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BDO 600 Compensation Study (CEO and CFO - 2016)

Mon, 11/14/2016 - 12:00am

The BDO 600 survey details CEO and CFO compensation practices of publicly traded companies in the following industries:
  • Energy
  • Financial services–banking
  • Financial services–nonbanking
  • Healthcare
  • Manufacturing
  • Real estate
  • Retail
  • Technology
Companies in the six non-financial service industries have annual revenues between $100 million and $3 billion. Companies in the two financial services industries have assets between $100 million and $6 billion. All data in our survey were extracted from proxy statements that were filed between April, 2015 and March, 2016. Consolidated proxy information was provided by Salary.com.
Our survey is unique because it focuses on mid-market companies; most compensation surveys focus on much larger companies. 
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Surveying the Regulatory Landscape

Fri, 11/11/2016 - 12:00am
The pace and extent of regulation are a top concern for boards, as investors and regulators continue to push for greater transparency in corporate governance. The board’s, particularly the audit committee’s, role is becoming increasingly complex, particularly in the areas of setting cybersecurity strategy and monitoring practices,  overseeing management’s use of non-GAAP measures, and in considering proposed enhanced auditor reporting requirements.

During a fall 2016 New York City public company board roundtable, co-hosted by BDO and the National Association of Corporate Directors (NACD), directors shared their thoughts on how they were addressing these issues and their opinions on the future of disclosure requirements. The lively discussion was facilitated by current and former regulators from the PCAOB and FASB, two BDO audit partners, and a current audit committee chair of several public company boards, who added to the conversation in sharing differing viewpoints. Key points of the discussion are captured in an article appearing in the November/December 2016 issue of the NACD’s Directorship magazine.
Download the Full Article

Credit: NACD / Content covers a co-sponsored board of director roundtable by BDO and the NACD featuring Maria Karalis and Amy Rojik, along with Jay Hanson (PCAOB Board Member), Leslie Seidman (former FASB Chair and current Executive Director of the Pace University Financial Reporting Center of Excellence) and Lowell Robinson, director of EVINE Live, Smithsonian Libraries, and the Metropolitan Opera Guild.

BDO Comment Letter - Concepts Statement 8

Thu, 11/10/2016 - 12:00am
File Reference No. 2016-300, Concepts Statement 8 - Conceptual Framework for Financial Reporting, Chapter 7: Presentation

BDO recommends additional concepts for the Board to consider in future accounting standards.

FASB Flash Report - November 2016

Mon, 11/07/2016 - 12:00am
FASB Updates Evaluation of Interests through Related Parties Under Common Control in a VIE Analysis
Summary The FASB recently issued ASU 2016-17[1] to revise how a single decision maker of a variable interest entity (VIE) should treat indirect variable interests held through related parties that are under common control when determining whether it is the primary beneficiary of that VIE. The ASU amends the VIE guidance to require consideration of such indirect interests on a proportionate basis, instead of being the equivalent of direct interests in their entirety. This makes consolidation less likely. The new standard takes effect in 2017 and is available here. Early adoption is permitted.
Background In February 2015, the FASB issued ASU 2015-02[2] that revised various aspects of the consolidation analysis, including how economic interests held by related parties are assessed.   Upon the effective date of ASU 2015-02, a single decision maker of a VIE is required to consider indirect economic interests in the entity held through related parties on a proportionate basis when determining whether it is the primary beneficiary of that VIE unless the single decision maker and its related parties are under common control. For example, assume a single decision maker owns a 20% interest in a related party and that related party owns a 40% interest in the VIE being evaluated. The decision maker’s indirect interest in the VIE would be considered equivalent to an 8% direct interest (20% x 40%) in that VIE.

For common control situations, the single decision maker was required to consider indirect interests in the entity held through those related parties to be the equivalent of direct interests in their entirety.  Continuing with the prior example except that the related party is also under common control, this would give rise to a 40% interest in the VIE, instead of 8% above. This could result in a single decision maker consolidating a VIE in which it has insignificant direct variable interests and consequently, providing financial information that is not meaningful. The Board issued ASU 2016-17 to revise that guidance and allow a reporting entity to exercise greater judgment in determining which party is the primary beneficiary of a VIE in certain circumstances involving entities under common control.
Main Provisions

ASU 2016-17 does not change the two required characteristics for a single decision maker to be the primary beneficiary in paragraph 810-10-25-38A (“power” and “economics”), but it revises one aspect of the related analysis.

