Winter 2014 FASB Update

1. Winter 2014 FASB Update AGC Financial Issues ForumJanuary 9, 2014 Cullen D. Walsh, Assistant Director The views expressed in this presentation are those of the presenter. Official positions of the FASB are reached only after extensive due process and deliberations.

2. Agenda • FASB’s Agenda Prioritization • Joint Project on Leases • Joint Project on Revenue Recognition • Definition of a Nonpublic Entity • Private Company Council • Reporting Discontinued Operations • EITF: Presentation of Unrecognized Tax Benefits (FIN 48) • What to Expect in 2014

3. FASB’s Agenda Prioritization

4. Joint Project on Leases

5. Project overview and path forward • Reason for project • Overview of proposals • Lessee accounting • Lessor accounting • Feedback received on 2013 Exposure Draft • Users • Preparers, practitioners, and others • Path forward

6. Joint Project on Revenue Recognition

7. Project objective Objective: To develop a single, principles-based revenue standard for U.S. GAAP and IFRSs • The revenue standard aims to improve accounting for contracts with customers by: • Providing a more robust framework for addressing revenue issues as they arise • Increasing comparability across industries and capital markets • Requiring better disclosure

8. Project status 2010 2011 2014 2012 • June 2010 • Exposure draft • Revenue from Contracts with Customers • 974 comment letters November 2011 Revised exposure draft Re-exposure of Revenue from Contracts with Customers 358 comment letters March 2012 Comment letter deadline April 2012 Roundtables May 2012 onwards Redeliberations and drafting Q1 2014 Final ASU for US GAAP and final standard for IFRSs

9. Overview • Scope: An entity should apply the guidance to all contracts with customers, with exceptions outlined in the 2011 ED (e.g. leases, insurance, FI) 3. Determine the transaction price 4. Allocate the transaction price 2. Identify the separate performance obligations 1. Identify the contract(s) with the customer 5. Recognize revenue when or as a performance obligation is satisfied Core principle: Recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services Five steps for applying the core principle

10. Disclosure Objective: To enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers Quantitative & Qualitative Disclosures Qualitative Disclosures Disaggregation of revenue Information about contracts with customers & PO’s Notes to the financial statements Quantitative disclosures required for interim reporting Contract assets and contract liabilities Information about methods, inputs and assumptions Remaining performance obligations Contract costs (fulfillment and incremental costs of obtaining)

11. Transition, effective date, and early application • Apply the revenue standard for annual reporting periods beginning after December 15, 2016, including interim periods therein. IASB for annual reporting periods beginning on or after 1 January 2017. • Early application is prohibited. IASB allows early application. • A nonpublic entity should apply for annual reporting periods beginning after December 15, 2017, and interim and annual reporting periods thereafter. Early application permitted, but no sooner than the effective date for public entities. 1 = Contracts completed in prior years as determined under legacy revenue guidance 2 = Contracts completed under legacy revenue guidance prior to date of initial application are not restated *Full the full retrospective transition method, Topic 250 (paragraphs 250-10-50-1 through 50-3) and IAS 8 (paragraph 8) disclosure requirements apply

12. Joint Transition Resource Group • To solicit, analyze, and discuss stakeholder issues that apply to common transactions that could reasonably create diversity in practice Purpose • The group will not issue guidance, but will publicly discuss interpretations of the principles and publish minutes Guidance Limited life • Primary activities are planned to take place before the standard takes effect • 10-15 specialists (users, preparers, auditors) + IASB and FASB members Composition

13. Definition of a Nonpublic Entity

14. Definition of a Nonpublic Entity • Issue: multiple definitions of “nonpublic entity” and “public entity” in U.S. GAAP • Objectives: • Clarify organization within the scope of the Private Company Decision-Making Framework for potential modifications to U.S. GAAP • Simplify and increase comparability • In defining a nonpublic entity, the Board specified criteria that are characteristic of a public business entity

15. Public Business Entity Definition • A business entity that meets any one of the following criteria: • Required by the SEC to file/furnish financial statements, or does file/furnish financial statements, with the SEC (including entities whose financial statements or financial information are required to be or are included in a filing) • Required by the Securities Exchange Act of 1934, as amended, or rules and regulations promulgated thereunder, to file/furnish financial statements with a regulatory agency, other than the SEC • Required to file/furnish financial statements with a regulatory agency (foreign or domestic) in preparation for the sale of or for purposes of issuing securities not subject to contractual restrictions on transfer • Has (or is a conduit bond obligor for) securities that are traded, listed, or quoted on an exchange or an OTC market • Securities are not subject to contractual restrictions on transfer and required to prepare U.S. GAAP financial statements to be made publicly available on a periodic basis pursuant to a legal, contractual, or regulatory requirement

16. Private Company Council (PCC)

17. PCC Issues • Completed and endorsed by FASB • Accounting for goodwill after an acquisition • Simplified hedge accounting • In process • Related-party leases and VIEs • Intangible assets • Combined instruments approach to hedge accounting

18. Reporting Discontinued Operations

19. Goals of the Project • Change the definition so that only major strategic shifts are reported in discontinued operations • Reduce complexity of the extensive continuing involvement guidance in the current definition of discontinued operations • Improve disclosures about the balance sheet and cash flows of a discontinued operation

20. Proposed Definition of Discontinued Operations • The definition of a discontinued operation would be changed as follows: • Only those components of an entity (organization) that represent a separate major line of business or major geographic area of operations that either is held for sale or disposed of in a single coordinated plan would be eligible for discontinued operations presentation in the financial statements • A business that, on acquisition, meets the criteria to be classified as held for sale would be a discontinued operation • Disposals of equity method investments that meet the definition of a discontinued operation would be eligible for discontinued operations presentation

21. Proposed Disclosures • The major income and expense items constituting the pre-tax profit or loss from a discontinued operation • The major classes of cash flows (operating, investing and financing) • If the discontinued operation includes a noncontrolling interest, the income or loss attributable to the parent • A reconciliation of the major classes of assets and liabilities of the discontinued operation classified as held for sale that are disclosed in the notes to the financial statement to total assets and total liabilities of the discontinued operation classified as held for sale that are presented separately on the face of the statement of financial position • A reconciliation of the major income and expense items from the discontinued operation that are disclosed in the notes to the financial statements to the after-tax income or loss from the discontinued operation presented on the face of the income statement

22. EITF: Presentation of an Unrecognized Tax Benefit

23. Presentation of an Unrecognized Tax Benefit • Issue: No explicit guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists • Scope: Applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date • Conclusion: Present unrecognized tax benefit as a reduction to a deferred tax asset • Present as a liability in certain circumstances

24. Presentation of an Unrecognized Tax Benefit • Adoption • Effective for fiscal years (and interim periods within those years) beginning after December 15, 2013 for public entities and for fiscal years beginning after December 15, 2014 for nonpublic entities • Early adoption is permitted • Propsective application is required for all unrecognized tax benefits that exist at the effective date • Retrospective application is permitted

25. What to Expect in 2014

26. Project Roster and Status F—Final Document E—Exposure Document

27. Project Roster and Status

28. Questions or Comments?