Webinar Slides: First Quarter Accounting and Financial Reporting Issues Update

#cbizmhmwebinar 1

CBIZ & MHM Executive Education Series

First Quarter Accounting and Financial Reporting Issues Update Mike Loritz, Mark Winiarski, Steve Henley April 13, 2017; Rebroadcast April 21, 2017

#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 (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.

#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.

#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.

#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.

#cbizmhmwebinar 6

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.

816.945.5611 [email protected]

MIKE LORITZ, CPA MHM Shareholder

#cbizmhmwebinar 7

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.

816.945.5614 [email protected] @KCWini

MARK WINIARSKI, CPA MHM Shareholder

#cbizmhmwebinar 8

Presenters

Steve Henley is the National Tax Practice Leader for CBIZ. Steve's

responsibilities include developing and implementing strategies for the

successful operation of the tax practice, including national support for

the CBIZ MHM's local tax practices through the National Tax Office.

770.858.4500 [email protected]

STEPHEN HENLEY National Tax Practice Leader

CBIZ

#cbizmhmwebinar 9

Agenda

Accounting Standards Updates

02

01

03

Other Financial Reporting Matters

Federal Tax Update

Questions 04

#cbizmhmwebinar 10

ACCOUNTING STANDARDS UPDATE

#cbizmhmwebinar 11

Definition of a Business (ASU 2017-01)

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

Three significant revisions:

Application of a screen Narrows the definition of an output Requires an input and substantive process that

significantly contribute to create/develop an output

#cbizmhmwebinar 12

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

#cbizmhmwebinar 13

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

#cbizmhmwebinar 14

Derecognition of Nonfinancial Assets (ASU 2017-05)

Aligns de-recognition guidance Transfers of nonfinancial assets treated in same manner

as a businesses If a controlling financial interest is retained it is accounted

for as an equity transaction Otherwise if control has transferred (per Topic 606) full

gain or loss is recognized Any retained noncontrolling ownership interest is measured at

fair value

Applies to the formation of a Joint Venture

#cbizmhmwebinar 15

Derecognition of Nonfinancial Assets (ASU 2017-05)

New terminology: In substance nonfinancial asset

Financial asset that is part of a contract in which substantially all the fair value of the assets promised to a counterparty is concentrated in nonfinancial assets

A consolidated subsidiary that is not a business in which substantially all the fair value of the assets is concentrated in nonfinancial assets.

Eliminates the concept of in substance real estate

#cbizmhmwebinar 16

Example

Transfer real estate, equipment, and receivables to a newly formed entity

Receive 20% of the newly formed entity and $1 million

Concluded that the transaction is not a contract with a customer that the net assets transferred are not a business

#cbizmhmwebinar 17

Example

First, determine if the receivable is an in substance nonfinancial asset Only 6.7% of the fair value of the

assets transferred are financial (100,000 / 1,500,000)

Conclusion: the receivable is in substance nonfinancial

#cbizmhmwebinar 18

Example

Second, determine the fair value of the consideration received: assume $1,500,000 ($1 million + 20% interest with fair value of $500,000)

Third, allocate the consideration between the distinct nonfinancial assets

The 20% retained interest in the new entity becomes an equity method investment

#cbizmhmwebinar 19

Effective Date & Transition Derecognition Nonfinancial Assets

Public business entities: Annual, including interim periods within, beginning after December 15, 2017

Including not-for-profit entities that are conduit bond obligors for traded, listed or quoted securities

Including employee benefit plans that file or furnish statements with the Securities and Exchange Commission (SEC)

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

Early adoption permitted at the same time as ASU 2015-09 Revenue from Contracts with Customers (Topic 606)

Applied using the retrospective or modified retrospective method

#cbizmhmwebinar 20

Simplifying the Test for Goodwill Impairment (ASU 2017-04)

Eliminates the computation of implied fair value of goodwill (Step 2)

Eliminates the required qualitative test for reporting units with negative carrying value

New test format Optional qualitative assessment (formerly Step 0) Quantitative test (formerly Step 1)

#cbizmhmwebinar 21

Expected Impact

Reduce the cost of the impairment test when Step 2 was previously required

Reduce the accuracy of the impairments recognized Ignores the allocation of value to non-recognized

intangible assets and changes in value of other types of assets

Increase the number of impairments recognized by elimination of Step 2

#cbizmhmwebinar 22

Qualitative Assessment (formerly Step 0)

