BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

Q2 2017 TECHNICAL UPDATE

July 2017

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Agenda

Accounting Update SEC Matters Update PCAOB and Governance Update

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With You Today

Adam BrownNational Partner - AccountingBDO USA, LLPDirect: (214) 665-0673abrown@bdo.com

Amy RojikNational Partner -Communications & Governance BDO USA, LLPDirect: (617) 239-7005arojik@bdo.com

Paula HamricPartner, National SEC PracticeBDO USA, LLPDirect: (312) 616-3947phamric@bdo.com

Jan HerringerPartner, National Audit PracticeBDO USA, LLPDirect: (732) 734-3010 jherringer@bdo.com

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Accounting

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Accounting Update – Discussion Outline

• FASB Accounting Standards Updates

• EITF and PCC matters

• “Big 3” Convergence Projects• Revenue (completed)• Leases (completed)• Financial Instruments (completed)

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FASB Update

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Final ASUs Issued Q2 2017

ASU 2017- Title09 Scope of Modification Accounting (Stock Compensation)

10 Determining the Customer of the Operation Services

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ASU 2017-09, Scope of Modification Accounting

Clarifies that modification accounting applies to changes in the terms or conditions of a share-based payment award unless all of the following criteria are met:

• Fair value (or calculated value or intrinsic value) is the same before and after modification • Practical expedient - if the modification does not affect any valuation inputs, no

requirement to value award immediately before and after modification

• Vesting conditions are the same before and after modification• Classification as an equity or liability instrument is the same before and after

modification

Effective date – annual and interim periods beginning after 12/15/17 (all entities)

BDO Alert: https://www.bdo.com/insights/assurance/fasb/fasb-flash-report-may-2017

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ASU 2017-10, Determining the Customer of the Operation Services

Clarifies service concession arrangements guidance in Topic 853• When applying ASC 606, operating entity should consider the grantor the

customer for both construction and operation services• The effective date of ASU 2017-10 depends on whether an entity has already

adopted Topic 606:• If Topic 606 not adopted previously, the effective date and transition requirements

generally the same as those of Topic 606. Early adoption permitted, including within an interim period, but specific transition requirements apply.

• If Topic 606 previously adopted, effective dates of ASU 2017-10:1. Public business entities - fiscal years and interim periods beginning after

12/15/172. All others - fiscal years beginning after 12/15/18, and interim periods within

fiscal years beginning after 12/15/19

BDO Alert: https://www.bdo.com/insights/assurance/fasb/fasb-flash-report-may-2017-(1)

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EITF and PCC Update

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EITF Update

Open Issue 17-A: Customer’s Accounting for Implementation, Setup, and Other Upfront Costs (Implementation Costs) Incurred in a Cloud Computing Arrangement That Is Considered a Service Contract

Next meeting: July 20, 2017

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PCC Update

July 11, 2017 meeting:• FASB and PCC June 2017 town hall meeting • Consolidation—related party guidance for variable interest entities • Liabilities and equity—down rounds • Customer’s accounting for implementation costs incurred in a cloud computing

arrangement • Nonemployee share-based payment accounting improvements • FASB Invitation to Comment, Agenda Consultation• Balance sheet classification of debt • Readily determinable fair value (FASB staff research)• Open PCC issues • April 2017 meeting recap:

http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176168947553

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Credit Losses TRG Update

June 12, 2017 meeting:• Discounting expected cash flows at the effective interest rate• Scope of purchased financial assets with credit deterioration (PCD

assets) for beneficial interests• Transition guidance for PCD assets• Accounting for troubled debt restructurings• Determining the estimated life of a credit card receivable

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Revenue – BDO Resources

Updated Newsletterhttps://www.bdo.com/insights/assurance/fasb/fasb-newsletter-march-2017

Upcoming/Recent WebinarsASC 606, Revenue from Contracts with Customers (webinar and self-study) https://www.bdo.com/events/bdo-knowledge-asc-606,-revenue-from-contracts-witApplying the New Revenue Standard, Part 1 (webinar and self-study)https://www.bdo.com/events/bdo-knowledge-applying-the-new-revenue-standard-1Applying the New Revenue Standard, Part 2 (webinar and self-study)https://www.bdo.com/events/bdo-knowledge-applying-the-new-revenue-standar-2

BDO Revenue Resource Centerhttps://www.bdo.com/services/assurance/revenue-recognition/overview

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SEC Matters Update

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COMMISSION ACTIVITIES

• Jay Clayton sworn in as new Chairman• William Hinman named Director of Division of Corporation

