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Accounting Issues for the Pork Industry

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Accounting Issues for the Pork Industry

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  1. Accounting Issues for the Pork Industry T.J. Boyle, CPA June 2014

  2. Key Items • Leases • Revenue Recognition • Private company options • PEDV • Inventory values • Audit Implications Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  3. Leases • Very slow moving forward • Basics • All leases become capital leases • Major changes to the balance sheet, income statement and cash flows • Major implications on debt covenants Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  4. Revenue Recognition • Expected to complete in the next year • Major changes to many industries • Reason for issuing – many different standards for all different industries • Will add more disclosures Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  5. Revenue Recognition (cont.) • General Principles • Identify contract with customer • Performance obligation in the contract • Determine transaction price • Allocate to the obligations in the contract • Recognize the revenue when (or as) performance obligation is satisfied Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  6. Private Company Considerations • Private Company Council • Goodwill • Interest Rate Swaps • Variable Interest Entities • AICPA – Reporting for Small and Medium Sized Entities Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  7. Goodwill option • Amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates that another useful life is more appropriate • This is optional for private companies and is not required Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  8. Interest Rate Swaps • Allows the use of the simplified hedge approach for swaps that are entered into to convert a variable-rate borrowing into a fixed-rate borrowing • Private Company option • Only for “plain vanilla swaps” Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  9. Variable Interest Entities • a private company lessee (the reporting entity) to elect an alternative not to apply VIE guidance to a lessor entity if • (a) the private company lessee and the lessor entity are under common control, • (b) the private company lessee has a lease arrangement with the lessor entity, • (c) substantially all of the activities between the private company lessee and the lessor entity are related to leasing activities (including supporting leasing activities) between those two entities, and • (d) if the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor entity related to the asset leased by the private company, Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  10. AICPA Reporting for SME’s • To be a more usable framework for small business owners and their users • Potential Benefits – • Cost beneficial • Stable framework • Designed for SME’s • Concepts based Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  11. AICPA Reporting for SME’s • Similar to GAAP, but not considered GAAP • Would need approval from lenders • May not be necessary based on changes from the Private Company Council for US GAAP Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  12. Impact of PEDV • Inventory Valuations • Hedging • Not considered extraordinary item • Will be reported as a part of operations • Consider additional disclosures Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  13. Impact of PEDV (cont.) • Audit implications • Many banks are currently suspending onsite reviews • Potential impacts – • Additional alternative procedures – best for contract growers • Additional shipping document review • Smaller onsite samples • Others Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  14. Comments, Thoughts or Items to Share? Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com

  15. T.J.Boyle, CPAFROST, PLLCTBOYLE@FROSTPLLC.COM501.376.9241 Frost, PLLC | 425 West Capitol Avenue, Suite 3300 | Little Rock, AR 72201 | 501.376.9241 | www.frostpllc.com