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BDO KNOWLEDGE WEBINAR SERIES Technical Update – Q4 2016 January 10, 11, or 12, 2017 Alternative audio option: • Call: 1-855-233-5756 • Code: 30721-671...
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BDO KNOWLEDGE WEBINAR SERIES Technical Update – Q4 2016 January 10, 11, or 12, 2017 Alternative audio option: • Call: 1-855-233-5756 • Code: 30721-67162#

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

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CPE AND SUPPORT CPE Participation Requirements ‒ To receive CPE credit for this webcast: • You’ll need to actively participate throughout the program. • Be responsive to at least 75% of the participation pop-ups. • Please refer to the CPE & Support Handout in the Handouts section for more information about group participation and CPE certificates. Q&A: Submit all questions using the Q&A feature on the lower right corner of the screen. At the end of the presentation, the presenter(s) will review and answer all questions submitted. Technical Support: If you should have technical issues, please contact LearnLive: • Click on the Live Chat icon under the Support tab, OR call: 1-888-228-4088 Audio Audio will be streamed through your computer speakers. If you experience audio issues during today’s presentation please dial into the teleconference: 1.855.233.5756, teleconference code: 30721-67162#

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WITH YOU TODAY Adam Brown National Director of Accounting BDO USA, LLP Direct: (214) 665-0673 [email protected] Amy Rojik National Assurance Partner BDO USA, LLP Direct: (617) 239-7005 [email protected]

Jeff Lenz National Director of SEC Practice BDO USA, LLP Direct: (312) 616-3944 [email protected] Paula Hamric Partner, SEC Practice BDO USA, LLP Direct: (312) 616-3947 [email protected] Brandon Landas Partner, SEC Practice BDO USA, LLP Direct: (312) 233-1887 [email protected]

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AGENDA • Accounting Update • SEC Matters Update • PCAOB and Governance Update

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Accounting Update

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ACCOUNTING UPDATE – DISCUSSION OUTLINE • “Big 3” Convergence Projects • Revenue • Leases (completed) • Financial Instruments (completed)

• Other FASB, EITF and PCC matters

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REVENUE RECOGNITION FASB activity • ASU 2016-20, Technical Corrections and Improvements to Topic 606 (same effective date as Topic 606) Transition Resource Group • November 7, 2016 meeting Considerations for SEC Registrants BDO Resource Webpage https://www.bdo.com/services/assurance/reve nue-recognition/overview Page 7

ASU 2016-20, TECHNICAL CORRECTIONS AND IMPROVEMENTS TO TOPIC 606 Topic

Description

Loan guarantee fees

Guarantee fees within the scope of Topic 460 (other than product or service warranties) are not within the scope of Topic 606.

Contract costs – impairment testing

When performing impairment tests of these costs: a) consider expected contract renewals and extensions; b) include both the amount of consideration it already has received but has not recognized as revenue and the amount it expects to receive in the future.

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ASU 2016-20, TECHNICAL CORRECTIONS AND IMPROVEMENTS TO TOPIC 606 Topic

Description

Contract costs – interaction of impairment testing with guidance in other topics

Order of impairment testing: 1. Assets not within the scope of Topic 340, 350, or 360 (e.g., inventory subject to Topic 330); 2. Assets within the scope of Topic 340; 3. Asset groups and reporting units within the scope of Topics 360 and 350.

Provisions for losses on construction-type and productiontype contracts

Requires that the provision for loss contracts be determined at least at the contract level, but also allows an accounting policy election to determine the provision for losses at the performance obligation level.

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ASU 2016-20, TECHNICAL CORRECTIONS AND IMPROVEMENTS TO TOPIC 606 Topic

Description

Scope of Topic 606

Clarifies that all contracts within the scope of Topic 944 are excluded from the scope of Topic 606.

Disclosure of remaining performance obligations

Provides additional optional disclosure exemptions for variable consideration when the variable consideration is either a sales-based or usage-based royalty promised in exchange for a license of intellectual property or is allocated entirely to a wholly unsatisfied performance obligation or a distinct unsatisfied portion of a series accounted for as a single performance obligation. Requires some additional disclosure related to application of the optional exemptions.

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ASU 2016-20, TECHNICAL CORRECTIONS AND IMPROVEMENTS TO TOPIC 606 Topic

Description

Disclosure of prior-period performance obligations

Clarifies that the disclosure of revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods applies to all performance obligations and is not limited to performance obligations with corresponding contract balances.

Illustrative examples

Better aligns example 7 (contract modifications), example 38 case B (contract asset versus receivable), and example 40 (refund liability) with the principles in the standard.

Advertising costs

Reinstates the guidance on the accrual of advertising costs and moves it to Topic 720, Other Expenses.