In determining whether a single decision maker satisfies the second characteristic of a primary beneficiary (economics), the single decision maker must include its direct variable interests and, on a proportionate basis, its indirect variable interests in the VIE held through related parties, regardless of whether those related parties are under common control. As a result of this revision, indirect interests held through related parties that are under common control with the single decision maker are also to be considered proportionately, instead of in their entirety. Using the example above, that would result in those interests being considered the equivalent of 8% direct interest (20% x 40%), instead of the earlier 40%, in determining whether the single decision maker satisfies the economics criterion.

If, after evaluating both its direct variable interests and its proportionate indirect variable interests, a single decision maker of a VIE concludes that it does not, on its own, have the characteristics of a primary beneficiary, the amendments continue to require the application of the “related party tie-breaker test” in a common control situation. Under that test, if the single decision maker and its related parties that are under common control, as a group, have the characteristics of a primary beneficiary, then the party within that group that is most closely associated with the VIE is the primary beneficiary.

Effective Date and Transition Method

The amendments are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted. However, if an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of that fiscal year.

Entities that have not yet adopted ASU 2015-02 are required to adopt ASU 2016-17 at the same time they adopt ASU 2015-02 and should apply the same transition method elected for ASU 2015-02.
Entities that have already adopted ASU 2015-02 are required to apply ASU 2016-17 retrospectively to all relevant prior periods beginning with the fiscal year in which ASU 2015-02 initially was applied.

On the Horizon

The ASU notes that as part of a separate initiative, the Board will consider other potential changes to the consolidation guidance for common control arrangements. This may include revising how to evaluate indirect interests held through related parties that are under common control in paragraph 810-10-55-37D when determining whether a fee arrangement represents a variable interest.  However, ASU 2016-17 leaves current GAAP unchanged in this regard.

For questions related to matters discussed above, please contact Adam Brown, Gautam Goswami, or another member of National Accounting.

[1] Interests Held Through Related Parties That Are Under Common Control
[2] Amendments to the Consolidation Analysis

BDO Comment Letter - Disclosure Update and Simplification

Fri, 11/04/2016 - 12:00am
File No. S7-15-16, Disclosure Update and Simplification

BDO supports the Commission's efforts to update its disclosure requirements, particularly its efforts to eliminate requirements that may be outdated, overlapping or superseded.

Deciding on a Board Portal Solution - Key Questions

Thu, 11/03/2016 - 12:00am

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Today’s boards – whether serving public, private, or non-profit organizations – are tasked with enormous responsibilities. Online workspaces that allow boards and their committees to effectively collaborate, manage responsibilities, and enhance focus on important strategic issues have become a necessary tool and resource for high performing boards.

Here are some key questions that organizations should consider in both their initial choice to use a board portal solution and as part of a continual assessment of their board portal experience:


  • What are the goals and objectives a board portal solution needs to satisfy – operational, compliance, strategic?
  • Have you discussed internally with your organization to develop these?


  • Who in your organization will need access?
  • What level of access may be needed by different users - are there any specific needs of certain user groups, sub-boards, or committees to take into consideration?


  • Have you researched features of various board portal vendors and understand how such features may align with your goals and objectives?
  • Who will be assisting you in the buying journey - have you received testimonials from users beyond discussions with the salesperson?


  • Who needs to be involved in the overall decision - IT, C-suite, general counsel/corporate secretary, full board and/or committees of the board?


  • What is the cost/benefit of moving to a new board portal solution?
  • What is your budget?


  • Who will take ownership of systems integration and data security?
  • Who will manage processes for getting individual board members up and running?
  • Who will design protocols and procedures around use?
  • Who will be responsible for the operation and maintenance of the portal going forward – shared, single point of contact, role of the vendor in terms of upgrades and training, etc.?


  • How and who will train your board members – pre-packaged or custom training?
  • Who will provide continued support when questions arise – internal or third party solution provider?


  • What metrics can you capture to assess board portal engagement and enhancements to board performance and measure returns  on investment?
  • How will you and your board continue to educate yourselves on best practices – leverage counsel of directors who serve other boards, consult vendor blogs, reference comparison portal solution guides, ask questions of other advisors as to what they see at their clients?  
For more information, please contact National Assurance Partner, Amy Rojik.

FASB Flash Report - October 2016

Mon, 10/31/2016 - 12:00am
FASB Eliminates Income Tax Deferral for All Intra-Entity Asset Transfers Except Inventory  Download PDF Version
Summary In October 2016, the FASB issued ASU 2016-16[1] eliminating the existing exception in U.S. GAAP that prohibits the recognition of income tax consequences for most intra-entity asset transfers. However, the exception has been retained for intra-entity asset transfers of inventory only. As a result, entities will now be required to recognize current and deferred income tax consequences of intra-entity asset transfers (other than those of inventory) when the transfer occurs. The new standard takes effect in 2018 for public companies and is available here.
Details Background
U.S. GAAP generally requires comprehensive recognition of the income tax effects of transactions when they occur, but currently contains an exception to this rule for intra-entity asset transfers.

