2015 Chattanooga Accounting Seminar - Elliott Davis · 2019. 3. 19. · 2015 Chattanooga Accounting...

2015 Chattanooga Accounting Seminar Tuesday, May 12, 2015

Chattanooga Convention Center, Chattanooga, TN _________________________________________________________________

7:30 am - 8:15 am Registration & Continental Breakfast 8:15 am - 8:30 am Opening Remarks Larry Stone, Talent Development Director, Elliott Davis Decosimo 8:30 am – 10:00 am GAAP Update Russ Madray, Scholar in Residence, Elliott Davis Decosimo 10:00 am - 10:10 am Break 10:10 am - 12:00 pm GAAP Update (Continued) Russ Madray, Scholar in Residence, Elliott Davis Decosimo 12:00 pm - 1:00 pm Lunch 1:00 pm - 1:50 pm Cybersecurity & Data Security Richard Cook, Director, Elliott Davis Decosimo Bonnie Bastow, Manager, Elliott Davis Decosimo 1:50 am – 2:00 am Break 2:00 pm - 2:50 pm Internal Controls – Myths and Best Practices Pam Mantone, Director, Elliott Davis Decosimo 2:50 am - 3:00 am Break 3:00 pm – 3:50 pm Retirement Plan Compliance and Controls Cindy Lusk, Manager, Elliott Davis Decosimo 10:00 am - 10:10 am Break 4:00 pm - 4:50 pm Accounting “Oopsies” – Accounting Topics that Can Trip You Up and Cause You to Go “Oops!” Jennifer Goodman, Shareholder, Elliott Davis Decosimo 4:50 pm Course Evaluation and Wrap Up

360° Ser v ice . Focused on You.

el l iottdav is .com ©ElliottDavisDecosimoLLC©ElliottDavisDecosimoPLLC

At a Glance

• Foundedin1925

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Who We Are

Client Focused

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• Servesnicheareasincludingeconomicdevelopment,internationalservices,businessvaluation,transactionservices,sustainability,fraudinvestigation,forensicaccountingandlitigationsupport

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What Sets Us Apart

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Industries

Assurance• Audits,reviewsandcompilationsforpublicandprivatecompanies• Forecastsandprojections• Agreed-uponproceduresandotherattestationservices• Employeebenefitplanaudits• Reportingoncontrolsatserviceorganizations

Tax • Federalbusinesstax;individual,estateandgifttax• Stateandlocaltax;taxcreditsandincentives• Not-for-profitreporting• Internationaltax• Employeebenefitsreporting• Costsegregationstudies

Accounting Resources• Accountingandfinancialreporting• Payroll• Accountingsoftwareservices• Salesandusetax• Businessstart-upservices

Consulting• Businessconsulting;financialconsulting• Transactionservicesandduediligence• Businessvaluation• Litigationsupport,fraudinvestigationand forensicaccounting

Services

OUR MISSION IS TO MAKE A POSITIVE IMPACT ON OUR CLIENTS, OUR PEOPLE AND OUR COMMUNITIES.

ASSURANCE


Assurance and Attestat ion Ser v ices

ARE YOU. . .Inneedoffinancialinformationtohelpoperateasuccessfulandprofitablebusiness?OverwhelmedbySECorgovernmentalreportingrequirements?Inneedofvalue-addedservicesfromindividualswhounderstandyourindustry?Lookingforrecommendationstoenhanceyourinternalcontrols?Interestedinlearningmoreaboutyourfinancialtrends?Inneedofanexperiencedauditortosatisfyinvestororfinancialinstitutionrequirements?

Independent assurance is extremely important to the users of your financial information in today’s business environment. Serving public and private companies for almost 90 years, Elliott Davis Decosimo’s Assurance Practice is committed to excellence and integrity. Our fully engaged, 360° service approach emphasizes continuity of senior level professionals to ensure you receive consistent and timely audit services with minimum interruption to your daily operations. Not every business requires the same level of assurance, so our team works with you to determine the solution that provides the appropriate level of assurance based on your specific objectives.

Elliott Davis Decosimo is registered with the Public Company Accounting Oversight Board and a member of the AICPA Center for Audit Quality,

AICPA Governmental Audit Quality Center, and AICPA Employee Benefit Plan Audit Quality Center.

SOLUTIONS

Audits , Rev iews and Compi lat ions• GAAPandotherspecialpurposeframeworks• Internationalfinancialauditingandreportingstandards• OMBA-133singleaudits• SECregistrantservicesincludingSOX404reportingandquarterlyreviews

• Specifiedelements• Interimandannualreporting• Personalfinancialstatements• Forecastsandprojections

Attestat ion and Other Engagements• Agreeduponprocedures• Reportingoninternalcontrolsofserviceorganizations• Reportingoninternalcontroloverfinancialreporting• Compliancereporting• Debtcovenantanalysis

• Examinationsofassertions• Informationtechnologyservices• Performancemeasurementservices• Contractualreporting• Fraudinvestigationandlitigationsupport• Internalauditservices• Loanpackageassistance• Budgettoactualanalysis

Employee Benef i t P lan Audi t and Other Ser v ices• Definedcontributionplans-401(k),403(b),ESOP• Definedbenefitplans• ERISA/DOLcompliance• Healthandwelfareplans• Consultingandagreed-uponproceduresrelatedtoemployeebenefitplancomplianceissues

CONSULTING


Consul t ing - 360° Industr y Perspect ive

ARE YOU. . .Formulatingorretoolingalong-termbusinessplan?Seekingwaystoincreasethevalueofyourbusiness?Determiningappropriateriskprofile,timehorizonandcashflowneeds?Interestedincontrolsandprocedurestoreduceriskoffraud?Consideringanexpansionorrestructuring?Maximizingthevalueofyourtechnologyinvestments?

SOLUTIONS

Bus iness and F inanc ia l Consul t ing• Businessandstrategicplanning• Organizationalalignment• OutsourcedCFOandcontrollerservices•Managementtransitionandsuccessionplanning•Financialmodels,analysisandmanagementtools•Capitalstructuring•Lenderrelations•Turnaroundmanagement

Mergers and Acquis i t ions• Financialandtaxduediligence• Buy-sideandsell-sideadvisory

Risk Management• Informationtechnologyauditservices• Internalcontrols• SpecialtycompliancesuchasHIPAAandPCI• BusinesstechnologyandRiskManagement• Cybersecurity

Bus iness Va luat ion • Corporatevaluation• Post-mergerintegration• Goodwillandintangibleassetvaluation• Employeestockownershipplanvaluation

L i t igat ion, Forens ics and Fraud• Financialdatainvestigationandanalysis• Experttestimony• Auditcommitteeassistance

Human Capi ta l• Executiverecruiting• Compensationandincentiveplans• Performancemanagement• Leadershipcoachingandmentoring

Sustainable results that drive profits are essential, as well as proper controls that give you complete confidence. With the economic challenges businesses face today, a fresh look and a new perspective to solve old or emerging problems can make all the difference. Elliott Davis Decosimo’s Consulting Practice brings clients invaluable experience and expansive consulting capabilities to help them execute smart, efficient and profit-generating solutions that meet long-term business objectives. As a trusted advisor, we take a 360° approach to understanding your business, providing action and results-oriented solutions.

TAX


Tax - 360° Industr y Perspect ive

ARE YOU. . .Uncertainofcurrentfederal,state,orlocaltaxfilingrequirements?Filingtaxesinmultiplestatesorthinkyoushouldbe?Interestedinbeingproactivewithyourmonthlyorannualreturns?Unsureifyouqualifyfortaxcreditsorincentives?Lookingtominimizeyourtaxliability?Interestedindevelopingasuccessionplanforyourbusiness?Operatingand/orservingcustomersoutsideoftheUnitedStates?

Federa l Tax• Businesstax• Individual,estate,giftandtrusttax• Taxaccountingmethods• Electionsandtaxpositions• Examinationrepresentation• Financialstatementpresentationofincometaxliabilities• Exemptorganizationtax

Tax Credi ts and Incent ives•Eligibilityreviews• Applicationconsultation• Amendedreturnsandcarrybackclaims• Taxauthoritynegotiations• Siteselectionincentivesadvisory• Incentivemanagementtraining• Researchanddevelopment

State and Loca l Tax• Incomeandfranchisetaxreturns• Salesandusetaxreverseaudits• Voluntarydisclosures• Nexusreviews• Propertytaxconsultation• Procedurereviews

Internat ional Tax• Transferpricinganalysisandstudies• Internationalassignmentservices• Duediligence• Foreigntaxcreditsandearningsrepatriation• Assettransfers• Permanentestablishmentrules• Choiceofentities• Incomeandestatetaxtreaties

When you own or manage a business, thoughtful tax planning, preparation and consulting are critical to your success. With one of the largest, most experienced teams in the Southeast, Elliott Davis Decosimo’s Tax Practice is knowledgeable and responsive offering customized, complete solutions designed around your industry, size, market and special needs. Our veteran team helps shoulder your burden of tax return compliance while assisting you with projections, planning and overall reduction of tax liabilities.

SOLUTIONS

Chattanooga Accounting Seminar GAAP Update

Russ Madray Scholar-in-Residence May 12, 2015

© Elliott Davis Decosimo, LLC © Elliott Davis Decosimo, PLLC

This material was used by Elliott Davis Decosimo during an oral presentation; it is not a complete record of the discussion. This presentation is for informational purposes and does not contain or convey specific advice. It should not be used or relied upon in regard to any particular situation or circumstances without first consulting the appropriate advisor. No part of the presentation may be circulated, quoted, or reproduced for distribution without prior written approval from Elliott Davis Decosimo.

© Elliott Davis Decosimo, LLC © Elliott Davis Decosimo, PLLC 2

GAAP Update

• Private company accounting alternatives • New revenue recognition standard • Other FASB standards • On the horizon


Private Company Accounting Alternatives


Private Company Accounting Alternatives

• ASU 2014-02, Accounting for Goodwill • ASU 2014-03, Accounting for Certain Receive-

Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach

• ASU 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements

• ASU 2014-18, Accounting for Identifiable Intangible Assets in a Business Combination


Who Can Elect the Alternatives?

• Following types of entities cannot apply any private-company accounting alternatives:

• ASU 2014-03 not available for financial institutions

Public Business Entities

Not-for-Profit Entities

Employee Benefit Plans


Is the Reporting Entity a Public Business Entity?

• Is it required by the SEC to file or furnish financial statements, or does it file or furnish financial statements with the SEC?

- Includes voluntary filers - Includes other entities where financial statements or

financial information are required to be or are included in a filing

- Would not apply to stand-alone financial statements of subsidiary/investee



• Is it required to file or furnish financial statements with a regulatory agency by the Securities Exchange Act of 1934, as amended, or rules or regulations promulgated under the Act?