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ASU 2016-20, TECHNICAL CORRECTIONS AND IMPROVEMENTS TO TOPIC 606 Topic

Description

Fixed-odds wagering contracts in the casino industry

Clarifies that fixed-odds wagering contracts issued by casino entities are exempt from derivative accounting and are within the scope of Topic 606.

Cost capitalization for advisors to private funds and public funds

Aligns the cost-capitalization guidance for advisors to both public funds and private funds in Topic 946.

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FASB UPDATE

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FINAL ASUS ISSUED Q4 2016 ASU 2016-

Title

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Intra-Entity Transfers of Assets Other Than Inventory

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Interests Held through Related Parties That Are under Common Control

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Restricted Cash

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Technical Corrections and Improvements

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Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers

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ASU 2016-16, INTRA-ENTITY TRANSFERS OF ASSETS OTHER THAN INVENTORY Background: income tax effects of transactions are recognized when they occur, but GAAP currently exempts intra-entity asset transfers from this rule. ASU 2016-16 • Eliminates the recognition exception for intra-entity asset transfers other than inventory so that an entity’s consolidated financial statements reflect the current and deferred tax consequences of those intra-entity asset transfers when they occur. • For intra-entity asset transfers of inventory, recognition of current and deferred income tax consequences will continue to be deferred until the inventory has been sold to an outside party or otherwise left the consolidated group. • Effective: years beginning after 12/15/17 for public entities. Other entities have additional year. • BDO Alert:

https://www.bdo.com/getattachment/9aa5aa9d-6311-4030-94e9bf0a9db280a1/attachment.aspx?BDO-Knows-ASC-740-Intra-Entity-Transfers-of-Assets-other-thanInventory_FINAL-(1).pdf Page 15

ASU 2016-17, INTERESTS HELD THROUGH RELATED PARTIES THAT ARE UNDER COMMON CONTROL Background: Two characteristics for a single decision maker to be the primary beneficiary of (and therefore consolidate) a VIE: “power” and “economics.” ASU 2016-17 • In determining if a single decision maker has economics, the single decision maker must include its direct variable interests and, on a proportionate basis, its indirect variable interests in the VIE held through related parties, regardless of whether those related parties are under common control. • As a result, indirect interests held through related parties that are under common control with the single decision maker are also to be considered proportionately, instead of in their entirety. • Effective: years beginning after 12/15/16 for public entities. Other entities have additional year. BDO Alert:

https://www.bdo.com/insights/assurance/fasb/fasb-flash-report-november-2016

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ASU 2015-02

RELATED PARTY NOT UNDER COMMON CONTROL Example: • A fund manager (FM) owns 20% interest in a related party (RP). • RP owns 40% interest in VIE being evaluated. • Thus, FM’s indirect interest is calculated as 20% x 40%, or 8%, for purposes of “economics” test.

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40%

20% 8%

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ASU 2015-02

RELATED PARTY UNDER COMMON CONTROL Example: • A fund manager (FM) owns 20% interest in a related party (RP). • RP owns 40% interest in VIE being evaluated. • Thus, FM’s must consider the 40% interest for purposes of the “economics” test.

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40%

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ASU 2016-18, RESTRICTED CASH • Include restricted cash and restricted cash equivalents in cash and cash-equivalent balances in the statement of cash flows. • Reconcile to SOCF when balance sheet includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents. • Disclose material restricted cash balances. • Effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Other entities have an additional year. The amendments should be applied retrospectively to each period presented. Early adoption is permitted. BDO Alert: https://www.bdo.com/insights/assurance/fasb/fasb-flash-report-december-2016

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EITF AND PCC UPDATE

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EITF UPDATE EITF meeting – November 2016 • Issue 16-B, Employee Benefit Plan Master Trust Reporting (final consensus) • Present separately each interest in a master trust and change in interest in that master trust as single line items in the statement of net assets available for benefits and the statement of changes in net assets available for benefits, respectively. • Some incremental disclosures. • Effective retrospectively for periods beginning after December 15, 2018 with early adoption permitted. • Next EITF meeting March 16, 2017.