Finance• Robert Evans named Deputy Director of Division of

Corporation Finance • Other senior staff positions filled

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STAFF ACTIVITIES

• Expansion of confidential filing review process• Announcement – www.sec.gov/corpfin/announcement/draft-

registration-statement-processing-procedures-expanded• SEC Staff FAQs - www.sec.gov/corpfin/voluntary-submission-draft-

registration-statements-faqs• BDO Alert - coming soon

• Non-GAAP measures• Implementation of new accounting standards and SAB74

disclosures

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PCAOB and Governance Update

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PCAOB Current Projects – Standard Setting

Refer to: https://pcaobus.org/Standards/Documents/Q22017-standard-setting-update.pdf

Project Current Stage Timing

Auditor’s Reporting Model Final standard and adopting release

Adopted 6/1/2017Subject to SEC approval

Auditing Accounting Estimates, Including Fair Value Measurements

Proposal Comments due8/30/2017

The Auditor’s Use of the Work of Specialists

Proposal Comments due8/30/2017

Supervision of Audits Involving Other Auditors

Drafting supplementalrequest for comment

Q3 2017

Going Concern Outreach, monitoring, and research

Refer to: https://pcaobus.org/Standards/Documents/Q32017-Standard-Setting-Update.pdf

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PCAOB Current Projects – Research

Refer to: https://pcaobus.org/Standards/Documents/Q32017-Standard-Setting-Update.pdf

Project

Quality Control Standards, Including Assignment and Documentation of Firm Supervisory Responsibilities

Changes in the Use of Data and Technology in the Conduct of Audits

Auditor's Role Regarding Other Information and Company Performance Measures, Including Non-GAAP Measures

Auditor's Consideration of Noncompliance with Laws and Regulations

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PCAOB Form AP: Reminder and CAQ Audit Committee Tool

Reminder: Form AP Effective Dates – Firms are required to file Form AP for public company audit reports issued on or after:• January 31, 2017, for engagement partner names• June 30, 2017, for other accounting firms that participated in the audit

CAQ Form AP - Auditor Reporting of Certain Audit Participants: A Tool for Audit Committees – released June 2017 to assist audit committees: 1. In discussing the role of the audit participants with their engagement

partner and company management; and 2. Help prepare audit committee members to anticipate potential questions

that may arise as a result of these new disclosureshttp://www.thecaq.org/form-ap-auditor-reporting-certain-audit-participants-tool-audit-committees

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PCAOB Standard Setting: Auditor’s Reporting Model Background and ContextGlobal changes to the auditor’s report:• 2016 - FRC adopted a final rule that applies to all

listed entities to incorporate the EU and IAASB requirements.

• 2014 - IAASB adopted changes to the auditor’s report, including requirements for listed companies to communicate ‘key audit matters”

• 2014 - EU adopted legislation that required auditors of PIEs to describe the most significant assessed RMMs and the auditor’s response and where relevant key observations arising with respect to those risks

• 2013 – FRC revised auditor reporting for entities that apply the UK Corporate Governance Code to describe RMM that had the greatest effect on audit strategy, the allocation of resources, and direction of the audit team

IAASB The New Auditor’s Report: A Comparison Between the ISAs and the PCAOB Reproposal

FRC Extended auditor’s reports – A further review of experience (January 2016)

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Auditor’s Reporting Model PCAOB AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion (issued June 2017)

Retains “P/F” auditor report model but includes additional information –specifically: Critical Audit Matters (CAMs)• any matter that is communicated or required to be communicated to the audit

committee (AC) and that (1) relates to accounts or disclosures that are material to the financial statements, and (2) involves especially challenging, subjective, or complex auditor judgment

Refer to: Release https://pcaobus.org/Rulemaking/Docket034/2017-001-auditors-report-final-rule.pdfFact Sheet https://pcaobus.org/News/Releases/Pages/fact-sheet-auditors-report-standard-adoption-6-1-17.aspxBDO Alert https://www.bdo.com/insights/assurance/corporate-governance/corporate-governance-flash-report-june-2017

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Auditor’s Reporting Model Effective Date* – Phased Approach:

New Auditor Reporting Provisions Effective Date

Report format, tenure, and other information

Audits for fiscal years ending on or after December 15, 2017

Communication of CAMs for audits of large accelerated filers

Audits for fiscal years ending on or after June 30, 2019

Communication of CAMs for audits of all other companies

Audits for fiscal years ending on or after December 15, 2020

* Subject to SEC approval

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Auditor’s Reporting Model

Determining CAMs – Factors to consider:a. Auditor’s assessment of the risk of material misstatement, including significant

