Second Quarter 2015 Accounting, Reporting and Auditing Developments

Transcription

1 Second Quarter 2015 Accounting, Reporting and Auditing Developments July 8, 2015

2 Accounting and Financial Reporting Matters... 3 FASB... 3 Accounting Standards Updates (ASU)... 3 Revenue Recognition... 5 Leases... 6 Accounting for Financial Instruments... 6 SEC... 7 Assurance Matters... 9 PCAOB... 9 AICPA Center for Audit Quality Appendix A Effective Date Highlights Appendix B Matters Discussed in Previous Quarterly Updates FASB - Accounting Standards Updates SEC Final Rules COSO Center for Audit Quality Second Quarter 2015 Accounting, Reporting and Auditing Developments

3 SECOND QUARTER 2015 ACCOUNTING AND ASSURANCE UPDATE The developments included in this Accounting and Assurance (A&A) Update are intended to be a reminder of recently issued accounting and auditing standards and other guidance that may affect our clients in the current reporting period. Certain developments that have been discussed in previous quarterly A&A Updates that may be of interest can be found in Appendix B. This quarterly A&A Update is intended as general information and should not be relied upon as being definitive or all inclusive. Past quarterly A&A Updates, can be found under Assurance Alerts on the DHG Resource Center dhgllp.com 2015 by Dixon Hughes Goodman LLP. All rights reserved. Permission is granted to view, store, print, reproduce and distribute any pages of this Newsletter provided that (a) no page is modified and (b) this page is included with any distribution. Disclaimer: This publication has been prepared by the Dixon Hughes Goodman LLP Professional Standards Group and contains information in summary form and is therefore intended for general guidance only; it is not intended to be a substitute for detailed research or the exercise of professional judgment. You should consult with Dixon Hughes Goodman LLP or other professional advisors familiar with your particular factual situation for advice concerning specific audit, tax or other matters before making any decision. Second Quarter 2015 Accounting, Reporting and Auditing Developments 2 of 22

4 Accounting and Financial Reporting Matters Accounting and Financial Reporting Matters FASB Accounting Standards Updates (ASU) The following are recently issued ASUs by the Financial Accounting Standards Board (FASB). For a summary of their effective dates, refer to Appendix A. ASU : Technical Corrections and Improvements The amendments in this ASU apply to a variety of Topics to improve the clarity of the Codification. These amendments consist of corrections of differences between original accounting guidance and the codification, clarifications, and simplification of the guidance within the Codification. The amendments are not expected to have a significant impact on current accounting practice. The amendments in this ASU are effective for annual and interim periods beginning after December 15, Early adoption is permitted. ASU : Financial Services Insurance (Topic 944): Disclosures about Short- Duration Contracts The amendments in this ASU apply to all insurance entities that issue short-duration contracts as defined in Topic 944, Financial Services - Insurance. The amendments do not apply to the holder (i.e., policyholder) of short-duration contracts. This ASU requires insurance entities to disclose for annual reporting periods additional information about the liability for unpaid claims and claim adjustment expenses. Key provision in this ASU are as follows: Provide tables on a disaggregated basis illustrating the amount of insurance claims that have been incurred, as well as the amounts the insurance company has paid out on these claims, presented by accident year for the number of years for which claims typically remain outstanding (not to exceed ten years); Reconcile the claims development tables to the amount of the liability presented on the balance sheet; Disclose, for each accident year presented in the claims development tables, the total of incurred but not reported claims, plus expected development of reported claims; Provide disaggregated information about the frequency of reported claims, unless obtaining this information is impractical; Provide a disaggregated history of claims duration, presented as the average annual percentage payout of incurred claims by age. To address concerns about complexities that could arise over auditing up to ten years of claims information, only the current year claims development information will be considered part of the basic financial statements; the prior years will be considered required supplemental information. For public business entities, the amendments in this ASU are effective for annual periods beginning after December 15, 2015, annual periods beginning after December 15, For all other entities, the amendments are effective for annual periods beginning after December 15, 2016, annual periods beginning after December 15, Early application is permitted. Second Quarter 2015 Accounting, Reporting and Auditing Developments 3 of 22

