Webinar Slides: First Quarter Accounting and Financial Reporting Update
59
#cbizmhmwebinar 1 CBIZ & MHM Executive Education Series™ First Quarter Accounting and Financial Reporting Update Mike Loritz, Mark Winiarski, Bill Smith April 13 & April 20, 2016
Webinar Slides: First Quarter Accounting and Financial Reporting Update
1. #cbizmhmwebinar 1 CBIZ & MHM Executive Education Series
First Quarter Accounting and Financial Reporting Update Mike
Loritz, Mark Winiarski, Bill Smith April 13 & April 20,
2016
2. #cbizmhmwebinar 2 About Us Together, CBIZ & MHM are a
Top Ten accounting provider Offices in most major markets Tax,
audit and attest* and advisory services Over 2,900 professionals
nationwide A member of Kreston International A global network of
independent accounting firms *MHM is an independent CPA firm
providing audit, review and attest services, and works closely with
CBIZ, a business consulting, tax and financial services
provider.
3. #cbizmhmwebinar 3 Before We Get Started To view this webinar
in full screen mode, click on view options in the upper right hand
corner. Click the Support tab for technical assistance. If you have
a question during the presentation, please use the Q&A feature
at the bottom of your screen.
4. #cbizmhmwebinar 4 CPE Credit This webinar is eligible for
CPE credit. To receive credit, you will need to answer periodic
participation markers throughout the webinar. External participants
will receive their CPE certificate via email immediately following
the webinar.
5. #cbizmhmwebinar 5 Disclaimer The information in this
Executive Education Series course is a brief summary and may not
include all the details relevant to your situation. Please contact
your service provider to further discuss the impact on your
business.
6. #cbizmhmwebinar 6 Presenters Mike has 18 years of experience
in public accounting with diversified financial companies and other
service based companies, including banking, broker/dealer,
investment companies, and other diversified companies ranging from
audits of public entities in the Fortune 100 to small private
entities. He is the Director of the Audit Resource Group and a
member of MHM's Professional Standards Group, providing accounting
knowledge leadership in the areas of derivative financial
instruments, complex financial instruments, share-based
compensation, fair value, debt/equity and others. 816.945.5611
[email protected] MIKE LORITZ, CPA MHM Shareholder
7. #cbizmhmwebinar 7 Presenters Mark is a member of our
Professional Standards Group (PSG). Mark's role includes
instructing in the national training programs, serving as a subject
matter expert at webinars and conferences, and preparing MHM
publications on accounting and auditing issues. As a PSG member ,
Mark consults with clients and engagement teams across the country
in many areas of accounting and auditing. Mark has served clients
as an auditor, consultant and advisor in numerous industries
including manufacturing, distribution, mining, retail sales,
services and software. 816.945.5614 [email protected] @KCWini
MARK WINIARSKI, CPA MHM Shareholder
8. #cbizmhmwebinar 8 Presenters Bill Smith is a managing
director in the CBIZ National Tax Office. Bill monitors federal tax
legislation and consults nationally on a broad range of foreign and
domestic tax services for businesses and individuals, including
mergers and acquisitions, domestic and international investments or
divestitures, and the review, negotiation and drafting of tax
aspects for business agreements. 301.951.3636 [email protected]
WILLIAM M. SMITH, Esq. Managing Director, CBIZ National Tax
Office
9. #cbizmhmwebinar 9 Agenda Final Accounting Standards Updates
02 01 03 04 Other Financial Reporting Updates Federal Tax Update
Questions
10. #cbizmhmwebinar 10 Final Accounting Standards Updates
11. #cbizmhmwebinar 11 FASB - Overall Themes Financial
Accounting Standards Board Back into the storm Nine accounting
standards issued in Q1
12. #cbizmhmwebinar 12 Leases (ASU 2016-02) Lease obligations
and lease assets are recorded on the balance sheet for finance
(formerly capital) and operating leases Scope Includes: contracts
that convey the right to control the use of an identified asset
(property, plant or equipment) for a period of time in exchange for
consideration Excludes: Intangible assets, Exploration for or use
of natural resources, biological assets, inventory, assets under
construction Short-term leases: 12 months or less Contracts with a
substantive right to substitute another asset
13. #cbizmhmwebinar 13 Leases (ASU 2016-02) Key Concepts Lease
term: Noncancellable period plus reasonably certain renewals Lease
payments: Fixed payments, less incentives paid Variable lease
payments dependent upon an index or rate Plus payments that are
reasonably certain to occur Exercise price of an option to purchase
the underlying asset Payments for penalties to terminate the lease
Certain structuring fees, and For the lessee residual value
guarantees probable of being paid Lease payments excludes
non-qualifying variable lease payments, guarantees of lessor debt,
and nonlease components.
