GAAP Update November 2017 Presentation Texas 11-15-17 website › ... › 11 › IASA-GAAP-Update.pdf · Texas Chapter IASA November 17, 2017. Accounting Standards Updates (ASUs)

GAAP UpdateTexas Chapter IASA

November 17, 2017

Accounting Standards Updates (ASUs) • 2015-07, Fair Value Measurement, Disclosures for Investments in Certain

Entities that Calculate Net Asset Value per Share (or its Equivalent)• 2015-09, Insurance – Disclosure about Short-Duration Contracts• 2015-17, Income Taxes – Balance Sheet Classification of Deferred Taxes• 2016-01, Accounting for Financial Instruments – Classification and

Measurement• 2016-02, Leases• 2016-07, Investments – Equity Method and Joint Ventures • 2016-09, Employee Share-Based Payment Accounting Improvements• 2016-13, Accounting for Financial Instruments – Credit Losses• 2016-18, Statement of Cash Flows – Restricted Cash• 2017-09, Compensation-Stock Compensation, Scope of Modification

Accounting2

Accounting Standards Updates (ASUs)

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Revenue

Topic 606 Topic 842 Topic 326

Credit Losses

Leases

ASU No. 2015-09Insurance – Disclosures about Short-Duration Contracts

• Effective Dates:• Public companies:

• Annual disclosures year ended December 31, 2016• Interim disclosures first period in 2017

• Non-public companies: • Annual disclosures year ended December 31, 2017• Interim disclosures first period in 2018

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ASU No. 2015-09 (Continued)

• Key disclosures:• Interim disclosure reconciling beginning and ending reserves• Development triangles up to 10 accident years

• Paid claims and allocated claims adjustment expense (ALAE)

• Incurred claims and ALAE• Incurred but not reported claims and claims adjustment

expense (LAE) by accident year• Current reported claims frequency by accident year• Reconciliation of development triangles to carried unpaid

claims and LAE in the current period• Explanations of significant changes in methods and assumptions

used to calculate reserves and derive reported claim frequency and IBNR

• Average annual percentage payout of incurred claims by age of accident year

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ASU No. 2015-09 (Continued)InfinityPropertyandCasualtyCorporationandSubsidiaries10-K

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ASU No. 2015-09 (Continued)UNICOAMERICANCORPORATIONANDSUBSIDIARIES10-K

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• Additional Disclosures• For liabilities for unpaid claims and claim adjustment

expenses reported at present value:• the aggregate amount of discount deducted to

derive at the liability for unpaid claims and • claim adjustment expenses for each balance sheet

presented, the amount of interest accretion recognized for each period of income statement presented, and the income statement line item that includes interest accretion

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Long Duration ContractsFrom Convergence to Common Sense (2007 – 2017)

2015-09 – TOPIC 944 – Disclosures Short-Duration Contracts

+2016 Proposed – Targeted Improvements – Accounting for Long-Duration

Contracts

Proposed Accounting Standard Update – Targeted Improvements to the Accounting for Long-Duration ContractsProposed guidance issued 09/2016

Purpose = Improve, simplify and enhance GAAP financial reporting for long duration contracts to assist users in understanding amount, timing and uncertainty of cash flows

A compromise transition from the previous comprehensive attempt to completely revamp the accounting for insurance contracts

Applies to long duration contracts – life, disability income, long-term care, annuities

Key components =Required periodic update of assumptions used measure future policy benefit liabilitySimplified amortization of deferred acquisition costsConsistent measurement of market risk benefitsEnhanced disclosures – liability roll-forward, significant assumptions

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ASU No. 2015-07, Fair Value Measurement, Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent)Effective Dates:• Public Companies

• Fiscal years beginning after Dec 15, 2015 and interim periods within those fiscal years

• Nonpublic Companies• Fiscal years beginning after Dec 15, 2016, and interim periods

within those fiscal years

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Key Provisions:

• Removes the requirement to categorize within the fair value hierarchy all investments where fair value is measured using the net asset value per share as a practical expedient

• Eliminates 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

• Sufficient information must be provided to permit reconciliation of the fair value of assets categorized within the fair value hierarchy to the amounts presented in the statement of financial position

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ASU No. 2015-07 (Example)