5 Accounting and Financial Reporting Matters ASU : Business Combinations (Topic 805): Pushdown Accounting Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115 This ASU amends various SEC paragraphs pursuant to the release of Staff Accounting Bulletin (SAB) No SAB 115 was issued in November 2014 to facilitate the transition of ASU , Business Combinations (Topic 805): Pushdown Accounting, which provides the option for acquired entities to apply pushdown accounting in their stand-alone financial statements when a change-in-control event takes place. ASU : Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) The amendments in this ASU apply to reporting entities that elect to measure the fair value of an investment using the net asset value per share (or its equivalent) practical expedient. The ASU removes the requirement to categorize within the fair value hierarchy investments for which fair value is measured using the net asset value per share practical expedient. The ASU also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The ASU is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2016, those fiscal years. The ASU should be applied retrospectively to all periods presented. The retrospective approach requires that an investment for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy in all periods presented in an entity s financial statements. Early adoption is permitted. ASU : Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions The amendments in this ASU apply to master limited partnerships that receive net assets through a dropdown transaction. The amendments specify that for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a dropdown transaction should be allocated entirely to the general partner. In these circumstances, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the dropdown transaction occurs for purposes of computing earnings per unit under the two-class method also are required. The amendments in this ASU are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Earlier application is permitted. The ASU should be applied retrospectively for all financial statements presented. ASU : Intangibles Goodwill and Other Internal Use Software (Topic ): Customer s Accounting for Fees Paid in a Cloud Computing Arrangement Existing GAAP does not include explicit guidance about a customer s accounting for fees paid in a cloud computing arrangement. Examples of cloud computing arrangements include: (a) software as a service; (b) platform as a service; (c) infrastructure as a service; and (d) other similar hosting arrangements. The ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments do not change the Second Quarter 2015 Accounting, Reporting and Auditing Developments 4 of 22

6 Accounting and Financial Reporting Matters accounting for a customer s accounting for service contracts. As a result of the amendments, all software licenses within the scope of Subtopic will be accounted for consistent with other licenses of intangible assets. For public business entities, the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, For all other entities, the amendments will be effective for annual periods beginning after December 15, 2015, and interim periods in annual periods beginning after December 15, Early adoption is permitted for all entities. An entity can elect to adopt the amendments either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. For prospective transition, the only disclosure requirements at transition are the nature of and reason for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change. For retrospective transition, the disclosure requirements at transition include the requirements for prospective transition and quantitative information about the effects of the accounting change. ASU : Compensation Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer s Defined Benefit Obligation and Plan Assets For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this ASU provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity s fiscal year-end and apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans, if an entity has more than one plan. Employee benefit plans are not within the scope of the amendments. The ASU also provides guidance for accounting and disclosing contributions and significant events occurring between the month-end date used and a Company s fiscal year-end date. Further, an entity is required to disclose the accounting policy election and the date used to measure defined benefit plan assets and obligations in accordance with this ASU. The amendments within this ASU are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2016, fiscal years beginning after December 15, Earlier application is permitted. The amendments should be applied prospectively. Revenue Recognition On April 29, 2015 the FASB issued a proposal to delay the effective date of ASU , Revenue from Contracts with Customers (Topic 606) for public companies to annual reporting periods beginning after December 15, 2017, including interim periods therein. Nonpublic entities would be required to adopt the amendments for annual reporting periods beginning after December 15, 2018 annual reporting periods beginning after December 15, Both public and non-public entities would be permitted to adopt the amendments as of the original effective date of annual reporting periods beginning after December 15, On May 19, 2015 the IASB issued as similar proposal to delay IFRS 15, Revenue form Contracts with Customers, by one year. Additionally, on June 22, 2015, the FASB and the IASB met to discuss certain implementation questions related to guidance on principal versus agent considerations. During the meeting, the FASB and IASB tentatively agreed to clarify the principal versus agent guidance within their respective revenue standards and propose new language and examples and revisions to both the indicators and some of the examples in the new standard. For additional information, refer to the FASB s Tentative Board Decisions. Second Quarter 2015 Accounting, Reporting and Auditing Developments 5 of 22

7 Accounting and Financial Reporting Matters Leases In May 2015, the FASB continued its re-deliberations of the lease accounting standard, specifically discussing the following lease accounting related topics: Lessor accounting model - collectability, Lessor type A lease modifications, Impairment of lessor Type A lease assets, and Accounting for the purchased of a leased asset by the lessee during the lease term. The FASB s staff are working on developing a final standard to be issued later this year. While the FASB s lease accounting standard is expected by the end of 2015, it is unclear when the effective date will be. Accounting for Financial Instruments The FASB continued its deliberations on the previously proposed ASU, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815). During recent meetings, the FASB s Board discussed hedges of benchmark interest rates, and potential groupings of alternatives (otherwise known as decision packages) that can be selected as the Board determines its proposal to amend the hedge accounting model. On April 22, 2015, the Board reached decisions on an amended definition of purchased credit impaired ( PCI ) assets, and on the treatment of financial assets acquired in a business combination. The definition of PCI assets will be amended so that assets with more than insignificant credit deteriorations since origination would be accounted for under a gross-up approach. This differs from the definition used in the original proposed ASU. Which included assets that experienced a significant deterioration in credit quality. The amortized cost of the PCI asset at initial recognition would be sum of the purchase price and the expected credit loss at the date of purchase under the gross up approach. The Board also decided that only assets qualifying as PCI assets would be accounted for under the gross up approach in a business combination. In addition, the FASB reached decisions during its June 29, 2015 Board meeting to propose amendments to hedge accounting guidance in an effort to better align hedge accounting treatment with an entities risk management. These proposed changes are expected to lead to a simplification of the hedge accounting guidance. The proposed changes include: Elimination of the concept of hedging ineffectiveness; Changes in fair value of cash flow hedges deemed highly effective would be recorded in other comprehensive income until the hedged item affects earnings; When changes in fair value of cash flow hedges are reclassified to the income statement, these changes would be recorded in the line item being hedged; Changes in fair value for all fair value hedges under the highly effective threshold would be recorded in the income statement line item being hedged; Allowing the contractually specified components of a nonfinancial hedge to be the hedged item if it is probable that an entity has full price exposure to the component being hedged; and Specific disclosure requirements, such as a revised table showing the effect of hedging activity on individual income statement line items and enhanced qualitative disclosures to describe quantitative goals set to achieve hedging objectives. Second Quarter 2015 Accounting, Reporting and Auditing Developments 6 of 22