- Broker-dealers are considered PBEs



• Is it required to file or furnish financial statements with a regulatory agency in preparation for the sale of securities or for the purposes of issuing securities

• Has it issued (or is it a conduit bond obligor for) unrestricted securities that are traded or can be traded on an exchange or an OTC market?

- Includes an interdealer quotation or trading system for securities that are not listed on an exchange

- OTC Pink Markets - OTC Bulletin Board



• Does it (1) have one or more securities that are not subject to contractual restrictions on transfer, and (2) is it is required by law, contract, or regulation to prepare U.S. GAAP financial statements and make them publicly available on a periodic basis?

- Must meet both criteria - Must be full set of U.S. GAAP financial statements

(including footnotes) - Call reports are not financial statements - Restrictions may be contained in buy-sell, shareholder, or

other agreements


Accounting for Goodwill


• Current U.S. GAAP - No amortization - 2-step impairment test applied at least annually at

the reporting unit level • Alternative

- Amortize over 10 years (or less) - Impairment testing only if triggering event - Policy choice for impairment – entity or reporting unit

ASU 2014-02, Accounting for Goodwill


• Impairment - When a triggering event indicates that fair value of an

entity (or a reporting unit) may be below its carrying amount

- One-step impairment test would be performed - Amount of the impairment would be measured by

calculating the difference between the carrying amount of the entity (or reporting unit, as applicable) and its fair value

- Hypothetical purchase price allocation to isolate the change in goodwill (i.e., step two) would no longer be required




General economic conditions

Industry and market

considerations

Increases in costs that have a negative

effect on earnings and cash flows

Negative or declining cash

flows or revenue

Entity-specific events

Triggering events



• Transition - Existing goodwill - New goodwill

• Amortization period


FAQ: Amortization Requirement

• Are private companies required to amortize goodwill going forward or does it have the option to do so?


FAQ: Level of Impairment Assessment

• Does the new guidance allow assessment at the entity level, even if we know this yields a different accounting result – perhaps materially different – in the year of adoption?


FAQ: Amortization of Less Than 10 Years

• What kind of justification/documentation is needed to amortize goodwill over a period of less than 10 years?

- ASC 350-20-35-63 states “…or less than 10 years if the entity demonstrates that another useful life is more appropriate.”

- In the Basis for Conclusions, “That provides an opportunity for a reporting entity to identify a shorter useful life than 10 years, if it chooses to do so, when a shorter useful life is more appropriate based on its own specific facts and circumstances.”

- The only thing that’s made clear in multiple places is that 10 years is the maximum

- In other words, their primary concern appears to be the upper limit and not the ability to use a shorter life


FAQ: Implementation Question

• Facts: 2 years ago the company had an acquisition—didn’t really allocate the purchase price – dumped all into goodwill.

• They can go back and fix to properly allocate the purchase price. • Will the goodwill alternative be allowed? • Here’s what they would need to do:

1. Properly allocate the purchase price and determine the proper starting point for goodwill.

2. Determine if any impairment existed in each year subsequent to the acquisition and record accordingly (this will require application of the existing 2-step impairment test each year subsequent to the acquisition).

3. Once the goodwill balance is correct and up to date, the PCC alternative could be elected.


Note Disclosure for Adoption

Change in Accounting Principle In January 2014, the FASB amended the Intangibles –Goodwill and Other topic of the Accounting Standards Codification. Under the amended guidance, a nonpublic entity may elect to amortize goodwill on a straight-line basis over a period of ten years or over a shorter period if the company demonstrates that another useful life is more appropriate. Goodwill would be subject to impairment testing only upon the occurrence of a triggering event. The Company adopted the amended guidance and elected to amortize existing goodwill at the beginning of the period of adoption, [January 1, 2014]. The Company will assess goodwill for impairment at an [entity] [reporting unit] level. There was no material impact on the Company’s results of operations or financial condition upon adoption of the new guidance.


Plain Vanilla Interest Rate Swaps


ASU 2014-03, Accounting for Certain Receive Variable, Pay Fixed Interest Rate Swaps– Simplified Hedge Accounting Approach

• Current U.S. GAAP – derivative = hedge accounting - Changes in FV of swap go to OCI - Must evaluate/document effectiveness of hedge

• Alternative - Simplified short cut approach for plain vanilla swaps - Not available for financial institutions


Variable rate on the swap and borrowing based on same index

and reset period

Terms of swap are typical and there is no

floor or cap on variable interest rate

of swap unless borrowing has a

comparable floor or cap

Re-pricing and settlement dates for swap and borrowing match or differ by no more than a few days

Swap’s fair value at inception is at or near

zero

Notional amount of swap matches

principal amount of borrowing being

hedged (may be less than total principal

amount of borrowing)

All interest payments designated as hedged

in total or in proportion to

principal amount of borrowing being

hedged


• Conditions:


• Can wait until financial statements are issued to have documentation in place and elect to apply simplified hedge accounting approach

• Allows swap to be measured at settlement value instead of fair value

• Settlement value may be estimated by applying a present value calculation of swap’s remaining estimated cash flows using a valuation technique that is not adjusted for nonperformance risk



• Must continue to account for the interest rate swap and the variable-rate debt separately on the face of the balance sheet

• However, able to assume no ineffectiveness in the hedging relationship

• Essentially the same income statement effects as if it had issued fixed-rate debt



FAQ: Definition of Financial Institution

• Would the alternative for interest rate swaps apply to a consumer finance company (private and generally unregulated obviously)?

• More specifically, is the term financial institution defined in the literature?

• ASU 2014-03refers the definition of financial institutions included in FASB ASC 942-320-50-1:

- …the term financial institutions includes banks, savings and loan associations, savings banks, credit unions, finance companies, and insurance entities



Change in Accounting Principle In January 2014, the FASB amended the Derivatives and Hedging topic of the Accounting Standards Codification. Under the amended guidance, a nonpublic entity may elect to use a simplified hedge accounting approach for its receive-variable, pay-fixed interest rate swaps. Under this approach, the income statement charge for interest expense will be similar to the amount that would result if the company had directly entered into a fixed-rate borrowing instead of a variable-rate borrowing and an interest rate swap. Furthermore, the simplified hedge accounting approach allows the swap to be measured at its settlement value, which measures the swap without non-performance risk, instead of fair value. The Company adopted the amended guidance and elected to apply the simplified hedge accounting approach [retrospectively] [using a modified retrospective approach] in [2014]. There was no material impact on the Company’s results of operations or financial condition upon adoption of the new guidance.


Common Control Leasing Arrangements


ASU 2014-07, Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements

• Current U.S. GAAP – consolidate a VIE when the reporting entity is considered the primary beneficiary

Is the reporting entity the primary beneficiary of the VIE?

Power to direct activities of the VIE Absorb losses or receive benefits significant to VIE

Does the reporting entity have a variable interest (explicit or implicit) in the VIE (loans, leases, guarantees, etc.)?

Is the legal entity a VIE?

Total equity at risk not sufficient Total equity at risk doesn’t possess “normal” characteristics

Voting rights are not proportionate


• Example – current U.S. GAAP - Owner of a construction company decides to buy a

building - Through his LLC, securing a loan from a local bank, he

purchases a building - His LLC leases the building to his company

• Is the LLC a VIE? • Does the construction company have a variable interest

in the VIE? • Is the construction company the primary beneficiary of

the VIE?



Conditions for electing alternative:

• Still apply other guidance (e.g., ASC 840, Leases; ASC 460, Guarantees; etc.)

• Additional disclosures about the leasing arrangement • Applicable to all similar leasing arrangements


(a) Lessor entity and private company lessee under common

control

(b) Private company lessee has a leasing arrangement with lessor

(c) Substantially all activity between the two entities is

related to the leasing activity of lessor entity

(d) If private company lessee explicitly guarantees or provides

collateral for any obligation of lessor related to the leased

asset, principal amount of the obligation at inception does not

exceed value of leased asset



A guarantee or collateral provided by the private company lessee to the lender of the lessor for debt

that is secured by the asset(s) leased by the private company

lessee

A joint and several liability arrangement for debt of the lessor,

for which the private company lessee is one of the obligors, that is secured by the asset(s) leased by

the private company lessee

Paying property taxes, negotiating the financing, and maintaining the

asset(s) leased by the private company lessee

Paying income taxes of the lessor when the only asset owned by the lessor is being leased either by only the private company or by both the

private company lessee and an unrelated party

Examples of Leasing Activities


Example 1

Assume the following:

• Private manufacturing company

• Pledged assets as collateral for LESS’s mortgage

• Leases its manufacturing facility from LESS

• Pays prop taxes and maintenance on facility

MFG, Inc. (Lessee)

• Owns manufacturing facility; value: $1 million

• Mortgage on facility: $800,000

• Leases entire facility to MFG • No other assets

Less, Inc. (Lessor)

I own MFG, Inc. and LESS, Inc.

I personally guaranteed

LESS’ mortgage.

Can MFG elect the

PCC alternative? © Elliott Davis Decosimo, LLC © Elliott Davis Decosimo, PLLC 33

Can MFG elect the PCC alternative?

(a) MFG and LESS are under

common control

(b) MFG has a lease

arrangement with LESS

(c) Substantially all the activities between MFG and LESS are related to the lease of the manufacturing facility •Providing collateral, paying

property taxes, and maintaining the facility considered to be leasing activities

(d) Value of the

manufacturing facility leased by MFG exceeds

principal amount of LESS’s mortgage at

inception of the mortgage

Yes!


2 years later….

• Private manufacturing company

• Pledged assets as collateral for LESS’s mortgage

• Leases its manufacturing facility from LESS

• Pays prop taxes and maintenance on facility

MFG, Inc. (Lessee)

• Owns manufacturing facility; value: $700,000

• Mortgage on facility: $790,000

• Leases entire facility to MFG • No other assets

Less, Inc. (Lessor)

Oh my!

The value of the facility has declined!

Can MFG continue to apply the

PCC alternative?

Yes—assuming no other changes.

If LESS refinances or enters into new obligation that requires collateralization or guarantee by MFG, reassess whether criterion (d) met at the inception of the new obligation


Example 2

Assume the following:

•Private manufacturing company

•Pledged assets as collateral for LESS’s entire mortgage

• Leases 3 floors of facility from LESS

MFG, Inc. (Lessee)

•Owns manufacturing facility; value: $1 million

•Mortgage on plant: $800,000

• Leases remaining 7 floors to unrelated party

•No other assets

Less, Inc. (Lessor)


I personally guaranteed LESS’ entire mortgage.

Can MFG elect the

PCC alternative? © Elliott Davis Decosimo, LLC © Elliott Davis Decosimo, PLLC 36

Can MFG elect the PCC alternative?