Evaluate qualitative factors to determine if it is more likely than not (>50%) that fair value of the reporting unit is less than its carrying amount

Example factors to consider: Macroeconomic conditions Industry and market Cost factors Overall financial performance

Entity specific events Changes to reporting units Share price

#cbizmhmwebinar 23

Quantitative Test (formerly Step 1)

Applies when qualitative test is failed or not performed

*Impairment is the amount of the difference limited to the total amount of goodwill assigned to the reporting unit

#cbizmhmwebinar 24

Other Goodwill Impairment Reminders

Required to test at least annually Test is performed at the reporting unit level Any impairments of other assets is recorded before

performing the quantitative test

#cbizmhmwebinar 25

Effective Date and Transition Goodwill Impairment

Annual and interim impairment tests in annual periods beginning after:

SEC Filer: December 15, 2019

Other public business entities: December 15, 2020

All other entities: December 15, 2021

Early adoption permitted for impairment tests performed after January 1, 2017

Applied prospectively

#cbizmhmwebinar 26

Benefit Plans: Master Trust Reporting (ASU 2017-06)

Align Topic 960, 962 and 965 to require: Interest and changes in interest for each master trust presented

separately on the statement of net assets available for benefits and changes in net assets available for benefits

Disclose dollar amount of interest by general types of investments

Disclose other assets and liabilities of the master trusts Remove:

Percentage interest disclosure Redundant disclosure of 401(h) account assets

Effective years beginning after December 15, 2018, early adoption permitted

Applied retrospectively

#cbizmhmwebinar 27

Pension Cost and Postretirement Benefit Cost (ASU 2017-07)

Service cost component presented with other compensation costs Service cost is the only component that is capitalizable

Present separately from service cost: interest cost, return on plan assets, amortization, and gains or losses Present outside of income from operations

Effective date & transition: Public business entity: Annual periods and interim periods within beginning

after December 15, 2017

All other entities: Annual periods beginning after December 15, 2018 Early adoption permitted Retrospective for presentation; prospective for capitalization

#cbizmhmwebinar 28

Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08)

Premiums on callable debt securities are amortized over the period to the earliest call date Unless elected to estimate prepayments

Discounts on callable debt securities continue to be amortized to the

maturity date

Effective date and transition: Public business entity: Annual periods and interim periods within

beginning after December 15, 2018 All other entities: Annual periods beginning after December 15, 2019 Early adoption permitted Modified retrospective

#cbizmhmwebinar 29

OTHER FINANCIAL REPORTING MATTERS

#cbizmhmwebinar 30

Exposure Draft

Nonemployee share-based payments proposed changes Measure based on fair value of the shares

Measurement date on the grant date for equity awards

Performance conditions accounted for in the same manner as employee share-based payment (i.e. probability assessment)

Classification for equity classified awards continues to be subject to ASC 718 unless modified

Nonpublic entity can use calculated values in place of volatility and use intrinsic value for liability based awards

#cbizmhmwebinar 31

Exposure Drafts - AICPA Task Forces on Revenue Recognition

16 task forces organized on industry lines Final interpretations have been issued by Aerospace &

Defense and Asset Management task forces Exposure drafts have been issued by several other task

forces including: Construction Brokers & Dealers Health Care Not-for-Profit Software Telecommunications

#cbizmhmwebinar 32

Exposure Drafts - AICPA Task Forces on Revenue Recognition

Airlines Example Identifying Performance Obligations

Selling a round-trip ticket from Kansas City to Tampa Bay with a layover both directions in Atlanta for $400

At check-in, the passenger pays $25 luggage fee for each leg of the trip

The passenger also purchased access to the airline lounge for a one-year period for $250

How does the airline determine its performance obligations?

#cbizmhmwebinar 33


Services transferred to the customer:

#cbizmhmwebinar 34


Each flight is a separate performance obligation Capable of being distinct

Each flight is sold separately to other customers Other airlines sell the same service

Distinct within the context of the contract Customer elected the route (over other possible routes) Failure to perform one flight would result in loss of

compensation

Utility for the customer exists in getting to Atlanta Each flight does not significantly modify the other

#cbizmhmwebinar 35


Baggage handling is not a separate performance obligation Capable of being distinct

Possible legal restrictions Cannot benefit separately from the service

Airline lounge

Capable of being distinct Separately sold service

Distinct within the context of the contract Not dependent on any flight

#cbizmhmwebinar 36

Airlines Example What If Scenarios?

