הכנס השנתי לכללי חשבונאות בינלאומיים ואמריקאים חידושים ועדכונים מהכנס השנתי בוושינגטון לגבי חברות הנסחרות בארה"ב: (SEC) - )FASB) - )PCAOB) - רונן מנשס, שותף, ראש המחלקה המקצועית 11 ב
Changes in the SEC Jay Clayton was nominated to chair the U.S. Securities and Exchange Commission on January 20, 2017 by President Donald Trump and sworn in on May 4, 2017, following confirmation by the U.S. Senate on May 2, 2017. Change in behavior the SEC is more open minded and willing to hear and speak with registrants. Mark Kronforst, chief accountant of the SEC s Division of Corporation Finance, will leave the SEC in early January after 13 years with the agency. עמוד 2
Agenda Major FASB pronouncements Revenue recognition- will be discussed thoroughly in a separate presentation Lease Goodwill impairment Definition of a business Hedging Statement of cash flow SEC Hot Topics PCAOB update - Auditor s reporting model Trump's Tax Reform Plan Cryptocurrency (bitcoin) עמוד 3
Major FASB Pronouncements עמוד 4
Effective date matrix Public entities- calendar year-end entities Final FASB pronouncements ASU 2016-02 Leases (Topic 842) Mandatory effective date January 2019 ASU 2017-04 Simplifying the test for goodwill impairment (Topic 350) ASU 2017-01 Clarifying the definition of a business (Topic 805) ASU 2017-12 Targeted improvements to accounting for hedging activities (Topic 815) January 2020 January 2018 January 2019 ASU 2016-15 Statement of Cash Flows (Topic 230) January 2018 עמוד 5
Leases (ASU 2016-02, ASC 842) Lease classification is important in determining how and when a lessee and a lessor recognize lease expense and revenue, respectively Changes balance sheet presentation Under ASC 840, operating leases are off-balance sheet Under ASC842, lessees recognize assets and liabilities for most leases* but recognize expenses in a manner similar to today s accounting. * Lessees can make an accounting policy election (by class of underlying asset to which the right of use relates) to apply accounting similar to ASC 840 s operating lease accounting to leases that meet ASC 842 s definition of a short-term lease (less than 12 months). income statement and statement of cash flows presentation requirements Similar to the current presentation requirements for capital and operating leases EBITDA- No change Effective date Public business entities (PBEs) annual periods beginning after 15 December 2018, and interim periods within those years Early adoption permitted for all entities Full retrospective adoption is prohibited עמוד 6
Leases Lease term (ASU 2016-02, ASC 842) Lease Term: The noncancellable period for which a lessee has the right to use an underlying asset, together with all of the following: Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option Periods covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled by the lessor. עמוד 7
Leases (ASU 2016-02, ASC 842) Lease classification lessees At lease commencement, lessees classify a lease as a finance lease (vs. an operating lease) if the lease meets any of the following criteria: The lease transfers ownership of the underlying asset to the lessee by the end of the lease term The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise The lease term is for the major part of the remaining economic life of the underlying asset* The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of lease term * Not applicable for leases that commence at or near the end of the underlying asset s economic life. ** The FASB included guidance that indicates that today s thresholds of 75% and 90% are reasonable ways to evaluate the lease term and the present value of lease payments criteria עמוד 8
Leases - lessee operating lease (ASU 2016-02, ASC 842) Lease liabilities and ROU Lease liabilities At the commencement date, a lessee initially measures the lease liability at the present value of the lease payments to be made over the lease term. After lease commencement, a lessee measures the lease liability for an operating lease at the present value of the remaining lease payments using the discount rate determined at lease commencement. Right-of-use assets At the commencement date, the amount of the initial measurement of the lease liability Any lease payments made to the lessor at or before the commencement date, less any lease incentives received Any initial direct costs incurred by the lessee After lease commencement, right-of-use asset for an operating lease measures at the amount of the remeasured lease liability, adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term and any unamortized initial direct costs. עמוד 9
Leases (ASU 2016-02, ASC 842) Lease and non-lease components Contracts may contain a lease coupled with an agreement to purchase or sell other goods or services (non-lease components) Non-lease components are identified and accounted for separately from the lease component in accordance with other applicable US GAAP As a practical expedient, lessees* can make an accounting policy election (by class of underlying asset) to account for each separate lease component of a contract and its associated non-lease component(s) as a single lease component * The Board decided to amend ASC 842 to provide lessors with a practical expedient, by class of underlying assets, to not separate nonlease components from the related lease components and, instead, to account for those components as a single lease component if both of the following conditions are met: (1) the timing and pattern of revenue recognition for the lease component and nonlease component(s) are the same, and (2) the combined lease component is classified as an operating lease. Lessees generally allocate consideration in the contract to the lease and non-lease components (unless the practical expedient is elected) on a relative standalone price basis עמוד 10