8 Accounting and Financial Reporting Matters SEC Proposed Rules Requiring Companies to Adopt Clawback Policies on Executive Compensation The SEC proposed rules directing national securities exchanges and associations to establish listing standards requiring companies to adopt policies that require executive officers to pay back incentivebased compensation if the company s financial statements were later restated and the subsequent restatement shows that the compensation was not earned. With this proposal, the Commission has completed proposals on all executive compensation rules required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the proposed new Rule 10D-1, listed companies would be required to develop and enforce recovery policies that in the event of an accounting restatement, claw back from current and former executive officers incentive-based compensation they would not have received based on the restatement. Recovery would be required without regard to fault. The proposed rules would also require disclosure of listed companies recovery policies, and their actions under those policies. Comments are due 60 days after publication in the Federal Register. Audit Committees Disclosure Requirements The SEC voted on July 1, 2015 to publish a Concept Release seeking public comment on audit committee reporting requirements, with a focus on audit committee reporting responsibilities relating to its oversight of the auditor. In particular, the SEC is interested in learning more about the potential usefulness of information regarding how the audit committee executes its oversight responsibilities. The Concept Release discusses a number of topics to potentially be disclosed, including: Audit committee communications with the auditor; Auditor communications of PCAOB inspection reports; Audit committee consideration of auditor objectivity and skepticism; Auditor qualifications; Auditor compensation; The auditor selection process; and The identification of audit engagement partner, engagement quality reviewer, and potentially the entire engagement team. The Concept Release seeks feedback to better understand whether such additional audit committee reporting requirements related to auditor oversight would be valuable to investors. Comments are due 60 days after publication in the Federal Register. Small Entity Compliance Guide on Amendments to Regulation A The staff of the SEC issued a Small Entity Compliance Guide, Amendments to Regulation A, which summarizes and explains rule amendments to Regulation A (refer to Appendix B for information related to Amendments to Regulation A). Topics discussed in this guide include: Summary of Regulation A; Scope of Exemption; Offering Statement; Solicitation of Interest Materials; Ongoing Reporting; Bad Actor Disqualification; Second Quarter 2015 Accounting, Reporting and Auditing Developments 7 of 22

9 Accounting and Financial Reporting Matters Relationship with State Securities Law; and Transition Issues. The SEC staff also updated several Compliance and Disclosure Interpretations to reflect the revisions to Regulation A: Securities Act Rules (new questions ); and Securities Act Forms (withdrawn questions and ). Pay Versus Performance Proposal On April 29, 2015 the SEC proposed rules to require companies to disclose in a clear manner the relationship between executive compensation and the financial performance of a company. Under the proposal, companies would be required to clearly disclose the relationship between compensation actually paid to its top executives and its performance based on total shareholder return. The amount actually paid is a new figure based on total compensation companies already currently calculate for their highest-paid executives (disclosed in the Summary Compensation Table), though it would exclude certain components of compensation that officers do not actually take home, such as share grants that are unvested and certain actuarial pension amounts. Further, registrants would be required to disclose executive pay and performance information for itself and companies in a peer group in a tabular format. The proposal also would require registrants to provide the pay-for-performance disclosures in interactive data format, which would be the first time any proxy or information statement disclosures would be required to be tagged using extensive Business Reporting Language (XBRL). The comment deadline is July 6, Adoption of Updated EDGAR Filer Manual Revisions were made to the EDGAR Filer Manual in May 2015, to a support the submission form types for Regulation A. The Filer Manual is available on the SEC s website. Second Quarter 2015 Accounting, Reporting and Auditing Developments 8 of 22