(a) MFG and LESS are under

common control

(b) MFG has a lease

arrangement with LESS

(c) Substantially all the activities between MFG and LESS are related to the lease of the manufacturing facility •Even though part of the

manufacturing facility is also leased to unrelated parties

(d) Value of the

manufacturing facility leased by MFG exceeds

principal amount of LESS’s mortgage at

inception of the mortgage

Yes!


2 years later…

•Private manufacturing company •Pledged assets as collateral for

both of LESS’s mortgages •Leases Facility 1 from LESS

MFG, Inc. (Lessee)

•Owns 2 manufacturing facilities •Facility 1 •Value: $1 million •Mortgage: $800,000 •Facility 2 •Value: $1 million •Mortgage: $500,000

Less, Inc. (Lessor)

•Leases Facility 2 from LESS

UNRELATED, Inc.

I own MFG, Inc. and LESS, Inc. LESS purchased another facility.

I personally guaranteed both

of LESS’ mortgages.

Can MFG continue to apply the

PCC alternative?

No. MFG is engaging in substantial activity outside its leasing activity with LESS by providing a guarantee on a mortgage secured by an asset that is not being leased by MFG


Case Study 1 – Common Control Leasing Activity

•Private manufacturing company •Pledged assets as collateral for LESS’s mortgage on Facility 1 •Leases manufacturing Facility 1 from LESS

MFG, Inc. (Lessee)

•Owns 2 manufacturing facilities •Facility 1 •Value: $1 million •Mortgage: $800,000 •Facility 2 •Used to manufacture chemicals •Value: $1 million •Mortgage: $0

Less, Inc. (Lessor)

Can MFG elect the

PCC alternative?


I personally guaranteed

LESS’ mortgage on Facility 1


FAQ: Selective Consolidation

• If a company has 2 VIEs that qualify for the exception but they just wanted to consolidate the one and not consolidate the other one, can they do that?



Change in Accounting Principle In March 2014, the FASB amended the Consolidation topic of the Accounting Standards Codification. Under the amended guidance, a nonpublic entity has the option to exempt itself from applying the VIE consolidation model to a qualifying common control leasing arrangement. The Company adopted the amended guidance and elected to exempt itself from applying the VIE consolidation model to qualifying common control leasing arrangements in [2014]. The Company applied a full retrospective approach in which the financial statements for the year ended [December 31, 2013] have been adjusted to reflect the period-specific effects of applying the amendments.


ASU 2014-18, Accounting for Identifiable Intangible Assets in a Business Combination



• Current U.S. GAAP: - Recognize and measure at fair value intangible assets

that are identifiable: • Arises from contractual or other legal rights • Separable – capable of being separated or divided from the

entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability, regardless of whether the entity intends to do so


• A private company would no longer recognize the following intangible assets separately from goodwill:

- Customer-related intangible assets that are not capable of being sold or licensed independently from the other assets of the business

- Non-compete agreements • Result = recognize fewer intangible assets and,

correspondingly, recognize more goodwill



FAQ: Selective Application

• Can a company elect not to breakout from goodwill certain intangibles (e.g. breakout non-compete contracts as separately identified intangible assets, but include customer related intangibles within goodwill)?

• In other words, is this an “all or nothing” election with respect the intangibles covered by this private company option?


Note Disclosure for Adoption Change in Accounting Principle In December 2014, the FASB amended the Business Combinations topic of the Accounting Standards Codification. Under the amended guidance, a nonpublic entity may elect to not recognize separately from goodwill (1) customer-related intangible assets that are not capable of being sold or licensed independently from the other assets of the business and (2) noncompetition agreements. This alternative generally will result in recognizing fewer intangible assets in a business combination and, correspondingly, more goodwill. The Company elected this accounting alternative in [2014] and will apply it to all eligible transactions thereafter. The alternative is applied on a prospective basis. In addition, when this alternative is elected, the Company also is required to adopt the alternative accounting related to goodwill which requires that goodwill be amortized on a straight-line basis over a period of ten years or over a shorter period if the Company demonstrates that another useful life is more appropriate. Goodwill would be subject to impairment testing only upon the occurrence of a triggering event. The alternative is applied on a prospective basis, with amortization of existing goodwill commencing at the beginning of the period of adoption [January 1, 2014]. The Company will assess goodwill for impairment at the [entity] [reporting unit] level. There was no material impact on the Company’s results of operations or financial condition upon adoption of the new guidance.


Other FAQs about PCC Alternatives


FAQ: Entity Ownership

• If the entity is foreign or private equity owned, does that have an impact on electing any of the PCC alternatives?


FAQ: Adoption Questions

• Is a private company required to adopt these alternatives?

• If a private company adopts one alternative does it have to adopt all of them?


New Revenue Recognition Standard


Background

• ASU 2014-09, Revenue from Contracts with Customers

• Issued on May 28 • Replaces virtually all existing US GAAP guidance on

revenue recognition • Virtually every industry is affected • Includes 63 application examples • Requires companies to make more estimates and use

more judgment than under current guidance


Scope

• In scope - Contracts with customers - Sale of some nonfinancial assets that are not an output of the

company’s ordinary activities (e.g., property, plant and equipment, intangibles)

• Not in scope - Leasing contracts - Insurance contracts - Financial instruments contracts - Certain nonmonetary exchanges - Certain put options on sale and repurchase agreements - Guarantees within the scope of ASC 460


Effective Date

• Public entities - Annual reporting periods beginning after December

15, 2016, including interim periods within that reporting period

• Nonpublic entities - Annual reporting periods beginning after December

15, 2017, and interim periods within annual periods beginning after December 15, 2018


Deferral of the Effective Date

• Effective date deferred until 2018 for public companies

• Effective date deferred until 2019 for all other entities

• Early adoption allowed as of original effective date for public entities (2017 for calendar-year entities)

• Early adoption prior to that date would not be permitted


Current U.S. GAAP


Current U.S. GAAP

• Recognition based on two concepts: - Earned - Realized

• Focus is on transfer of risks and rewards of ownership

• Over 180 different pieces of authoritative guidance issued

- Complex - Detailed - Differs by industry and type of transaction


Current U.S. GAAP

• SEC issued SAB 101 in 1999 to provide interpretive guidance

- Persuasive evidence of an arrangement exists - Delivery has occurred or services have been rendered - Seller’s price to the buyer is fixed or determinable - Collectibility is reasonably assured


The Five-Step Model


Overview

• Core principle - Recognize revenue to depict the transfer of promised

goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services

Identify the contract with a customer

Identify the performance obligations

in the contract

Determine the

transaction price

Allocate the transaction price to the

performance obligations

in the contract

Recognize revenue

when (or as) a

performance obligation is

satisfied


Step 1: Identifying the Contract with the Customer

• Contract defined as an agreement between two or more parties that creates enforceable rights and obligations

- Can be written, oral or implied - Does not exist if both parties can cancel without penalty

Collection of consideration is

probable

Rights to goods or services and payment

terms can be identified

It has commercial substance

It is approved and the parties are committed

to their obligations

A contract exists if…


Combining Contracts

• Must combine contracts entered into at or near the same time with the same customer (or related parties of the customer) if one or more of the following criteria are met:

Contracts are negotiated as a package with a single commercial objective

Amount of consideration to be paid in one contract depends on the price or

performance of the other contract

Goods or services promised in the contracts (or some

goods or services promised in each of the contracts) are

a single performance obligation


Contract Modifications

• Approval of a contract modification can be in writing, by oral agreement, or implied by customary business practices

• Contract modification is considered approved when it creates new or changes existing enforceable rights or obligations

• May result in - Separate (additional) contract - Termination of old contract and creation of new contract - Cumulative catch-up adjustment to existing contract


Contract Modifications

Additional goods/services

distinct?

Consideration reflects standalone selling

price?

Separate contract.

Termination of old contract and creation

of new contract.

Treat as part of original contract.

Cumulative catch-up adjustment.

YES

YES

NO

NO


Example 1—Change Order

• Single performance obligation to build an office building

• Change order for goods that are necessary part of contractor’s service to construct the building

• Parties agree on price before work begins

• How would you account for this change order?


Example 1—Change Order

• Goods/services associated with change order are not distinct

• Treat as part of the original contract • Account for change order using a cumulative catch-

up adjustment • That is, “catch up” the amount of revenue recognized

as if this change order were part of the original contract


Step 2: Identifying Performance Obligations

• A performance obligation is each promise to transfer either of the following to a customer:

- A good or service (or a bundle of goods or services) that is distinct

- A series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer


Identifying Performance Obligations

• A promised good or service is distinct (and therefore a performance obligation) if both of the following criteria are met:

Criterion 1: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer.

Criterion 2: The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.


Performance Obligation Distinct?


Step 3: Determining the Transaction Price

• Transaction price is the amount of consideration a company expects to be entitled to in exchange for transferring a good or service

• Transaction price reflects the effects of the following:

Variable Consideration

Consideration Payable to the

Customer

Noncash Consideration

Significant Financing Component

Transaction Price



• Transaction price may vary because of items such as bonuses, discounts, rebates, refunds, credits, price concessions or incentives

• The transaction price is estimated using the technique that better predicts the amount the company will receive



• Expected value - Sum of the probability-weighted amounts in a range of

possible outcomes - Most predictive when the transaction has a large number

of possible outcomes - Can be based on a limited number of discrete outcomes

and probabilities

• Most likely amount - The single most likely amount in a range of possible

outcomes - Most predictive when the transaction will produce few

outcomes


Example 2: Variable Consideration

RussCo enters into a contract and will receive a $100,000 performance bonus if specified performance targets are met. RussCo estimates an 80% likelihood it will receive entire performance bonus and a 20% likelihood it will receive none of the bonus. Requirements: 1. Which estimation technique would be most appropriate? 2. How much of the performance bonus should be included in

the transaction price?


Example 3: Variable Consideration

• Company enters into a contract and will receive a performance bonus up to $100,000 if it meets specified performance targets. It estimates the likelihood of achieving the targets as follows:

• Expected value approach is determined to be the best method – $59,000 is calculated amount under this method

• However, Company must consider whether any of the $59,000 should be constrained © Elliott Davis Decosimo, LLC © Elliott Davis Decosimo, PLLC 73

Constraining Estimates of Variable Consideration

• Required to evaluate whether to “constrain” amounts of variable consideration included in transaction price

• Objective of the constraint – include variable consideration in the transaction price only to the extent it is “probable” it will not result in a significant revenue reversal

The risk of a reversal arising from an uncertain future event

The magnitude of the reversal if the uncertain event occurs

Qualitative Assessment


Other Issues Related to Transaction Price

• Significant financing component - The time value of money is considered when significant, and the

primary purpose of the payment terms is to provide financing to counterparty

- Evaluation not required if customer is expected to pay within one year of when control of the goods or services is transferred

• Noncash consideration - Measured at the fair value of the consideration received or promised

• Consideration payable to a customer - Determine whether such amounts are:

• A reduction of the transaction price and revenue • A payment for distinct goods and services • A combination of the two


Step 4: Allocating the Transaction Price to the Performance Obligations

• Transaction price allocated to each separate performance obligation in proportion to standalone selling prices

• When a standalone selling price is not observable, an entity is required to estimate it

• Maximize the use of observable inputs • Apply estimation methods consistently in similar

circumstances • Use of a residual technique is allowed in limited

situations


Step 5: Recognize Revenue when (or as) the Performance Obligations are Met

• Revenue recognized upon satisfaction of a performance obligation by transferring a good or service to a customer

• A good or service is generally considered to be transferred when (or as) the customer obtains control

• Control may be transferred either at a point in time or over time


Transfer of Control

First, assess whether control is transferred over time, using the following criteria:

The customer simultaneously

receives and consumes the benefits provided by the entity’s

performance as the entity performs.