Leases - Transition (ASU 2016-02, ASC 842) - Public Entities Transition modified retrospective approach The standard s transition provisions are applied as of the beginning of the earliest comparative period presented in the financial statements. For example, a calendar-year entity that adopts ASC 842 on 1 January 2019 and presents three-year comparative financial statements applies the transition provisions on 1 January 2017 (i.e., the beginning of the earliest comparative period presented). Under ASC 842 s modified retrospective transition approach, prior period financial statements are recast to reflect the effect of the adoption of the new standard. The Board conclude tentative decision to amend ASC 842 to provide entities with an additional transition method with which to adopt ASC 842. The proposed transition method would enable entities to apply the transition requirements in ASC 842 at the effective date of that Topic (rather than at the beginning of the earliest comparative period presented as currently required) with the effects of initially applying ASC 842 recognized as a cumulative-effect adjustment to retained earnings in the period of adoption. עמוד 11
Leases - Transition (ASU 2016-02, ASC 842) Lessees and lessors are permitted to make an election to apply a package of practical expedients that allow them not to reassess: Whether any expired or existing contracts are or contain leases Lease classification for any expired or existing leases Initial direct costs for any expired or existing leases Entities are also permitted to make an election to use hindsight when determining lease term (i.e., evaluating a lessee s option to renew or terminate the lease or to purchase the underlying asset) and assessing impairment of right-of-use assets (lessees only). עמוד 12
Leases - Transition - (SAB Topic 11.M) (ASU 2016-02, ASC 842) - Public Entities The following disclosures should generally be considered by the registrant: A brief description of the new standard, the date that adoption is required and the date that the registrant plans to adopt, if earlier. A discussion of the methods of adoption allowed by the standard and the method expected to be utilized by the registrant, if determined. A discussion of the impact that adoption of the standard is expected to have on the financial statements of the registrant, unless not known or reasonably estimable. In that case, a statement to that effect may be made. Disclosure of the potential impact of other significant matters that the registrant believes might result from the adoption of the standard (such as technical violations of debt covenant agreements, planned or intended changes in business practices, etc.) is encouraged. עמוד 13
Simplifying the test for goodwill impairment (ASU 2017-04) The new guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today s goodwill impairment test) to measure a goodwill impairment charge. Entities will record an impairment charge based on the excess of a reporting unit s carrying amount over its fair value (i.e., measure the charge based on today s Step 1). Entities with zero or negative carrying amount will no longer be required to perform the qualitative assessment and as a result will generally be expected to pass the simplified impairment test. Effective date for calendar-year entities: Public companies : Annual and interim periods in 2020 The standard will be applied prospectively Early adoption is permitted עמוד 14
Simplifying the test for goodwill impairment (ASU 2017-04) Step 1 Step 2 Impairment Current GAAP ASU 2017-04 Determine whether fair value of reporting unit is less than its carrying amount Determine the implied fair value N/A of goodwill (reporting unit s fair value less fair value of assets and liabilities) Excess of carrying amount of Excess of carrying amount of goodwill over its implied fair value reporting unit over its fair value עמוד 15
Simplifying the test for goodwill impairment (ASU 2017-04) Example Fair value of reporting unit 95 Fair value of identified assets and liabilities 80 Carrying amount of reporting unit 100 Carrying amount of assets and liabilities 85 Carrying amount of goodwill 15 Step 1 Current GAAP ASU 2017-04 Fair value of reporting unit (95) is less than carrying amount of reporting unit (100) Step 2 Implied fair value of goodwill: 15 (95 80) N/A Impairment 0 (15-15) 5 (100 95) עמוד 16
Simplifying the test for goodwill impairment (ASU 2017-04) Example Fair value of reporting unit 80 Fair value of identified assets and liabilities 80 Carrying amount of reporting unit 100 Carrying amount of assets and liabilities 0 Carrying amount of goodwill 100 Step 1 Current GAAP ASU 2017-04 Fair value of reporting unit (80) is less than carrying amount of reporting unit (100) Step 2 Implied fair value of goodwill: 0 (80 80) N/A Impairment 100 (100-0) 20 (100 80) עמוד 17