10 Assurance Matters Assurance Matters PCAOB Reorganization of PCAOB Auditing Standards The SEC has issued for public comment, Release No , Public Company Accounting Oversight Board; Notice of Filing of Proposed Rules to Implement the Reorganization of PCAOB Auditing Standards and Related Changes to PCAOB Rules and Attestation, Quality Control, and Ethics and Independence Standards. The release seeks comments on the PCAOB s amendments to implement the reorganization of PCAOB auditing standards. The amendments do not include new requirements or change current requirements and are subject to SEC approval. Comments are due by July 16, 2015, and if approved, the accompanying reorganization and related amendments would be effective as of December 31, Improving Transparency Through the Disclosure of Engagement Partner and Certain Other Participants On June 30, 2015 the PCAOB issued a Supplemental Request for comment on whether to require firms to file a new PCAOB form (Form AP, Auditor Reporting of Certain Audit Participants) to make public the name of the audit engagement partner and information about certain other participants in the audit. Form AP would be created specifically as a public information vehicle where audit firms would disclose the name of the engagement partner on the audit, as well as information about certain other participants. The Board is seeking comment on whether Form AP, is a more appropriate alternative to the Board's 2013 proposal to require audit firms to disclose similar information in the auditor's report. Comments on the Supplement Request are due August 31, Audit Quality Indicators The PCOAB also issued a Concept Release seeking comment on the content and possible uses of audit quality indicators ( AQI ), measures designed to provide insight into audit quality, how AQIs might be obtained and distributed, whether the use of AQIs should be voluntary or mandatory, the scope of audits and audit firms that may be subject to AQI reporting, and the possibility of phasing-in AQI reporting. Comments on the Concept Release are due September 29, The PCAOB also announced that it intends to convene a public roundtable, to discuss views expressed through the comment letter process, sometime during the fourth quarter of The Auditor s Use of the Work of Specialists On May 28, 2015, the PCAOB issued Staff Consultation Paper No : The Auditor s Use of the Work of Specialists, seeking input on potential changes to the auditing standards related to the auditor s use of the work of specialists, specifically the objectivity and oversight of specialists and the use of their work in audits. The deadline for submitting comments on the Consultation Paper is July 31, The Consultation Paper discusses the increased importance and involvement of specialists in both the financial reporting and the audit processes in recent years, due, in part, to the increased complexity of business transactions reported in a company s' financial statements. The Consultation Paper also raises questions regarding whether PCAOB auditing standards adequately address the auditor s use of the work a specialist, and whether more rigorous standards and specific procedures are needed to help the auditor respond to the risks of material misstatement in financial statements. For instance, the PCAOB is contemplating: Second Quarter 2015 Accounting, Reporting and Auditing Developments 9 of 22

11 Assurance Matters Developing more consistent requirements of auditor oversight and review of the work of a specialist, regardless, if the specialist is employed or engaged by the audit firm. Improving the auditor s evaluation of the objectivity of an auditor s specialist, whether employed or engaged, based on the independent requirements in Rule 2-01 of Regulation S-X. Improving the auditor's evaluation of the work of a company's employed or engaged specialist, which could include amending current PCAOB auditing standards or rescinding PCAOB AU 336, Using the Work of a Specialist. The PCAOB is seeking feedback on current practice, the potential need for changes, and possible alternatives to address the issues discussed in the Consultation Paper. The PCAOB is also seeking relevant information about the potential economic impact, including information on the likely benefits and costs of a potential new set of requirements and alternative approaches. It is our belief that some of the alternatives suggested by the PCAOB could result in significant additional cost, time, and effort for auditors, specialists, and company management, as auditors may be in limited in their ability to directly use the work of a company s specialist as is allowed under current standards. The resulting additional costs may be disproportionate to any incremental assurance that a material misstatement may occur and not be detected by the company or the auditor. We would encourage stakeholders to read the Consultation Paper and consider providing comments to the PCAOB. Audit Committee Dialogue On May 7, 2015 the PCAOB issued the first in a series of communications designed to assist audit committees members in their oversight of auditors. The Audit Committee Dialogue highlights key areas of recurring concern in PCAOB inspections of larger audit firms, as well as certain emerging risks to the audit. The communication also provides targeted questions that committee members may ask their auditors on each topic. The key recurring areas of concern include: auditing internal control over financial reporting; assessing and responding to risks of material misstatement; auditing accounting estimates, including fair value measurements; and deficiencies in work performed by other audit firms and used by the signing audit firm. The emerging risks include: increase in mergers and acquisitions; falling oil prices; undistributed foreign earnings; and maintaining audit quality when growing other business lines. AICPA Enhancing Audit Quality: A 6-Point Plan to Improve Audits The AICPA released its 6-Point Plan to Improve Audits, which reinforces the profession s commitment to continuing enhancements to audit quality and provides a proposed roadmap to improving audit performance in six areas: (1) Pre-CPA Licensure, a next version of the CPA exam designed to increase assessment of higherorder skills, such as critical thinking and professional skepticism; high school Advanced Placement accounting course; changes to college-level accounting education; and additional doctoral-level audit professors with practical experience. (2) Standards and Ethics, including quality control standards implementation support; auditor s report revisions; evaluation of clarified standards implementation; and ethics code codification. (3) CPA Learning and Support, such as competency models for audit engagements, including employee benefit plan and governmental audits; competency assessment tools; targeted resources to develop competencies; and certificate programs to demonstrate competence. (4) Peer Review, including increased focus on greater risk industries and areas; more significant remediation; root cause analysis; and termination from the peer review program after repeat quality issues. Second Quarter 2015 Accounting, Reporting and Auditing Developments 10 of 22