RMMs;b. Degree of auditor subjectivity in applying procedures to address the matter or

in evaluating results;c. Nature and extent of audit effort required to address the CAM, including the

extent of specialized skill or knowledge or the nature of consultations outside the engagement team;

d. Degree of auditor judgment in areas involving application of significant judgment or estimation by management, including estimates with significant measurement uncertainty;

e. Nature and timing of significant unusual transactions and extent of audit effort and judgment

f. Nature of audit evidence obtained regarding the matter

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Auditor’s Reporting Model

Communicating CAMs – Items included in the Auditor’s Report:a. Identify the CAM;b. Describe the principal considerations that led the auditor to determine that the

matter is a CAM;c. Describe how the CAM was addressed in the audit; andd. Refer to the relevant F/S accounts and disclosures that relate to the CAM.

Other Information to be included:a. Statement about independenceb. Phrase “whether due to error or fraud”c. Audit firm tenured. Opinion presented as first sectione. Addressesf. Section titles to guide the reader

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Auditor’s Reporting Model

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Going Concern Standard – AICPA SAS 132 AICPA issued SAS 132, The Auditor’s Consideration of an Entity’s Ability to

Continue as a Going Concern

Effective for audits of F/S of nonissuers for periods ending on or after 12/15/2017, and reviews of interim financial information for interim periods beginning after FYs ending on or after 12/15/2017

Addresses FASB ASU 2014-15 and supersedes SAS 126 Retains requirement for auditor to make a separate conclusion regarding the

existence of substantial doubt about an entity’s ability to continue as a going concern, among other matters

Significant changes include:• Guidance for financial support by 3rd parties or the entity’s owner-manager• Period beyond management’s assessment• Use of emphasis of paragraphs when substantial doubt is alleviated• Interim financial information• F/S prepared in accordance with a special purpose framework

Refer to BDO Flash Report

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AICPA SOC for Cybersecurity

In April 2017, the AICPA unveiled cybersecurity framework to standardize way organizations define and report on cyber objectives.

Design and assess a comprehensive cyber risk management program

Undertake an examination-level attestation engagement

Benefits: Build trust with current customers and

prospects Validate risk management model and prove

business value Find (and close) the gaps

Currently voluntary, however, may become mandatory – think SOX.

AICPA SOC for Cybersecurity Resource Center

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AICPA SOC for Cybersecurity

Developed cybersecurity risk management examination – SOC for Cybersecurity

Developed description criteria to prepare and evaluate description of an entity’s cybersecurity risk management program

Developed control criteria to evaluate effectiveness of controls in an entity’s cybersecurity risk management program

Management must understand cybersecurity risk management program’s effectiveness

Board must understand cyber risks

Analysts and investors require information about an entity's cybersecurity risk management program

Business partners need to understand cyber risk as part of due diligence

All presently rely on general reports for cyber risk, which is limited

YOUR NEEDS AICPA’S SOLUTION

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Cybersecurity Questions to be Asking

How do we protect our clients’ information?

How do we ensure that our agents and vendors do not compromise our systems?

Who requires access to which data?

Where are the particular points of vulnerability?

Do we have an established definition of a security breach?

What are our current policies and procedures, and how are they governed and maintained?

What to do next?

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Cyber Risk Assessment Tool Secure, cost-effective, web-based

solution designed to quickly assess cyber risk profiles of organizations and measure effectiveness of cyber risk management programs

Uses BDO’s proprietary risk scoring algorithm to examine areas of potential risk—including cybersecurity, business continuity, disaster recovery, information governance and third-party risk management

Provides a report, highlighting areas of strength and uncovering areas for improvement

https://www.bdo.com/services/consulting/cybersecurity/overview

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Cybersecurity Resources

BDO Archived Webinar: https://www.bdo.com/events/aicpa-soc-for-cybersecurity-%E2%80%93-what-you-need-to-kno

BDO Client Alert Introducing SOC for Cybersecurity: Translating Cyber Risk for Every Stakeholder

BDO.com BDO SOC for Cybersecurity

BDO Collateral:

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Resources

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The BDO Center for Corporate Governance and Financial Reporting

AN INCREDIBLE RESOURCE AT YOUR FINGERTIPSThe BDO Center for Corporate Governance and Financial Reporting was born from the need to have a comprehensive, online, and easy-to-use resource for topics relevant to boards of directors and financial executives. We encourage you to visit the Center often for up-to-date information and insights you can rely on. What you will find includes:

Thought leadership, practice aids, tools, and newsletters

Technical updates and insights on emerging business issues

Three-pronged evolving curriculum consisting of upcoming webinars and archived self-study content

Opportunities to engage with BDO thought leaders

External governance community resources

For more information about BDO’s Center for Corporate Governance, please go to www.bdo.com/resource-centers/governance

To begin receiving email notifications regarding BDO publications and event invitations (live and web-based), visit www.bdo.com/member/registration and create a user profile.