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PCC UPDATE December 13, 2016 meeting: • Financial instruments hedge accounting • Consolidation reorganization and improvement • The Private Company Decision Making Framework (Guide)

Next meeting – April 4, 2017

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SEC Matters Update

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SEC UPDATE – DISCUSSION OUTLINE

Topics • Staff Activities • Practice reminders identified at the 2016 SEC Conference Resources • BDO Knows: 2016 SEC Year in Review newsletter

Newsletter located at: http://www.bdo.com/insights (menu option: Assurance)

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STAFF ACTIVITIES

• Financial Reporting Manual Update • Emerging growth companies • New accounting standards • Compliance and Disclosure Interpretations

Flash report available at: https://www.bdo.com/insights/assurance/sec/sec-flash-reportdecember-2016

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PRACTICE REMINDERS – SEC CONFERENCE THEMES AND FREQUENT TOPICS • • • •

Implementing new accounting standards ICFR Non-GAAP reporting Accounting and disclosure matters • Segment reporting • Taxes • Staff communications

Speeches available at: http://www.sec.gov/news/speech.shtml

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OTHER ACCOUNTING TOPICS PAF Speeches – available at: http://www.sec.gov/news/speeches • New revenue standard and SAB 74 disclosures (Alicea) • Revenue recognition matters, changes in PBO, and lease standard implementation issues (Uejio) • Joint ventures/other strategic relationships and equity method of accounting and “PBE” definition (Wiggins) • Financial instruments and income taxes (Staniszewski) • New standard on credit losses, changes in accounting principles and sharebased compensation (May) • Implementation of new auditing standards (Todling)

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PCAOB and Governance Matters Update

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PCAOB CURRENT PROJECTS Project

Timing

Reorganization of PCAOB Auditing Standards

Effective as of 12/31/2016

Improving Transparency Through Disclosure of Engagement Partner and Certain Other Participants in Audits

Phased effective dates: • Engagement Partner: reports issued on/after 1/31/2017 • Other Accounting Firms: reports issued on/after 6/30/2017

Supervision of Audits Involving Other Auditors

Analyzing comments on the April 2016 proposal and determining next steps

Auditor’s Reporting Model

Drafting final standard and adopting release for Board Action – TBD

Auditing Accounting Estimates, Including Fair Value Measurements and Related Disclosures

Drafting proposal - Q1 2017

Auditor’s Use of the Work of Specialists

Drafting proposal – Q1 2017

Going Concern

Next action under consideration – staff consultation paper, a staff audit practice alert, or other possible actions

Quality Control Standards, Including Assignment and Documentation of Firm Supervisory Responsibilities

Research and outreach

Refer to: https://pcaobus.org/Standards/Documents/2016Q3-standard-setting-agenda.pdf

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BDO AUDIT COMMITTEE ALERT: EMPHASIS AND FOCUS ON CONTROLS AND NON-GAAP Regulators are in agreement on continued need for company vigilance around internal controls – particularly: • Audit areas where deficiencies have been identified in previous PCAOB inspections • Management review controls • Non-GAAP measures • New FASB standards on revenue recognition, leases, financial instruments, and credit losses Refer to BDO’s practice aid for further guidance and resources https://www.bdo.com/insights/assurance/ corporate-governance/audit-committeealert-emphasis-and-focus-on-contr

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BDO AUDIT COMMITTEE ALERT: YEAR-END ROUNDUP

Refer to BDO January 2017 publication to be posted to BDO Center for Corporate Governance: https://www.bdo.com/resourcecenters/governance

Topics of Interest: • Significant new FASB accounting standards • Internal controls over financial reporting (ICFR) • New and pending auditing standards • PCAOB audit inspection deficiencies • Non-GAAP financial measures • Cybersecurity preparedness • Other disclosure considerations • Risk management and disruptors • Communications with and assessment of the auditor

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BDO PRACTICE AID: AUDIT COMMITTEE REQUIREMENTS

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POLL QUESTION Please indicate whether you would like to be subscribed to BDO’s Center for Corporate Governance and Financial Reporting in order to directly receive publications (such as those previously referenced) when available, as well as invitations to webinars and other events. 1. 2. 3. 4.

Yes, please email me with information so I can manage my subscription I already subscribe to www.bdo.com No, not at this time N/A - BDO, BDO Alliance, BDO International

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CAQ AUDIT COMMITTEE TOOLS Preparing for the New Revenue Recognition Standard: • Understanding the new revenue recognition standard – what is it? • Evaluating the company’s impact assessment – how will revenue change? • Evaluating the implementation project plan – how do we need to prepare? • Other implementation considerations – what else do we need to consider? CAQ Non-GAAP Financial Measures: Continuing the Conversation • The CAQ intends to use the questions in this tool in roundtables and panels in which management, investors, investment analysts, members of the legal community, AC, internal and external auditors, regulators, and academics can come together to share perspectives on non-GAAP financial measures Page 34

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ANTI-FRAUD COLLABORATION WEBINAR December 2016 Anti-Fraud Collaboration webinar that examines the steps to take when fraud is identified or suspected in an organization – from conducting investigations to determining whether they should alert the SEC about a potential securities law violation and the risks/rewards of self-reporting. For more Anti-Fraud Collaboration resources, visit: http://www.antifraudcollaboration.com/

http://thecaq.org/sec-investigations-are-therebenefits-cooperation-and-self-reporting