Main Provisions
ASU 2016-16 eliminates the recognition exception for intra-entity asset transfers other than inventory so that an entity’s consolidated financial statements reflect the current and deferred tax consequences of those intra-entity asset transfers when they occur. For intra-entity asset transfers of inventory, recognition of current and deferred income tax consequences will continue to be deferred until the inventory has been sold to an outside party or otherwise left the consolidated group.

Effective Date and Transition Method
The ASU is effective for public business entities for annual reporting periods beginning after December 15, 2017 and interim reporting periods within those fiscal years, and for entities other than public business entities for annual reporting periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. An entity may elect early adoption, but it must do so for the first interim period of an annual period if it issues interim financial statements. The ASU must be applied on a modified retrospective basis through a cumulative-effect adjustment, including the effect of any resultant valuation allowance, to retained earnings as of the beginning of the period of adoption.
For questions related to matters discussed above, please contact Yosef Barbut or Adam Brown.

[1] Intra-Entity Transfers of Assets Other Than Inventory

FASB Flash Report - October 2016

Mon, 10/31/2016 - 12:00am
AICPA Panel Develops Technical Q&As for Investment Companies Download PDF Version

The AICPA Investment Companies Expert Panel recently developed eight technical questions and answers in TIS 6910, Investment Companies. These questions and answers (“Q&As”) are not sources of authoritative U.S. GAAP. However, such Q&As are often considered a relevant source of interpretive guidance in practice. The guidance in these Q&As addresses practice matters  related to the indicated accounting standards update (“ASU”) below. These matters were identified by the staff of the AICPA's Technical Hotline and various other bodies within the AICPA.
ASU 2013-08, Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements
  • TIS 6910.36 “Determining Whether Loan Origination Is a Substantive Activity When Assessing Whether an Entity Is an Investment Company”
ASU 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting
  • TIS 6910.37 “Considering the Length of Time It Will Take an Investment Company to Liquidate Its Assets and Satisfy Its Liabilities When Determining If Liquidation Is Imminent”
  • TIS 6910.38 “Determining If Liquidation Is Imminent When the Only Investor in an Investment Company Redeems Its Interest, and the Investment Company Anticipates Selling All of Its Investments and Settling All of Its Assets and Liabilities”
  • TIS 6910.39 “Presentation of Stub Period Information by an Investment Company”
  • TIS 6910.40 “Applying the Financial Statement Reporting Requirements in FASB ASC 946-205-45-1 When an Investment Company Presents a Stub Period”
  • TIS 6910.41 “Separation of Final-Period Financial Statements Between Going Concern and Liquidation Periods for Certain Investment Companies That Liquidate Over a Short Period of Time”
  • TIS 6910.42 “Presenting Financial Highlights Under the Liquidation Basis of Accounting for an Investment Company”
  • TIS 6910.43 “Accrued Income When Using the Liquidation Basis of Accounting”

Full details and additional AICPA resources are available here.
Please direct questions to Dale Thompson (212-885-7318) or Gautam Goswami (312-616-4631).

EBP Commentator - Special Edition

Mon, 10/31/2016 - 12:00am
The Internal Revenue Service has announced the cost-of-living adjustment (COLA) for 2017. The dollar limitations for pension plans and selected other items are listed below. Certain annual compensation amounts were increased although the limits for elective and catch-up deferrals remain unchanged since 2015. The Social Security Administration separately announced an increase to the taxable wage base.

FASB Newsletter - October 2016

Wed, 10/26/2016 - 12:00am
Improvements to Employee Share-Based Payment Accounting In March 2016, the Financial Accounting Standards Board (“FASB” or “the Board”) issued ASU 2016-091 (“the ASU” or “the new guidance”) to simplify the accounting for stock compensation related to the following items: income tax accounting, award classification, estimation of forfeitures, and cash flow presentation. The ASU also provides two accounting policy alternatives on expected term and intrinsic value measurement to nonpublic entities as defined in Topic 718, Compensation – Stock Compensation.
  View the Newsletter