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FairValueMeasurementsattheEndoftheReportingPeriodUsing

12/31/X9

QuotedPricesinActiveMarketsforIdentical

Assets(Level1)

SignificantOtherObservable

Inputs(Level2)

SignificantUnobservable

Inputs(Level3)

DescriptionRecurringfairvaluemeasurements

Totaltradingsecurities $ 153 $ 130 $ 23Available-for-saledebtsecurities $ 412 $ 94 $ 108 $ 210Available-for-saleequitysecurities $ 275 $ 275

Totalavailable-for-salesecurities $ 687 $ 369 $ 108 $ 210HedgefundinvestmentsEquitylong/short $ 90 $ 90High-yielddebtsecurities $ 90 $ 90Hedgefundinvestmentsmeasuredatnetassetvalue $ 30

Totalhedgefundinvestments $ 210 $ 90 $ 90

Totalrecurringfairvaluemeasurements $ 1050 $ 499 $ 221 $ 300

ASU No. 2016-07, Investments-Equity Method and Joint Ventures

Effective Dates:• Public Companies

• Fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2016

• Nonpublic Companies• Fiscal years, and interim periods within those fiscal years,

beginning after Dec. 15, 2016,

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Key Provisions:

• Eliminates the requirement that when an investment qualifies for the use of the equity method as a result of an increase in the level of ownership interest or degree of influence that an investor must adjust the investment, results of operations and retained earnings retroactively for as long as that investment has been owned.

• Equity method investor adds the cost of acquiring the additional interest in the investee to the current basis of the previously held interest and adopts the equity method, therefore no retroactive adjustment of the investment is required.

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Key Provisions:

• An entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting should recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.

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ASU No. 2015-17, Income Taxes-Balance Sheet Classification of Deferred Taxes


• Annual periods beginning after Dec. 15, 2016, and interim periods within those annual periods

• Nonpublic Companies• Annual periods beginning after Dec. 15, 2017, and interim

periods with annual periods beginning after Dec.15, 2018

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ASU No. 2015-17, Income Taxes- Balance Sheet Classification of Deferred Taxes (Continued)

Key Provisions:

• Current GAAP requires an entity to separate deferred tax assets and deferred tax liabilities into current and noncurrent amounts on a classified balance sheet.

• Presentation is simplified by requiring deferred tax assets and liabilities to be classified as noncurrent in a classified presentation.

• Amendment aligns the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards (IFRS)

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ASU No. 2016-09, Compensation-Stock Compensation, Improvements to Employee Share-Based Payment AccountingEffective Dates• Public Companies

• Annual periods beginning after Dec. 15, 2016, and interim periods within those annual periods.

• Nonpublic Companies: • Annual periods beginning after Dec. 15, 2017, and interim

periods within annual periods beginning after Dec. 15, 2018.

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Issued as part of a Board Simplification Initiative. The objective of the Simplification Initiative is to identify, evaluate, and improve areas of GAAP.

Key areas affected:

• Income tax consequences

• Classification of awards as either equity or liabilities

• Classification on the statement of cash flows

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ASU No. 2016-18, Statement of Cash Flows-Restricted CashEffective Dates:

• Public Companies• Fiscal years beginning after Dec. 15, 2017, and interim periods

within those fiscal years.

• Nonpublic Companies• Fiscal years beginning after Dec. 15, 2018, and interim periods

within fiscal years beginning after Dec. 15, 2019

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Key Provisions:

• Requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts described as restricted cash or restricted cash equivalents.

• Amounts described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the cash flow statement.

• Amendments in this update do not provide a definition of restricted cash or restricted cash equivalents.

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ASU No. 2016-18 (Example)

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Netincreaseincash,cashequivalents,andrestrictedcash 1,065

Cash,cashequivalents,andrestrictedcashatbeginningofyear 600

Cash,cashequivalents,andrestrictedcashatendofyear $ 1,665

• A reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.

