Published on May 19, 2016
1. #cbizmhmwebinar 0 CBIZ & MHM Executive Education Series™ Primer on Plan Reporting Changes Under ASU 2015-12 Ryan Rold, Jenny Matasic May 18 and June 7, 2016
2. #cbizmhmwebinar 1 About Us • Together, CBIZ & MHM are a Top Ten accounting provider • Offices in most major markets • Tax, audit and attest* and advisory services • Over 2,900 professionals nationwide A member of Kreston International A global network of independent accounting firms *MHM is an independent CPA firm providing audit, review and attest services, and works closely with CBIZ, a business consulting, tax and financial services provider.
3. #cbizmhmwebinar 2 Before We Get Started… • To view this webinar in full screen mode, click on view options in the upper right hand corner. • Click the Support tab for technical assistance. • If you have a question during the presentation, please use the Q&A feature at the bottom of your screen.
4. #cbizmhmwebinar 3 CPE Credit This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webinar. External participants will receive their CPE certificate via email immediately following the webinar.
5. #cbizmhmwebinar 4 Disclaimer The information in this Executive Education Series course is a brief summary and may not include all the details relevant to your situation. Please contact your service provider to further discuss the impact on your business.
6. #cbizmhmwebinar 5 Presenters Ryan is MHM's West Region EBP Audit Leader and based in our Phoenix office. He has extensive experience with auditing employee benefit plans including defined contribution, defined benefit, health and welfare, and employee stock ownership plans. Ryan serves as an office leader in auditing employee benefit plans, is a member of the MHM EBP Task Force, and serves on the EBP internal inspection team that reviews firm's quality on an annual basis. 602.264.6835 • [email protected] • @ryanroldcpa J. RYAN ROLD, CPA MHM Shareholder CBIZ MHM Phoenix
7. #cbizmhmwebinar 6 Presenters Jenny is a senior manager in the attest department. She has over ten years of experience in auditing employee benefit plans including defined contribution, defined benefit and health and welfare plans. She oversees the Tampa Bay office employee benefit plan practice. 727.572.1400 • [email protected] JENNY MATASIC, CPA Senior Manager, CBIZ MHM Tampa Bay
8. #cbizmhmwebinar 7 Agenda Summary: ASU 2015-12, ASU 2015-10, ASU 2015-07 02 01 03 Impact on Financial Reporting Communications with Those Charged with Governance 04 Questions
9. #cbizmhmwebinar 8 SUMMARY ASU 2015-12 ASU 2015-10 ASU 2015-07
10. #cbizmhmwebinar 9 Primer on Plan Reporting Changes Under ASU 2015-12 • Effective Date: • For fiscal years beginning after December 15, 2015 • Early adoption of any or all of the three parts is allowed • Three Parts: • I: Fully benefit-responsive investment contracts • II: Plan investment disclosures • III: Measurement date practical expedient
11. #cbizmhmwebinar 10 Summary of Plan Reporting Changes Under ASU 2015-12 • Eliminated the requirement to measure the fair value of fully- benefit responsive investment contracts • Eliminates disclosures related to interest crediting rates and average yields • Disaggregation by type only either on the face of the financials or in the notes • Self-directed brokerage considered a type • No longer required to disclose the net appreciation/depreciation in fair value of investments by type or disclose investments equal to or greater than 5% of net assets • Plans with a fiscal year‐end that does not match the end of a calendar month allowed to measure investments as of closest month-end
12. #cbizmhmwebinar 11 Part I: Fully Benefit‐Responsive Investment Contracts • Current guidance requires FBRICs be measured at both fair and contract value with the difference between the two reconciled on the face of the financial statements. • The ASU eliminates to requirement to measure at fair value and provide the related disclosures including the average yield earned by the plan and the methodology used to calculate the interest crediting rates. • The new ASU clarifies that contract value is the relevant measure for FBRICs because that is the amount participants would receive in a transaction. • Definition of a fully benefit-responsive investment contract (FBRIC) in master glossary did not change. • Investment contracts that do not meet the definition of a FBRIC continue to be presented at fair value.