If you already have an account on BDO’s website, visit the My Profile page to login and manage your account preferences www.bdo.com/member/my-profile.

“Finally, a resource center with the continual education needs of those charged with governance and financial reporting in mind!”

A dynamic and searchable on-line resource for board of directors and financial executives

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BDO Board Governance – Upcoming Webinars*For a complete listing of BDO events, refer to: https://www.bdo.com/events

Title DateInternal Audit's Role in Monitoring and Controlling International Exposure November 28, 2017Due Diligence and Oversight of Vendors in the Current Regulatory Environment November 28, 2017BEPS Global Accounting Standards & How They Apply To Your Globally Mobile Population November 7, 2017Quarterly Technical Update - Q3 2017 October 6, 2017Quarterly Technical Update - Q3 2017 October 5, 2017Quarterly Technical Update - Q3 2017 October 4, 2017Harnessing the Power of Data Analytics & Continuous Monitoring September 26, 2017Quarterly Technical Update - Q2 2017 July 14, 2017Quarterly Technical Update - Q2 2017 July 13, 2017Quarterly Technical Update - Q2 2017 July 12, 2017

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BDO Board Governance – Archived WebinarsFor a complete listing of BDO events, refer to: https://www.bdo.com/eventsTitle DateAICPA SOC for Cybersecurity - What You Need to Know Now June 2017Internal Audit's Role in Highly Acquisitive Organizations June 2017Applying the New Revenue Standard - Part 2 June 2017Applying the New Revenue Standard - Part 1 June 2017How Trump Administration's Tax Reform Proposals Could Impact Executive Compensation June 2017Director Diversity - Striking the Right Balance in the Boardroom June 2017Board Leadership - How to Onboard Your Board May 2017Reducing the Burden of Sox Compliance April 2017Blockchain: Technology, Applications and Risks April 2017Quarterly Technical Update - Q1 2017 April 2017Compensation Committee - How is Your Organization Managing Your Global Equity Compensation Risk? April 2017Trump, Legislation & Taxes: How Expected Tax Reform May Impact Global Organizations March 2017Tax Planning for Executive Compensation March 2017What Boards Need to Know About Cybersecurity (But May Be Afraid to Ask) March 2017Establishing an Effective Vendor Audit Program February 2017Are You Read to Comply with the New Lease Accounting Standard? February 2017Countering Corruption Part II: ISO 37001 Compliance & Certification - What's Next February 2017Boards at Catalysts for Intrapreneurship and Innovation February 2017Small Cap Boards - Realities and Strategies for Capital Structuring January 2017

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BDO Board Governance – PublicationsFor a complete listing of BDO publications, refer to: https://www.bdo.com/insights/

BDO Knows Cybersecurity: Petya Cyber Attack BDO Highlights Important DHS - FBI Cyber Alert

on North Korea - Hidden Cobra PCAOB Adopts New Standard to Enhance the

Auditor’s Report… Introducing SOC for Cybersecurity: Translating

Cyber Risk For Every Stakeholder BDO 2017 Approach to Audit Quality FASB Clarifies Accounting for Service Concession

Arrangements SEC Chief Accountant Speech – Advancing the

Role of Audit Committees BDO Knows Cybersecurity – A Cyberattack of

Unprecedented Scale Cybersecurity Officially Reaches the Board Significant Accounting & Reporting Matters Q1

2017

Global Equity Rewards Matrix – International Tax Consequences for Equity Compensation

AICPA Issues SAS 132 on Going Concern SEC Rule and Form Amendments Applicable to

Emerging Growth Companies FASB Updates Presentation of Pension and Other

Postretirement Benefit Plan Costs BDO 2017 Shareholder Meeting Alert Topic 606, Revenue from Contracts with

Customers BDO Knows: Cybersecurity Audit Committee Requirements Practice Aid 2016 Audit Committee Round Up Accounting Year in Review 2016 SEC Year in Review: Significant 2016

Developments Audit Committee Alert: Emphasis and Focus on

Controls

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