Routine or recurring services.

The entity’s performance creates or enhances an asset that the

customer controls as the asset is created or enhanced.

Building an asset on a customer’s site.

The entity’s performance does not create an asset with an

alternative use to the entity and the entity has an enforceable

right to payment for performance completed to date.

Building a specialized asset that only the

customer can use, or building an asset to a

customer order.


Transfer of Control

• If none of the three criteria are met, recognize revenue at the point in time at which control of the good or service is transferred to the customer

Indicators that control has transferred

include a customer having…

…a present obligation to pay.

…physical possession.

…legal title.

…risks and rewards of ownership.

…accepted the asset.


Example 4: Point in Time vs. Over Time

• Contractor is developing a multi-unit residential complex

• Customer enters into a binding sales contract with contractor for a specified unit that is under construction

• Each unit has a similar floor plan and is of a similar size, but other attributes of the units are different (for example, the location of the unit within the complex)


Scenario A

• Customer pays a deposit upon entering into the contract

• Deposit is refundable only if contractor fails to complete construction of the unit

• Remainder of contract price payable on completion when customer obtains physical possession

• If customer defaults before completion of the unit, contractor only has the right to retain the deposit


Scenario A

• How should the contractor account for the sale? - Because the contractor does not have a right to

payment for work completed to date, the contractor’s performance obligation is not satisfied over time

- Contractor accounts for the sale of the unit as a performance obligation satisfied at a point in time


Scenario B

• Customer pays nonrefundable deposit upon entering into the contract and will make progress payments during construction of the unit

• Contract has substantive terms that preclude the contractor from being able to direct the unit to another customer

• Customer does not have the right to terminate the contract unless the contractor fails to perform as promised

• If customer defaults by failing to make progress payments as and when they are due, contractor would have a right to all of the consideration promised in the contract if it completes the construction of the unit


Scenario B

• How should the contractor account for this sale? - The asset (unit) does not have an alternative use because

the contract precludes the contractor from transferring the specified unit to another customer

- The terms of the contract and the practices in the legal jurisdiction indicate that there is a right to payment for performance completed to date

- Consequently, the contractor has a performance obligation that it satisfies over time

- To recognize revenue for that performance obligation satisfied over time, the contractor measures its progress toward complete satisfaction of its performance obligation


Measuring Progress Toward Completion

• Objective is to faithfully depict company’s performance • Select a single method for a particular performance obligation

- Output methods - Input methods

• Apply consistent method for similar performance obligations in similar circumstances

• If unable to reasonably estimate progress, revenue should not be recognized until progress can be estimated

• If company can determine no loss will be incurred, can recognize revenue up to costs incurred


Disclosures


Disclosures

• Key principle – to help users of financial statements understand the amount, timing and uncertainty of revenue and cash flows arising from contracts with customers

• Present both qualitative and quantitative information about: - Contracts with customers - Significant judgments and changes in judgments made in

applying the guidance to those contracts - Assets recognized from costs to obtain or fulfill a contract - Fewer disclosure requirements for nonpublic companies


Disclosure Relief for Nonpublic Entities

Disclosure Requirement Practical Expedient for Nonpublic Entities

Present or disclose revenue and any impairment losses recognized separately from other sources of revenue or impairment losses from other contracts.

None.

A disaggregation of revenue to “depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors” (the ASU also provides implementation guidance).

An entity may elect not to provide the quantitative disclosure but should, at a minimum, provide revenue disaggregated according to the timing of transfer of good or services (for example, goods transferred at a point in time and services transferred over time).

Information about contract assets and liabilities (including changes in those balances) and the amount of revenue recognized in the current period that was previously recognized as a contract liability and the amount of revenue recognized that is related to performance obligations satisfied in prior periods.

An entity may elect not to provide the disclosures but should disclose the opening and closing balances of receivables, contract assets, and contract liabilities (if not separately presented or disclosed).

Information about performance obligations (e.g., types of goods or services, significant payment terms, typical timing of satisfying obligations, and other provisions).

None.


Disclosure Relief for Nonpublic Entities Disclosure Requirement Practical Expedient for Nonpublic Entities

Information about an entity’s transaction price allocated to the remaining performance obligations, including (in certain circumstances) the “aggregate amount of the transaction price allocated to the remaining performance obligation” and when the entity expects to recognize that amount as revenue.

An entity may elect not to provide these disclosures.

A description of the significant judgments, and changes in those judgments, that affect the amount and timing of revenue recognition (including information about the timing of satisfaction of performance obligations, the determination of the transaction price, and the allocation of the transaction price to performance obligations).

An entity generally must provide these disclosures but may elect not to provide any or all of the following disclosures:

• An explanation of why the methods used to recognize revenue provide a faithful depiction of the transfer of goods or services to the customer.

• For performance obligations satisfied at a point in time, the significant judgments used in evaluating when a customer obtains control.

• The methods, inputs, and assumptions used to determine the transaction price, except that an entity must disclose the methods, inputs, and assumptions used to assess whether an estimate of variable consideration is constrained.

Information about an entity’s accounting for costs to obtain or fulfill a contract (including account balances and amortization methods).


Information about the entity’s policy decisions (i.e., whether the entity used the practical expedients allowed by the ASU).



Proposed Amendments


Summary of Proposed Amendments

FASB IASB

Two proposed Accounting Standards Updates (ASUs)

One package of proposed amendments

1. Proposed ASU: • Amend licenses guidance • Amend guidance for identifying

performance obligations and add examples

• Amend licenses guidance • Provide additional examples for

identifying performance obligations • Provide two new practical expedients

for application of new standard upon adoption

2. Proposed ASU: • Provide new practical expedients

for contract modifications upon transition and sales tax presentation

• Amend guidance on noncash consideration

• Amend guidance on collectibility © Elliott Davis Decosimo, LLC © Elliott Davis Decosimo, PLLC 91

Other FASB Standards


Discontinued Operations


ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

• Current U.S. GAAP:

Component is disposed of or has been classified as held for sale

Elimination of component’s operations and cash flows from the entity’s ongoing operations has occurred (or will occur)

Significant continuing involvement by the entity in the component’s operations does not exist after the disposal transaction



• New guidance:

Component is disposed of or has been classified as held for sale

Disposal represents a strategic shift in operations


•Strategic shifts should have a major effect on the organization’s operations and financial results



• Other differences from current U.S. GAAP include the following:

- Business or nonprofit activity that, on acquisition, meets the criteria to be classified as held for sale is reported in discontinued operations

• Currently, U.S. GAAP does not include a business or nonprofit activity in the definition of discontinued operation

- Disposal of an equity method investment that meets the definition of discontinued operation is reported in discontinued operations

• Currently, disposals of equity method investments are not in the scope of the discontinued operations guidance



• Effective date - Public business entities (and not-for-profit entities

that issue securities or are conduit bond obligors) • Annual periods beginning on or after December 15, 2014,

and interim periods within those annual periods

- All other entities • Annual periods beginning on or after December 15, 2014,

and interim periods beginning on or after December 15, 2015

- Early implementation permitted for new disposals



Going Concern Disclosures


• Going Concern Continuum

Going Concern Basis

Uncertainty =

Disclosures about risks, uncertainties,

or contingencies

Substantial Doubt

???

Liquidation Basis

Liquidation is Imminent

ASU 2014-15, Disclosure of Uncertainties About and an Entity’s Ability to Continue as a Going Concern

Smoo

th

Saili

ng!

Cease to Exist

???


• Management evaluation • Conditions or events, considered in the aggregate,

that raise substantial doubt about the entity’s ability to continue as a going concern

• One year after the date that the financial statements are issued



• Substantial doubt - When relevant conditions and events, considered in

the aggregate - Indicate that it is probable that the entity will be

unable to meet its obligations as they become due - Within one year after the date that the financial

statements are issued (or available to be issued)




• Mitigating effect of management’s plans should be considered only to the extent that:

- Probable that the plans will be effectively implemented and, if so,

- Probable that the plans will mitigate the conditions or events that raise substantial doubt


• Disclosure requirements if management’s plans effectively alleviate substantial doubt

• Disclosure requirements if management’s plans do not alleviate substantial doubt



Going Concern Basis

Uncertainty =

Disclosures about risks, uncertainties,

or contingencies

Substantial Doubt

= probable that the

entity will be unable to meet its

obligations as they become due within one year after the

date that the financial statements

are issued

Liquidation Basis

Liquidation is Imminent

Going Concern Continuum


Difference in ASU and Auditing Standards

Financial Statement Date

12/31/2014

Financial Statement

Issuance Date 3/15/2015

Current audit standard

requirement: one year from

financial statement date

12/31/2015

ASU’s requirement: one year from

financial statement

issuance date

3/15/2016 © Elliott Davis Decosimo, LLC © Elliott Davis Decosimo, PLLC 106


• Effective date and transition - Annual period ending after December 15, 2016, and

for annual periods and interim periods thereafter - Early application is permitted

• Auditing Standards Board and PCAOB will need to make changes


Pushdown Accounting


ASU 2014-17, Pushdown Accounting

• Pushdown accounting - An acquired entity’s separate financial statements

reflect the acquirer’s new basis of accounting for the acquiree’s assets and liabilities

• Acquired entity has option to apply pushdown accounting upon occurrence of an event in which an acquirer obtains control of the acquired entity

• Acquirer may be another entity or an individual


ASU 2014-17, Pushdown Accounting

• Effective date and transition - Effective immediately - Acquired entities may elect to apply it to any future

transaction or to their most recent event in which an acquirer obtains or obtained control of them

- If the financial statements have already been issued, application of pushdown accounting will be accounted for retrospectively as a change in accounting principle


Debt Issuance Costs


ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs

• Under current guidance, an entity reports debt issuance costs in the balance sheet as deferred charges (i.e., as an asset)

• ASU specifies - Debt issuance costs related to a note should be

reported in the balance sheet as a direct deduction from the face amount of that note

- Amortization of debt issuance costs should be reported as interest expense


ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs

• Amendments do not affect the current guidance on the recognition and measurement of debt issuance costs


• On January 1, 2015, an entity issues a debt security with a face amount of $10,000,000 to an investor

• On the same date, the entity incurs and pays incremental, direct issuance costs of $50,000 to parties other than the investor

• The debt security matures in five years (on December 31, 2020) • Journal Entry 1

Cash $ 10,000,000 Debt — long term $ 10,000,000 To record $10,000,000 note payable on January 1, 2015.