14. #cbizmhmwebinar 14 Leases (ASU 2016-02) Key Concepts
Discount rate Implicit rate, unless not readily determinable
Incremental borrowing rate Practical expedient for nonpublic
entities to elect risk-free discount rate Related party leasing
Evaluate based on the legally enforceable terms and conditions
15. #cbizmhmwebinar 15 Leases (ASU 2016-02) Lessee
Classification 1. The lease transfers ownership of the underlying
asset to the lessee by the end of the lease term 2. The lease
grants the lessee an option to purchase the underlying asset that
the lessee is reasonably certain to exercise 3. The lease term is
for the major part of the remaining economic life of the underlying
asset 4. The present value of the sum of the lease payments and any
residual value guaranteed by the lessee that is not already
reflected in the lease payments equals or exceeds substantially all
of the fair value of the underlying asset 5. The underlying asset
is of such a specialized nature that it is expected to have no
alternative use to the lessor at the end of the lease term
16. #cbizmhmwebinar 16 Leases (ASU 2016-02) Other Changes
Simplified sale-leaseback rules Initial direct costs Subleases
Reassessment and modification Lessor accounting Distinction between
direct financing and sales type lease will rest on third-party
involvement Selling profit on a sales-type lease is upfront
Eliminates leveraged lease model
17. #cbizmhmwebinar 17 Leases (ASU 2016-02) Presentation and
Disclosure Presentation and disclosure between finance and
operating leases is segregated Prohibition from presenting finance
and operating lease right-of-use assets in the same line item
Increased disclosures, including: Options, covenants and similar
contractual terms Significant terms and judgments Additional
information for analysis Weighted average lease term Weighted
average discount rate
18. #cbizmhmwebinar 18 Leases (ASU 2016-02) Transition Modified
retrospective transition Recognize and measure existing or new
leases as of the beginning of the earliest comparative period
Practical expedients Reassessment exclusion Do not reassess whether
any contracts contain leases Do not reassess lease classification
Do not reassess initial direct costs Exclude short-term leases Use
hindsight for lease term and impairment of the
right-of-use-assets
19. #cbizmhmwebinar 19 Leases (ASU 2016-02) Effective Date
Calendar-year entities: Public business entities, certain
not-for-profit entities and employee benefit plans: December 31,
2019 including interim periods All others: December 31, 2020 Early
adoption is permitted.
20. #cbizmhmwebinar 20 Financial Instruments: Recognition &
Measurement (ASU 2016-01) Equity investments measured at fair value
with changes in fair value recognized in net income Except
investments consolidated or accounted for under the equity method
Examples of equity investments: Stock, partnership interests,
membership units Warrants Forward purchase or sale agreements for
equity Eliminates the available-for-sale and cost method
classifications for equity investments, but does not impact debt
securities or securities measured under the fair value option.
21. #cbizmhmwebinar 21 Financial Instruments: Recognition &
Measurement (ASU 2016-01) Practicability Exception: elect to record
equity investments without readily determinable fair values at:
Cost Plus or minus subsequent adjustments for observable price
changes for an identical or similar investment of the same issuer
Less impairment Qualitative assessment each reporting period
Measured at fair value with immediate recognition of gain or loss
Qualification for the exception is assessed each reporting
period.
