1. Private Company Council Wynne E. Baker, CPA, CBA, CFSA, CFF Member-in-Charge, Banking Industry Group KraftCPAs PLLC November 4, 2014 MTSU Beta Alpha Psi

2. 2 Topics  The Private Company Council  Private Company Decision-Making Framework  Definition of a Public Business Entity  PCC Activities to Date  Seeking Your Input

3. 3 Private Company Council

4. 4 Private Company Key Events

5. Private Company Council (PCC) Established by FAF on May 30, 2012; FAF Oversight  Identifies, deliberates and votes on proposed alternatives within existing U.S. GAAP for private companies  Based on agreed-on criteria with FASB (Private Company Decision- Making Framework)  Subject to FASB endorsement and public due process 5

6. Private Company Council (PCC) Established by FAF on May 30, 2012; FAF Oversight  Primary private company advisory body to FASB on active FASB projects  Composed of private company practitioners (4), users (3) and preparers (3) 6

7. PCC Agenda Process Identification of potential GAAP alternatives Pre-agenda research on potential modification Staff analysis – Private Company Decision-Making Framework PCC vote on agenda topics (Super-majority) 7

8. PCC Process 8 PCC Agenda Decision Deliberation of staff analysis and vote FASB endorsement Exposure draft PCC re- deliberates FASB final endorsement FASB issues final Standards

9. Endorsement Process and Voting  PCC proposes GAAP alternatives  Two-thirds vote required  FASB endorsement by simple majority  FASB act within 60 days  If FASB does not endorse, must provide written notification to PCC indicating changes that would result in endorsement 9

10. 10 Private Company Decision-Making Framework

11. Tool for PCC and FASB ID and provide alternatives based on differential factors  Number of users and access to management  Investment strategies of primary users  Ownership and capital structure  Accounting resources  Learning about new guidance 11

12. Private Company Decision-Making Framework Tool for PCC and FASB Where guidance differ between public and private (modules)  Recognition and measurement  Display (presentation)  Disclosures  Effective date  Transition method Apply to PCC look-back projects and ongoing FASB projects 12

13. Framework Fundamentals 13 Assist in user-relevance and cost-benefit evaluations for private companies under the existing conceptual framework Intended to facilitate decisions and drive consistency Fundamental approach retails or improves information relevant to typical users Reduce cost and complexity, but not adversely affecting reporting of relevant information

14. 14 Definition of Public Business Entity

15. Public Business Entity Definition: A Business Entity That Meets Any One: 15

16. Public Business Entity Definition: A Business Entity That Meets Any One: 16

17. 17 PCC Activities to Date

18. PCC Meetings 18 Previous Meetings 12/6/2012 2/12/2013 5/6/2013 7/15/2013 9/30-10/1/2013 11/12/2013 1/28/2014 Upcoming Meetings 4/29/2014 7/15/2014 9/16/2014 12/11/2014

19. Project Progress  FASB issued final alternatives on interest rate swaps; goodwill on 1/16  FASB has endorsed VIE alternative  FASB staff conduct more research on identifiable intangible assets  Removed combined instruments accounting for interest rate swaps from agenda 19

20. 20 Final Alternatives

21. Goodwill – Why?  Current requirements  Provide limited benefits to users  Disregard goodwill and goodwill impairment losses in analysis of financial condition and operating performance  Cost and complexity of current goodwill impairment test 21

22. Goodwill 22 Current U.S. GAAP Do not amortize goodwill Test for impairment at least annually or more frequently Goodwill impairment test At reporting unit level Two-step test Optional qualitative assessment Final Alternative Amortize goodwill Test for impairment upon occurrence of triggering event Goodwill impairment test At entity level or reporting unit level One-step test Optional qualitative assessment

23. Goodwill 23 Transition Amortize existing goodwill prospectively over 10 years or less if the private company can demonstrate that another useful life is more appropriate. Effective Date Applied prospectively for existing goodwill and new goodwill recognized in the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. Early adoption is permitted.