12 Assurance Matters (5) Practice Monitoring of the Future, to consist of a long-term initiative for near real-time, ongoing monitoring of firm quality checks using robust technological platform. (6) Ethics Enforcement and National Association of State Boards of Accountancy (NASBA) Collaboration, including more aggressive pursuit of reported deficiencies and enhanced coordination with the NASBA and state boards of accountancy. The plan was developed as part of the AICPA s Enhancing Audit Quality initiative and concentrates on financial statement audits for private companies, employee benefit plans, and governmental entities in the United States. Technical Q&A Section 9540, Attest Engagement: American Land Title Association Best Practices Framework The AICPA has published five new technical questions and answers to provide non-authoritative guidance to practitioners in connection with the Best Practices framework of the American Land Title Association ( ALTA ), focused specifically on the following: Section , Types of Engagement; Section , Applicability to an Attest Engagement; Section , Suitability of Criteria; Section , Nature of Examination or Review Procedures; and Section , Form and Content of Report. Center for Audit Quality SEC Regulations Committee Meeting Highlights The CAQ s SEC Regulations Committee issued highlights from its March 31, 2015 meeting with the SEC staff. The CAQ s SEC Regulations Committee meets periodically with the SEC staff to discuss emerging technical accounting and reporting issues relating to SEC rules and regulations. The purpose of the highlights is to summarize the issues discussed at the meeting. These highlights are not authoritative and users are urged to refer directly to applicable authoritative pronouncements for the text of the technical literature. Meeting highlights include: Staff observations of FASB s New Consolidation Standard:» Registrants who apply the new requirements retrospectively will need to assess the need to revise the historical financial statements in connection with a new or amended registration statement/proxy statement.» Registrants who adopt the standard retrospectively are not required to revise any periods not covered by their audited financial statements.» Item 2.01 of Form 8-K would not be triggered if the adoption of the standard requires the registrant to newly consolidate or deconsolidate an entity. However, if consolidation or deconsolidation occurs as the result of a reconsideration event subsequent to the initial adoption of the standard, registrants would need to consider the requirements of Item 2.01 of Form 8-K.» Registrants may analogize to certain SEC staff guidance (e.g., Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports), when evaluating whether they may exclude newly consolidated entities from management s assessment of internal control over financial reporting. Other topics of discussions included SEC staff views on:» Predecessor financial statements. Second Quarter 2015 Accounting, Reporting and Auditing Developments 11 of 22

13 Assurance Matters» Application of Regulation S-X Rule 3-14 in a Registration Statement» Applicability of Item 302(a) of Regulation S-K, Selected Quarterly Financial Data, in a non-ipo Form S-1 Registration Statement.» Auditor Change Disclosures for Mandatory Audit Firm Rotation, due to adopted rules by certain foreign jurisdictions that mandate the periodic rotation of a public company s independent audit firm. Committee Collaboration Updates External Auditor Assessment Tool for Audit Committees The Audit Committee Collaboration has released two new versions (domestic and international) of its External Auditor Assessment Tool. The assessment tool is designed to assist audit committees, or their counterparts, in evaluating the external auditor to assess the quality of the audit, or select or recommend the retention of the audit firm, and is available for both U.S. audit committees and audit committees worldwide. CAQ Webcast on Deterring Financial Fraud: What Else Can Be Done? On July 16, 2015 the CAQ will host a free webcast on deterring financial fraud (1:00 pm - 2:30 pm eastern). Panelists will discuss lessons learned from recent SEC enforcement proceedings, and provide concrete, action-oriented steps that governance professionals can take. All participants in the financial reporting supply chain are encouraged to register. The webcast is free and participants will be eligible for 1.5 CPE credits and 1.5 NACD skill-specific credits. All participants in the financial reporting supply chain (e.g., financial reporting professionals, audit committee members, financial executives, internal auditors, external auditors and compliance professionals) are encouraged to attend. Participants can register at the following link. Second Quarter 2015 Accounting, Reporting and Auditing Developments 12 of 22

14 Appendix A Effective Date Highlights Appendix A Effective Date Highlights The following table presents ASUs that could potentially impact preparers with fiscal years beginning after June 15, 2014, and interim and annual periods thereafter. Please refer to the individual ASUs in their entirety, for additional guidance. Accounting Standards Update Public Entities Effective Date Nonpublic Entities Early Adopt? Transition ASU : Financial Services Insurance (Topic 944): Disclosures about Short-Duration Contracts Fiscal years beginning after December 15, 2015, fiscal years beginning after December 15, 2016 Fiscal years beginning after December 15, 2016, fiscal years beginning after December 15, 2017 ASU : Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) Fiscal years beginning after December 15, 2015, those years Fiscal years beginning after December 15, 2016, those fiscal years ASU : Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions Fiscal years beginning after December 15, 2015, and interim periods within those fiscal years ASU : Intangibles Goodwill and Other Internal Use Software (Subtopic ): Customer s Accounting for Fees Paid in a Cloud Computing Arrangement ASU : Compensation Retirement Benefits (Topic 715): Practical Expedient for Measurement Date of an Employer s Defined Benefit Obligation and Plan Assets ASU : Interest Imputation of Interest (Subtopic : Simplifying the Presentation of Debt Issuance Costs ASU : Consolidation (Topic 810): Amendments to the Consolidation Analysis ASU : Income Statement Extraordinary and Unusual Items (Subtopic ): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items ASU : Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination (a consensus of the Private Company Council) Fiscal years beginning after December 15, 2015, those years Fiscal years beginning after December 15, 2015, those years Fiscal years beginning after December 15, 2015, and interim periods within those years Periods beginning after December 15, 2015 Fiscal years beginning after December 15, 2015, fiscal years beginning after December 15, 2016 Fiscal years beginning after December 15, 2016, fiscal years beginning after December 15, 2017 Fiscal years beginning after December 15, 2015, and interim periods beginning after December 15, 2016 after December 15, 2016 Periods beginning after December 15, 2015 N/A First in-scope transaction in fiscal years beginning after December 15, 2015 Prospective or (1) Prospective Full or Modified Prospective or Prospective (2) Second Quarter 2015 Accounting, Reporting and Auditing Developments 13 of 22