• Journal Entry 2 Deferred issuance cost (asset) $ 50,000 Cash $ 50,000 To record $50,000 debt issuance cost on January 1, 2015

Example – Previous Guidance


• After adopting the guidance in the ASU, the entity would record the $50,000 in debt issuance costs on January 1, 2015, as follows:

• Journal Entry Cash $ 9,950,000 Debt — long term $ 9,950,000 To record $9,950,000 note payable on January 1, 2015.

Example – New Guidance


• Public business entities - Effective for fiscal years, and interim periods within those

fiscal years, beginning after December 15, 2015 • All other entities

- Effective for fiscal years beginning after December 15, 2015, and interim periods beginning after December 15, 2016

• Early adoption allowed for financial statements that have not been previously issued

• Apply the new guidance retrospectively to all prior periods

Effective Date and Transition


• Disclose in the first fiscal year after adoption date: - Nature of and reason for the change in accounting

principle - Transition method - Description of the prior-period information that has

been retrospectively adjusted - Effect of the change on the financial statement line

item (debt issuance cost asset and debt liability)

Disclosures


On the Horizon


Leases

• May 2013 – FASB issued a proposed ASU, Leases, which was a revision of the 2010 proposed ASU

• Core principle is that an entity should recognize assets and liabilities arising from a lease.

• Lessee would recognize assets and liabilities for leases with a maximum possible term of more than 12 months

• Lessee would recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the leased asset (the underlying asset) for the lease term


Leases

• Recognition, measurement, and presentation of expenses and cash flows would depend on whether the lessee is expected to consume more than an insignificant portion of the economic benefits embedded in the underlying asset

• For practical purposes, this assessment would often depend on whether the underlying asset is property or assets other than property


Leases

• 2014 meetings, FASB and the IASB have begun to back away from the May 2013 proposal

• IASB supports a single on-balance sheet model (similar to 2010 proposal)

• FASB supports a dual on-balance sheet model that would use the IAS 17, Leases, classification principles

• Final standard expected by the end of 2015


Financial Statements of Not-for-Profits

• Proposed ASU, Presentation of Financial Statements of Not-for-Profit Entities, issued in April

• Affects substantially all NFPs - Charities - Foundations - Private colleges and universities - Nongovernmental health care providers - Cultural institutions - Religious organizations - Trade associations


Financial Statements of Not-for-Profits


Providing Additional Resources to Meet Your Needs


Subscribe at www.elliottdavis.com/subscribe

37

Russ Madray Email: [email protected] Phone: 864.370.5640 Website: www.elliottdavis.com

Elliott Davis Decosimo ranks among the top 30 CPA firms in the U.S. With sixteen offices across seven states, the firm provides clients across a wide range of industries with smart, customized solutions. Elliott Davis Decosimo is an independent firm associated with Moore Stephens International Limited, one of the world's largest CPA firm associations with resources in every major market around the globe. For more information, please visit elliottdavis.com.


http://www.elliottdavis.com/

Cyber and Data Security May 2015

© 2014 Elliott Davis, PLLC © 2014 Elliott Davis, LLC

Richard Cook, CISA, CISM & CRISC Director: IT Audit & Security Bonnie Bastow CISA, CIA Manager: IT Audit & Security



Cyber and Data Security

Agenda

• Cyber Security - Overview - Update on Common Data Breaches/Threats - Strategies to Mitigate Cyber Terrorism Risks

• Data Security - Overview - Top 5 Control Areas to Review

3 © 2014 Elliott Davis, PLLC © 2014 Elliott Davis, LLC

Overview of Cyber Terrorism

• Cyber Terrorism defined…. Criminal acts using computers and networks as tools or targets


4

• Cybersecurity Update for 2015 - Intel Security Report - 2015 - Kaspersky Carbanak Report - 2015 - Verizon’s Data Breach Investigations Report - 2015

• Common Themes • Integrating Cybersecurity Responses into your

Existing Programs

Cybersecurity Agenda

5 © Elliott Davis Decosimo, LLC © Elliott Davis Decosimo, PLLC

Intel Security Report


• People, processes and technology are needed to help mitigate risk

• Technology alone is not enough to protect users - email is the most prevalent initial target

• 2015 and beyond, no slowdown in sight for social engineering attacks

- "The reality is that social-based attacks will continue for the foreseeable future."




• Launched an online quiz to show how easy it is to get people hooked on a social engineering phishing email

• Social engineering >> low-tech attack due to the limited technical resources required to execute

• Organizations must channel resources into education and cultural change


Kaspersky – Carbanak Report

• Attacks still active • Motivation – Financial gain (not espionage or access

to private information) • Started with a spear phishing email that appeared to

be legitimate banking communications • Email attachments exploited Microsoft Office 2003,

2007, 2010 vulnerabilities


• Highly sophisticated once they gained ‘some’ access • Important point >> Initial access was via phishing

emails and then exploitation of known vulnerabilities

Kaspersky - Carbanak Report


Verizon Security Report


• Top Seven Human Risks - Phish-ability - Not patching or using outdated systems - Posting too much information about self or work - Reusing passwords across sites - Indiscriminate use of mobile media - Lack of situational awareness (believing you are not a target)

- Accidental loss or disclosure of sensitive information



• 23% of recipients open phishing email and 11% click on the attachments

• 99.9% of the exploited vulnerabilities were compromised more than a year after the Common Vulnerabilities and Exposures (CVE) (the patch/fix) was published




The first 4 account for 90% - and are all ‘People’ related


Attack Patterns

• Multi-frontal approach is mandatory • Social Engineering is here to stay

- Human nature • Virus Protection and Patching Programs

- As important as ever • Monitoring tools – necessary, but not preventive • Assessment tools, frequent assessments

Common Themes


Strategies to Mitigate Cyber Terrorism Risks

There are so many risks…where to start?


18

You may already have… - Information Security Program - Business Continuity Plan - Training Programs - IT Strategic Plan

•Must be aware of your current security posture

- What do we have in place - How does it all work/fit together

Integrating Cyber Security Responses


• Know where you stand - Scans – Internal and External - Social Engineering assessments - IT General Controls

• It’s about integrating your: - Business Continuity Plan or Incident Response Programs - Training - Policies and Procedures

• With your: - Employees , Contractors , Vendors, Physical assets

What to Do Next


Strategies to Mitigate Cyber Terrorism Risks

Other strategies to consider • Create a response team to handle issues, often called

a Computer Emergency Response Team (CERT) - Much like a Business Continuity/Disaster Recovery

Plan • Network with local cyber experts to understand

emerging threats


21

Data Security

• Management controls over IT • User Access Reviews • Layered Approach • Privilege Users • Vendor Management • Passwords

Management Review of IT Controls

• Focus will be on IT controls that are generally reviewed by financial management team(s)


User Access Reviews

• Obtain system generated list of all users and their system privileges (helps with financial statement assertions for completeness and accuracy)

• No spreadsheets for tracking user access - This process only validates that the spreadsheet is

correct – actual system access may vary • User review may be difficult to do if the system is not

using either role or group security for applying access rights


User Access Reviews, continued

• During the review; check for: - Users are current employees, contractors, 3rd party users

and temps - Users access rights are appropriate for their job function - Users do not have SoD (Segregation of Duties) conflicts

• If SoD conflicts exist – point to mitigating control (ex. Reconciliations or other business process control)

• SoD conflicts do not exist across systems (credit approval management system – loan origination system)

• Maintain all User Access Review documents (the user access review detail – completed by reviewer - is the most important piece of evidence that the review occurred)



• Maintain User Access Review Tracking sheet, should note:

- Reviewer’s name - List of users to be reviewed - Date sent to reviewer - Date received from reviewer - If changes were requested (Yes/No) - When changes were applied - Users should not review their own access rights (very risky)

• Note: User Access Review Tracking sheet is often times maintained by IT group. User Access Reviews should be performed by management.



• Concentrate on Contractors, Temps, 3rd Party Users and Transfers – this is where most companies fall short

• What are the nature of the changes requested by the reviewers? Do we have some other inherent problems?

- User provisioning process is breaking down? • Do we segregate the user provisioning process (performed by

IT group) from users that have functional access rights (performed by financial users)?

• For each in scope application – be sure to review the application, operating and database layers


Basic Security (layers of an onion)

• Most secure should be the center of the onion


Privileged User Reviews

• Always review 100% of privileged users – this is the highest risk area for users

• Privileged users are any users that can perform the following functions: user provisioning (Add, Change Delete user access rights), administrator level access, change configuration settings and users that have back end access to databases (can make changes directly to the database, i.e. DBA)

• Any 3rd party user that have access rights to your systems should be logged and monitored (we cannot outsource risk)

• 3rd party access should be limited and only granted when needed. It should not be open ended access 7X24


Privileged Users Review – Database Users

• Database user reviews are often overlooked

• Privileged database users are those users who can access the data directly via the back end

• The business owners are responsible for reviewing backend access for database users

• SQL database only has one backend database account - the Security Administrator or SA account. Hence, the password must be shared and changed periodically


Vendor Management Reviews

• Vendor Management Review - What is the opinion on the SOC report? - Does the SOC report have a carveout? Are these carveout

processes significant to our environment? If yes, how do we get comfort around these processes? (Ex, obtain another SOC report for carveout process)

- What is the reporting period? Need to cover at least 6 months of the financial period under review.

- Are there any exceptions in the SOC report? Do they apply to our environment? If yes, how do we get comfort that the exceptions will not affect our financial reporting process.

- Do we have the proper User Control Considerations (UCC’s) in place? Have we validated the key UCC’s? Do we have evidence of the validation process?


Vendor Management Reviews/UCCs

• When reviewing UCCs be sure to include these steps: - List all UCCs from key SOC reports - Review each UCC to determine if the UCCs are key or

not (no need to test non-key UCCs) - For each key UCC for each key SOC report, provide

evidence that the UCC is designed appropriately and operating effectively

- Maintain all documentation of the UCC reviews/testing


Password Security Best Practices – Short Reminder

• We would recommend that the following best practices be applied to password security and account lockout parameters:

• Minimum password length – 6 to 8 characters • Maximum password age – 60 to 90 days • Minimum password age – 1 day (or more) • Password history – no password re-use for the trailing 12 months • Password complexity – enabled (at least require one alpha and one

numeric) • Unsuccessful log on attempts – 5 invalid attempts before user lock out • Lockout duration – at least 15 minutes • Reset lockout counter – at least 15 minutes • Domain inactivity timeout setting – 15 to 30 minutes


Did you know?

