IIA Columbus Quarterly accounting update – Spring 2013

1. IIA ColumbusQuarterly accounting update – Spring 2013 May 17, 2013

2. Today’s presenter from McGladrey Brandon Rucker, Partner

3. Agenda Recently issued and effective guidance 10 min. FASB/IASB convergence projects 40 min. Questions and closing remarks 10 min.

4. Objective By the end of this webcast, you will have a high level understanding of certain recently issued and effective accounting guidance as well as the status of the major FASB/IASB convergence projects.

5. Recently issued and effective guidance

6. ASU 2013-02 - Reporting of amounts reclassified out of accumulated other comprehensive income • Addresses presentation requirements for items reclassified out of accumulated other comprehensive income (AOCI) • No change to the current requirements for reporting net income or other comprehensive income • Requires an entity to provide information about the amounts reclassified out of AOCI by component

7. ASU 2013-02 - Reporting of amounts reclassified out of accumulated other comprehensive income • On the face of the statement where net income is presented or in the notes, present amounts reclassified out of AOCI by the respective line items in net income if the amount is required to be reclassified to net income in its entirety • For amounts not required to be reclassified in their entirety to net income, cross-reference to other disclosures

8. ASU 2013-04 - Obligations resulting from certain joint and several liability arrangements • Provides guidance on obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date • Applies to debt arrangements, other contractual obligations, and settled litigation and judicial rulings • Currently there is diversity in practice • Some entities record the entire obligation • Other entities record less than the entire obligation, such as an amount corresponding to the proceeds received

9. ASU 2013-04 - Obligations resulting from certain joint and several liability arrangements • Measure obligations as the sum of the following: • The amount the reporting entity agreed to pay on the basis of the arrangement among its co-obligors • Any additional amount the reporting entity expects to pay on behalf of its co-obligors • Disclose the nature and amount of those obligations as well as other information about those obligations

10. ASU 2013-05 - Cumulative translation adjustments • Resolves the diversity in practice as to whether ASC 810-10, Consolidation—Overall, or ASC 830-30, Foreign Currency Matters—Translation of Financial Statements, applies to the release of the cumulative translation adjustment (CTA) into net income upon a derecognition event • The derecognition guidance in ASC 810-10 supports releasing the CTA upon the loss of a controlling financial interest • ASC 830-30 provides for the release of the CTA only if a sale or transfer represents a complete or substantially complete liquidation of an investment in a foreign entity

11. ASU 2013-05 - Cumulative translation adjustments • Differentiates between transactions within a foreign entity and those that relate to an investment in a foreign entity • For transactions within a foreign entity, ASC 830-30 applies: • CTA should be released only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided • For transactions that change an investment in a foreign entity, the CTA should be released upon the occurrence of either: • Events that result in the loss of a controlling financial interest in a foreign entity, or • Events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date (i.e., a step acquisition)

12. ASU 2013-05 - Cumulative translation adjustments

13. Other recently issued guidance • Nonpublic calendar year-end entities - ASUs effective in 2013 • 2011-10 - Derecognition of in Substance Real Estate – a Scope Clarification • 2011-11 - Disclosures about Offsetting Assets and Liabilities • 2012-02 - Testing Indefinite-Lived Intangible Assets for Impairment • 2012-06 - Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution • 2012-07 - Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs • 2013-01 - Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities • 2013-03 - Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities • Nonpublic calendar year-end entities - ASUs effective in 2014 • 2011-06 - Fees Paid to the Federal Government by Health Insurers • 2012-01 - Continuing Care Retirement Communities - Refundable Advance Fees • 2012-04 - Technical Corrections and Improvements • 2012-05 - Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows

14. Other recently issued guidance • Public calendar year-end entities - ASUs effective in 2013 • 2011-10 - Derecognition of in Substance Real Estate – a Scope Clarification • 2011-11 - Disclosures about Offsetting Assets and Liabilities • 2012-01 - Continuing Care Retirement Communities - Refundable Advance Fees • 2012-02 - Testing Indefinite-Lived Intangible Assets for Impairment • 2012-04 - Technical Corrections and Improvements • 2012-06 - Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution • 2013-01 - Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities • Public calendar year-end entities - ASUs effective in 2014 • 2011-06 - Fees Paid to the Federal Government by Health Insurers • 2012-05 - Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows

15. FASB/IASB convergence projects

16. Major FASB/IASB convergence projects timeline

17. Financial Instruments project

18. Recognition and measurement – Exposure draft • Issued February 14 • Comment period ends May 15 • Applies to all entities and most financial instruments • Certain specialized industry guidance would be retained • Transition would be through cumulative effect adjustment to opening balance sheet • No proposed effective date

19. Recognition and measurement - Summary • Measure debt financial assets based on cash flow characteristics and business model • Contractual cash flows criterion – Fail and instrument must be measured at fair value through net income (FV-NI) • Contractual terms provide for principal & interest (P&I) payments on specified date • P = Amount transferred by the holder at initial recognition • I = Consideration for time value and credit risk

20. Recognition and measurement - Summary 1. Contractual cash flows criterion (continued) • Consider terms that change the timing/amount of P&I payments as they may cause instrument to fail criterion • Variable rates that are not just consideration for time value and credit risk • Leveraged terms • Rate resets where index and time period are not calibrated • Certain prepayment/term-extending options • Conversion options • Separate guidance provided for evaluating beneficial interests

21. Recognition and measurement - Summary 2. Business model assessment • Amortized cost (AC): Hold to collect contractual cash flows • Fair value through other comprehensive income (FV-OCI): Hold to collect contractual cash flows and to sell • FV-NI: All other