15 Appendix A Effective Date Highlights Accounting Standards Update ASU : Derivatives and Hedging (Topic 815): 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 (a consensus of the FASB Emerging Issues Task Force) ASU : Presentation of Financial Statements Going Concern (Subtopic ): Disclosure of Uncertainties about an Entity s Ability to Continue as a Going Concern ASU : Receivables Troubled Debt Restructurings by Creditors (Subtopic ): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure ASU : Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity ASU : Compensation Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ASU : Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures ASU : Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation ASU : Revenue from Contracts with Customers (Topic 606) ASU : Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity Public Entities Fiscal years beginning after December 15, 2015, and interim periods within those years Effective Date Nonpublic Entities Fiscal years ending after December 15, 2015, and interim periods beginning after December 15, 2016 Annual period ending after December 15, 2016, and interim and annual periods thereafter after December 15, 2014, and interim periods within those years after December 15, 2015, and interim periods within those years Annual periods ending after December 15, 2015, and interim periods beginning after December 15, 2015 Annual periods ending after December 15, 2016, and interim periods beginning after December 15, 2016 Annual periods those annual periods beginning after December 15, Interim or annual periods beginning after December 15, 2014 (4) after December 15, 2014, and interim periods within those years (6) Annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period (7) on or after December 15, 2014, and interim periods within those years (7) after December 15, 2014, and interim periods beginning after December 15, 2015 after December 15, 2014, and interim periods beginning after December 15, 2015 after December 15, 2017, annual periods beginning after December 15, 2018 on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015 Early Adopt? (3) (5) Transition Full or Modified N/A Prospective or Modified Full or Modified Prospective or Modified Modified (6) (8) Full or Modified Prospective Second Quarter 2015 Accounting, Reporting and Auditing Developments 14 of 22

16 Appendix A Effective Date Highlights Accounting Standards Update ASU : Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (a consensus of the Private Company Council) ASU : Service Concession Arrangements (Topic 853) (a consensus of the FASB Emerging Issues Task Force) ASU : Receivables Troubled Debt Restructurings by Creditors (Subtopic ): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force) ASU : Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps Simplified Hedge Accounting Approach (a consensus of the Private Company Council) ASU : Intangibles Goodwill and Other (Topic 350): Accounting for Goodwill (a consensus of the Private Company Council) ASU : Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force) ASU : Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ASU : Not-for-Profit Entities (Topic 958): Services Received from Personnel of an Affiliate ASU , Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ASU , Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date Public Entities Only applicable to nonpublic entities Annual periods, and interim periods within those annual periods, beginning after December 15, 2014 Annual periods, and interim periods within those annual periods, beginning after December 15, 2014 Only applicable to nonpublic entities Only applicable to nonpublic entities Annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014 Fiscal years, and interim periods within those years, beginning after December 15, 2013 Effective Date Nonpublic Entities after December 15, 2014, annual periods beginning after December 15, 2015 after December 15, 2014, annual periods beginning after December 15, 2015 after December 15, 2014, annual periods beginning after December 15, 2015 after December 15, 2014, annual periods beginning after December 15, 2015 after December 15, 2014, annual periods beginning after December 15, 2015 after December 15, 2014, annual reporting periods beginning after December 15, 2015 Fiscal years, and interim periods within those years, beginning after December 15, 2014 Early Adopt? Transition Modified Modified or Prospective Modified or Full Prospective Prospective or (9) Fiscal years beginning after June 15, 2014, and interim and annual periods thereafter. Prospective (10) Fiscal years, and interim periods within those years, beginning after December 15, 2013 Fiscal years, and interim periods within those years, beginning after December 15, 2013 The first annual period beginning after December 15, 2014, and interim and annual periods thereafter Fiscal years ending after December 15, 2014, and interim and annual periods thereafter Prospective (11) (12) Second Quarter 2015 Accounting, Reporting and Auditing Developments 15 of 22

