1

Update on Recent FASB Projects of Interest to the Construction Industry, Sureties,

and Auditors

Presented by:- Kevin Catalano, Kenny Bement, and Bill Hildebrand (FASB)- John McNerney (Mechanical Contractors Association of America)- David Lomax (Liberty Mutual Surety)

22

PRESENTER BIOGRAPHYIntroductions by Patrick Pribyl, Chairman of the NASBP Industry Relations Committee

FASB:- Practice Fellow Kevin Catalano- Project Manager Kenny Bement- Practice Fellow Bill Hildebrand

Mr. John McNerneyMr. David Lomax

Agenda

• FASB Revenue Recognition Project• FASB Multiemployer Pension Plan

Disclosure Project– CIFC Perspectives on Multiemployer Pension

Plan Disclosure Project• FASB Private Company Standard-Setting

Framework and Organizational Updates

3

The views expressed in this presentation are our own and not the positions of the Financial Accounting Standards Board (FASB).

Positions of the FASB are arrived at only after extensive due process and deliberations.

FASB Staff Disclaimer

4

FASB Revenue Recognition Project

5

Timeline of the revenue project

Jun 2010Exposure

Draft issued

Oct 2010End of

comment period (nearly 1,000

responses)

Nov 2010 Public

roundtables

Dec 2010 – June 2011

Board re-deliberation of proposals

Outreach

3Q 2011Re-exposure

6

6

Steps to apply the revenue model

Core principle: depict the transfer of goods or services to customers in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.

Five steps to apply the core principle:

7

1-Identify the contract(s) with the customer

2-Identify separate performance obligation(s)

3-Determine the transaction price

4-Allocate the transaction price

5-Recognize revenue

7

Step 1: Identify the contract(s)• May need to combine contracts if specified

criteria are met (e.g. if negotiated together)• Contract modifications (i.e. change orders)

– Account for when approved– Evaluate whether a new separate contract added– If not, re-evaluate the obligations and re-

allocate

8

8

Step 2: Identify the separate performance obligation(s)

• Goods and services accounted for as a single performance obligation if risks are inseparable– The goods or services are highly interrelated

and the entity provides a significant ‘integration’ service

– The entity significantly modifies the goods or services as negotiated specifically with the customer

• Otherwise, separate only if distinct

9

9

Step 3: Determine the transaction price

• Transaction price: the amount of consideration to which an entity expects to be entitled– Variable consideration—probability weighted or

most likely amount– Time value of money—only if significant to the

contract– Collectibility—bad debt presented as contra

revenue

10

10

Step 4: Allocate the transaction price• Objective: if more than one performance

obligation, allocate to each in the amount to which the entity expects to be entitled

• Allocate on standalone selling price basis• Estimate selling prices if necessary

11

11

Step 5: Recognize revenue• Recognize revenue when a performance

obligation is satisfied• Satisfied over time if the asset has no

alternative use to the entity and at least one of following is met:– the customer controls the asset being built– another entity would not need to re-perform

work completed to date, or– entity has right to payment for work completed

to date

12

12

Step 5: Recognize revenue• If over time, measure progress toward

completion:– Objective: depict the value of performance to

date– Output methods or input methods permitted– If input method used, must exclude inputs that

do not depict performance (owner provided materials, waste)

– Zero margin may be appropriate in some circumstances (e.g. early stage of contract, uninstalled materials)

13

13

Proposed cost guidance• Acquisition costs

– Capitalize if they are incremental (e.g. selling commissions) and are expected to be recovered

• Fulfillment costs (e.g. precontract or setup)– relate directly to a specific anticipated contract– relate to future performance– are expected to be recovered

• Onerous performance obligations– Recognize a loss if the least cost of exiting the

obligation exceeds the amount of consideration

14

14

Other revenue topics

• Transition and effective date• Disclosures

– No significant changes from the Exposure Draft– Exemptions for nonpublic entities:

• Disaggregation of revenue• Reconciliations of contract positions and onerous

liability• Maturity analysis• Significant inputs and assumptions

15

15

FASB Multiemployer Pension Plan Disclosure Project

16

17

Why enhance disclosure about multiemployer plans?