• The biggest violators of IT Security are the senior members of the IT/IS team – the team that is responsible for securing the enterprise

- So I ask you – how do you know that your enterprise is secure and only approved users have access to systems and their access is appropriate for their job function?


Questions


Richard Cook, CISA, CISM, CRISC Email: [email protected] Phone: 704.808.5243 Bonnie Bastow CISA, CIA Email: [email protected] Phone: 704.808.5275 Website: www.elliottdavis.com



mailto:[email protected]


Internal Controls – Myths and “Best Practices”


Pamela Mantone, CPA, CFE, CFF, CGMA, MAFF, FCPA

1

COSO Final Changes May 2013


• Consideration of changes in business and operating environments

• Expanded operations and reporting objectives • Fundamental concepts of the five components now

known as principles • Added additional approaches and examples

concerning operations, compliance and non-financial reporting

Internal Controls – Myths and “Best Practices”

Updated matrix

3

Objectives

Components

Organizational structure


Source: COSO Framework Cube 2013 www.coso.org/documents/COSOOutreachDeckMay2013.pptx

4

Best Practices?


Internal Control Myths


“We’ve considered every potential risk except the risks of avoiding all risks.”



• Internal control means different things to different people

• Not a “cure-all” in the prevention and detection of possible fraudulent activities



• Inherent limitations - Judgment - Breakdowns - Management override - Collusion - Materiality - Point-in-time evaluation - Cost/Benefit considerations

Focus Points – Control Environment

Is there “Tone at the Top”?

Are there standards of conduct concerning integrity and ethical values?

Is there an evaluation of individual and/or team performance against the standards of conduct?



Are deviations from the expected standards of conduct identified and remediated both consistently and timely?

Does the board of directors or an appropriate level of oversight operate independently from management

Are there established lines of authority and reporting?



Have performance measures, incentives and rewards been established?

Is there an evaluation process to evaluate competence and address short-comings?

Does the board of directors and management evaluate and adjust for excessive pressures?


Examples– Control Environment


• Organization has a policy on the importance of integrity and ethics throughout the company

• The BOD and senior management have formulated a set of policies on integrity and ethics

• These policies are regularly flashed on the firm’s internal portal, newsletters and incorporated into contracts with outsourced service providers



• There is a formal training program to make employees aware of the importance of complying to the standards of conduct

• Management has a formal process to evaluate individuals against the policies and standards of conduct

• Management proactively identifies and addresses deviations against the company’s integrity and ethic policies



• The BOD has a charter that is comprehensive and outlines the board’s oversight responsibilities

• The board consists of members with significant experience, with some members coming from outside organizations

• The board delegates certain responsibilities to its committees, with each committee having a well-defined charter

Focus Points – Risk Assessment


Do the operations objectives reflect management’s choices about structure, industry considerations, and performance?

Does the board of directors retain oversight responsibility for management’s development and performance of internal controls?

Has management designed and evaluated lines of reporting? (Complex lines of authority are best.)

14



What are the acceptable levels of variation relative to operational objectives and financial performance?

Does management ensure compliance with applicable accounting standards, regulations, laws, etc.?

Is there a process in place to determine how to respond to risks and are the responses appropriate?

15



Does management ‘s risk assessment consider various types of fraud?

Does management’s fraud risk assessment also assess incentives, pressures, opportunities, attitudes and rationalizations?

Does the risk identification process include changes in the external environment, the business model and/or changes in leadership?

16

Examples – Risk Assessment


• Objectives within the company are clearly defined • Risks are identified and reviewed at the appropriate

level • Operational personnel possess the necessary skills to

identify risks associated with new technology

Examples – Risk Assessment


• Risk assessments are reviewed by the BOD at least annually

• Risks are identified by senior management and reviewed by the head of quality assurance

• Policies, procedures and controls support the fraud identification and remediation processes

Focus Points – Control Activities


Do control activities address and mitigate risks?

Do relevant business processes have and maintain current control activities?

Do control activities include a range and variety of controls, including both manual and automated controls, as well as preventive and detective controls?

19



Do control activities address segregation of duties?

Do the control activities include technology general controls, including technology infrastructure?

Do control activities include controls that are designed and implemented to restrict technology access?

20



Do control activities address responsibility and accountability and take correction action timely?

Are policies and procedures developed timely?

Are control policies and procedures re-assessed to determine their continued use or relevance?

21

Examples – Control Activities


• The company has developed control activities that link to the risks identified in the risk assessment process

• The company has controls over technology, including access controls, changes and infrastructure

• The company maintains policies and procedures that clearly outline expectations

Examples – Control Activities


• Staff is formally trained on policies and procedures • Consistency of remedial action taken in response to

departures from approved policies and procedures • Oversight of the BOD in determining compensation

of executive officers

Focus Points – Information and Communication


Is a process in place to identify all information required to support internal control functions?

Does the information system process capture internal and external data and transform relevant data into information?

Does management consider the costs and benefits with the nature, quantity and precision of information that supports the company’s operational objectives?



Is internal control information communicated with personnel?

Are there separate communication lines used to enable anonymous or confidential communication?

Are the selections of communications relevant?



Is there a process in place to communicate timely information to external parties?

Are there open channels of communication to allow input from external sources?

Do the methods of communication consider the timing, audience and the nature of the communication?

Examples – Information and Communication


• Information policies are well developed, relevant, and quality information is generated to support all aspects of internal control

• Objectives and internal control responsibilities are clearly communicated, at least quarterly

• External communications in place such as a robust customer feedback and supplier partner programs

Examples – Information and Communication


• Committee appointed for development or revision of information systems based upon strategic plans and overall strategy of the company

• Establishment of channels of communications for people to report suspected improprieties and/or suggestions for improvements

• Commitment of appropriate resources for the development of necessary information

Focus Points – Monitoring Activities


Is there a mix of ongoing and separate evaluations?

Is there a baseline understanding for ongoing and separate valuations?

Do the evaluators have sufficient knowledge and training?



Do the ongoing evaluations adjust to changing conditions?

Does management adjust the scope and frequency of separate evaluations depending on risk?

Do the evaluations provide objective feedback?



How does management and the board of directors assess results of ongoing and separate evaluations?

How are deficiencies communicated to parties?

How does management track whether deficiencies are remediated timely?

Examples – Monitoring Activities


• Quality assurance conducts internal operational reviews with input and oversight of internal audit

• Personnel performing reviews receive formal training on new technology and processes

• Experienced senior management review internal operational reports

Examples – Monitoring Activities


• Deficiencies are evaluated as to severity, responsibility and communicated to senior management

• Development of a tracking system for deficiencies and that they are remediated timely

• Deficiencies are also reported to the Board of directors or the appropriate level of oversight




34

Pam Mantone Email: [email protected] Phone: 423.266.4021 Website: www.elliottdavis.com

Elliott Davis Decosimo ranks among the top 30 CPA firms in the U.S. With seventeen offices across seven states, the firm provides clients across a wide range of industries with smart, customized solutions. Elliott Davis Decosimo is an independent firm associated with Moore Stephens International Limited, one of the world's largest CPA firm associations with resources in every major market around the globe. For more information, please visit elliottdavis.com.



Retirement Plan Compliance and Controls

Cindy Lusk, CPA, RPA Manager, Employee Benefit Plan Practice

May 12, 2015




Retirement Plan Compliance and Controls

2

Why does it matter?

• The number of 401(k) plans has grown to more than 300,000 plans covering more than 42 million people

• With the recent high-profile failures of companies with large employee benefit plans, today’s workforce is even more concerned about what their employers are doing to protect their retirement assets

• DOL has stepped up its enforcement activities dramatically looking for prohibited transactions, delinquent remittances of 401(k) employee contributions and other ERISA noncompliance

• The U.S. Department of Labor (DOL), the courts and Congress are actively working to define the fiduciary responsibilities of companies with respect to their employee benefit plans


Fiduciary Responsibility - Common Issues

• No employee benefit plan committee • Minutes related to key plan sponsor decisions not documented

or retained • Lack of investment policy • The client utilizes outsourced services (e.g. TPA or payroll) and

there is no documentation of over-sight or review of services provided

• The plan sponsor does not review SOC 1 Report (formerly SAS 70 Report)

• The client fails to maintain fidelity bond requirements (e.g. no fidelity bond, did not meet minimum coverage, or fiduciary insurance)


Compliance and Controls

• Compensation - Common Errors

• Plan sponsor misapplies the definition of compensation • Exclusion of bonuses, manual checks, fringe benefits, severance

pay (as defined by the terms of the Plan document)

• Prevention - Know your plan’s definition of compensation - Review your payroll system for proper inclusion/exclusion

of compensation types used in the deferral and match calculations

- Review your payroll systems annual plan deferral and match limits



• Eligibility - Common Errors

• Employees are participating before they are eligible

• Employees are not given the opportunity to participate when they become eligible

• The plan sponsor does not retain evidence that eligible employees are informed of their right to participate

• Prevention - Know your plan’s eligibility requirements and entrance dates - Review your procedures for enrollment to ensure employees

are notified - of eligibility - Provide payroll with a listing of eligible employees



• Missing Payroll or Personnel Data - Common Errors

• The plan sponsor is missing data such as employee change sheets, timecards or census information

- Prevention • Review or implement procedures for maintenance of

personnel files • Consider a checklist for personnel file maintenance



• Contributions - Common Errors

• Remitted to wrong participant account due to input errors • Calculated incorrectly • Remitted late

- Prevention • Review trust statements for potential input errors • Reconcile payroll records to amounts remitted to the plan • Know your plan’s provisions for contributions and true-ups



• Distributions - Common Errors

• The plan made unauthorized distributions (i.e. no valid documentation for hardship distributions or did not obtain a loan first where loans are permitted by the Plan)

- Prevention • Implement procedures for authorization of distributions • Retain hardship documentation, including an assessment of

any loan balances available to the employee



• Vesting - Common Errors

• Incorrect vesting period

- Prevention • Reconcile the third-party administrator’s census information

to payroll records • Implement procedures to track rehired employees



• Forfeitures - Common Errors

• Misapplication of forfeitures • Forfeitures were not allocated within time frame required by

plan - Prevention

• Review your plan document to determine how forfeitures can be utilized and the timeframe for use

• Review forfeiture balance at least annually and discuss use of available balances with your third-party administrator



• Census - Common Errors

• Incomplete census • Census does not reconcile to payroll records

- Prevention • Reconcile third-party administrator’s census data to payroll

records



• Plan Loans - Common Errors

• Loans not made in accordance with Plan document • Loan payments misapplied

- Prevention • Determine how many loans your plan allows to be

outstanding and the terms for loans • Reconcile loan payments on the trust statement to loan

repayments per your payroll records • Review detailed loan reports for compliance with plan

provisions and DOL regulations


DOL Hot Topics

• Fair Value Measurement - Plan management is responsible for determining fair

value of assets - Increased scrutiny by PCAOB/DOL

• Partial Plan Terminations - 20% or more - closing of a plant, downsizing or

product line - Can occur over 3 year period - previous, current and

next year - Separated participants become fully vested

• Using the Work of a Pricing Specialist - ESOPs, privately held stock, pension valuations


DOL Hot Topics

• Lost Participants - Unclaimed benefits and uncashed checks - Automatic rollover provisions

• Use of Forfeitures - Defined by plan document - Opportunity for abuse

• DOL Audit Quality Enforcement Project and AICPA Peer Review Developments

- Recurring Deficiencies


Could you be liable?