13. #cbizmhmwebinar 12 Part I: Fully Benefit‐Responsive Investment Contracts Guidance clarifies that indirect investments in FBRICs through investment companies (e.g., stable value CCTs) are not in the scope of the FBRIC guidance.
14. #cbizmhmwebinar 13 Part I: Fully Benefit‐Responsive Investment Contracts • Synthetic Investment Contracts • Plan owns the underlying securities (e.g., fixed income investments, units in CCT, wrapper contract) • Present as single amount at contract value with other FBRICs (do not break out underlying securities) • No changes to Form 5500 and supplemental schedule requirements • Present each underlying security at its fair value • Wrapper will be presented at fair value (typically the amount needed to adjust the fair value of the underlying securities from fair value to contract value)
15. #cbizmhmwebinar 14 Part I: Fully Benefit‐Responsive Investment Contracts • Required disclosures • New disclosure: Total contract value of each type of FBRIC (e.g., synthetic investment contracts, traditional investment contracts) • Previously required disclosure: Description of the nature of each type of FBRIC (including how it operates) • Previously required disclosure: Description of events that limit the ability of the plan to transact at contract value, including a statement that these events are not probable of occurring • Previously required disclosure: Description of events and circumstances that would allow the issuer to terminate the contracts and settle at an amount different from contract value • Eliminated disclosures • Hierarchy level • Valuation techniques and inputs • Level 3 reconciliation • Average yields
16. #cbizmhmwebinar 15 Part I: Fully Benefit‐Responsive Investment Contracts • Additional FBRIC Guidance: • FBRICs held in a master trust are subject to the same presentation and disclosure requirements as FBRICs held by a plan. • Apply new guidance retrospectively.
17. #cbizmhmwebinar 16 Part I: Fully Benefit‐Responsive Investment Contracts Example: Statements of Net Assets Prior to Adoption 2015 2014 Assets: Investments at fair value $ 700,000 500,000 Notes receivable from participants 10,000 8,000 Net assets reflecting investments at fair value 710,000 508,000 Adjustment from fair value to contract value for fully benefit-responsive investment contracts (5,000) (3,000) Net assets available for benefits $ 705,000 505,000
18. #cbizmhmwebinar 17 Part I: Fully Benefit‐Responsive Investment Contracts Example: Statements of Net Assets with Adoption, Redline 2015 2014 Assets: Investments at fair value $ 600,000 700,000 400,000 500,000 Fully benefit-responsive investment contracts 95,000 97,000 at contract value Notes receivable from participants 10,000 8,000 Net assets reflecting investments at fair value 710,000 508,000 Adjustment from fair value to contract value for fully benefit-responsive investment contracts (5,000) (3,000) Net assets available for benefits $ 705,000 505,000
19. #cbizmhmwebinar 18 Part I: Fully Benefit‐Responsive Investment Contracts Example: Statements of Net Assets with Adoption, Final 2015 2014 Assets: Investments at fair value $ 600,000 400,000 Fully benefit-responsive investment contracts at contract value 95,000 97,000 Notes receivable from participants 10,000 8,000 Net assets available for benefits $ 705,000 505,000
20. #cbizmhmwebinar 19 Part I: Fully Benefit‐Responsive Investment Contracts • Guidance clarifies that indirect investments in FBRICs through investment companies (e.g., stable value CCTs) are not in the scope of the FBRIC guidance. • Plans should report these investments at fair value. • These funds typically qualify for measuring fair value using the net asset value (NAV) practical expedient. • These funds calculate NAV per share (or its equivalent) in a manner consistent with the measurement principles of ASC 946. • As required by ASC 946, the NAV calculated by the fund is based on “net assets” which includes FBRICs at contract value. • This NAV represents the plan’s fair value since this is the NAV at which the plan transacts with the fund.
21. #cbizmhmwebinar 20 Part I: Fully Benefit‐Responsive Investment Contracts • The amount previously presented as contract value is now presented as fair value. • This does not change total net assets available for benefits. • The investments are now accounted for consistent with other CCTs or similar investment funds and are presented with investments at fair value.
