FASB Update John Hepp Partner Accounting Principles June 18, 2014

1. The ITLC/NAFC 2014 Annual Conference & Exhibition FASB UpdateJohn HeppPartnerAccounting Principles June 18, 2014

2. Disclaimer This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered.For additional information on matters covered in this presentation, contact your Grant Thornton LLP adviser.

3. Update on FASB standard-settingAgenda • Recently issued guidance • FASB projects • Private Company Council projects • EITF issues • Convergence projects

4. A surge of activity in 2014 Including the first major convergence standard since 2008

5. Recently issued guidanceFinal ASUs – 1st Half 2014 *A consensus of the FASB Emerging Issues Task Force **A consensus of the Private Company Council

6. Recently issued guidanceFinal ASUs – 1st Half 2014 *A consensus of the FASB Emerging Issues Task Force **A consensus of the Private Company Council

7. Recently issued guidanceFinal ASUs – 1st Half 2014

8. ASU 2014-01Accounting for Investments in Qualified Affordable Housing Projects • Option to apply a proportional amortization method that recognizes the cost of the investment as a part of income tax expense, if certain conditions are met • Significantly loosens criteria that must be met • Applies only to Low Income Housing Tax Credits and should not be analogized for other tax credits • Effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2014. Early adoption is permitted • One-year delay for interim reporting for all other entities

9. ASU 2014-04Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure • Derecognize the loan receivable and recognize real estate property when in-substance repossession or foreclosure • Occurs when either: • Lender obtains legal title to the residential property upon completion of a foreclosure • Borrower conveys all interest in the residential property to the lender to satisfy the loan through a deed in lieu of foreclosure or a similar legal document • Effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2014. Early adoption is permitted • One-year delay for interim reporting for all other entities

10. ASU 2014-05Service Concession Arrangements Public sector entity Private sector entity operate Infrastructure

11. ASU 2014-05Service Concession Arrangements, continued Scope Service concession arrangements between private-sector operating entity and public-sector grantor when arrangement meets both of the following: • Grantor controls, or has ability to modify/approve, the services by operating entity, who provides the services, and at what price • Grantor controls, through ownership, beneficial entitlement or residual interest in infrastructure at end of arrangement

12. ASU 2014-05Service Concession Arrangements, continued Operating entity cannot apply: • ASC 840, Leases, accounting guidance to the service concession arrangement • ASC 360, Property, Plant and Equipment, guidance to the infrastructure in a service concession arrangement Apply other guidance such as ASC 605, Revenue Recognition, to account for revenue and costs related to construction, upgrade, or operation of services

13. ASU 2014-08Discontinued operations Scope applies to either: • Component of an entity, or a group of components, that is either disposed or classified as held for sale • Significant equity method investments • Business or nonprofit activity classified as held for sale upon acquisition New guidance does not apply to oil and gas properties accounted for under the full-cost method.

14. ASU 2014-08Discontinued operations Definition: Discontinued operation Component of an entity, a group of components of an entity, a business, or a nonprofit activity whose disposal marks a strategic shift that has or will have a major effect on an entity's operations and financial results Continuing involvement/cash flows no longer a factor in classification But information still needs to be disclosed

15. Discontinued operationsExamples

16. ASU 2014-08Discontinued operations - presentation Balance sheet: • Present separately the assets and liabilities of the discontinued operation in all periods (including prior periods when not yet classified as held for sale) Income statement: • Separately report discontinued operation's results as a separate component of income before extraordinary items • Present or disclose the gain or loss on disposal separately

17. New disclosures about continuing involvement • A description of the nature of activities giving rise to the continuing involvement • The expected duration of continuing involvement • The amount of cash inflows and outflows from and to, respectively, the discontinued operation after its disposal • Revenues and expenses presented in continuing operations after the disposal that were previously eliminated in the consolidation process

18. ASU 2014-08Discontinued operations – effective date and transition • Public business entities, NFP's that have issued or are conduit bond obligors for market securities, and acquisitions classified as held for sale: Effective for annual periods beginning on or after December 15, 2014 and for interim periods within those years. • All other entities: Effective for annual periods beginning on or after December 15, 2014 and interim periods within annual periods beginning on or after December 15, 2015. • Prospective application • Early adoption permitted for disposals or held for sale classifications not previously reported

19. Update on FASB standard-setting activitiesAgenda • Recently issued guidance • FASB projects • Private Company Council projects • EITF issues • Convergence projects

20. FASB project updateSummary

21. FASB project updateSummary, continued

22. FASB project updateSummary, continued

23. FASB project updateGoing Concern – recent developments • Early-warning disclosure requirement removed • Modified SEC-filer requirement to assess for 24 months after balance sheet date • All entities to assess for substantial doubt for one year from financial statement issuance (available for issuance) date • Substantial doubt definition to incorporate "probable" likelihood • Management to consider mitigating plans if probable to alleviate adverse conditions and be effectively implemented • Disclosures when substantial doubt exists and when it has been alleviated

24. Proposed Concepts StatementConceptual Framework for Financial Reporting • Board's decision process part of disclosure framework project • Help the Board identify relevant information for disclosure • Address interim reporting disclosure requirements • Differences in measurement, recognition, and presentation between interim and annual statements • How interim results relate to entire year • Expectations about the future would not be disclosed unless supports a measurement in the financial statements • Comments due July 14

25. Update on FASB standard-setting activitiesAgenda • Recently issued guidance • FASB projects • Private Company Council projects • EITF issues • Convergence projects

26. Private Company CouncilProject update

27. ASU 2014-02Accounting for Goodwill Scope: • Goodwill arising from a business combination • Goodwill resulting from equity method accounting or fresh-start reporting • If elected, alternative must be applied to all goodwill

28. ASU 2014-02Accounting for Goodwill, continued Amortization (change from ED): • Straight-line basis over 10 years • Shorter life may be used if more appropriate Example: • Acquisition of Entity A where Entity A's major asset is a license with a life of eight years. • Entity A concludes that amortizing goodwill over the life of the license is more appropriate than over 10 years.