17 Appendix A Effective Date Highlights (1) An entity can elect to adopt the amendments either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. For prospective transition, the only disclosure requirements at transition are the nature of and reason for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change. For retrospective transition, the disclosure requirements at transition include the requirements for prospective transition and quantitative information about the effects of the accounting change. (2) If an entity elects this alternative, it must also adopt ASU , Intangibles Goodwill and Other (Topic 350), Accounting for Goodwill, requiring amortization of goodwill over a period of 10 years (or less). However, the reverse is not required an entity that adopts ASU is not required to adopt ASU (3) To early adopt ASU must be adopted. (4) Disclosures have various effective dates as detailed in the Update. (5) Entities other than public business entities may early adopt for interim periods beginning after December 15, (6) The requirements of Topic 915 should be applied retrospectively, while the clarification of Topic 275 should be applied prospectively. Entities should retrospectively apply the amendment eliminating the sufficiency-of-equity-at-risk criterion. (7) Public entities include not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed or quoted on an exchange or over-the-counter market. ASU includes employee benefit plans that file or furnish financial statements to the SEC as public entities. (8) Nonpublic entities may adopt this guidance as of the effective date of public entities. (9) Prospective application should be applied to all unrecognized tax benefits that exist at the effective date. application is permitted. (10) A recipient not-for-profit may apply the amendments using a modified retrospective approach under which all prior periods presented upon the date of the adoption should be adjusted, but no adjustment should be made to the beginning balance of net assets of the earliest period presented. (11) If an entity elects to early adopt the amendments, it should apply them as of the beginning of the entity s fiscal year of adoption. (12) The amendments in this Update should be applied retrospectively to all prior periods presented for those obligations resulting from joint and several liability arrangements within the Update's scope that exist at the beginning of an entity's fiscal year of adoption. An entity may elect to use hindsight for the comparative periods (if it changed its accounting as a result of adopting the amendments in this Update) and should disclose that fact. Early adoption is permitted. Second Quarter 2015 Accounting, Reporting and Auditing Developments 16 of 22

18 Appendix B Matters Discussed in Previous Quarterly Updates Appendix B Matters Discussed in Previous Quarterly Updates FASB - Accounting Standards Updates ASU : Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (a consensus of the FASB Emerging Issues Task Force) Currently, when an entity consolidates a collateralized financing entity under variable interest entity guidance the assets and liabilities of the consolidated entity are often measured at fair value. At times the fair value of the financial liabilities differs from the fair value of the financial assets in the entity being consolidated, even when the financial liabilities only have recourse to the financial assets of the collateralized financing entity. This measurement difference is not consistently accounted for, either at initial consolidation or subsequent measurement. This Update provides a measurement alternative for reporting entities to measure the financial assets and liabilities of the collateralized financing entity using the more observable of the fair value of the financial assets and the fair value of the financial liabilities. The amendments are effective for public business entities for annual periods, those annual periods, beginning after December 15, For other entities the Update is effective for annual periods ending after December 15, 2016, and interim and annual periods thereafter. The amendments can be adopted using a modified or full retrospective approach, early adoption is permitted as of the beginning of an annual period. ASU : Receivables Troubled Debt Restructurings by Creditors (Subtopic ): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force) This Update addresses the diversity in practice regarding the classification and measurement of foreclosed loans which were part of a government-sponsored loan guarantee program (e.g. FHA, HUD, VA). If the following criteria are met, the loan (residential or commercial) should be derecognized and a separate other receivable should be recorded upon foreclosure at the amount of the loan balance (principal and interest) expected to be recovered from the guarantor: a) The government guarantee is not separable from the loan before foreclosure. b) At foreclosure, the creditor has the intent to convey the real estate to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim. c) At foreclosure, any amount of the claim based on the fair value of the real estate is fixed. This Update is effective for public business entities for annual periods, those annual periods, beginning after December 15, For all other entities this Update is effective for annual periods ending after December 15, 2015, and interim periods thereafter. The Update should be adopted either prospectively or on a modified retrospective basis. Early adoption is permitted, provided the entity has adopted ASU ASU : Presentation of Financial Statements Going Concern (Subtopic ): Disclosure of Uncertainties about an Entity s Ability to Continue as a Going Concern The continuation of an entity as a going concern is presumed when preparing financial statements (unless liquidation becomes imminent); however, currently there is no guidance in U.S. GAAP about management s responsibility to evaluate going concern uncertainties. As a result, this Update clarifies management s responsibility to evaluate and provide related disclosures if there are any conditions or events, as a whole, that raise substantial doubt about the entity s ability to continue as a going concern Second Quarter 2015 Accounting, Reporting and Auditing Developments 17 of 22