22. #cbizmhmwebinar 21 Part II: Plan Investment Disclosures • Current guidance requires that plans disclose the investments disaggregated by class (i.e. nature, characteristics and risks of the investments). Additionally disaggregation by general type (i.e. common stocks, corporate bonds, mutual funds, etc.) is also required. • The ASU eliminates the need to disaggregate by class meaning investments will be disaggregated only by general type. Additionally, self‐directed brokerage accounts are considered one general type of investments and are still included in the fair value hierarchy table. Applies to investments held in a master trust. • Current guidance also requires the net appreciation or depreciation in fair value of investments by general type and investments with a value equal to or greater than 5% of net assets available for benefits be disclosed. Form 5500 reporting still requires breakout of certain types of unrealized appreciation and depreciation. • The ASU eliminates both requirements. Applies to investments held in a master trust. • No longer required: the significant investment strategies for an investment in a fund that files an annual report on Form 5500 as a direct filing entity when the plan measures that investment using the NAV practical expedient.
23. #cbizmhmwebinar 22 Part II: Plan Investment Disclosures Example: Investments at Fair Value Prior to Adoption Level 1 Level 2 Level 3 Total Mutual funds: $ - - - - Index funds - - - - Balance funds - - - - Growth funds - - - - Other funds - - - - Total mutual funds - - - - Common stocks: Industries - - - - Telecommunications - - - - Consumer - - - - Other - - - - Total common stocks - - - - U.S. government securities - - - - Common/collective trust funds:* Equity index funds - - - - Fixed income funds - - - - Total common/collective trust funds - - - - Pooled separate accounts:* Large U.S. equity - - - - Asset allocation - - - - Total pooled separate accounts - - - - Guaranteed interest account - - - - Total investments at fair value $ - - - - Investments at Fair Value as of December 31, 2015
24. #cbizmhmwebinar 23 Part II: Plan Investment Disclosures Example: Investments at Fair Value with Adoption Level 1 Level 2 Level 3 Total Mutual funds $ - - - - Common stocks - - - - U.S. government securities - - - - Self-directed brokerage account - - - - Guaranteed interest account (only if non benefit-responsive) - - - - Total assets in the fair value hierarchy $ - - - - Investments measured at NAV (a) - Total investments excluding plan interest in ZZ Master Trust, at fair value $ - (a) Investments at Fair Value as of December 31, 2015 In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the statements of net assets available for benefits.
25. #cbizmhmwebinar 24 Part III: Measurement Date Practical Expedient • The ASU allows a plan with a fiscal year‐end that doesn’t coincide with the end of a calendar month to measure its investments and investment related accounts using the month end closest to its fiscal year end. • Added to the project as a result of a similar practical expedient that the FASB recently issued for employers with FYEs that don’t end at the end of a calendar month (ASU 2015-04). • Allows a plan to measure its investments and investment related accounts using the month end closest to its FYE (i.e., an alternative measurement date). • Disclose as an accounting policy. • Disclose financial effects of contributions, distributions and/or significant events that occur between the alternative measurement date and the plan’s fiscal year-end. • Apply consistently year to year. • Applied prospectively
26. #cbizmhmwebinar 25 Readily Determinable Fair Value (RDFV) (ASU 2015-10) • FASB issued ASU 2015-10, Technical Corrections and Improvements in June 2015. • RDFV is defined in the FASB Accounting Standards Codification Master Glossary as follows (ASU 2015-10 changes are underlined and effective on issuance): • An equity security has a readily determinable fair value if it meets any of the following conditions: • The fair value of an equity security is readily determinable if sales prices or bid-and-asked quotations are currently available on a securities exchange registered with the U.S. Securities and Exchange Commission (SEC) or in the over-the-counter market, provided that those prices or quotations for the over-the-counter market are publicly reported by the National Association of Securities Dealers Automated Quotations systems or by OTC Markets Group Inc. Restricted stock meets that definition if the restriction terminates within one year. • The fair value of an equity security traded only in a foreign market is readily determinable if that foreign market is of a breadth and scope comparable to one of the U.S. markets referred to above. • The fair value of an equity security that is an investment in a mutual fund or in a structure similar to a mutual fund (that is, a limited partnership or a venture capital entity) is readily determinable if the fair value per share (unit) is determined and published and is the basis for current transactions.