• Some users of financial information requested more information about:– Commitments– Risks involved

• Assets pooled, not earmarked, risks shared• If cease contributing, in some cases, withdrawal

liability (unique construction rules limit these circumstances)

• Previous disclosures generally limited to contributions for period

18

What is the current status?• Board deliberations are complete• Final standard expected to be published in early

September• Effective Date

– For public entities, annual periods ending after December 15, 2011

– Nonpublic entities, one year deferral– Early adoption permitted

19

What are the key new disclosures?

• For individually material plans:– Plan legal name and Employer Identification

Number– Most recent certified funded status, expressed as a

“zone status,” as required by the Pension Protection Act of 2006 (or any subsequent amendments)

20

What are the key new disclosures?

• For individually material plans (continued):– Expiration date(s) of collective bargaining

agreement(s) and any minimum funding arrangements

– Indication of whether the employer’s contributions represent more than 5 percent of total contributions to the plan

– Indication of what plans, if any, are subject to a funding improvement plan

21

What are the key new disclosures?

• Contributions made to each individually material plan and the total contributions made to all other plans in the aggregate

• A description of the nature and effect of any changes affecting comparability from period to period for each period in which a statement of income is presented.

22

CONSTRUCTION INDUSTRY FASB COALITIONON MULTIEMPLOYER PLAN TRANSPARENCY ANDDISCLOSURE

THE MEMBER ASSOCIATIONS OFTHE CAMPAIGN FOR QUALITY CONSTRUCTION

AND

Prepared in conjunction with

Construction Industry FASB Coalition's Outreach and Successful Constructive Collaboration with FASB on Exposure Draft 715-80, Disclosure About an Employer's Participation in a Multiemployer Plan

• The CIFC is comprised of virtually every union-signatory construction employer association in the country - MCAA, SMACNA, TAUC, ICE-BAC, FCA, AGC, NECA, NACA, NACBE, IMPACT.

• In addition, the CIFC garnered the strong support and participation of NASBP, and the Surety and Fidelity Association of America - and very importantly, the personal participation of David Lomax of Liberty Mutual, who also serves on FASB's Private Company Financial Reporting Committee.

• David was instrumental in presenting financial statement user support for the CIFC position, along with Mary Ann Lawrence of Key Bank, also a member of the FASB PCFRC. 23

• The CIFC adopted a type of mutual gains, interest-based bargaining approach with FASB, which accepted the aims of FASB's project, greater disclosure and transparency on participation in multiemployer pension plans, while at the same time working with FASB to recognize collateral issues relating to the project to avoid unnecessary detrimental effects on CIFC members.

• Both sides succeeded.

• And, the CIFC built an industry-wide problem-solving mechanism that may serve it well on other FASB issues and others going forward.

24

FASB principles worked constructively with the CIFC advisory panel - a group of top industry experts on multiemployer plans, whose names should be mentioned here:

• Multiemployer plan professional advisors:– Larry Beebe, CPA, a Principal of Bond Beebe CPA in Bethesda, Maryland– Cary Franklin, FSA, Actuary and Managing Consultant at Horizon Actuarial Services in North Hollywood, California– Richard J. Sawhill, plan trustee and executive vice president with ARCA/MCA (an MCAA local affiliate) in Ontario, CA– James K. Estabrook, Attorney, fund counsel and professional trustee, Lindabury, McCormick, Estabrook & Cooper, PC,

Westfield, NJ

• User representatives:– David Lomax, Assistant Vice President, Liberty Mutual Surety, Plymouth Meeting, PA– Mary Ann Lawrence, Senior Vice President, Commercial Credit Risk Review, Key Bank, Cleveland– (Both members of FASB's Private Company Financial reporting Committee)

• Contributing employers and plan trustees:– Bob Lake, President EMCOR Services Mesa Energy Systems, Inc.– Bob Pruger, CFO, Rudolph Libbe Companies, Walbridge, Ohio– Eric Wallace, CPA, Partner, Carbis Walker, LLP Pittsburgh, PA

• CIFC Association staff representatives:– Dana Thompson, SMACNA– John McNerney, MCAA

25

Positive outcome achieved with FASB:

• Routine annual disclosure of withdrawal liability in under funded plans was removed as a proxy for a contributing employer's potential liability. Other proposed substitutes for that potential liability also were analyzed and removed by FASB.

