INSIGHT TO GET IT RIGHT: PREPARING FOR 2017 AUDIT & TAX FILINGS - PDF document

6/12/2017 INSIGHT TO GET IT RIGHT: PREPARING FOR 2017 AUDIT & TAX FILINGS June 13, 2017 Nick Wallace, CPA Nicole Fishback, CPA Director Director nwallace@bkd.com nfishback@bkd.com 1

6/12/2017 TO RECEIVE CPE CREDIT • Participate in entire webinar • Answer polls when they are provided • If you are viewing this webinar in a group  Complete group attendance form with • Title & date of live webinar • Your company name • Your printed name, signature & email address  All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar  Answer polls when they are provided • If all eligibility requirements are met, each participant will be emailed their CPE certificates within 15 business days of live webinar TODAY’S WEBINAR • NOT a technical discussion of the details of FASB & GASB pronouncements • Provide a practical “how to” session on issues to consider as you work through this year’s audit & tax preparation plans & prepare for fall board meetings & other presentations later this year, regarding making changes required by new accounting standards & new tax regulations 2

6/12/2017 AGENDA • FASB pronouncements  Revenue recognition (ASC 606)  Leases (ASC 842)  Other accounting changes  Tips for early adopters of ASU 2016-14 • Tax challenges & tips • Impact of GASB standards  GASB to be implemented • Pension (year 2 & 3 – GASB 73, 78, 81)) • OPEB reporting (GASB 74) • Split Interest Agreements (GASB 81)  Lease exposure draft • SFA (Perkins closeout & audit findings) FASB PRONOUNCEMENTS – REVENUE RECOGNITION • Revenue recognition (ASU 2014-09) – effective for years beginning after December 15, 2017, (FY19) for Conduit Bond Obligors or a year later for everyone else: practically speaking, need to consider the following issues IMPACT COMMUNICATION IMPLEMENTATION HOW TO FIND ANSWERS 3

6/12/2017 FASB PRONOUNCEMENTS – REVENUE RECOGNITION IMPACT Communication needs of boards, management & accounting & finance staff • How the new standard will impact revenue streams  Contributions – scoped out  Tuition – including traditional & nontraditional programs  State or federal appropriations (contract with a customer or contribution?) Mainly Larger Mainly Larger Schools  Sponsored contracts (including disclosure requirements)  Sponsored grants Mainly Larger Schools FASB PRONOUNCEMENTS – REVENUE RECOGNITION IMPACT Communication needs of boards, management & accounting & finance staff • How new standard will impact revenue streams  For institutions with health care entities • Patient services – transaction price, performance obligation, impact of collectability • Clinical trials – transaction price, performance obligation  Royalties & licensing – point in time vs. over time, variability, handling of expenses under contract  Auxiliaries (housing, dining contracts, bookstore including warranty obligations & rights of return & athletics)  Publications  Other (conferences, memberships, corporate sponsorships) 4

6/12/2017 FASB PRONOUNCEMENTS – REVENUE RECOGNITION IMPACT Revenue Stream Accounting Impact Data/System Impact Disclosures 1. Tuition 2. Continuing Ed/Online 3. State/Federal Appropriations 4. Sponsored Contracts 5. Sponsored Grants TBD TBD TBD 6. Contribution Revenue High Impact Moderate Impact Low Impact Scoped Out Color Code FASB PRONOUNCEMENTS – REVENUE RECOGNITION COMMUNICATION Board Management Finance Teams 5

6/12/2017 FASB PRONOUNCEMENTS – REVENUE RECOGNITION COMMUNICATION Communication needs of boards, management & accounting & finance staff • Boards – what do I tell them? Probable Major Areas of Magnitude of Timing of Direction of Change Change Implementation Change FASB PRONOUNCEMENTS – REVENUE RECOGNITION COMMUNICATION Timeline for implementation steps (applies to FYE May or June 30, 2019, for conduit debt issuers, or FYE May or June 30, 2020, for all others) New areas for internal control (existence, completeness, valuation, rights & obligations, etc.) Management Communication Areas for estimates & judgments (allocation of transaction price, collectability, etc.) New vocabulary (contract with a customer, transaction price, performance obligation, consideration payable to customer, right to withdrawal) Probable Major Areas of Magnitude of Timing of Board Direction of Change Change Implementation Communication Change 6

