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CBIZ & MHM Executive Education Series™

Fourth Quarter Accounting and Financial Reporting Issues Update Mike Loritz, Mark Winiarski, Bill Smith January 19 & January 26, 2017

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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 (Mayer Hoffman McCann P.C.) is an independent CPA firm that provides audit, review and attest services, and works closely with CBIZ, a business consulting, tax and financial services provider. CBIZ and MHM are members of Kreston International Limited, a global network of independent accounting firms.

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Before We Get Started…

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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.

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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.

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Presenters

Mike has 17 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 a member of MHM's Professional Standards Group, providing

accounting knowledge leadership in the areas of derivative financial

instruments, financial instruments, share-based compensation, fair

value, revenue recognition and others.

913.234.1226 • mloritz@cbiz.com

MIKE LORITZ, CPA MHM Shareholder

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Presenters

Located in our Kansas City office, Mark is a member of our Professional

Standards Group (PSG). Mark's role includes instructing in our national

training program, presenting 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.

913.234.1656 • mwiniarski@cbiz.com • @KCWini

MARK WINIARSKI, CPA MHM Shareholder

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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 • billsmith@cbiz.com

WILLIAM M. SMITH, Esq. Managing Director,

CBIZ National Tax Office

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Agenda

Accounting Standards Updates

02

01

03

04

Other Financial Reporting Matters

Federal Tax Update

Questions 05

Year End Reminders

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ACCOUNTING STANDARDS UPDATE

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Financial Accounting Standards Board

• Looking back at 2016 • 20 Accounting Standards Updates (ASUs) • Significant updates included:

• Leasing • Financial instruments • Not-for-Profit reporting model

• Began developing the FASBs next priorities

• Looking forward to 2017 • 24 active projects developing potential ASUs • 2 ASUs already issued

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ASU 2017-01 Definition of a Business

• Revision narrows the definition of a business • Improves alignment with IFRS • Results in fewer business combinations (ASC 805)

• Under current GAAP a business usually consists of:

• Inputs • Process, and • Outputs

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ASU 2017-01 Definition of a Business

• Example: • Rental, Inc. acquires real estate from Target • Target owns a land and building • Target leases the land and building to a restaurant • No employees, systems, or tradename are transferred

• Did Rental Inc. acquire a business?

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ASU 2017-01 Definition of a Business

• Example: • Rental, Inc. acquires real estate from Target • Target owns a land and building • Target leases the land and building to a restaurant • No employees, systems, or tradename are transferred

• Did Rental, Inc. acquire a business?

Despite Rental, Inc. not acquiring processes the acquisition is generally considered to be of a business under the existing definition.

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ASU 2017-01 Definition of a Business

• Three significant revisions: • Application of a “screen” • Definition of an output • Existence of inputs and processes

• Screen: A set of assets or activities is not a business if:

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ASU 2017-01 Definition of a Business

• Outputs: • Includes: Revenues or investment income • Excludes: Lowering costs or “other economic benefits” • Outputs do not have to exist to qualify as a business

• Inputs and Processes

• A business includes an input and a substantive process that together significantly contributes to the capability to create an output

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ASU 2017-01 Definition of a Business

• Inputs and Processes • If an output exists, evidence that the threshold to be a business is met:

• Existence of an organized workforce • Acquired process(es) applied to the acquired input(s) significantly

contributes to producing an output and the process cannot be replaced without significant cost, effort or delay, or

• Acquired process(es) applied to the acquired input(s) significantly contributes to producing an output and is considered unique or scarce

• If outputs don’t exist, the set of assets and activities must include an organized workforce that is critical to the ability to develop outputs from the input(s) acquired to be a business

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ASU 2017-01 Definition of a Business

• Example: • Rental, Inc. acquires real estate from Target • Target owns a land and building • Target leases the land and building to a restaurant • No employees, systems, or tradename are transferred

• Did Rental Inc. acquire a business?