What if an airline partner provides the service between Tampa Bay and Atlanta? Evaluate whether the selling airline is a principle or

agent in the contract for the performance obligations

What if instead of annual access to the airlines lounge the customer bought a years worth of seat upgrades? Combined performance obligation with each flight

covered by the seat upgrade subscription

#cbizmhmwebinar 37

Hotel Management Variable Consideration

A hotel management company and a hotel owner enter into a contract with two performance obligations:

License the managers brand

Operate the hotel

Booking system, employee management, cleaning services, accounting back office, etc.

The manager will receive 4% of revenues, 10% of operating profit and direct reimbursement for costs incurred (payroll) How should the variable consideration be allocated?

#cbizmhmwebinar 38

Hotel Management Variable Consideration

Assume the variable consideration is commensurate to the services performed:

4% of revenues specifically relates to the license of the brand

10% of operating profit and cost reimbursement specifically relates to the operations services

Each form of variable consideration is linked to their respective performance obligations

In practice the total amount of variable consideration need not be estimated:

The manager would elect the practical expedient to not disclose variable fees allocated entirely to a wholly unsatisfied performance obligation

#cbizmhmwebinar 39

FEDERAL TAX UPDATE

#cbizmhmwebinar 40

LEGISLATIVE

#cbizmhmwebinar 41

Trumps Proposals Compared to House Blueprint

Trump Plan Tax Issue House Blueprint

Top rate of 15%. Eliminate most deductions and credits except R&D. Manufacturers may expense capital investment but lose interest deduction (election revocable within 3 years, then permanent).

Corporate Tax

Top rate of 20%. Full expensing of capital investment. No deduction for net interest.

Sheet1

Trump PlanTax IssueHouse Blueprint

Top rate of 15%. Eliminate most deductions and credits except R&D. Manufacturers may expense capital investment but lose interest deduction (election revocable within 3 years, then permanent).Corporate TaxTop rate of 20%. Full expensing of capital investment. No deduction for net interest.

Owners of pass-through entities (sole proprietorships, partnerships, and S corporations) could elect to be taxed at a flat rate of 15 percent on their pass-through income rather than under regular individual income tax rates. However, distributions from large pass-through businesses received by owners who elected the 15 percent flat rate would be taxed as dividends Pass-Through EntitiesLower the top marginal rate on pass-through businesses to 25%

Single and earn less than $15,000, or married and jointly earn less than $30,000, no income tax (increase to standard deduction). Individual TaxStandard deduction increased to $12,000/$24,000 (with an additional $6,000 single taxpayers with at least one child)

Maintain maximum rate of 20% for highest bracket above.Capital Gains and Interest IncomeTax capital gains, dividends and interest as ordinary income with a 50% exclusion (16.5% maximum rate)

Cap itemized deductions at $100,000 single/$200,000 joint (eliminates Pease issue). Increase standard deduction to $15,000 individual/$30,000 joint. Eliminate personal exemptions (no need to increase PEP). Exemptions, Deductions and CreditsEliminates itemized deductions except mortgage interest and charitable donations

RepealAMTRepeal

RepealNet Investment Income TaxRepeal

Repeal and Replace. Currently Fate Unknown.Affordable Care ActRepeal and Replace. Currently Fate Unknown.

Repeal, but capital gains held until death will be subject to tax (first $10 million tax-free). Contributions of appreciated assets into a private charity established by the decedent or the decedents relatives will be disallowed.Estate TaxRepeal

A one-time deemed repatriation of corporate cash held overseas at 10% rate. Originally sought end of deferral of taxes on corporate income earned abroad, but removed in revised plan. International Tax - RepatriationDeemed repatriation tax of 8.75% for cash and cash-equivalents profits and 3.5% on other profits

Trump initially opposed idea as too complicated but since has reconsidered saying it is one of many options being discussed.International Tax - Border AdjustmentCorporations would no longer be able to deduct costs of goods purchased offshore, but gross income from exports would be free of taxation.