27. #cbizmhmwebinar 26 Readily Determinable Fair Value (RDFV) (ASU 2015-10) • If a security has a RDFV, generally it is measured at fair value. • ASU 2015-10’s revised definition may also affect equity securities that were being valued by applying the NAV practical expedient. • If a security has a RDFV, the NAV practical expedient cannot be applied, and it should be included in the fair value hierarchy table disclosure required by ASC 820.
28. #cbizmhmwebinar 27 Readily Determinable Fair Value (RDFV) (ASU 2015-10) • The FASB ASC Master Glossary defines an equity security as: • Any security representing an ownership interest in an entity (for example, common, preferred, or other capital stock) or the right to acquire (for example, warrants, rights, and call options) or dispose of (for example, put options) an ownership interest in an entity at fixed or determinable prices. The term equity security does not include any of the following: • Written equity options (because they represent obligations of the writer, not investments) • Cash-settled options on Equity Securities or options on equity-based indexes(because those instruments do not represent ownership interests in an entity) • Convertible debt or preferred stock that by its terms either must be redeemed by the issuing entity or is redeemable at the option of the investor.
29. #cbizmhmwebinar 28 Readily Determinable Fair Value (RDFV) (ASU 2015-10) • The Master Glossary does not define the term mutual fund. Mutual fund is another name for an investment company. • To determine whether an investment is in a structure similar to a mutual fund, consideration should be given as to whether it is similar to an investment company as defined in ASC 946, Financial Services - Investment Companies. • Mutual funds can be registered with the SEC under the Investment Company Act of 1940. Mutual fund shares are purchased from the fund itself or through a broker. • Examples of other types of funds may include: pooled separate accounts, common collective trusts, hedge funds, and private equity funds.
30. #cbizmhmwebinar 29 Readily Determinable Fair Value (RDFV) (ASU 2015-10) • The RDFV definition retains the requirement that an equity security’s fair value is readily determinable if the fair value per share (unit) is determined and published, and is the basis for current transactions. • The Master Glossary does not define the terms published or the basis for current transactions and judgment will be required.
31. #cbizmhmwebinar 30 Revised Disclosures for NAV Practical Expedient (ASU 2015-07) • FASB issued ASU 2015-07, Fair Value Measurement (Topic 820) Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) in May 2015. • This ASU states investments measured using the NAV practical expedient will no longer need to be included as part of the fair value hierarchy table disclosure. • This means if it is determined that an investment has a RDFV and therefore, the NAV practical expedient cannot be applied, the investment should be included in the fair value hierarchy table disclosure.
32. #cbizmhmwebinar 31 IMPACT ON FINANCIAL REPORTING
33. #cbizmhmwebinar 32 Sample Language for Summary of Significant Accounting Policy Disclosure is necessary in the summary of significant accounting policies when early adopting.
34. #cbizmhmwebinar 33 ? QUESTIONS
35. #cbizmhmwebinar 34 If You Enjoyed This Webinar… Upcoming courses: • 6/1: Unclaimed, Unidentified but Undeniable - A Primer on Managing your Abandoned Property • 6/2 & 6/9: Doubling Up - The Combined Benefits of Cost Segregation and Tangible Property Regulations • 6/28 & 7/6: Key International Tax Considerations - Mid-Year Update Recent publications: • Collectibility, Treatment of Sales Taxes and Other Narrow Scope Improvements to Revenue Recognition Standard • How Do You Report Changes in Restricted Cash? • How Audit Committees Can Help with Third-Party Risks
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37. #cbizmhmwebinar 36 THANK YOU CBIZ & Mayer Hoffman McCann P.C. [email protected]