22. #cbizmhmwebinar 22 Financial Instruments: Recognition &
Measurement (ASU 2016-01) Presentation and Disclosure Present or
disclose financial assets and financial liabilities by measurement
category and form of financial asset Eliminates the requirement for
non-public entities to disclose fair value of financial instruments
measured at amortized cost (early adoption permitted) Financial
instruments measured at amortized cost (public entities) Eliminates
disclosures about method(s) and significant assumptions used to
estimate the fair value
23. #cbizmhmwebinar 23 Financial Instruments: Recognition &
Measurement (ASU 2016-01) Other changes Requires separate
presentation in other comprehensive income for effect of changes in
credit risk own credit on liabilities measured under the fair value
option (early adoption permitted) Requiring public business
entities to use the exit price notion when measuring the fair value
of financial instruments for disclosure purposes Clarifies
assessments of income tax valuation allowances for
available-for-sale securities Effectively eliminates the ability to
consider ability and intent to hold the debt securities to maturity
as a tax planning strategy
24. #cbizmhmwebinar 24 Financial Instruments: Recognition &
Measurement (ASU 2016-01) Transition and Effective Date
Calendar-year entities: Public-business entities: December 31, 2018
including interim periods Private companies, not-for-profit
organizations and employee benefit plans: December 31, 2019
Prospective application for the measurement election for equity
securities without readily determinable fair value Cumulative
catch-up at the beginning of the period of adoption for all other
provisions
25. #cbizmhmwebinar 25 Simplifying the Transition to the Equity
Method of Accounting (ASU 2016-07) Eliminates the retrospective
application of the equity method when an investment in the equity
of another entity transitions from being accounted for as a
trading, available-for-sale or cost method investment to the equity
method of accounting Amounts previously recognized in accumulated
other comprehensive income are recognized into net income upon
transition to the equity method of accounting
26. #cbizmhmwebinar 26 Simplifying the Transition to the Equity
Method of Accounting (ASU 2016-07) Original exposure draft called
for the elimination of the allocation and tracking of the basis
difference for equity method investments Based on feedback this
proposal was removed from the final standard A new project was
created to consider other ways to simplify the equity method of
accounting
27. #cbizmhmwebinar 27 Simplifying the Transition to the Equity
Method of Accounting (ASU 2016-07) Prospective transition Effective
for all entities for fiscal years beginning after December 15, 2016
Calendar year December 31, 2017 Early adoption is permitted.
28. #cbizmhmwebinar 28 Effect of Derivative Contract Novations
(ASU 2016-05) When hedge accounting is applied, a contract novation
does not on its own trigger dedesignation of the hedging
relationship Contract novation is not a termination of the existing
derivative contract Contract novation is not a change in a critical
term Contract novation occurs when the counterparty to a contract
changes as a result of a merger, acquisition, intercompany
transaction or similar transaction by the counterparty.
29. #cbizmhmwebinar 29 Effect of Derivative Contract Novations
(ASU 2016-05) Prospective or modified retrospective transition
Under the modified retrospective transition reassessment and
measurement of hedge effectiveness for formerly dedesignated
hedging relationships is required for each period not previously
performed Calendar year entities: Public business entities:
December 31, 2017 including interim periods All others: December
31, 2018 Early adoption is permitted.
30. #cbizmhmwebinar 30 Derivatives: Contingent Put and Call
Options in Debt Instruments (ASU 2016-06) Clarifies that the
four-step decision sequence from the Derivatives Implementation
Group (DIG) is the only required analysis for whether a call or put
option that can accelerate repayment of debt is clearly and closely
related to the host instrument Payoff is adjusted based on changes
in an index Payoff is indexed to an underlying other than interest
rate or credit risk Debt involves a substantial premium or discount
Call (put) option is contingently exercisable
31. #cbizmhmwebinar 31 Derivatives: Contingent Put and Call
Options in Debt Instruments (ASU 2016-06) Modified retrospective
transition One-time only option to elect to measure a debt
instrument at fair value if it ceases to have a bifurcated embedded
derivative upon adoption Calendar year entities: Public business
entities: December 31, 2017 including interim periods All others:
December 31, 2018 Early adoption is permitted.