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ASU 2017-01 Definition of a Business

• Example: • Rental, Inc. acquires real estate from Target • Target owns a land and building • Target leases the land and building to a restaurant • No employees, systems, or tradename are transferred

• Did Rental, Inc. acquire a business?

No, the screen applies. Even if the screen did not apply the acquisition is not of a business

because no substantive processes were acquired

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Asset Acquisition vs Business Combination

Asset Acquisition Business Combination

Measurement Cost allocated based on fair value

Fair value

Transaction costs Included in cost Expensed

Goodwill or gain None Recognized

Contingent consideration May be recognized when paid

Fair value

Identifiable intangibles Includes assembled workforce

Subsumes assembled workforce into goodwill

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Effective Date and Transition – Definition of a Business

• Public business entities: Annual, including interim periods within, beginning after December 15, 2017 (Calendar year 2018)

• All other entities: Annual periods beginning after December 15, 2018 (Calendar year 2019)

• Early adoption permitted

• Including for transactions completed but not yet included in financial statements issued or available for issuance

• Applied prospectively

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ASU 2016-18 Restricted Cash

• Resolves the presentation and disclosure requirements for restricted cash • Does not define restricted cash

• Requires that restricted cash be included in beginning

and ending cash on the cash flow statement • Cash, cash equivalents, restricted cash and restricted

cash equivalents

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ASU 2016-18 Restricted Cash

• Disclosure requirements • Nature of the restriction • Amount, by line items on the balance sheet, of

restricted cash and restricted cash equivalents

• Effective date and transition • Public business entities: Annual, including interim periods within,

beginning after December 15, 2017 (Calendar year 2018) • All other entities: Annual periods beginning after December 15,

2018 (Calendar year 2019) • Applied retrospectively • Early adoption permitted

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ASU 2016-16 Income Taxes – Intra-Entity Transfers

• Simplifies the accounting for transfers of assets between tax paying components within an entity

• Requires that the tax impact of a transfer of an asset within an entity be recognized a the time of the transfer • Excludes inventory transfers

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ASU 2016-16 Income Taxes – Intra-Entity Transfers

• Effective date and transition • Public business entities: Annual, including interim periods within,

beginning after December 15, 2017 (Calendar year 2018) • All other entities: Annual periods beginning after December 15,

2018 (Calendar year 2019) • Modified retrospective application • Early adoption permitted

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ASU 2016-17 & 2017-02 Consolidations

• When determining the primary beneficiary (PB) of a variable interest entity (VIE) include only the proportionate interest of entities under common control

Reporting Entity

VIE Sister Entity 40%

Parent Entity

100%

75%

25%

The reporting entity has a 10% interest in the VIE

Services

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ASU 2016-17 & 2017-02 Consolidations

• Retains the previous guidance on the voting model for Not-for-Profit entities • General partner is presumed to consolidate a limited partnership • Presumption is overcome when the limited partners have substantive

kick-out or participation rights

• Effective date and transition • Public business entities/NFPs: Annual, including interim periods within,

beginning after December 15, 2016 (Calendar year 2017) • All other entities: Annual periods beginning after December 15, 2017

(Calendar year 2018) • Retrospective application • Early adoption permitted

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ASU 2016-19 & 20 Technical Corrections

• Revenue recognition (Topic 606) clarifications: • Loan guarantees and insurance contracts are not in scope • Protocol for impairment testing for contract assets • Loss contracts may be assessed at the contract or performance obligation level • Disclosure for remaining performance obligation and prior period performance

obligations • Reinstatement of advertising cost and fixed odds wagering contract guidance • Capitalization of costs for advisors of private and public funds

• Other clarifications

• Difference between valuation approach and a valuation technique under ASC 820 Fair Value Measurement • Requires disclosure of changes to either the valuation approach or

technique

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OTHER FINANCIAL REPORTING MATTERS