12/31/19X1Cashandcashequivalents $ 1,465Restrictedcash 125Restrictedcashincludedinotherlong-termassets 75Totalcash,cashequivalents,andrestrictedcashshowninthestatementofcashflows $ 1,665

ASU No. 2017-09, Compensation-Stock Compensation, Scope of Modification Accounting

Effective Dates:

• Public Companies• Annual periods and interim periods within those annual

periods, beginning after Dec. 15, 2017

• Nonpublic Companies• Annual periods and interim periods within those annual

periods, beginning after Dec. 15, 2017

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Key provisions:

An entity should account for the effects of a modification unless all of the following are met:

• The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified

• The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified

• The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified

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ASU No. 2016-13, Financial Instruments-Credit Losses, Measurement of Credit Losses on Financial InstrumentsEffective Dates:

• Public Companies• If SEC filer it is effective for fiscal years beginning after Dec.

15, 2019, including interim periods within those fiscal years.• If non SEC filer it is effective for fiscal years beginning after

Dec. 15, 2020, including interim periods within those fiscal years.

• Nonpublic Companies• Fiscal years beginning after Dec. 15, 2020, and interim periods

within fiscal years beginning after Dec. 15, 2021.35

ASU No. 2016-13 (Continued)• Key provisions:

• Reinsurance receivables, other receivables, loans, held to maturity debt securities, net investments in leases, off balance sheet credit exposures: For most financial instruments measured at amortized cost a new “expected credit loss” should be estimated and an allowance recorded. Recognized in net income

• Available for sale debt securities: An allowance for credit losses is recognized as a contra-account to amortized cost rather than a reduction of amortized cost required by the current impairment model. Recognized through other comprehensive income

• Beneficial interests: Amended to conform with new credit loss model for held to maturity and available for sale securities

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ASU No. 2016-01, Financial Instruments-Recognition and Measurement of Financial Assets and Financial Liabilities


• Fiscal years beginning after Dec 15, 2017

• Nonpublic Companies• Fiscal years beginning after Dec 15, 2018

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Key Provisions:• Enhancing the reporting model for financial instruments to provide

users of financial statements with more decision-useful information

• Eliminates the available-for-sale equity securities

• All equities valued at fair value and income comes through the income statement not the statement of comprehensive income

• Eliminates need for non-public companies to make disclosures in financial statement notes regarding fair value

• Public companies still have to make the fair value disclosures

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ASU No. 2016-02, Leases


• Fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2018

• Nonpublic Companies• Fiscal years beginning after Dec. 15, 2019, and for interim

periods within fiscal years beginning after Dec. 15, 2020

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Key Provisions:• Results in a more faithful representation of the rights and obligations arising

from leases by requiring lessees to recognize the lease assets and lease liabilities that arise from leases in the statement of financial position

• Results in fewer opportunities for organizations to structure leasing transactions to achieve a particular accounting outcome

• Improves understanding and comparability of lessees’ financial commitments regardless of the manner they choose to finance the assets

• Provides users of financial statements with additional information about lessors’ leasing activities and lessors’ exposure to credit and asset risk as a result of leasing

• Clarifies the definition of a lease to address practice issues that were raised about the previous definition of a lease and to align the concept of control

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This guidance does not apply to any of the following: • Leases of Intangible assets (see Topic 350, Intangibles—

Goodwill and Other)

• Leases to explore for or use minerals, oil, natural gas, and similar nonregenerative resources

• Leases of biological assets, including timber (see Topic 905, Agriculture)

• Leases of inventory (see Topic 330, Inventory)

• Leases of assets under construction (see Topic 360, Property, Plant, and Equipment)

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Now Then

Classification

OperatingorCapital OperatingorFinance

Balance Sheet

Operating– offbalancesheetCapital– recognizeassetandliability

Recognize assetandliability

IncomeStatement

Operating– recognize leaseexpenseCapital– recognizedepreciationandinterest

Operating – recognizerentexpenseFinance– recognizedepreciationandinterest

CashFlowStatement

Operating– operatingcashflowCapital– operating cashflowforinterest,financingcashflowforprincipal

Operating– operatingcashflowCapital– operating cashflowforinterest,financingcashflowforprincipal


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Downloads Available:• Today’s slides

• Short Duration Contract Survey

• Disclosure Lists

jlkrosenberger.com/iasa-all-access

GAAP Update November 2017 Presentation Texas 11-15-17 website › ... › 11 › IASA-GAAP-Update.pdf · Texas Chapter IASA November 17, 2017. Accounting Standards Updates (ASUs)

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