1. FASB and Accounting Standards Update Jay Meglich Trevor Warren

2. Agenda Revenue Recognition Proposed Lease Accounting Standard Multi Employer Plan Disclosures Going Concern Exposure Draft Private Company Standards 2

3. Revenue Recognition 3 Converged with IASB on major decisions up to now Final standard expected in first quarter of 2014

4. Revenue Recognition – Project Status 4 2010 2011 2012 2014 June 2010November 2011March 2012First Half 2014 Exposure draftRevised exposure draft Comment letter deadline Final standard (ASU / IFRS) Revenue from Contracts with Customers Re-exposure of revenue from contracts with Customers April 2012 Roundtables May 2012 onwards Redeliberations In June / July 974 comment letters 358 comment letters

5. Implementation Retrospective Transition – Restate at beginning of period and present all periods under new standard Alternative Transition – Restate existing contracts but present under old standard. Present current year under new standard Public Company – Implement for annual periods beginning after 12/15/16 Private Company - Implement for annual periods beginning after 12/15/17 Early Implementation Prohibited 5

6. Revenue Recognition – Core Principles 6 Recognize revenue to depict the transfer of 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.

7. Revenue Recognition – Proposed Model 7 Identify contract(s) with the customer Identify separate performance obligations Determine transaction price Allocate transaction price Recognize revenue when performance obligation is satisfied

8. Scope All contracts with customers, except: – Lease contracts – Insurance contracts – Financial instruments – Non-monetary exchanges in the same line of business to facilitate sales to customers 8

9. Step 1: Identify the contract(s) 9 Must meet specified criteria to apply the model Existence of a contract Negotiated as a package Linked consideration Goods or services form one performance obligation Combine contracts Separate contract if add distinct goods/services at standalone selling price Prospective if remaining goods/services distinct Otherwise, cumulative catch-up Contract modifications Objective: To identify the bundle of contractual rights and obligations to which an entity would apply the revenue model

10. 10 Step 2: Identify the performance obligation(s) Objective: To identify the promised good or services that are distinct and should be accounted for separately Promise to transfer a distinct good or service Customer can benefit from good or service Promised good or service is separable from other promises On its own Together with other readily available good or services (including good or services previously acquired from entity) No significant service of integrating the good or service Good or service does not significantly modify or customize another good or service in the contract Good or service is not highly dependent on or interrelated with other goods or services

11. Step 3: Determine transaction price 11 Objective: To determine amount of consideration to which an entity expects to be entitled in exchange for promised goods or services Variable Consideration Significant Financing Non-cash Consideration Consideration Payable to Customer Estimate using: Expected value Most likely amount but “constrained” Adjust consideration if timing provides customer or entity with significant benefit of financing Measure at fair value unless cannot be reasonably estimated Reduction of the TP unless in exchange for a distinct good or service

12. Step 3: Constraining variable consideration Entity’s expectations of revenue reversal assessed using indicators. – Factors outside entity’s influence (market, 3 rd party actions) – Entity’s level of experience – Length of time before uncertainty resolved 12 Include estimate of variable consideration in the transaction price only if expect subsequent change to estimate would not result in a significant reversal of revenue

13. Step 4: Allocate the transaction price Relative standalone selling price basis – Estimate selling price basis – Residual estimation techniques may be appropriate Discounts and contingent amounts allocated entirely to specific performance obligation if specified criteria met 13 Objective: To allocate to each performance obligation the amount to which the entity expects to be entitled

14. Step 5: Recognize revenue 14 Objective: To recognize revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service

15. Step 5: Recognize revenue (continued) An entity satisfies a performance obligation and recognizes revenue over time if one of the following criteria are met: – Customer receives and consumes the benefits of the entity’s performance as the entity performs (e.g. cleaning service) An objective basis for assessing benefit – hypothetically, would another entity need to substantially re-perform the work the entity has completed to date if that other entity were to fulfill the remaining obligation to the customer? – Entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced (e.g. home addition) – Entity’s performance does not create an asset with an alternative use to the entity and the entity has a right to payment for performance completed to date and it expects to fulfill the contract as promised 15

16. Contract costs 16 Costs that would not have been incurred if contract not obtained Recognize as an asset if the entity expects to recover those costs. Practical expedient permits an entity to recognize those costs as an expense when incurred, if the amortization period of the asset the entity would have otherwise recognized is one year or less For example: Sales commissions If the costs are not within the scope of another Topic/IFRS, recognize as an asset if they: Relate directly to a contract Relate to future performance Are expected to be recovered For example: Pre-contract or setup costs Assets recognized should be amortized on a systematic basis consistent with the pattern of transfer of the goods or services to which the asset relates. Recognize an impairment loss if the carrying amount of the asset exceeds the remaining consideration to which the entity expects to receive less the costs directly related to providing those goods or services Incremental costs of obtaining a contract Costs of fulfilling a contractAmortization and impairment

17. Disclosure requirements 17 Objective: To enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers Disaggregation of revenue Information about contract balances Disaggregate revenue into categories that depict how revenue and cash flows affected by economic factors When determining categories, consider: other disclosures, information reviewed by chief operating decision maker and other information used by entity Explain relationship with segment disclosures A combination of qualitative and quantitative disclosures Opening and closing balances Amount of revenue recognized from contracts Explanation of significant changes in contract balances