Business: Credit for onsite childcare increased to $500,000 (from $150,000) and recapture reduced to 5 years (from 10). Individual: Above the line deduction for care of up to 4 children or elderly relatives up to state average.ChildcareNo provision

Establish Dependent Care Savings Accounts (DCSAs) for the benefit of specific individuals, including unborn children. Total annual contributions limited to $2,000 per year . Funds remaining in account when child reaches 18 can be used for education expenses. Government will provide a 50 percent match on parental contributions of up to $1,000 per year. Check the box available to directly deposit any portion of their EITC into their Dependent Care Savings Account. All deposits and earnings thereon will be free from taxation, and unused balances can rollover from year to year.Dependent Care Savings AccountsNo provision

Sheet2

Sheet3

Sheet1







RepealAMTRepeal







Establish Dependent Care Savings Accounts (DCSAs) for individuals, including unborn children. Total annual contributions limited to $2,000. Funds remaining in account when child reaches 18 can be used for education expenses. Government will provide a 50 percent match on parental contributions of up to $1,000 per year.Dependent Care Savings AccountsNo provision

Sheet2

Sheet3

#cbizmhmwebinar 42



Owners of pass-through entities (sole proprietorships, partnerships, and S corporations) could elect to be taxed at a flat rate of 15 percent on their pass-through income rather than under regular individual income tax rates. However, distributions from large pass-through businesses received by owners who elected the 15 percent flat rate would be taxed as dividends

Pass-Through Entities

Lower the top marginal rate on pass-through businesses to 25%

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

#cbizmhmwebinar 43



Single and earn less than $15,000, or married and jointly earn less than $30,000, no income tax (increase to standard deduction).

Individual Tax

Standard deduction increased to $12,000/$24,000 (with an additional $6,000 single taxpayers with at least one child).

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

Sheet1




Single and earn less than $15,000, or married and jointly earn less than $30,000, no income tax (increase to standard deduction). Individual TaxStandard deduction increased to $12,000/$24,000 (with an additional $6,000 single taxpayers with at least one child).



RepealAMTRepeal








Sheet2

Sheet3

#cbizmhmwebinar 44



Maintain maximum rate of 20% for highest bracket above.

Capital Gains and Interest Income

Tax capital gains, dividends and interest as ordinary income with a 50% exclusion (16.5% maximum rate)

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

#cbizmhmwebinar 45



Cap itemized deductions at $100,000 single/$200,000 joint (eliminates Pease issue). Increase standard deduction to $15,000 individual/$30,000 joint. Eliminate personal exemptions (no need to increase PEP).

Exemptions, Deductions and Credits

Eliminates itemized deductions except mortgage interest and charitable donations.

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

Sheet1






Cap itemized deductions at $100,000 single/$200,000 joint (eliminates Pease issue). Increase standard deduction to $15,000 individual/$30,000 joint. Eliminate personal exemptions (no need to increase PEP). Exemptions, Deductions and CreditsEliminates itemized deductions except mortgage interest and charitable donations.

RepealAMTRepeal








Sheet2

Sheet3

#cbizmhmwebinar 46



Repeal AMT Repeal

RepealNet

Investment Income Tax

Repeal

Repeal and Replace. Currently Fate Unknown.

Affordable Care Act

Repeal and Replace. Currently Fate Unknown.

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

#cbizmhmwebinar 47



Repeal, but capital gains held until death will be subject to tax (first $10 million tax-free). Contributions of appreciated assets into a private charity established by the decedent or the decedents relatives will be disallowed.

Estate Tax Repeal

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

#cbizmhmwebinar 48



A one-time deemed repatriation of corporate cash held overseas at 10% rate. Originally sought end of deferral of taxes on corporate income earned abroad, but removed in revised plan.

International Tax -

Repatriation

Deemed repatriation tax of 8.75% for cash and cash-equivalents profits and 3.5% on other profits

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

#cbizmhmwebinar 49



Trump initially opposed idea as too complicated but since has reconsidered saying it is one of many options being discussed.

International Tax -

Border Adjustment

Corporations would no longer be able to deduct costs of goods purchased offshore, but gross income from exports would be free of taxation.

Sheet1







RepealAMTRepeal








Sheet2

Sheet3

Sheet1







RepealAMTRepeal



Repeal, but capital gains held until death wil

Webinar Slides: First Quarter Accounting and Financial Reporting Issues Update

Economy & Finance