32. #cbizmhmwebinar 32 Private Company Council Effective Dates
(ASU 2016-03) Unconditional one-time election to adopt an existing
PCC accounting alternative Allows an entity to forgo the initial
preferability assessment Goodwill amortization Retains prospective
transition guidance in the period of adoption Clarifies that
amortization of existing goodwill begins at the beginning of the
fiscal year of adoption Effective upon issuance
33. #cbizmhmwebinar 33 Private Company Council Effective Dates
(ASU 2016-03) Identifying and recognizing intangible assets under
the acquisition method Retains prospective transition guidance
Retains the requirement to adopt goodwill amortization accounting
alternative Common controlled leasing arrangements (Variable
Interest Entity scope exception) Retains retrospective transition
guidance
34. #cbizmhmwebinar 34 Private Company Council Effective Dates
(ASU 2016-03) Simplified hedge accounting for certain receive-
variable pay-fixed interest rate swaps Retains modified
retrospective or retrospective transition options Allows election
on a swap-by-swap basis for existing swaps, one time only, upon the
first adoption of the accounting alternative
35. #cbizmhmwebinar 35 Revenue Recognition Timeline * First
applicable reporting date for calendar year entity
36. #cbizmhmwebinar 36 Revenue (Topic 606): Principal versus
Agent Considerations (ASU 2016-08) Major changes Clarifies
evaluation applies to each performance obligation Clarifies an
entity is a principal when they obtain control of a good or service
prior to transfer to the customer
37. #cbizmhmwebinar 37 Revenue (Topic 606): Principal versus
Agent Considerations (ASU 2016-08) Major changes Flips the
considerations from an agent perspective to a principal
perspective, indicators include: Responsibility for fulfillment
Inventory risk Discretion to establish prices Eliminates indicators
that an entity is an agent: Consideration in the form of a
commission Credit risk
38. #cbizmhmwebinar 38 Improvements to Employee Share-Based
Payment Accounting (ASU 2016-09) Simplification of seven aspects of
Topic 718 1. Eliminates APIC treatment for excess tax benefits 2.
Eliminates separation of cash flows related to excess tax benefits
3. Permits an entity wide election to account for forfeitures when
they occur 4. Increases the threshold for requiring liability
treatment for withholding shares for employee income taxes from
more than the minimum income tax rate to the maximum 5. Clarifies
that withholdings for employee income taxes related to stock
compensation are classified as a financing activity
39. #cbizmhmwebinar 39 Improvements to Employee Share-Based
Payment Accounting (ASU 2016-09) Simplification of seven aspects of
Topic 718 6. Practical expedient for nonpublic entities to use a
midpoint in estimating the expected term under certain conditions
Only permissible for entities that are not a public entity as
defined for Topic 718 7. Permits a nonpublic entity to make a
one-time election upon adoption to switch existing liability
classified awards to the intrinsic value method
40. #cbizmhmwebinar 40 Improvements to Employee Share-Based
Payment Accounting (ASU 2016-09) Transition methods applied are the
retrospective, modified retrospective or prospective method
depending on which change is being implemented. Timing of
recognition of excess tax benefits, forfeitures, and intrinsic
value are applied under the modified retrospective approach
Calendar year entities: Public business entities: December 31, 2017
including interim periods All others: December 31, 2018 Early
adoption is permitted.
41. #cbizmhmwebinar 41 Other Financial Reporting Updates
42. #cbizmhmwebinar 42 PROPOSAL: Cash Flow Statement Proposed
clarifications for seven types of transactions where diversity of
practice exists, including: Debt prepayment, extinguishment costs,
and repayment of zero-coupon bonds Settlement of insurance claims,
including life insurance Distributions received from equity method
investees Clarification to the predominance principle Comment
period ended March 29, 2016.