Clarifying the definition of a business (ASU 2017-01) Intended to assist entities with evaluating whether a set of transferred assets and activities is a business Will likely result in more acquisitions being accounted for as asset acquisitions rather than business combinations Entities must first apply the substantially all threshold A set is not a business when substantially all of the fair value of gross assets acquired is concentrated in a single asset or group of similar assets If the threshold is not met, the set must include an input and a substantive process that together significantly contribute to the ability to create outputs to be a business Eliminates presumption that a set is a business when generating outputs Provides criteria to determine whether sets with outputs and sets without outputs include a substantive process Effective date for calendar-year entities: Public companies : Annual and interim periods in 2018 The standard will be applied prospectively Early adoption is permitted עמוד 18
Clarifying the definition of a business (ASU 2017-01) The following represent the key differences between the accounting for a business combination versus an asset acquisition: Item Business combination Asset acquisition Transaction cost Expensed as incurred. Capitalized as a component of the cost of the assets acquired. IPR&D Goodwill Capitalized as an indefinite-lived intangible asset, regardless of whether the IPR&D asset has an alternative future use. Only arises in a business combination. Expensed unless the IPR&D has an alternative future use. Not recognized in an asset acquisition. Any excess consideration transferred over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable net assets other than non-qualifying assets. עמוד 19
Clarifying the definition of a business (ASU 2017-01) Item Business combination Asset acquisition Bargain purchases Recognized as a gain in earnings on the acquisition date. No gain is recognized in earnings. The excess fair value over the consideration transferred is allocated on a relative fair value basis to the net identifiable assets acquired other than non-qualifying assets. Contingent consideration Recognized at its acquisition-date fair value as part of the consideration transferred. Generally recognized when the contingency is resolved (i.e., when the contingent consideration is paid or becomes payable). Measurement period Acquirer has up to one year to obtain information about facts and circumstances that existed as of the acquisition date and adjust provisional amounts recognized. No measurement period. עמוד 20
Clarifying the definition of a business (ASU 2017-01) Current GAAP ASU 2017-01 Outputs defined broadly as the ability to Outputs defined more narrowly to align with provide return new revenue recognition guidance Evaluation of whether a market participant Evaluation is focused on elements within the could replace any missing elements is set; ASU does not change evaluation from a performed market participant perspective If goodwill exists, the set is presumed to be a business Eliminates presumption, but goodwill may be an indicator of a substantive process עמוד 21
Targeted improvements to accounting for hedging activities (ASU 2017-12) FASB made targeted amendments to enable entities to better portray the economics of their risk management activities in the financial statements Also simplifies certain aspects of hedge accounting The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements Amendments are intended to: Expand risks that are eligible to be hedged Provide users with better insight into hedging strategies and their effectiveness Reduce the complexity of applying hedge accounting Effective for PBEs in annual periods beginning after 15 December 2018 and interim periods therein Modified retrospective transition approach (cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date) עמוד 22
Statement of cash flows Classification of certain cash receipts and cash payments (ASU 2016-15) Clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows to reduce diversity in practice Also clarifies how the predominance principle should be applied when transactions have aspects of more than one class of cash flows Effective for PBEs in annual periods beginning after 15 December 2017 and interim periods therein Early adoption is allowed, but all of the guidance must be adopted in the same period עמוד 23
Statement of cash flows Classification of certain cash receipts and cash payments (ASU 2016-15) Topic Classification Debt prepayment or extinguishment costs Financing Settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing: Portion attributable to interest Portion attributable to principal Operating Financing Contingent consideration payments after a business combination: Made soon after Not made soon after: Up to fair value of acquisition date contingent consideration liability In excess of fair value of acquisition date contingent consideration liability Investing Financing Operating Proceeds from settlement of insurance claims Nature of the loss Distributions received from equity method investees:* Return on investment Return of investment * Entities are required to make a policy election to apply one of two approaches to determine when the cash distributions represent a return on investment rather than a return of investment. Operating Investing עמוד 24
SEC Hot Topics עמוד 25
SEC Hot Topics Comment letter topic Ranking 2017 2016 Non-GAAP financial measures (unaudited or reviewed) 1 2 Management s discussion and analysis (MD&A) 2 1 Fair value measurements 3 3 Segment reporting 4 5 Revenue recognition 5 4 Intangible assets and goodwill 6 7 Income taxes 7 6 State sponsors of terrorism 8 17 Acquisitions and business combinations 9 8 Executive compensation 10 11 Source: Audit Analytics Comment letter taxonomy for SEC staff comment letters issued to registrants related to Forms 10-K from 1 July 2015 to 30 June 2017. עמוד 26