2016 Board Survey

Mon, 10/24/2016 - 12:00am

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Every year, the responsibilities of corporate directors at publicly traded companies seem to grow greater. Dealing with the most recent regulatory changes, assessing the impact of financial reporting requirements, managing executive compensation and being ever vigilant to the growing threat of cyber-attacks are just a few of the issues that boards need to manage in 2016.
  The BDO Board Survey, conducted annually by the Corporate Governance Practice of BDO USA, was created to act as a barometer to measure the attitudes of public company directors on these and other governance issues. The 2016 BDO Board Survey, conducted in September of 2016, examines the opinions of 160 corporate directors of public company boards.
  This year’s study reveals that directors are in favor of proactively addressing the issue of ‘overboarding’ by placing limits on the total number of boards on which a director may serve. They are increasingly frustrated with the growing number of disclosures in financial statements, but recognize disclosures about complex audit matters are meaningful to investors and they seem to find the use of non-GAAP disclosures helpful. In general, board members are not in favor of communicating with institutional shareholders about incentive pay packages, but those boards that are communicating with shareholders feel it has had a positive impact on their investor relations. Cybersecurity continues to take up more and more of board members’ time, as directors report year-over-year progress in cyber-attack prevention strategies and contingency planning for cyber breaches.   “The 2016 BDO Board Survey reveals frustration among boards with the growing number of disclosures in financial statements today, though they clearly see use for non-GAAP metrics - especially with regard to executive compensation calculations,” said Amy Rojik, Partner in the Corporate Governance Practice at BDO USA. “Directors are also clearly in favor of setting limits on how many total boards on which a director can serve, but not on the amount of pay they can earn for their service.”
Overboarding In recent years, directors have seen a major increase in the number of hours required to serve on a public company board. Given this trend, in 2017, proxy advisory firms ISS and Glass Lewis have indicated they will oppose non-executive directors with more than 5 board seats. Interestingly, board members themselves are in favor of more severe limits.

When asked about the issue of “overboarding”, approximately three-quarters (74%) of directors believe corporate boards should proactively limit the number of boards on which a director can serve. Of those in favor of setting limitations, more than three-quarters (79%) would set more severe limits than the proxy advisors. Forty-four percent would set the limit at three boards, more than a quarter (28%) chose four, and less than 10 percent said two (6%) or one (1%). Only nineteen percent of directors agreed with the proxy advisors suggested limit of 5 board seats. 
Financial Reporting Disclosures Seventy percent of board members believe that there are so many disclosures in financial statements today, that it is difficult to decide what information is most important. When asked to identify the most meaningful financial reporting disclosures for investors, approximately half (49%) cited critical audit matters that involve complex judgements on material issues. Non-GAAP financial measures that provide supplemental information on a business’s performance (29%) and how the organization is addressing risk management (19%) were the next most cited as meaningful disclosures. 

More than two-thirds (71%) of public company board members believe disclosures regarding the audit committee’s oversight of the external auditor provide value to current and potential shareholders. Alternatively, less than a quarter (24%) of directors believe disclosures regarding sustainability matters (climate change, corporate social responsibility, etc.) are important to investors’ understanding of a company’s business and enabling them to make informed decisions.

Non-GAAP Metrics
Board members were split when asked whether they thought additional guidance from regulators on non-GAAP metrics would be helpful, given the increased use of these measures in financial statements. About half (51%) were in favor of additional guidance, while a similar proportion (49%) saw no need for more regulatory guidance. Of those in favor of additional guidance on non-GAAP measures, close to half (46%) identified EBITDA as the metric that causes them the most concern. Restructuring costs (14%), stock-based compensation (13%) and acquisition integration costs (13%) were areas of concern cited by much smaller minorities of directors.

Two-thirds (67%) of the board members feel auditor involvement would provide higher investor confidence in the reporting of non-GAAP measures, compared to a third (33%) who do not feel it will have an impact.

Despite the popular criticism that non-GAAP or pro forma figures – when used with compensation metrics - can help executives draw bigger pay packages, approximately three-quarters (74%) of directors are opposed to prohibiting the use of non-GAAP measures in executive compensation calculations.
Executive Compensation Frequency of Say-on-Pay. 
In 2011, the Dodd-Frank Act instituted mandatory “Say-on-Pay” shareholder votes on executive compensation which should be conducted every one, two or three years, as determined by the shareholders. The frequency of these shareholder votes is to be revisited and voted on every six years. In 2017, most public companies will be conducting a new shareholder vote to determine the frequency of Say-on-Pay votes moving forward. This year’s survey reveals that directors see a disconnect between themselves and shareholders on this issue.

Based on their experience over the past six years, a majority (56%) of board members believe the votes should take place every three years, compared to approximately a fifth (19%) preferring two years and a quarter (25%) opting for every year. However, when asked to predict how their shareholders will vote on the frequency of Say-on-Pay votes, half (51%) the directors predicted every year. The remainder were split between every two (22%) and every three (27%) years.