43. #cbizmhmwebinar 43 PROPOSAL: Defined Benefit Plan
Disclosures Thirteen proposed improvements to disclosure
requirements, including: Eliminating disclosures, such as: Pension
accumulated benefit obligations Amount of net periodic benefit cost
in AOCI expected to be recognized in the next year For nonpublic
entities reconciliations of Level 3 plan assets Adds disclosures,
such as: Nature of benefits provided, employees covered, benefit
plan formula For nonpublic entities effect of a one-percentage
point change in health care cost trend rates
44. #cbizmhmwebinar 44 PROPOSAL: Net Periodic Pension Cost
Improvements to presentation including: Present service cost in the
same line item as compensation cost in the income statement Present
other components of net benefit costs separately from service cost
Presented outside of a subtotal of income from operations Permits
capitalization of service cost into inventory or a self-constructed
asset Comment period for these two proposals ends April 25,
2016.
45. #cbizmhmwebinar 45 FEDERAL TAX UPDATE
46. #cbizmhmwebinar 46 Obamas 2017 Budget Revenue Raisers Long
term capital gain rate increased from 20% to 24.2% (with 3.8% NIIT,
would be 28%) Estate and gift rates and exemptions returned to
2009: 45% top rate; $3.5 million exemption for estates and $1
million for gifts Buffett rule: High-income taxpayers subject to
30% minimum rate Cap charitable deduction benefit at 28% Tax
carried interests as ordinary income Limit 1031 deferral to $1
million
47. #cbizmhmwebinar 47 Obamas 2017 Budget Business Provisions
Repeal LIFO accounting Enhanced and simplified research incentives
beyond changes made by the PATH Act Addition of tax incentives for
designated Promise Zones Additional tax credits for investments in
qualified property used in a qualifying advanced energy
manufacturing project
48. #cbizmhmwebinar 48 Obamas 2017 Budget Net Investment Income
Tax definition expanded Gross income and gain from any trades or
businesses of an individual that is not otherwise subject to
employment taxes Soften Cadillac Tax Increase the excise tax
threshold to the greater of the current law threshold or a "gold
plan average premium." Credit for hiring community college grads
One-time credit of $5,000 for each qualified employee hired
full-time and certified as having earned a degree from an eligible
post-secondary institution.
49. #cbizmhmwebinar 49 House of Representatives on Tax Reform
House Republicans held a task force meeting March 1 to help create
consensus around tax proposals that may indicate where the panel's
tax writers will focus their efforts to overhaul the code. The task
force met again on March 23 and the Ways and Means Tax Policy
Subcommittee, which Rep. Charles Boustany Jr. (R-La.) chairs, will
hold a hearing April 13 on proposals to alter income-based
taxation. International tax changes are being crafted by Boustany
and a broader overhaul of the Code is expected from Rep. James B.
Renacci (R-Ohio), also a House Ways and Means Committee
member.
50. #cbizmhmwebinar 50 IRS Audit Rates Individuals Businesses
IRS Commissioner Koskinen said he anticipates the new rules will
increase the number of partnerships examined. The IRS has shed
nearly 4,000 enforcement personnel in the past decade tied to
hiring freezes and budget cuts. FY 2015 FY 2014 Change Overall 0.84
0.86 (0.02) > $1 million 9.55 7.50 2.05 > $200K 2.61 2.71
(0.10) FY 2015 FY 2014 Change Partnerships 0.51 0.43 0.08 S Corps
0.40 0.36 0.04
51. #cbizmhmwebinar 51 Brinks Gilson & Lione v Commr, T.C.
Memo. 2016-20 Law Firm established as corporation. Cash method of
accounting. The law firm had 65 shareholder attorneys, who were
entitled to dividends as and when declared by the board. For at
least 10 years before and including the years in issue, however,
petitioner had not paid a dividend. The board intended the sum of
the shareholder attorneys' yearend bonuses (bonus pool) to exhaust
book income. Law firm had invested capital, measured by the book
value of its shareholders' equity, of about $8 million at the end
of 2007 and about $9.3 million at the end of 2008. Law firm
conceded portion should be non-deductible dividends, and court held
corporation liable for penalties.