18. Disclosure requirements (continued) 18 Interim disclosure requirements Disclose aggregate amount of the transaction price allocated to remaining performance obligations Quantitative or qualitative explanation of when amounts will be recognized as revenue Fulfilment and incremental costs of obtaining the contract All quantitative disclosures in annual and interim for: Disaggregation of revenue Contract assets and contract liabilities Remaining performance obligations Contract costs Remaining performance obligations

19. Leases 19 Increase transparency and comparability among organizations that lease assets, by recognizing assets and liabilities that arise from lease transactions on a lessee’s balance sheet. Project Objective Boards have remained converged on major decisions. Convergence Revised Exposure Draft issued May 16, 2013. Comments were due by September 13, 2013. Next steps

20. Proposed Right-of-Use Model 20 A lease contract is one in which the right to control the use of an asset (for a period of time) is transferred to the lessee. Lessor Right of Use Lessee

21. The Rationale (Lessee) 21 What the lessee obtains Right to use asset Obligation to pay for that right Importance of leased asset Not all leases are the same How best to reflect those contracts in lessee’s income statement Amortization on ROU asset Straight-line lease expense

22. Classification 22 Leases of assets other than property unless: Lease term is insignificant relative to economic life of asset or PV of lease payments is insignificant relative to FV of asset Lessee consumes more than insignificant portion of leased asset Leases of property (land and/or a building) unless: Lease term is major part of remaining economic life of asset or PV of lease payments is substantially all of FV of asset Lessee does not consume more than insignificant portion of leased asset

23. Redeliberations – Lessee Model 23 Balance Sheet Income Statement ¹ Measured at present value of lease payments ² Initially measured at same amount as liability, plus prepayments and initial direct costs Dr. ROU asset² Cr. Lease liability¹ Lessee consumes more than insignificant portion of leased asset Amortization expense Interest expense Lessee does not consume more than insignificant portion of leased asset Lease Expense

24. Leases – Where We are Now 24 August 2010 Exposure Draft Leases Comment period: 4 months 786 comment letters received Contained proposals for both lessees and lessors 2010 2013 Second Exposure Draft Leases Re-expose proposals Comment period 120 days Focus on revisions to 2010 proposals Contained proposals for both lessees & lessors 2013 Consultation Outreach Working group meetings Redeliberations 2013 TBD Final Standard Leases Effective date: TBD Will contain guidance for both lessees & lessors TBD

25. Lessee Disclosures Description of leases Lease Terms (extension options, Variable lease payments & Residual value guarantees) Restrictions and/or covenants Information about leases not yet commenced Maturity analysis of undiscounted cash flows for 5 years and thereafter Expense relating to variable lease payments Risks arising from leases Significant assumptions 25

26. Preparing for the (Eventual) Leases Standard Inventory all leases – Donated space (no or nominal rent) excluded Assess capitalization threshold Monitor the continued developments in the project at fasb.org Depending on final decisions: – Understand any potential impact on debt financial covenants (debt/equity ratios) and any other key financial metrics by which the organization is measured. – Understand any potential impact on cost recovery agreements (primarily, equipment leases). Could have an impact on government contractors. 26

27. Preparing for the (Eventual) Leases Standard 27 Implementation - 2018? Start planning now Identify appropriate resources Discuss implications

28. ASU 2011-09 Multi-employer Plans Added significant disclosure requirements – Plan names, plan numbers and EIN – Level of participation – Financial health of plan – Nature of employer commitments to the plan – Description of plan benefits – Qualitative description of potential responsibilities – Other information deemed helpful to the users – Effective for periods ending after December 15, 2012 28

29. Going Concern Exposure Draft An entity would evaluate going concern uncertainties by assessing the likelihood that the entity would be unable to meet its obligations as they become due within 24 months after the financial statement date. Evaluate at each annual and interim reporting period and start providing footnote disclosures when it is either: (1)more likely than not that the entity will be unable to meet its obligations within 12 months after the financial statement date without taking actions outside the ordinary course of business or (2)known or probable that the entity will be unable to meet its obligations within 24 months after the financial statement date without taking actions outside the ordinary course of business. 29

30. Going Concern ED - When threshold is met-disclose: (1) the principal conditions and events that give rise to the entity’s potential inability to meet its obligations, (2) the possible effects those conditions and events could have on the entity, (3) management’s evaluation of the significance of those conditions and events, (4) mitigating conditions and events (5) management’s plans that are intended to address the entity’s potential inability to meet its obligations. 30

31. ASU 2014-03 Derivatives and Hedging Permits Private Companies to amortize goodwill over 10 years Still need to test for impairment Effective for annual periods beginning after 12/15/14 – early adoption permitted 31 ASU 2014-02 Intangibles and Other- Accounting for Goodwill Gives Private Companies the option to use a simplified method for interest rate swaps Income statement charge would be similar to a fixed rate Effective for annual periods beginning after 12/15/14 – early adoption permitted

32. Contact Information Jay Meglich – Shareholder jmeglich@schneiderdowns.com (614) 586 – 7124 Trevor Warren – Senior Manager twarren@schneiderdowns.com (614) 586 - 7243 32