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RESOURCES

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THE BDO CENTER FOR CORPORATE GOVERNANCE AND FINANCIAL REPORTING A dynamic and searchable on-line resource for board of directors and financial executives

AN INCREDIBLE RESOURCE AT YOUR FINGERTIPS The BDO Center for Corporate Governance and Financial Reporting was born from the need to have a comprehensive, online, and easy-to-use resource for topics relevant to boards of directors and financial executives. We encourage you to visit the Center often for up-to-date information and insights you can rely on. What you will find includes: 

Thought leadership, practice aids, tools, and newsletters



Technical updates and insights on emerging business issues



Three-pronged evolving curriculum consisting of upcoming webinars and archived self-study content



Opportunities to engage with BDO thought leaders



External governance community resources

“Finally, a resource center with the continual education needs of those charged with governance and financial reporting in mind!” To begin receiving email notifications regarding BDO publications and event invitations (live and web-based), visit www.bdo.com/member/registration and create a user profile. If you already have an account on BDO’s website, visit the My Profile page to login and manage your account preferences www.bdo.com/member/my-profile. For more information about BDO’s Center for Corporate Governance, please go to www.bdo.com/resource-centers/governance

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BDO BOARD GOVERNANCE – WEBINARS For a complete listing of BDO events refer to: https://www.bdo.com/events Upcoming Programs: • • •

Small Cap Boards – Realities & Strategies for Capital Structuring – January 19, 2017 Boards as Catalysts for Intrapreneurship and Innovation – February 7, 2016 Countering Corruption Part II: ISO 37001 Compliance & Certification - What’s Next? - February 14, 2017

Recent Archived Webinars: • • • • • • • • • • • • •

What’s on the Minds of Boards – November 2016 Board Collaboration: Leveraging Communication Tools and Technology – October 2016 Financial Instruments Update – Credit Losses and Recognition & Measurement – September 2016 Navigating the Rising Tide of Cybersecurity Regulation – How Is Your Board Preparing? – July 2016 Quarterly Technical Update (Q2 2016) – July 2016 FASB Makes Good on Simplifying GAAP for Stock Options and Tax Effects in ASU 2016-09 – June 2016 M&A Execution: Planning with Post-Integration in Mind – May 2016 The New Lease Accounting Standard – May 2016 How is Your Board Positioned to Respond to Illegal Acts? – May 2016 Board Diagnostics and Enhancing Your Governance Practices – April 2016 Quarterly Technical Update (Q1 2016) - April 2016 Managing Risk: Elevation of Cybersecurity to the Boardroom – February 2016 The Board’s Role in Emerging Practices in Risk Management – January 2016 Page 38

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BDO BOARD GOVERNANCE – PUBLICATIONS www.bdo.com/resource-centers/governance • • • •

• • • • • •

SEC Year in Review: Significant 2016 Developments Accounting Year in Review (Coming Soon) BDO 600 Executive Compensation – CEO and CFO Pay Practices SEC Requests Comments on Management, Certain Security Holders, and Corporate Governance Disclosure Requirements BDO Knows Cybersecurity Alert BDO Revenue Recognition Practice Aids Topic 606, Revenue from Contracts with Customers BDO’s Approach to Audit Quality Significant Accounting & Reporting Matters Q2 2016 SEC Proposes to Eliminate Outdated and Redundant Disclosure Requirements

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• • •

• • • •



2016 IPO Halftime Report SEC Proposes Amendments to Smaller Reporting Company Definition SEC Adopts Rules Requiring Resource Extraction Issuers to Disclose Payments to Governments PCAOB Issues Staff Guidance for Audit Firms Filing the New Form AP CAQ Questions on Non-GAAP Measures – A Tool for Audit Committees PCAOB Reproposes Standard to Enhance the Auditor’s Report for Critical Audit Matters SEC Updates Compliance and Disclosure Interpretations on Non-GAAP Financial Measures Establishing Structures to Manage M&A Integration

For a complete listing of BDO publications, refer to: https://www.bdo.com/insights/

EVALUATION We continually try and improve our programming and appreciate constructive feedback. Following the program, we will be sending out a thank you e-mail that contains a link to a brief evaluation. Thank you in advance for your participation!

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CONCLUSION THANK YOU FOR YOUR PARTICIPATION! Certificate Availability – If you participated the entire time and responded to at least 75% of the polling questions, click the Participation tab to access the print certificate button. Please exit the interface by clicking the red “X” in the upper right hand corner of your screen.

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