24. Interest Rate Swaps – Why? 24 Stakeholder Concerns  Difficult to obtain fixed-rate borrowing  Must enter into swaps to economically convert variable-rate to fixed-rate borrowing  Lack expertise to comply with hedge accounting  Question relevance/cost of determining and presenting fair value of swamp for converting to fixed-rate borrowing

25. Interest Rate Swaps 25

26. Interest Rate Swaps 26 Transition Private companies may apply either the modified retrospective approach or the full retrospective approach upon adoption Existing swaps as of the date of adoption may qualify for the simplified hedge accounting approach. Effective Date Effective for the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. Early application is permitted. Simplified Hedge Accounting

27. 27 Current Projects

28. Identifiable Intangible Assets – Why? In a Business Combination  Requirement for separate recognition and measurement of certain identifiable intangible assets from goodwill does not provide users with decision-useful information. 28

29. Identifiable Intangible Assets – Why? In a Business Combination  Cost and complexity  Estimating fair value of certain assets, including some identifiable intangible assets, e.g. customer relationships 29

30. Identifiable Intangible Assets 30 Current U.S. GAAP Recognize intangibles separately from goodwill in a business combination if: Contractual-legal OR Separable Proposal (July 2013) Recognize intangibles separately from goodwill in a business combination if: Contractual with noncancelable terms OR Legal

31. Identifiable Intangible Assets Next Steps  At January 28 meeting, PCC directed FASB staff to conduct further research and analysis on alternative  Recognize and measure only intangible assets capable of being sold or licensed independently  Alternatives focusing solely on types of customer-related intangibles that may not warrant recognition separately from goodwill 31

32. VIE Guidance to Common Control Leasing 32

33. VIE Guidance to Common Control Leasing – Why?  Lenders have stated that they do not find consolidating a leasing entity (lessor) under common control with a manufacturing entity (lessee) to be useful. 33

34. VIE Guidance to Common Control Leasing – Why?  Guidance for applying VIA guidance costly and complex to implement  Difficult to follow and fragmented  Oftentimes application of VIA guidance requires outside resources at a significant cost 34

35. VIE Guidance: January 28 Decision Alternative not to apply VIE guidance in assessing whether a lessor entity should be consolidated when all following conditions exist: a)Private company lessee and lessor entity are under common control b)Private company lessee has leasing arrangement with lessor entity c)Substantially all of the activity between the private company lessee and the lessor entity are related to the leasing activities between those two entities d)If the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor entity, the principal amount of the obligation at inception of such guarantee or collateral arrangements, must not exceed the value of the asset leased by the private company. Important Note: Not meeting the criteria above does not automatically result in consolidation. 35

36. VIE Guidance to Common Control Leasing 36 Transition Full retrospective approach Effective Date Effective for the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. Early application is permitted.

37. VIE Guidance to Common Control Leasing 37 Next Steps  At January 28 meeting, PCC finalized alternative  Addressed stakeholder concerns that November 2013 decisions were too restrictive  FASB endorsed on 2/19  Expected issuance end of March

38. PCC Pre-Agenda Research  Stock-based compensation  Did not add uncertain tax positions (FIN 48) to agenda 38

39. PCC Advising on FASB Projects  Revenue recognition  Leases  Accounting for Financial Instruments  Going Concern 39

40. PCC Advising on FASB Projects  Disclosure Framework  Definition of a Public Business Entity  Government Assistance  Reporting Discontinued Operations 40

41. 41 Seeking Input

42. Seeking Your Input  Submit comment letters on proposals  Email us on issues affecting private company stakeholders: comments@privatecompanycouncil.org comments@privatecompanycouncil.org  Outreach meetings  Attend/watch upcoming meetings 42

43. 43

44. Thank You Wynne E. Baker, CPA, CBA, CFSA, CFF KraftCPAs PLLC – 615/782-4230 Nashville, Columbia, Lebanon www.kraftcpas.com