52. #cbizmhmwebinar 52 Polowniak v Commr, T.C. Memo. 2016-31
Taxpayer sole shareholder of S Corporation (SCo) Taxpayer set up
what his attorney called a Roth IRAs and privately owned Roth IRA
corporations (PIRAC) transaction New Roth IRA would purchase the
stock of a new corporation (Newco) treated as C Corporation Newco
engages in transactions with pre-existing wholly owned S
Corporation Taxpayer was Newcos sole employee, and entered into
consulting agreement with SCo for 75% of revenue from one client
Court held substance, not form, controlled. Held that taxpayer had
excess contributions to Roth IRA, subject to excise tax and
penalties.
53. #cbizmhmwebinar 53 Stuller v. U.S. (7th Cir.) H and W owned
several Steak n Shake franchises Bred horses Lived in Illinois but
bought property in Tennessee for their horses From 1994 to 2009, it
lost money every year except 1997, when its annual profit was
$1,500. From 1999 to 2005, its annual losses ranged between around
$130,000 to around $170,000 per year. During this time, LSA was
only able to continue operating because it received around $1.5
million in interest-free loans from the taxpayers, which were not
repaid.
54. #cbizmhmwebinar 54 Stuller v. U.S. (7th Cir.) Section 183
permits tax deductions for losses from S corp activities engaged in
for profit (i.e., business losses). Treasury Regulation 1.1832(b)
provides a non-exclusive list of relevant factors for determining
whether an activity is engaged in for profit, including: 1. the
manner in which the taxpayer carries on the activity; 2. the
expertise of the taxpayer or his advisors; 3. the time and effort
expended by the taxpayer; 4. the expectation that assets may
appreciate in value; 5. the taxpayer's success in other similar or
dissimilar activities; 6. the taxpayer's history of income or
losses; 7. the amount of occasional profits, if any; 8. the
financial status of the taxpayer; 9. elements of personal pleasure
or recreation.
55. #cbizmhmwebinar 55 Stuller v. U.S. (7th Cir.) No one factor
is determinative; instead, all relevant facts and circumstances are
to be taken into account. In considering whether an operation was a
business activity engaged in for profit, more weight is given to
objective facts than a taxpayer's statement of intent. District
court applied all of the factors and found that there was no intent
to make a profit. Court of appeals affirmed: kept minimal records
for tax purposes despite consistent and significant annual losses,
taxpayer did not change its operating methods or adopt any new
techniques that would significantly turn around its finances no
evidence that taxpayers consulted with any experts regarding
methods for running a profitable horse-breeding enterprise
substantial income from sources losses from the activity generate
substantial tax benefits personal or recreational elements
involved
56. #cbizmhmwebinar 56 ? QUESTIONS
57. #cbizmhmwebinar 57 If You Enjoyed This Webinar Upcoming
Courses: 4/19: Leasing Unleashed - A Deep Dive into the New
Standard 4/28 & 5/17: Top Lessons Learned from the First Year
of the Uniform Grant Guidance Implementation 4/28 & 5/3: Eye on
Washington: Quarterly Business Tax Update 5/11 & 6/1:
Unclaimed, Unidentified but Undeniable - A Primer on Managing your
Abandoned Property Recent Publications: First Quarter Developments
from the Emerging Issues Task Force Guidance Streamlines Equity
Method Accounting Principal Versus Agent Consideration Finalized
for Revenue Recognition Standard Private Companies Can Now Bypass
Preferability Assessment for Qualifying Adoptions of Accounting
Alternatives
58. #cbizmhmwebinar 58 Connect with Us linkedin.com/company/
mayer-hoffman-mccann-p.c. @mhm_pc youtube.com/ mayerhoffmanmccann
slideshare.net/mhmpc linkedin.com/company/ cbiz-mhm-llc @cbizmhm
youtube.com/ BizTipsVideos slideshare.net/CBIZInc MHM CBIZ