Communicating on Pay. 
Forty-one percent of directors do not consider it appropriate to communicate with institutional shareholders regarding incentive pay packages. In contrast, at least one-fifth (22%) of directors say their board or compensation committee does proactively communicate with institutional shareholders on the topic and slightly fewer (18%) indicate they are considering such communications. Interestingly, of the relatively few actively communicating, two-thirds (66%) believe it has positively impacted their investor relations. Only three percent believe it hasn’t. The remainder (31%) weren’t sure.   “Given the growing workload of the typical corporate board, it is understandable that directors would like to limit the frequency of Say-on-Pay votes to every three years. However, since these same board members believe their shareholders will opt for annual votes, it is surprising that so few of the directors say their boards are communicating with institutional shareholders on pay packages,” said Tom Ziemba, a Senior Director in the Compensation and Benefits Practice of BDO USA. “Our experience is that proper, proactive communication with shareholders can yield positive results in communicating the benefits of incentive pay packages. The directors in this survey who are communicating with investors on compensation, corroborate that belief – with two-thirds reporting a positive impact on investor relations and only three percent reporting a negative impact. Moving forward, look for more boards to become proactive in communicating on pay.”
CEO – Median Employee Pay Ratio. 
Beginning with 2018 proxies, public companies will be required to disclose the ratio of median employee pay to CEO compensation. This 2018 requirement will report on 2017 compensation. When asked if their boards had begun to take steps to comply with this new requirement, directors were split. Almost half (49%) are familiar with the new requirement but have taken no actions, while better than one-third (37%) are already preparing pay ratio calculations for internal planning purposes – though they will not disclose the ratio prior to the required disclosure date. Relatively few (8%) say they are planning to disclose the pay ratio calculation prior to the mandatory disclosure date. Surprisingly, 6 percent of the directors say they are still unfamiliar with the requirement.

Director Pay Limits? 
Recent shareholder lawsuits alleging excessive director pay have put a spotlight on how boards determine their own pay. When asked about the topic, a majority (56%) of board members were opposed to director pay limits, compared to forty-four percent in favor of limits. Of those in favor of limits on director pay, a strong majority (81%) favor total compensation limits versus the remainder (19%) that prefer only equity limits.

Presidential Preference? When asked which of the two major party presidential candidates would positively impact corporate governance, Donald Trump (25%) received twice the support of Hillary Clinton (12%), but the most popular opinion (54%) of the board members was that neither candidate will have a positive impact.

Cybersecurity Approximately three-quarters of public company directors report that their board is more involved with cybersecurity than it was 12 months ago and an even greater percentage say they have increased company investments during the past year to defend against cyber-attacks, with an average budget expansion of 22 percent. This is the third consecutive year that board members have reported increases in time and dollars spent on cybersecurity. The survey also identified improvements in the number of boards with cyber-breach response plans in place (from 45% to 63%). Nevertheless, barely one-quarter are sharing information on cyber-attacks with entities outside of their business – a practice that needs to become more prevalent for the safety of critical infrastructure and national security, particularly at larger organizations.

Public Company Board Members Reveal Positive Trends on Cybersecurity
    2014 2015 2016 Increased Board Involvement 59% 69% 74% Increased Cybersecurity Investments 55% 70% 80% Documented/Protected Digital assets n/a 34% 45% Breach Response Plan in Place n/a 45% 63% Third-Party Risk Requirements n/a 35% 43% Purchase Cyber Insurance 10% 28% 28%

Trending Positive

Better than a fifth (22%) of board members indicate that their company experienced a cyber-breach during the past two years, the exact same percentage as last year (22%) and double the percentage of 2013 (11%). When considering these responses, it is important to note that some companies do not report their breaches and, in other instances, businesses can be unaware that they have been hacked. 

Three quarters (74%) of public company board members report that their board is more involved with cybersecurity than it was 12 months ago. The vast majority of directors (88%) are briefed on cybersecurity at least once a year – this includes more than a third (34%) that are briefed quarterly and a similar proportion that are briefed annually (37%). The balance are briefed twice a year (9%) or more often than quarterly (8%). Surprisingly, twelve percent say they are still not briefed at all on cybersecurity.

“Over the past three years, The BDO Board Survey has documented the ascension of cybersecurity up the boardroom agenda. Corporate directors are being briefed more often and are responding with increased budgets to address this critical area,” said Shahryar Shaghaghi, National Leader of Technology Services for BDO Consulting. “The survey also reveals significant vulnerabilities. Although measurable progress has been made from a year ago, less than half of board members report they have both identified and developed solutions to protect their critical digital assets, and an even smaller proportion indicate they have put cyber-risk requirements in place for third-party vendors – a major source of cyber-attacks. Moreover, sharing information gleaned from cyber-attacks is a key to defeating hackers, yet just one-quarter of directors say their company is sharing this information.”
Four-fifths (80%) of board members report that their company has increased investments in cybersecurity during the past 12 months, with an average budget expansion of 22 percent.

