arrangements Discussions
13-A Inclusion of the federal funds effective swap rate as a benchmark Proposed
interest rate for hedge accounting purposes ASU
13-B Accounting for investments in affordable housing tax credits Consensus-
for-exposure
13-C Presentation of a liability for an unrecognized tax benefit when a net Proposed
operating loss or tax credit carryforward exists ASU


EITF update – Accounting for cumulative
translation adjustments (CTA)
Transactions involving an investment in a foreign entity
Sale of an ownership interest in a consolidated foreign entity
Loss of control Release all of CTA
Retained control Do not release CTA
(treat as equity transaction)
Sale of an ownership interest in a foreign entity Release pro-rata portion of
that is an equity method investment CTA
Step acquisition (gaining control) Release all of CTA
Transactions within a foreign entity
Substantial liquidation?
Sale of a subsidiary that is a nonprofit No Do not release CTA
activity or a business
Yes Release all of CTA
Sale of a group of assets that is a No Do not release CTA
nonprofit activity or a business Yes Release all of CTA

EITF update – Inclusion of the fed funds effective swap
rate as a benchmark interest rate for hedge accounting

Allowed benchmark
interest rates in the US for
hedge accounting
Federal funds effective swap rate
► Would apply ► Interest rates on direct
prospectively to Treasury obligations of the
qualifying new or US government
redesignated hedging
► London Interbank Offered
relationships entered
Rates (LIBOR)
into on or after adoption
► Would not alleviate
ineffectiveness for
existing hedges Comments due 22 April 2013

SEC update
Current activities

► SEC Advisory Committee on Small and Emerging
Companies recommendations to the SEC:
► Increase smaller reporting companies (SRC) definition
to increase to $250M float from $75M
► Expand reporting relief for SRCs
► Permit increased ―tick size‖ for smaller listed companies
► Encourage creation of new equity market
► Statement to Congress to exempt SRCs from conflict
minerals disclosure requirements
► NASDAQ proposed rule requiring listed companies
to have internal audit function


SEC update
Other SEC rulemaking

Topic Current status
► Final rule issued August 2012
Conflict minerals ► Effective 2013 – First Form SD
(Dodd-Frank) due 2 June 2014
► Current legal challenge
General solicitation and ► Proposed rule – August 2012
advertising rule (JOBS Act) ► Awaiting final rule
―Bad actor‖ rule ► Proposed rule – May 2011
(Dodd-Frank) ► Awaiting final rule
Review of Regulation S-K
disclosures for emerging
► Report to Congress pending
growth companies
(JOBS Act)


Register free at:
www.ey.com/us/accountinglink

AccountingLink
What you need to know.
When you need to know it.
Because change is constant in the financial
reporting world, you need the latest
information, analysis and insight, first.

Thanks for participating!

The Ernst & Young Q1 2013
financial reporting update
Co-sponsored with Financial
Executives International

EY Q1 2013 Financial Reporting Update

Recommandé

Recommandé

Contenu connexe

Plus de EY

Plus de EY (20)

Dernier

Dernier (20)

EY Q1 2013 Financial Reporting Update