22. Recognition and measurement - Summary 2. Business model assessment (continued) • Determined at recognition based on how assets are collectively managed • Consider how performance is reported to key management • How management is compensated • Frequency, volume and reasons for past sales and expected future sales • Sales as a result of significant credit deterioration would not be inconsistent with AC classification, but sales for other reasons should be infrequent for that business model

23. Recognition and measurement - Summary 2. Business model assessment (continued) • Current tainting provision is eliminated; however, sales inconsistent with stated business objective could call in to question credibility • Reclassification would occur only under the following circumstances • Business model changes (should be very infrequent) and • Change must be significant and demonstrable to external parties • The following are not business model changes • A change in intention for particular assets • Temporary disappearance of a particular market • Transfer of assets to another part of the entity with a different business model

24. Recognition and measurement - Summary • Equity securities (other than equity method investments) – Measure at FV-NI • Practicability exception for nonmarketable equity securities • Measure at AC less impairment • Assess impairment indicators qualitatively to determine if more-likely-than-not that fair value is less than carrying amount • If so, impairment is measured at excess of carrying amount over fair value • Adjust carrying value for observable price changes

25. Recognition and measurement - Summary • Financial liabilities: • Measure at FV-NI if: • Business strategy at inception is to transact at fair value, or • Liability is a short sale • Measure nonrecourse financial liability using model for related financial assets if liability is required to be settled only with cash flows from the related assets • Measure all others at AC

26. Recognition and measurement - Summary • Hybrid instruments: • Financial assets – apply cash flow characteristic/business model assessment (FV-NI if cash flows are not solely P&I as defined) • Financial liabilities – apply ASC 815-15 to determine if derivative should be bifurcated, account for host instrument under new model • Fair value option limited to: • Certain hybrid financial liabilities • Groups of financial assets/liabilities managed net on FV basis • Financial assets otherwise eligible to be classified as FV-OCI • Certain hybrid nonfinancial liabilities • Changes in FV of liabilities attributed to instrument specific credit risk would be recognized in OCI, not NI

27. Recognition and measurement - Summary • Presentation • Group items on balance sheet and income statement based on classification (FV-NI, FV-OCI and AC) • Public entities disclose FV of most financial instruments parenthetically on face of balance sheet • Disclosure requirements • Reclassifications due to change in business model • Sales of AC or FV-OCI assets • Information for equity securities for which practicability exception was elected • Information on core deposit liabilities (required for public entities only)

28. Recognition and measurement - Summary • Convergence? • Nearly converged on debt instruments • IASB permits equity securities that are not held for trading to be FV-OCI • Different criteria for fair value option

29. IASB ED on expected credit losses • Issued in March with comment period ending in July • Similar to FASB proposal, requires recognition of expected (rather than incurred) credit losses on financial assets exposed to credit risk • Unlike FASB, losses recognized on those assets that have not experienced credit quality deterioration are limited to 12-month expected credit losses rather than lifetime • Stay tuned – Boards intend to engage in redeliberations after comments are received on respective proposals

30. Leases project

31. Current status • Project objective is to develop a new approach to lease accounting that would ensure that assets and liabilities arising under leases are recognized on the balance sheet • The FASB and IASB have completed substantive redeliberations and are looking to issue a revised ED in the second quarter of 2013 • Initial ED issued in August 2010, with redeliberations starting in 2011

32. Redeliberations during the quarter • How to identify and account for separate lease components in a contract containing a lease of multiple underlying assets • For contracts containing multiple underlying assets, identify the separate lease components using the criteria from the revenue recognition project • For separate lease components containing a lease of more than one underlying asset, determine the lease classification based on nature of the primary asset • For a single lease component containing both land and building elements, do not account separately for the elements

33. Revenue Recognition project

34. Current status • The FASB and IASB have completed substantive redeliberations and are looking to issue a final standard in the second quarter of 2013 • During the first quarter the Boards reached tentative decisions on the following items among others: • Disclosures • Effective date & transition

35. Tentative decisions - Disclosures • Several disclosures removed from those proposed in the 2011 ED • Quantitative reconciliation of contract assets and liabilities • Quantitative reconciliation of costs to obtain or fulfill a contract • Several other disclosures from those proposed in the 2011 ED not required for private companies (FASB only) • Quantitative disclosures of disaggregation of revenue • Information about methods, inputs and assumptions to determine transaction price and estimate standalone selling price, among others • Many annual disclosures will be required to be provided on an interim basis for public companies • Disclosures will be significantly expanded from today’s requirements

36. Tentative decisions - Effective date & transition • Effective date for public companies • Annual reporting periods beginning after December 15, 2016, including related interim periods • Early application is prohibited (FASB only) • Effective date for private companies (FASB only) • Annual reporting periods beginning after December 15, 2017, including related interim periods • Early application is allowed (earliest would be for annual reporting periods beginning after December 15, 2016)

37. Tentative decisions - Effective date & transition • Transition options • Retrospective • Apply new revenue guidance to all prior periods • Modified retrospective • No restatement of prior periods • Apply new revenue guidance to in-progress contracts as of the adoption date going forward and subsequent contracts • Recognize a cumulative effect adjustment to retained earnings for application of the new revenue guidance to in-progress contracts • Disclose in the year of adoption the effect on each line item in the financial statements as a result of adoption

38. Questions and closing remarks

39. Questions?For more information, please contact: Brandon Rucker * brandon.rucker@mcgladrey.com ( 704.442.3812

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