When asked about formal risk assessments of their critical digital assets, almost half (45%) of the directors report that they have completed documentation of their business’s critical digital assets and developed solutions to protect them. This represents a significant improvement from 2015 when only one-third (34%) had completed this task. A quarter (25%) of the board members indicate they have identified their critical digital assets, but a solution strategy is still in process. 

Close to two-thirds (63%) of corporate directors say their company has a cyber-breach/incident response plan in place, compared to less than a fifth (18%) who do not have a plan or who aren’t sure (19%) whether they had such a plan. Those with plans represent a major improvement from last year when less than half (45%) of directors reported having them.

Forty-three percent of directors say they have cyber-risk requirements that their third-party vendors must meet, a significant increase from 2015 when just over one-third (35%) indicated they had such requirements. This is important progress as third-party vendors are one of the main sources of cyber-attacks. 

Better than one-quarter (28%) of board members say their company has purchased cyber-insurance and an additional 13 percent are currently considering purchasing insurance. Eleven percent of the directors say they considered cyber-insurance in the past, but decided against it.

For more information on how boards can be engaging on cybersecurity, refer to BDO practice aid Elevating Cybersecurity to the Board - Questions Boards Should Be Asking.

Need More Sharing on Cyber-Attacks
Earlier this year, the White House issued Presidential Policy Directive 41 outlining how businesses can contact relevant federal agencies about cyber incidents they experience.  When asked whether they share information they gather from cyber-attacks, only a little more than a quarter (27%) of directors say they share the information externally.  A slightly smaller number (24%) say they do not share the information and approximately half (49%) weren’t sure.

Of those sharing information on their cyber-attacks, the vast majority (88%) share with government agencies (FBI, Dept. of Homeland Security), more than a quarter (28%) share with ISAC (Information Sharing & Analysis Centers) and approximately one-fifth (19%) share with competitors.

Global Data Privacy
Just over a quarter (26%) of directors say they are impacted by global data privacy regulations, such as the European Union’s Data Privacy Shield Law, designed to protect the cross border transfer of data.


Do you want to learn more about these and other matters impacting boards? 

To learn more about perspectives from BDO’s 2016 Board Survey, register for the What’s on the Minds of Boards? webinar being held on November 28, 2016. For more dynamic content relevative to boards, including cybersecurity, executive compensation, financial reporting disclosures, and many other pertinent topics, please visit BDO’s Center for Corporate Governance and Financial Reporting.
About The Survey

These are the findings of The 2016 BDO Board Survey, conducted by the Corporate Governance Practice of BDO USA, which examined the opinions of 160 corporate directors of public company boards, with revenues ranging from $250 million to $1 billion, regarding financial reporting and corporate governance issues. The survey was conducted in September of 2016 by Market Measurement, an independent market research firm, on behalf of BDO.
For more information on BDO's Corporate Governance Practice, please contact one of the leaders below:

Amy Rojik


Paul Heiselmann

  Ted Vaughan  

Carl Pergola


Christopher Tower


Glenn Pomerantz

  Matthew Becker   Shahryar Shaghaghi   Jay Duke   Michael Stevenson   Stephanie Giammarco   Tom Ziemba

BDO Comment Letter - Agenda Consultation

Mon, 10/17/2016 - 12:00am
File Reference No. 2016-290, Agenda Consultation

BDO recommends moderating the pace of standard-setting to improve financial reporting, and also recommends key areas for the Board to address in the future.


Significant Accounting & Reporting Matters Q3 2016

Sun, 10/16/2016 - 12:00am
Issued on a quarterly basis, the Significant Accounting and Reporting Matters Guide provides a brief digest of final and proposed financial accounting standards as well as regulatory developments. This guide is designed to help audit committees, boards and financial executives keep up to date on the latest corporate governance and financial reporting developments.

Highlights include:
  • FASB Developments
  • SEC, PCAOB & CAQ Highlights
  • IASB Projects
  • And more


FASB Flash Report - October 2016

Tue, 10/11/2016 - 12:00am
AICPA Requests Feedback on Additional Revenue Recognition Implementation Issues
Download PDF Version

The AICPA’s Financial Reporting Executive Committee (FinREC) has issued several additional working drafts that provide industry-specific considerations and illustrative examples related to the implementation of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. Full details and additional AICPA resources are available here. Comments on the working drafts are due by December 5, 2016. Once finalized, the AICPA plans to include them in a new revenue recognition guide currently in development based on input from sixteen industry task forces. The individual papers can be found within the links below. The working drafts related to other issues released earlier by FinREC also continue to be available on the AICPA’s website.