• Many administrators of employee benefit plans do not monitor compliance with plan documents, legal or regulatory requirements

• Federal agencies and Congress have adopted tough new rules that place responsibility for mismanaged retirement plans in the hands of company directors and officers

- Agencies are working with private plaintiffs to go after individual directors and officers in court when a pension plan collapses

• A poor quality audit of a plan’s financial statements can have dire consequences for the sponsor and the participants

- The DOL and the IRS have developed audit programs that impose sanctions of up to 20% of plan assets for failing to manage a plan in accordance with the plan document, the Internal Revenue Code and ERISA requirements. i.e. sanctions imposed on plan assets of $4,000,000 translates to a $800,000 penalty to be paid by the Company


What’s the difference?

• Today, more than 7,500 CPA firms perform more than 80,000 annual audits of employee benefit plans

• 54 firms perform more than 100 plan audits • 6,000 CPA firms perform 5 or fewer plan audits • Many firms offer low fee pricing but may not be qualified to

perform audits of this highly specialized area

• When selecting an auditor for your plan financial statements, there are several factors to keep in mind

- Purpose of the audit - Uniqueness of plan audits - CPA firm resources - Reasonable size ERISA audit practice - Understanding the limited-scope audit exception





18

Cindy Lusk, CPA, RPA Email: [email protected] Phone: 423-266-8170 Website: www.elliottdavis.com



Accounting “Oopsies” Accounting Topics That Can Trip You Up & Cause You To Go “Oops!”


Jennifer Goodman, CPA, CGMA Shareholder, Elliott Davis Decosimo May 12, 2015

1



Accounting “Oopsies”

2

Accounting “Oopsies”


Accounting “Oopsie” aka uhoh, whoops, mistake, #$&!

___________________

• Oopsie topics not overly technical, but have an unusual element that can sometimes trip us up


• Accruals • Capitalization Minimums • Legal Fees • Compensated Absences • FOB Destination vs Shipping • Stock Compensation

Accounting Oopsies


Accruals

Accounting Oopsies


• A liability has three essential characteristics: ₋ It embodies a present duty or responsibility to one or

more other entities that entails settlement at a specified or determinable date, on occurrence of a specified event, or on demand

₋ The duty obligates a particular entity, leaving it little or no discretion to avoid the future sacrifice, and

₋ The transaction or other event obligating the entity has already happened

Accruals


• A public accounting firm has been engaged to audit your financial statements for the year ended 12/31/2014 ₋ You sign the engagement letter which commits your

company and the firm to the terms of the engagement letter on 10/1/2014

₋ Your bank requires an audit so there is no uncertainty that the cost will be incurred

• Is it proper to accrue the entire audit fee as an expense in 2014?

Accruals – Example #1


• Your boss wants F/S by January 10th. You use a PO system for inventory purchases but not other expenses. The auditors always seem to find one or two invoices that slip through the cracks and don’t get accrued

• To avoid an audit adjustment this year, you decide to accrue a $50k “general accrual” for possible un-accrued invoices and for the spring in-house retreat which the board has approved and budgeted $25k for the event

• If you were auditing this entity, how would you conclude on the $50k general accrual?



• On Sept 1, the board has approved management’s plan to shut down Building 4 production and production ceased

November 1 • Half of the equipment will be relocated to another facility

within the company next year and half of the equipment is currently up for sale for $250k, it’s fair market value

• The lessor was notified of the building lease termination before year end but you have 1 more year obligation on the lease agreement



• It’s December 31 and you have identified the following costs associated with the shut down:

NBV of equipment $ 1,000,000 One-time termination benefits paid in January $ 50,000 Remaining bldg. lease payments due – do not plan to sublease forgoing $40,000 in lease income $ 100,000 Estimated equipment relocation/set-up cost to be incurred in February $ 200,000 Estimated general cost for shut down (ex. building repairs, employee relocation, clean up) $ 75,000



• What losses/impairments and accruals should be reflected at December 31?

Half of property held for sale $ 250,000 Half of property held and used evaluate One-time termination benefits paid in January Employees identified, completion date set and employees informed $ 50,000 Lease (100,000 less sublease value 40,000) $ 60,000 • Cannot accrue for relocation costs or “general accruals” • Commitment to an exit or disposal plan by management

does not, by itself, result in the incurrence of a liability



Capitalization Minimums

Accounting Oopsies


• Capitalization Policies ₋ For expediency, many entities adopt policies specifying

the minimum cost that a property unit must have before it is capitalized

₋ These policies are acceptable for US GAAP as long as the minimum is reasonable

₋ There is not an automatic assumption the new $5k IRS De Minimis rule is acceptable for GAAP purposes



• New IRS rules for capitalization and depreciation: ₋ IRS released regulations on capitalization of tangible

property costs that provide a “de minimis safe harbor election”

₋ Allows eligible businesses to expense certain property that would otherwise have to be capitalized

₋ To qualify, you must have book capitalization policies in place for expensing amounts costing less than a specified amount or have a useful life of 12 months or less



• Entity has annual sales of $2.5M • Net income is $250k • Total PPE NBV is $3M

₋ The CFO wants to put a new capitalization policy in place which states that tangible property with a useful life over 1 year is capitalized if purchase price is over $5k

Is this policy reasonable?

Capitalization Minimums - Example


Legal fees Capitalize, Accrue or Expense???

Accounting Oopsies


• Acquisition related costs 805-10-25 (finder’s fees, advisory, legal, accounting, valuation, and other professional or consulting fees) ₋ General rule - expense acquisition fees ₋ Exception – registering and issuing debt securities

• Capitalize and amortize ₋ Exception – registering and issuing equity securities

• Paid in capital

Legal Fees – Business Combinations


Legal Fees – Example Business Combinations Footnote

Consideration $1,949,000

Identifiable Assets Acquired:

Inventories $ 170,000

Machinery and equipment $1,109,000

Other intangibles $595,000

Total identifiable assets $1,874,000

Goodwill $75,000

$1,949,000

Legal fees expensed in operations $ 157,000


• You pick your policy! ₋ Select an accounting policy that provides for either the

inclusion or exclusion of estimated legal fees • Consistently apply such a policy

₋ If policy is to include legal fees as part of loss contingency accrual – • Costs should be accrued even when the related loss is not accrued

• Another tricky area is when there is a range of losses for estimating loss contingencies ₋ Sometimes choosing the low end range is correct

Legal Fees – Loss Contingencies


Step 1: Has liability derecognition threshold been met? Yes – Apply extinguishment accounting Step 2: Is borrower experiencing financial difficulties and lender is granting concessions? Yes – Apply troubled debt restructuring accounting Step 3: Is new or changed loan “substantially different” from old loan? Yes – Apply Extinguishment Accounting No – Apply Modification Accounting

Legal Fees – Debt Modifications and Restructuring


Debt treatment

Fees between

borrower/lender

Cost incurred with third parties

i.e. Legal Counsel

Unamortized deferred cost of old

loan

Extinguishment Accounting

Expensed Capitalized and amortize to

expense over new loan term

Written off

Modification Accounting

Reflected in debt premium or

discount

Expensed Leave on books and continue to

amortize

Legal Fees – Debt Modification or Extinguishment


• ABC Bank hires Lewis law firm in connection with

your loan modification. ABC Bank tells Lewis to bill you directly for legal services provided to ABC Bank in relation to the loan. You agree to pay Lewis directly

• Lewis bills you $100,000 and ABC Bank bills you $400,000 for fees associated with the modification

• How do you account for these fees?

Legal Fees – Example Debt Modification


Compensated Absences

Accounting Oopsies


• ASC 710 Compensation – a liability should be accrued for compensation if all of the following: Obligation attributable to services already rendered

• Rights vest or accumulate ₋ Vest – obligation to pay even if employee terminated ₋ Accumulate – rights may be carried forward ₋ Modification rule for sick pay where accrual not

required but permitted if rights accumulate but do not vest

• Payment is probable, and • Amount can be estimated

Compensated Absences


• Suzanne has earned but not used 5 days of vacation and 5 days of sick pay at 12/31/2014

Your Company Policy: Vacation and sick days accumulate but will not be paid if employment is terminated. An employee can only use sick days due to illness.

₋ Should vacation and sick pay be accrued at 12/31/14? ₋ What if new employees have to wait until second year of

employment to take vacation? ₋ Accrue at current salary rates or salary rates expected at

time vacation is actually paid?

Compensated Absences - Example


FOB shipping point vs destination

Accounting Oopsies


• FOB terms are an important consideration in product sales, because they determine the point at which title to the product, and thus the risks and rewards of ownership, has legally passed to the buyer ₋ FOB destination indicates that title to the product passes

upon delivery to the customer • Revenue recorded when it reaches customer

₋ FOB shipping point indicates that title to the product passes at the time of shipment • Revenue recorded when it ships

FOB shipping point vs destination


• Your product is sold FOB shipping point as indicated

on the invoice. However, for one important customer you have agreed to be responsible for hiring and paying the shipping agent and insuring the goods in transit.

Can you recognize the sale upon shipment?

FOB Shipping Point - Example


• A third party shipping agent rather than your

company has assumed the risk of physical loss on the products during transit

Can you go ahead and recognize the sale since you no longer have the risk of loss during transit?

FOB Destination - Example


• A company has a implied (not written) policy of

replacing lost or damaged goods. The contractual terms specifically state that product is FOB shipping point. Can the Company recognize revenue at the time of shipment?

The phrase “synthetic FOB destination” is used when a vendor offers FOB shipping point terms, but also has a standard business practice of replacing goods that are lost or damaged while in transit to the customer.