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Exposure Drafts

• Simplifying the Classification of Debt • Debt is classified as noncurrent if:

• Liability is contractually due in more than one year from the balance sheet date, or

• A contractual right exists to defer settlement for more than one year from the balance sheet date

• Exceptions: • Debt with a covenant violation at the balance sheet date may

be classified as non-current if a waiver is obtained prior to the date the financial statements are issued (available for issuance) Present debt meeting the exception separately on the balance

sheet

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Exposure Drafts

• Distinguishing Debt from Equity • Entity would not consider the down round feature when

assessing if an instrument is indexed to its own stock • Recognize the effect of a down round feature when triggered

• Converts the deferral for certain mandatorily redeemable financial instruments for nonpublic entities into a scope exception • Mandatorily redeemable financial instruments without fixed dates,

or fixed or determinable amounts

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Exposure Drafts

• Inventory Disclosures

• Improve disclosure of inventory by requiring disclosure of: • Inventory disaggregated by component • Inventory disaggregated by measurement basis • Changes to the inventory balance that are not specifically

related to the purchase, manufacture, or sale of inventory in the ordinary course of business

• A qualitative description of the types of costs capitalized into inventory

• The effect of last-in, first-out (LIFO) liquidations on income • The replacement cost for LIFO inventory

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YEAR END REMINDERS

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Disclosure of Recently Issued Accounting Standards

• Disclosure objectives (SAB 74/Topic 11M): • Notify the financial statement user • Assist in assessing the impact on the financial statements

• Disclosures should consider:

• Description of the standard and its transition requirements • Entities planned adoption date and method • Impact of the standard • Other significant impacts from adoption

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Disclosure of Recently Issued Accounting Standards

• SEC staff emphasized disclosures on major to be adopted standards • Revenue From Contracts with Customers (Topic 606) • Leases (Topic 842), and • Financial Instruments - Credit Losses (Topic 326)

• Disclosures that the impact is not known may be inadequate, consider disclosing: • Qualitative discussion of the impact of the standard

• Effect on accounting policies compared to existing policies

• Status of the process for implementation • Include significant implementation matters yet to be addressed

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Managements Evaluation of Going Concern (ASU 2014-15) Effective Calendar Year 2016

Prior Guidance New Guidance

Authoritative Source Auditing standards Accounting standards

Time period One year from the balance sheet date

One year from the date the financial statements are issued/available to be issued

Addresses When must an auditor include an emphasis-of-matter paragraph in the auditor’s report

When must management disclose the existence of substantial doubt and managements plans

• US GAAP requires a presumption of going concern, until liquidation becomes eminent

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Managements Evaluation of Going Concern

• Requires management to evaluate: • If conditions and events, in aggregate, indicate it is probable that

the entity will be unable to meet its obligations as they come due within one year after the date the financial statements are issued (available to be issued)

• If substantial doubt exists, management evaluates:

• If managements plans to alleviate the substantial doubt will be effectively implemented

• If management’s plans to alleviate the substantial doubt will mitigate the conditions and events that gave rise to the substantial doubt

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Going Concern – Disclosures

• Conditions and events that raise(d) substantial doubt

• Management’s evaluation of those conditions and events in relation to the entity’s ability to meet its obligations

• Management’s plans that are intended to alleviate (alleviated) the substantial doubt

• If the substantial doubt is not alleviated, an explicit statement about the entities ability to continue as a going concern within one year from the date the financial statements are issued.