• Estimated liability for retiree health care coverage also was dropped from the project by FASB.

• FASB and CIFC settled on use of Pension Protection Act plan disclosures already in place and Labor Department plan reports - 5500 Forms - as the most cost-effective way to provide improved and non-misleading disclosures to increase transparency and disclosure in footnotes to audited financial statements.

26

Private Company Standard-Setting Framework and Organizational Updates

27

28

Blue-Ribbon Panel• Jointly sponsored by FAF, AICPA, and NASBA • Mission is to address how accounting standards

can best meet the needs of users of U.S. private company financial statements

• Key recommendations:– One set of GAAP for all entities, but with

modifications and exceptions for private companies– Create separate Board to set private co. standards

• Short-term and other recommendations

29

Differential Framework• Decision-making tool to consider appropriate

exceptions and modifications– Based on robust staff assessment leading to key

differential factors affecting cost-benefit equation– Aim is to better meet unique private company user

needs in cost-effective manner– Crucial to ensuring lasting change and consistent

decision-making, regardless of whether separate board or some other structural change is made by the FAF Trustees

30

Differential Framework• Differential framework will address whether and when

there should be differences in:

– Recognition and measurement

– Presentation and disclosures

– Effective date and transition

• New 10-member Private Company Resource Group formed to vet staff assessment and advise FASB in developing differential framework

• Not a conceptual framework resulting in fundamental changes between private and public companies

31

Sources of Input• Private company roundtables held in fall 2010

• Project-specific roundtables and outreach held in 2010-2011

• Comment letter responses in last few years

• PCFRC, SBAC, and ITAC advisory groups

• Members of AICPA TIC and Blue-Ribbon panel

• Private Company Resource Group

• Academic research and other publications

• Institutional knowledge

• Other discussions and outreach with users, preparers, and auditors of private company financial statements

32

Significant Differential Factors(1) Types and volume of users

(2) Access to management

(3) Investment strategies

(4) Ownership structures

(5) Accounting resources

(6) Education

• Further information is available in a FASB in Focus publication and podcast recording at www.fasb.org

33

Recent Board Decisions for Nonpublic Entities

• Fair Value Measurements – Exemption from most new disclosure requirements,

and a reversal of a previous requirement (significant transfers between Levels 1 & 2)

• Financial Instruments– Practicability exception to fair value for

nonmarketable (level 3) equity securities• Revenue Recognition

– Exemption from most new disclosure requirements, especially quantitative ones

34

Recent Board Decisions for Nonpublic Entities

• Statement of Comprehensive Income, Multiemployer Plan Disclosures, and Various Other Projects– Delayed effective dates, for one-year and with initial

application for annual, rather than interim periods• Other deliberations underway relating to testing

goodwill for impairment, and some disclosure and measurement aspects of the leasing project

35

Next Steps• Welcome feedback on our FASB In Focus• Continue to work with Resource Group to

create Differential Framework for Board’s consideration

• Ultimately expose the draft Framework for public comment and normal due process

• Private Company Financial Reporting Committee • Small Business Advisory Committee • Addition of private co. experience to the Board • Asst. Director and team of 7 nonpublic entity experts• Centralized review of private co. comment letters• Private co. expert liaisons assigned to each project team• Specific references included in basis for conclusions• PCFRC Observer added to EITF• Involvement of smaller CPA firms in fatal flaw reviews

Private Co. Standard-Setting Efforts

36

• General private company issues round tables • Project-specific round tables and outreach • Staff paper on differential user/preparer considerations• Private company decision-making framework

• Formation of Private Company Resource Group• Plain-English publications/webinars, new webpage• Nonpublic entity webcast offering CPE• New electronic constituent feedback form

Private Co. Standard Setting Efforts

37

3838

Update on Recent FASB Projects of Interest to the Construction Industry, Sureties, and Auditors

YOUR QUESTIONS?If you do not have the opportunity to have your question addressed during the Seminar, you may contact the presenter directly:

Name: Kevin CatalanoContact info – kpcatalano@fasb.org, or 203-956-5359

Name: John McNerneyContact info – jmcnerney@mcaa.org

Name: David LomaxContact info – david.lomax@libertymutual.com