19 Appendix B Matters Discussed in Previous Quarterly Updates for one year after the date the financial statements are issued (or, if applicable, available to be issued). The FASB believes this will reduce diversity in the timing and content of going concern disclosures. This Update is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. Current PCAOB and AICPA auditing standards continue to apply to the auditor s responsibilities for evaluating an entity s ability to continue as a going concern. ASU : Derivatives and Hedging (Topic 815): 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 (a consensus of the FASB Emerging Issues Task Force) Entities frequently raise capital through issuances of shares, which will occasionally include additional features (e.g. conversion rights, dividend payment preferences). When shares are issued with features that qualify as derivatives under GAAP those shares are referred to as hybrid financial instruments. The features within hybrid financial instruments must be evaluated as to whether they are clearly and closely related to the host contract, and if certain criteria are met the derivate would be separated from the underlying share and accounted for under Topic , Derivatives and Hedging. The evaluation of whether or not the features are clearly and closely related begins with determining if the host contract is more akin to debt or equity. Currently there is diversity in practice on how this determination is made. This Update clarifies the determination should be made by considering all stated and implied substantive terms and features of a hybrid financial instrument (in contrast to evaluating the instrument without consideration of the embedded derivative). The amendments are effective for public business entities for fiscal years, those fiscal years, beginning after December 15, For other entities the Update is effective for fiscal years beginning after December 15, 2015, fiscal years beginning after December 15, The amendments can be adopted using a modified or full retrospective approach. Early adoption is permitted with any adjustments reflected as of the beginning of the fiscal year. ASU : Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination (a consensus of the Private Company Council) This ASU provides private companies with an accounting alternative for certain customer-related intangible assets (CRIs) and noncompetition agreements (NCAs) acquired in a business combination. The alternative is intended to reduce the cost and complexity of accounting for these intangible assets while maintaining the most important decision useful information for users of the financial statements. Current U.S. GAAP requires tangible and intangible assets acquired in a business combination be separately recognized at their acquisition-date fair value. The amendments in this ASU allow an entity to not separately recognize (in a business combination) NCAs and CRIs not capable of being sold or licensed independently from the other assets of a business. This alternative does not change the accounting for tangible or intangible assets other than NCAs and qualifying CRIs. The effective date is tied to the occurrence of a business combination (or other in-scope transaction), and may be different for different entities. This ASU should be applied prospectively only and the decision to adopt this ASU must be made upon the occurrence of the first transaction within scope (e.g. business combination) in fiscal years beginning after December 15, 2015, with early adoption permitted for financial statements not yet made available for issuance. If an entity elects this alternative, it must also adopt ASU , Intangibles Goodwill and Other (Topic 350), Accounting for Goodwill, requiring amortization of goodwill over a period of 10 years (or less). However, the reverse is not required an entity that adopts ASU is not required to adopt ASU Second Quarter 2015 Accounting, Reporting and Auditing Developments 18 of 22

20 Appendix B Matters Discussed in Previous Quarterly Updates ASU : Income Statement Extraordinary and Unusual Items (Subtopic ): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items This ASU was also issued as part of the FASB s simplification initiative. Subtopic requires an entity to separately classify, present, and disclose extraordinary events and transactions. In response to feedback received from users and preparers the FASB issued this ASU to eliminate the concept of extraordinary items. The amendments in this ASU are effective for fiscal years ( those fiscal years), beginning after December 15, 2015 and may be early adopted. Entities may apply this ASU either prospectively or retrospectively. As recognition and disclosure of extraordinary items have become rare, we do not anticipate a significant impact to financial reporting from implementation of this ASU. ASU : Consolidation (Topic 810): Amendments to the Consolidation Analysis This ASU modifies the consolidation model for reporting organizations under both the variable interest model and the voting interest model. The ASU is generally expected to reduce the number of situations where consolidation is required; however, in certain circumstances, the ASU may result in companies consolidating entities previously unconsolidated. Among the major impacts include: Elimination of both (1) the presumption that a general partner should consolidate a limited partnership and (2) the consolidation model specific to limited partnerships. More emphasis is placed on the risk of loss when determining which entity has a controlling financial interest. A reporting entity may no longer be required to consolidate an entity based solely on its fee arrangement, when certain criteria are met. Clarification as to when fees paid to a decision maker (such as an asset manager) should be considered in the Variable Interest Entity (VIE) analysis. There is greater emphasis on principal risk of loss when assessing whether to consolidate. Amendment to the guidance for assessing how relationships of related parties (such as affiliates) affect the consolidation analysis of VIEs. Removal of the indefinite deferral for certain investment funds; certain money market funds will no longer have to apply the VIE guidance. This ASU will require all legal entities to reevaluate previous consolidation conclusions under the revised model and will be effective for periods beginning after December 15, 2015, for public business entities. For all other entities, the ASU will be effective for annual periods beginning after December 15, Early adoption is permitted. A reporting entity may apply the ASU by using a modified retrospective approach (by recording a cumulative-effect adjustment to equity as of the beginning of the year of adoption) or a full retrospective approach (by restating all periods presented). ASU : Interest Imputation of Interest (Subtopic ): Simplifying the Presentation of Debt Issuance Costs This ASU was issued as part of the FASB s simplification initiative, which aims to reduce unnecessary cost and complexity within U.S. GAAP by issuing ASUs to simplify the guidance while retaining or improving the usefulness of information included in the financial statements. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Currently, capitalized debt issuance costs are presented as an asset on the balance sheet.. The FASB Second Quarter 2015 Accounting, Reporting and Auditing Developments 19 of 22