The additional working drafts are listed below:
  Industry Implementation Issues Asset Management Gaming Software Telecommunications
The BDO Revenue Recognition Resource Center can be accessed here

For questions related to matters discussed above, please contact Ken GeeAngela NewellGautam Goswami


Initial Offerings Newsletter - Fall 2016

Thu, 10/06/2016 - 12:00am
U.S. IPO Market on Pace for Least Activity Since 2009 Offerings That Have Come to Market Have Delivered Strong Returns
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A flurry of initial public offerings quarter made September the most active month for U.S. IPO pricings this year. Despite this recent spike in offerings, overall, the 2016 U.S. IPO market has been extremely disappointing and is on pace to produce the lowest level of offerings and proceeds since 2009 during the depths of the financial crisis.
Through September, there have been 75 U.S. IPOs that have raised $12.3 billion in proceeds, both figures represent a drop of almost 50 percent from the same time in 2015. The 101 IPO filings through the first nine months of the year are just over half the level of a year ago. Barring a dramatic and unforeseen surge in IPO activity, the U.S. market is likely to experience the lowest level of offerings, proceeds and filings in seven years.*
Through Q3, U.S. IPOs have averaged $164 million in size, approximately the same as 2015 and smaller than all but one year (2010) over the past decade. This trend can largely be attributed to the JOBS Act, which allows companies with less than $1 billion in annual revenue to forego some of the more stringent filing requirements when registering their offerings. These more lenient rules for emerging businesses, enacted in 2012, have played a major role in the success of bringing smaller offerings to the IPO market.

“Despite the strong returns of the average 2016 IPO and the strong investor appetite for technology offerings - as evidenced by Twilio’s soaring three-month performance - Uber, Snapchat, Airbnb and the other major tech-unicorns appear no closer to moving ahead with an IPO. That’s because conservative pricings have been a key component of 2016’s strong returns and the terms that unicorns agreed to in their multi-billion dollar private valuations make a conservative pricing a non-starter. Many of these private funding rounds came with a “ratchet” provision that guarantees investors additional shares of the company if an IPO prices below their agreed upon valuation. Last year, Square Inc. had to give investors an additional $93 million in shares to make good on such a provision,” said Lee Duran, Partner in the Capital Markets Practice of BDO USA. “If IPOs continue to deliver strong returns, thereby enabling offerings to be priced more aggressively, and unicorns begin to grow into their valuations, there is a reasonable chance we may see some move forward with offerings in 2017. But it will be a few mustangs, not a full stampede.”

High Performance While it has been a down year for issuers, it has been a rewarding year for IPO investors.
Although the number of deals are down, most of the businesses that have been brought public in 2016 have performed extremely well. The less active, more discerning market has forced underwriters to  be more conservative in pricing offerings for fear that disappointing debuts could further weaken the market and bring offerings to a halt.
Through the first eight months of the year, these discounted offerings have resulted in the average 2016 IPO delivering a return of better than 30 percent from its offering price.
  Disconnect This year’s IPO doldrums come during a market environment that would seem to be conducive to a high level of IPO activity. For most of the past seven years, U.S. stocks have enjoyed a long post-crisis rally. Currently, stock market indexes remain near all-time highs  and market volatility – since the first few weeks of 2016 – has been relatively low.

Yet, initial offerings remain in the slow lane.
The rise in M&A activity, the Federal Reserve’s ongoing uncertainty on when to raise interest rates, the uncertainty surrounding the U.S. Presidential election, the collapse in crude oil prices and the ongoing instability of the global economy – as demonstrated by this summer’s Brexit vote in the UK – are just a few of the factors put forward for the stagnant IPO market.
Yet, the availability of private funding at attractive valuations has most likely played the biggest role in businesses shunning the IPO market. The technology industry, for many years the engine of the U.S. IPO market, has been the biggest beneficiary of this
funding, which has created more than 140 “tech-unicorns” – private technology businesses that are valued in excess of $1 billion. With these big-name tech companies abandoning public equity, the U.S. IPO market has lost its main engine.
Industries For the fourth consecutive year, the healthcare sector is leading all industries in the number of offerings brought to market, accounting for 45 percent of total IPOs in 2016. The technology (18 percent) and financial (13 percent) sectors are running a distant second and third through Q3. No other industry has reached double digits in offerings this year.