6/12/2017 FASB PRONOUNCEMENTS – REVENUE RECOGNITION COMMUNICATION Finance Staff Communication •Inventory process for all material revenue streams & existing contracts •Implement the five-step approach for all material revenue streams •Identify new estimates & judgments. Accumulate, organize & document relevant supporting conclusions & calculations •Determine transition model – run parallel (two years prior to implementation) under full retrospective or for “modified approach” – use current GAAP two years prior & disclose impact on each line item in year of implementation Management Communication Board Level Communication FASB PRONOUNCEMENTS – REVENUE RECOGNITION COMMUNICATION • Finance staff communication plan – additional matters  Process for collecting data for disclosures  Systems changes or adjustments needed  Pro forma impact (especially related to ratios & debt covenants)  Format PBC workpapers to be evaluated by auditors who will be evaluating the implementation of this standard 7

6/12/2017 REVENUE RECOGNITION IMPLEMENTATION PLAN HOW TO FIND ANSWERS • Resources  AICPA Revenue Recognition resource page  AICPA publication: “Financial Reporting Brief: Roadmap to Understanding the new Revenue Recognition Standard”  Center for Audit Quality: Preparing for the New Revenue Recognition Standard  BKD Summary of AICPA Progress on Revenue Guidance (March 2017) bkd.com/thought-center 8

6/12/2017 FASB PRONOUNCEMENTS – LEASES • Leases (ASU 2016-02): effective for years beginning after December 15, 2018, (FY20) for Conduit Bond Obligors or a year later for everyone else. Practically speaking, need to consider the following issues IMPACT COMMUNICATION IMPLEMENTATION HOW TO FIND ANSWERS FASB PRONOUNCEMENTS – LEASES IMPACT Communication needs of boards, management & accounting & finance staff • How the new standard will impact  Debt covenant & debt capacity assessments  Financial ratios  Bond ratings & cost of borrowing  Institutional budgeting  Procurement & contract review 9

6/12/2017 FASB PRONOUNCEMENTS – LEASES COMMUNICATION Board Management Finance Teams FASB PRONOUNCEMENTS – LEASES COMMUNICATION Communication needs of boards, management & accounting & finance staff • Boards – what do I tell them? Probable Major Areas of Magnitude of Timing of Direction of Change Change Implementation Change 10

6/12/2017 FASB PRONOUNCEMENTS – LEASES COMMUNICATION • Review of contracts for lease determination  Includes contracts that could include leases • Review of impact (if any) on debt covenants Management • Review of impact on Title IV compliance ratios Communication • Communication with rating agencies • Policy level decisions (materiality, etc.) Probable Major Areas of Magnitude of Timing of Board Direction of Change Change Implementation Communication Change FASB PRONOUNCEMENTS – LEASE COMMUNICATION Finance Staff Communication •Inventory process for all contracts including those that could have embedded leases •Transition options including practical expedients •Identify new estimates & judgments. Accumulate, organize & document relevant supporting conclusions & calculations •Calculation tools to use (existing ERP tools, commercially purchased software, etc.) •For larger, more complex entities think about & decide upon procedures for data collection & coverage of completeness assertion Management Communication Board Level Communication 11

6/12/2017 HOW TO FIND ANSWERS • Resources for software*  LeaseAccelerator  SAP Lease Administration by NAKISA  Aptitude Lease Accounting Engine  Financial Computer Systems, Inc.: EZ13  Real Asset Management * No endorsement implied A FEW OTHER FASB ACCOUNTING CHANGES Accounting Change Impact Effective Date – Public Effective Date – Entity Nonpublic Entity Fees paid in a cloud Guidance to determine if Years beginning after Years beginning after computing arrangement* cloud computing includes December 15, 2015. December 15, 2016. a software license Generally FY June 30, Generally FY June 30, 2017 (conduit debt) 2018 Presentation of going Defined management’s Effective for annual Effective for annual concern (ASU 2014-15) responsibility to evaluate periods ending after periods ending after going concern & to December 15, 2016 December 15, 2016 provide disclosures Eliminating extraordinary Eliminates separate Effective for annual Effective for annual & unusual Items classification & disclosures periods beginning after periods beginning after for extraordinary items December 15, 2015 December 15, 2015 * May 10, 2017 – FASB EITF Project added to determine accounting for costs associated with implementing cloud computing 12