FOB Shipping Point - Example


Stock Compensation

Accounting Oopsies


• ASC 718 Compensation – Stock Compensation ₋ Applies to both public and non-public companies ₋ Some examples

• Stock issued to employee • Stock options • Incurring liabilities based on price of company’s stock • Restricted stock units (RSU)

BIGGEST TRIP UP – ASSUMING AWARD HAS NO FIANCIAL IMPACT

Employee Stock Based Compensation


• ASC 718’s measurement objective – ₋ Determine the fair value of stock-based compensation at

the grant date assuming that employees fulfill the award’s vesting conditions and will retain the award

• The fair value of an award – ₋ Reflect the estimated value that the company would be

obligated to provide when an employee is entitled to the award and is no longer required to provide service to the employer



• Don’t let this trip you up: ₋ Determining grant date isn’t always straight forward ₋ Employees of a subsidiary that is included in the parent’s

consolidated FS are considered employees of parent ₋ Don’t assume all awards are equity awards ₋ Clearly identify conditions of award

• Market Condition • Performance Condition • Service Condition

₋ Consider probability of satisfying performance conditions (but not market conditions)



Questions?

© Elliott Davis Decosimo, LLC © Elliott Davis Decosimo, PLLC © Elliott Davis Decosimo, LLC © Elliott Davis Decosimo, PLLC 36




37

Jennifer Goodman Email: [email protected] Phone: 423.266.2308 Website: www.elliottdavis.com




700 East Morehead Street Suite 400 Charlotte, NC 28202 Direct: 704.808.5275 Office: 704.333.8881 Mobile: 336.558.6535 Fax: 704.749.7975 [email protected]

Bonnie Bastow, CIA, CISA Manager Services: Risk Advisory Services | Industries: Financial Institutions, Manufacturing & Distribution, Insurance, Healthcare, Retail, and Professional Services

Professional Overview Bonnie has over 20 years of experience in Accounting, Finance, Operations, and Information Systems. Her main focus is providing IT related assurance, consulting, advisory, compliance, and security services. She has executed SOC1 and SOC2 engagements, FFEIC engagements, developed custom audit work-programs, and conducted several system implementation audits and reviews. Bonnie’s ERP experience includes: SAP, Oracle, Lawson, Dynamics GP, JD Edwards, UltiPro, and PeopleSoft (Financials & HRMS) – operating systems: Unix/Linux, iSeries (AS/400), Windows Server and mainframe – and databases; Oracle, SQL, and DB2. Bonnie has worked with various frameworks including: COBIT, FFIEC, and COSO. Prior to joining Elliott Davis Decosimo, she held positions as CFO, Controller, Corporate Auditor, and IT Director in manufacturing and distribution firms. She has an extensive IT services background in system selections, system implementation, business process reviews, technical writing, and project management. As an IT Risk professional she has previously worked primarily with a leading national firm.

Education and Credentials Certified Internal Auditor (CIA) Certified Information Systems Auditor (CISA) MBA, Finance, Michigan State University, East Lansing, Michigan B.A., Business & Accounting, Alma College, Alma, Michigan

Professional and Service Affiliations Information Systems Audit and Control Association (ISACA), Charlotte and Raleigh

NC Chapters Institute of Internal Audit (IIA) Triad Chapter (Greensboro - Winston-Salem, NC) Rotary Club, Gate City Rotary, Past Board Member

el l i ot td av is . co m © Elliott Davis Decosimo LLC

700 East Morehead Street Suite 400 Charlotte, NC 28202 Direct: 704.808.5243 Office: 704.333.8881 Mobile: 910.297.4004 Fax: 704.749.7943 [email protected]

Richard Cook, CISA, CISM, CRISC Director Services: Risk Advisory Services | Industries: Closely-Held Business, Government, Financial Institutions, Healthcare, Manufacturing & Distribution (M&D), Not for Profit, Retail & Hospitality

Professional Overview Richard has 12 years of IT consulting/audit experience as an IT Risk Management professional primarily with Big Four and national firms. His main focus is providing IT related assurance, consulting, advisory and security services. His range of experience includes assessing IT environments of public (accelerated and non-accelerated filers, including Fortune 500 companies) and private enterprises both large and small from an internal and external perspective. He also has experience implementing the updated COSO 2013 framework.

He has experience leading SOC1 and SOC2 engagements. In addition, Richard’s ERP experience includes: SAP, Oracle, JD Edwards, and PeopleSoft – operating systems: Unix/Linux, iSeries (AS/400), Windows Server and mainframe – and databases; Oracle, SQL, DB2, and Informix among others. Richard has worked with various frameworks including: COBIT, FFIEC, AICPA, PCAOB, COSO, and FISMA.

Education, Credentials and Special Training Certified Information Systems Auditor (CISA) Certified Information Security Manager (CISM) Certified in Risk and Information Systems Controls (CRISC) M.S., Accounting, University of North Carolina at Wilmington (UNCW) B.S., Accounting, University of North Carolina at Wilmington

Professional Affiliations and Advisory Boards Information Systems Audit and Control Association (ISACA), Charlotte, NC Research Triangle, NC Chapter and SC Midlands Chapters Institute of Internal Audit (IIA) Member Alabama, Georgia, North Carolina, Ohio, South Carolina, Tennessee and Virginia Banking Associations UNCW MSA and Wingate University MAC Advisory Boards


Tallan Financial Center Suite 1100, Two Union Square Chattanooga, TN 37402 Direct: 423.266.2308 Office: 423.756.7100 Fax: 423.756.0510 [email protected]

Jennifer Goodman, CPA, CGMA Shareholder Services: Assurance | Industries: Manufacturing and Distribution, Not-for-Profit, Software Development Professional Overview Jennifer provides audit and assurance services, including audits of internal control over financial reporting, to privately held businesses, public companies and not-for-profit organizations. Jennifer serves manufacturing and distribution clients with annual revenues approximating $1.8 billion operating both domestically and internationally. She serves many subsectors of manufacturing and distribution but concentrates much of her time in the baked foods, industrial machinery and apparel industries. Jennifer’s public company experience includes financial statement audits, audits of internal control over financial reporting and limited scope consulting engagements for foreign firms performing assurance engagements for foreign SEC filers. Jennifer’s experience also includes not-for-profit entities where she specializes in educational institutions, religious entities and health and welfare organizations. She currently oversees not-for-profit clients ranging in size from $300,000 to $65 million in annual revenue. Education, Credentials and Special Training Certified Public Accountant Chartered Global Management Accountant B.S., Accounting, University of Tennessee at Chattanooga Professional Affiliations American Institute of Certified Public Accountants Tennessee Society of Certified Public Accountants Tennessee Association of Manufacturers Civic and Community Activities Audit Committee, Tennessee Society of Public Accountants Executive Committee, Friends of the Festival for Chattanooga Riverbend event Executive Committee, Craniofacial Foundation of America




Cindy Lusk, CPA, RPA Manager Services: Assurance | Industries/Specializations: Employee Benefit Plans, Manufacturing & Distribution Professional Overview With more than 15 years of experience, Cindy works primarily on assurance and review across a number of industries. Cindy has specialized experience working on employee benefit plan audits. A significant portion of her career has been dedicated to auditing plans ranging in size from 100 to 35,000 participants with assets up to $548 million. She is committed to helping her clients meet their fiduciary responsibilities and fully understands the latest laws and regulations concerning benefit plans. Cindy also serves as a firm resource for HUD audits. She manages more than 50 HUD audits for the second largest group of nursing homes in the nation, which operates more than 235 skilled nursing homes, assisted living facilities, retirement living communities, home care services and Alzheimer's centers. Education, Credentials and Special Training Certified Public Accountant Retirement Plans Associate B.S., Accounting, University of Tennessee at Chattanooga Professional Affiliations American Institute of Certified Public Accountants Tennessee Society of Certified Public Accountants Civic and Community Activities Audit Committee, Girl Scout Council of the Southern Appalachians Former Finance Chairman and Treasurer, Craniofacial Foundation of America

e l l i ot td av is . co m © Elliott Davis Decosimo LLC


200 East Broad Street Suite 500 Greenville, SC 29601 Direct: 864.370.5640 Office: 864.242.3370 Fax: 864.255.4014 [email protected]

J. Russell Madray, CPA Scholar-in-Residence Services: Assurance Professional Overview As Scholar-in-Residence at Elliott Davis, Russ provides technical guidance on accounting and auditing matters and regulatory developments. He also develops technical training programs as well as publishes articles focused on emerging accounting and auditing issues. With more than 25 years of professional experience, Russ helps CPAs throughout the country understand and manage technical A&A issues. He is also a Senior Lecturer in the School of Accountancy and Finance at Clemson University, an author of several best-selling books, and a frequent contributor to the AICPA and the Journal of Accountancy. Education, Credentials and Special Training Certified Public Accountant Certified Global Management Accountant Certified Internal Auditor Certified Management Accountant Master of Professional Accountancy, Clemson University B.S., Accounting, Clemson University

Professional Affiliations American Institute of Certified Public Accountants Accounting and Review Services Committee, 1998-2001 South Carolina Association of Certified Public Accountants Board of Directors, 2004 Chair, CPE Committee, 2013-2014

Civic and Community Activities Elder, Westminster Presbyterian Church Thought Leadership “Financial Reporting Framework for Small- and Medium-Sized Entities: Implementation Guide,” AICPA, June 2013 “The Trend Toward Fair Value Accounting,” Journal of Financial Service Professionals, May 2008 “How to Handle It: Considering Fraud and Illegal Acts in Compilations and Reviews,” Journal of Accountancy, January 2006 “An Update on Review Engagements,” Journal of Accountancy, August 2004 “An End to the Plain-Paper Debate?” Journal of Accountancy, January 2001 “A New Approach to Compilations,” Journal of Accountancy, April 2000



Pam Mantone, CPA, CFF, CFE, FCPA, CITP, CGMA, MAFF Director Services: Consulting| Industries/Specializations: Government, Financial Services, Not-for-Profit Professional Overview Pam specializes in litigation support services with emphasis on forensic accounting and fraud examinations. She has performed forensic and fraud auditing services for organizations, including the gathering of forensic evidence and testifying to findings. Pam also provides consulting services regarding implementation of fraud prevention and fraud detection internal control systems. Her experience includes conducting and supervising audits of local banks, credit unions, local not-for-profit organizations and HUD audits. She manages and performs external and internal audits of financial institutions. Pam is an accomplished author. Her book, Using Analytics to Detect Possible Fraud – Tools and Techniques, was published in 2013 and provides a common source of analytical techniques used in forensic accounting investigations. It is also used as a college textbook. Education, Credentials and Special Training Certified Public Accountant Forensic Certified Public Accountant Certified in Financial Forensics Master Analyst in Financial Forensics Certified Information Technology Professional Chartered Global Management Accountant B.A., Accounting, Lakeland College Professional Affiliations American Institute of Certified Public Accountants Tennessee Society of Certified Public Accountants Forensic Certified Public Accountant Society National Association of Certified Valuators & Analysts Civic and Community Activities Advisory Council, Association of Certified Fraud Examiners President, Chattanooga Chapter of TSCPA

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2015 Chattanooga Accounting Seminar - Elliott Davis · 2019. 3. 19. · 2015 Chattanooga Accounting...

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