29. ASU 2014-02Accounting for Goodwill, continued Impairment: • Elect to test for impairment at either: • Entity level • Reporting unit level • Test for impairment only when triggeringevent occurs • Option to first perform qualitative assessment to determine if quantitative test is needed • No impairment review of equity method goodwill

30. ASU 2014-02Accounting for Goodwill, continued Derecognition: • Allocate goodwill to business being disposed of in determining gain/loss on disposal • Allocate using a "reasonable and rational approach" Presentation requirements: • Separate line item in balance sheet • Split amortization and impairment between continuing and discontinued operations (if any) in the income statement

31. ASU 2014-02Effective date and transition • Effective prospectively for new goodwill in annual periods beginning after December 15, 2014 and for interim periods within annual periods beginning after December 15, 2015. • Goodwill existing at the beginning of the period of adoption is amortized prospectively over ten years(or less if more appropriate) • Early adoption permitted including forannual or interim period for which financial statements have not beenmade available

32. ASU 2014-03Simplified hedge accounting approach Scope: • Private companies, other than financial institutions • Receive-variable, pay-fixed interest rate swaps All the following criteria must be met: • Variable rate on swap and borrowing is based on same index and reset period • Swap is "plain-vanilla" interest rate swap • Re-pricing and settlement dates match • Swap's fair value at inception is at or near zero • Swap's notional amount matches debt's hedged principal amount • Interest payments are designated as hedged

33. ASU 2014-03Simplified hedge accounting approach, continued ASU 2014-03 provides flexibility in application: • May apply on a swap-by-swap basis • May apply to arrangements where variable interest is based on an index not identified as a benchmark in existing ASC 815, Derivatives and Hedging • Any cap or floor in debt must have comparable cap or floor in the swap • Re-pricing and settlement dates do not need to match exactly; can be within "a few days" • Swap's fair value at inception does not have to be zero; can be "near zero"

34. ASU 2014-03Simplified hedge accounting approach, continued Relief from existing guidance: • May assume no ineffectiveness • May measure at settlement value rather than fair value • Difference is that settlement value does not reflect nonperformance risk • May defer completion of hedge documentation until the date when the first annual financial statements are available for issuance after hedge inception Note: At the point the hedge no longer satisfies the alternative criteria, then must prospectively account for using ASC 815

35. ASU 2014-03Simplified hedge accounting approach, continued NO RELIEF FROM: • Compliance with existing cash flow hedge documentation requirements: • Entity must document methods they intend to use to assess effectiveness and measure ineffectiveness • May use "critical terms match" approach to documentation • Quarterly re-assessment • Assess counterparty credit risk 2. Disclosure requirements under ASC 815 and ASC 820

36. ASU 2014-03Effective date and transition • Effective for annual periods beginning after December 15, 2014 and for interim periods within annual periods beginning after December 15, 2015. • Early adoption permitted • Must elect, on a swap-by-swap basis: • Modified retrospective approach • Full retrospective approach

37. ASU 2014-07VIE exemption for common control leases Scope: • Lease arrangement between the two entities • Private company lessee and the lessor must be under common control • Leasing activity with the lessor must be substantially all of the activity between the two entities • If lessee explicitly guarantees/provides collateral for any obligation of the lessor, the principal amount of the obligation at inception cannot exceed the value of the asset leased

38. ASU 2014-07VIE exemption for common control leases, continued Accounting: • Allows private companies an exemption from the requirement to consolidate the lessor under common control in existing variable interest entity (VIE) guidance • Alternative must be applied to all leasing arrangements with current and future lessors under common control Disclosure: • Key terms of arrangement • Amount and description of lessee's exposure to lessor's liabilities • Qualitative description of circumstances where lessee may need to provide financial support to lessor • VIE disclosures not required

39. VIE exemption for common control leasesSale and leaseback to/from a VIE • The proposal does not provide relief from sale and leaseback accounting, including continuing involvement. • A "failed sale" will continue to be reflected on the balance sheet.

40. ASU 2014-07Effective date and transition • Effective for annual periods beginning after December 15, 2014 and for interim periods within annual periods beginning after December 15, 2015. • Retrospective application • Early adoption permitted

41. Reception for the PCC standards N = 1,028 CFOs responding

42. Goodwill the most common relief N = 771 Private Company CFOs responding

43. Public companies would if they could N = 232 Public Company CFOs responding

44. Update on FASB standard-setting activitiesAgenda • Recently issued guidance • FASB projects • Private Company Council projects • EITF issues • Convergence projects

45. EITF updateProject Roster *Discussed in March 2014 meeting

46. Update on FASB standard-setting activitiesAgenda • Recently issued guidance • Convergence projects • FASB projects • Private Company Council projects • EITF issues

47. Status updateFASB/IASB convergence projects

48. Revenue recognition modelA matter of control (even for services) • Control – the ability of the customer to direct the use of, and obtain substantially all the remaining benefits from, an asset (also includes preventing others from directing the use of, or obtaining the benefits from) • Revenue recognized upon satisfaction of a performance obligation (promised goods or services are transferred) • Transfer occurs when the customer obtains control In the original proposal, no provision for partial performance

49. Revenue recognition model The compromise • Control transfers either over time or at a point in time • Must first evaluate if over time • If not, then point in time

50. Revenue recognition modelTransfer models