Areas of frequent SEC staff comment Non-GAAP financial measures ranking #1 in 2017 SEC staff views on: Non-GAAP measures that are misleading Tailoring recognition and measurement principles Prominence of non-gaap measures Presenting measures per share that appear to be liquidity measures Determining the income tax effects of adjustments to non-gaap measures Examples Excluding normal, recurring cash operating expenses Presenting measures inconsistently between periods Excluding nonrecurring charges but not gains Accelerating the recognition of deferred revenue that must be recognized ratably under GAAP Modification of consolidation principles (e.g., use of proportionate consolidation) Omitting comparable GAAP measures Using bold or larger font for non-gaap measures Volume and order of discussion Excluding quantitative reconciliations for forward-looking, non- GAAP measures Full non-gaap income statements EBIT and EBITDA per share Adjusted EBITDA or adjusted funds from operations per share that appear to function as liquidity measures Non-GAAP income tax effects are not appropriately based on the non-gaap profit level עמוד 27
Areas of frequent SEC staff comment Non-GAAP financial measures actions required Revisit use of non-gaap measures in filings and earnings releases Consider alternative ways of presenting similar information Challenge usefulness and appropriateness of non-gaap measures Present GAAP measure with equal or greater prominence Place GAAP measure first; avoid discussion of non-gaap measures without corresponding GAAP ones Consider revising disclosure describing how management uses the non-gaap measure and how investors could use it Audit committees are well positioned to exercise healthy oversight by understanding management s controls to calculate non-gaap and other key operational measures. (April 2017) SEC Chief Accountant Wesley Bricker עמוד 28
PCAOB update עמוד 29
PCAOB Auditor s reporting model Overview Final standard adopted in 2017 requires auditors to include significantly more information in the auditor s report, such as: Discussion of critical audit matters (CAMs) Disclosure of auditor s tenure Clarification of existing auditor s responsibilities The discussion of matters identified as CAMs would include: An explanation of the principal considerations in determining that the matter was a CAM An explanation of how the CAM was addressed in the audit Reference to related financial statement accounts and disclosures Expectations gap on the wording of such paragraph in the auditor s report Changes other than CAMs CAMs Large accelerated filers CAMs All other filers The standard Effective builds for on annual more than periods six years ending of on Board or after: outreach 15 December 2017 30 June 2019 15 December 2020 עמוד 30
PCAOB Auditor s reporting model Comparing approaches PCAOB Definition of a CAM PCAOB A critical audit matter is any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee that: Relates to accounts or disclosures that are material to the financial statements, and Involved especially challenging, subjective or complex auditor judgment עמוד 31
Trump's Tax Reform Plan עמוד 32
Trump's Tax Reform Plan On December 2, 2017 the senate republicans passed a bill overhauling the federal tax code. The bill differs from the version the house passed on November 16, 2017. The House and Senate's bills will now go to conference to be reconciled into a single piece of legislation for President Trump's signature. Accounting effects According to US GAAP the effects of changes in tax rates and laws on deferred tax balances are recognized in the period the new legislation is enacted. In the case of US federal income taxes, the enactment date is the date the bill becomes law (i.e., upon presidential signature). Disclosure of the effect on the effective tax rate. עמוד 33
Cryptocurrency (bitcoin) עמוד 34
Cryptocurrency (bitcoin) Cryptocurrency is a form of exchange that does not exist in physical form but only digitally. It is not linked to any physical currency, nor is it backed by any government. The most commonly known example of a cryptocurrency is the bitcoin. Currently, neither IFRS nor US-GAAP have specific guidance regarding to digital currency. The main issue is how to account for cryptocurrency Asset Cash Explanation Cryptocurrency is not issued or backed by any government. Cash equivalent Financial instrument Inventory Intangible Volatile, hence there is significant risk of change in value. Does not give the holder contractual right to receive cash or another financial asset. Inventories do not need to be is physical form, but do need to be held for sale in the ordinary course of business. Cryptocurrency appears to meet the definition of an intangible asset; identifiable (can be sold, exchanged or transferred); non-monetary asset (not cash); has not physical substance עמוד 35
appendix עמוד 36
Additional FASB pronouncement Final FASB pronouncements Mandatory effective date ASU 2016-18 Statement of Cash Flows - Restricted cash (Topic 230) January 2018 ASU 2016-16 Income taxes intra-entity asset transfers (Topic 740) January 2018 ASU 2017-11 Accounting for Certain Financial Instruments with Down Round Features (Topic 480) January 2019 ASU 2016-01 Financial Instruments - Overall (Subtopic 825-10) January 2018 ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) January 2020 עמוד 37
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