• When substantial doubt is alleviated in a subsequent period explanation of how the relevant conditions were resolved

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Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03) Effective Calendar Year 2016

Previous GAAP • Debt issuance costs are

capitalized as an asset (gross presentation)

• Debt issuance costs are amortized into interest expense using the effective interest rate method (or straight line method)

New GAAP Debt issuance costs netted

against the liability (net presentation) Same manner as a debt

discount/premium

Debt issuance costs related to

lines of credit may be presented gross or net Debt issuance costs are

amortized into interest expense using the effective interest rate method (or straight line method)

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Consolidation (ASU 2015-02)

• Key provisions • Significantly modifies each step in the variable interest

entity (VIE) guidance

• Eliminates presumption under the voting model that a general partner consolidates a limited partnership and similar entities

Reporting entities re-evaluate their consolidation decisions for VIE’s, potential VIE’s, limited

partnerships and similar entities.

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Consolidation (ASU 2015-02)

• Effective Date: • Public Business Entities: Periods beginning after December 15, 2015

(calendar year-end December 31, 2016) • Nonpublic Entities: Annual periods beginning after December 15, 2016

(calendar year-end December 31, 2017)

• Early adoption permitted

• Retrospective or modified retrospective method

• Evaluation is performed at the date of initial involvement or a later reconsideration event.

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Simplifying Inventory Measurement (ASU 2015-11)

• Inventory should be measured at the lower of cost or net realizable value • Replaces the current lower of cost or

market concept

Net Realizable Value (Ceiling)

Replacement Cost

Net Reliable Value less Normal Profit

Margin (Floor)

Market = If not <

If not > • Effective beginning after 12/15/16 (Calendar 12/31/17)

• Early adoption is permitted

• Excludes LIFO and retail

method inventories

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Simplifying Inventory Measurement (ASU 2015-11)

• Effective Date: • Public Business Entities: Periods beginning after December 15, 2015

(calendar year-end December 31, 2016)

• Nonpublic Entities: Annual periods beginning after December 15, 2016 (calendar year-end December 31, 2017)

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Income Taxes (ASU 2015-17)

• Deferred income taxes should be classified as noncurrent on the balance sheet

• Effective date: • Public business entities: annual periods, including interim

periods within, beginning after December 15, 2016 (Calendar year 2017)

• All others: annual periods beginning after December 15, 2017 (Calendar year 2017)

• Early adoption permitted

• Application may be either prospective or retrospective

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Financial Instruments (ASU 2016-01)

• One significant provisions available for early adoption: • Non-public entities are no longer required to disclose

the fair value of financial instruments measured at amortized cost

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FEDERAL TAX UPDATE

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White House

Trump’s Tax Plan

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Average Effective Tax Rate By Industry (Washington Post Oct. 4)

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Presidential Nominees’ Tax Proposals

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House “Blueprint” Deviations from Trump’s Tax Proposals

• Standard deduction increased to $12,000/$24,000 (with an additional $6,000 single taxpayers with at least one child) • Eliminates itemized deductions except mortgage interest and charitable donations • Lower the corporate tax rate to 20% • Lower the top marginal rate on pass-through businesses to 25% • Capital Gains: Tax capital gains, dividends and interest as ordinary income with a 50% exclusion • Full expensing of capital investment • Preserves LIFO • International • Shifts to territorial tax system • Deemed repatriation tax of 8.75% for cash and cash-equivalents profits and 3.5% on other profits • Make federal income tax “border adjustable” (no tax on exports; no deduction for imports) • Eliminate the estate tax • No deduction for net interest

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? QUESTIONS

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If You Enjoyed This Webinar…

Upcoming Courses: • 2/8, 2/15: New Partnership Audit Rules – Planning Ideas and Practical Observations

• 2/9, 2/14: Eye on Washington – Quarterly Business Tax Update, Q4 2016

Recent Publications: • MHM Messenger: Accounting Updates That Impact 2016 Financial Reporting • MHM Messenger: Does Early Adoption of an Accounting Standard Make Sense for

Your Company? • MHM Messenger: Was a Business Acquired? Updates to the Definition of a

Business • MHM Messenger: Several Small Updates Made to the Revenue Recognition

Standard • MHM Messenger: SEC Staff Reiterates Announcements Regarding Disclosures

Related to Recently Issued Accounting Standards

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