“After experiencing excellent years in 2013 and 2014, the U.S. IPO market began to slow considerably during the second half of 2015 and almost came to a virtual halt during Q1 of this year. After some stops and starts during the Spring and Summer, we’ve seen a burst of activity as the third quarter came to a close, which bodes well for a strong start to Q4,” said Paula Hamric, Partner in the Capital Markets Practice of BDO USA. “The most positive factor of the 2016 U.S. IPO market has been the strong performance of those businesses that have taken the plunge, which refl strong investor demand for quality offerings. Should IPOs continue to deliver robust returns for the remainder of the year, the market will be well positioned for a strong recovery in 2017.”
  Q4 Forecast The positive market conditions that led to the uptick in U.S. IPO pricings in September and the strong performance of offerings overall is likely to drive additional pricings during the initial weeks of the fourth quarter, but look for activity to ebb dramatically by the last week of October because of the U.S. Presidential election. Given the brief window between the election and the Thanksgiving holiday, activity will probably remain at a trickle until December, which will hamper a major turnaround in Q4.
However, should returns remain positive for the remainder of the year and the overall stock market remain strong, 2017 could see a major recovery for U.S. IPOs and maybe even the sighting of some unicorns in the public markets.

* Renaissance Capital is the source for all historical data related to the number, size and returns of U.S. IPOs.

For more information on BDO’s Capital Markets services, please contact one of the regional leaders:
Lee Duran, San Diego; Paula Hamric, Chicago; Chris Smith, Los Angeles; Ted Vaughan, Dallas

BDO Comment Letter - ​Not-for-Profit Entities - Consolidation (Subtopic 958-810)

Fri, 09/30/2016 - 12:00am
Not-for-Profit Entities - Consolidation (Subtopic 958-810): Clarifying When a Not-for-Profit Entity That Is a General Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity (File Reference No. 2016-280)

BDO agrees with the proposal to maintain the legacy consolidation guidance for non-profit entities with certain investments in limited partnerships.

BDO Comment Letter - Disclosure Framework

Fri, 09/30/2016 - 12:00am
Disclosure Framework — Changes to the Disclosure Requirements for Income Taxes (Topic 740) (File Reference No. 2016-270)

BDO supports most of the changes proposed for income tax disclosures, but recommends retaining the existing FIN 48 "early warning" disclosure requirement.


FASB Flash Report - September 2016

Wed, 09/14/2016 - 12:00am
FASB Issues Guidance on Eight Cash Flow Classification Issues

Download PDF Version


The FASB recently issued ASU 2016-15 to clarify whether the following items should be categorized as operating, investing or financing in the statement of cash flows: (i) debt prepayments and extinguishment costs, (ii) settlement of zero-coupon debt, (iii) settlement of contingent consideration, (iv) insurance proceeds, (v) settlement of corporate-owned life insurance (COLI) and bank-owned life insurance (BOLI) policies, (vi) distributions from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) receipts and payments with aspects of more than one class of cash flows.  

The new standard takes effect in 2018 for public companies and is available here. If an entity elects early adoption, it must adopt all of the amendments in the same period.

Main Provisions

ASU 2016-15[1] (the “Update”) includes guidance on eight cash flow issues, which previous GAAP did not specifically address.  The absence of such guidance resulted in diversity in practice, which the Update resolves as follows:


Type of Cash Flow

Cash Flow Classification

Prepayment or Extinguishment of Debt

Costs paid to prepay or extinguish the debt





Settlement of Zero-Coupon Debt or Other Debt with Insignificant Coupon Rate

Payment attributable to the accreted interest related to the debt discount


Payment attributable to the principal





Payment of Contingent Consideration

Payments made soon after the acquisition date


Payments up to the amount of the contingent consideration liability recognized at the acquisition date (made not soon after the acquisition date)


Payments in excess of the amount of the contingent consideration liability recognized at the acquisition date (made not soon after the acquisition date)





Settlement of Insurance Claims

Proceeds from settlement of insurance claims

Classify based on nature of the loss

Lump-sum settlement

Classify based on nature of each loss included in the settlement

Settlement of COLI and BOLI policies

Proceeds from settlement of COLI and BOLI


Payments for premiums on COLI and BOLI

Operating, Investing, or mix of both




Distributions from Equity Method Investees: either



Cumulative earnings approach

Distributions that are returns on investment (up to the amount of cumulative equity in earnings)


Distributions that are returns of investment (excess of cumulative distributions, excluding prior distributions determined to be returns of investment, over cumulative equity in earnings)


Nature of distribution approach

Distributions that are returns on investment (based on the nature of activity that generated the distributions)


Distributions that are returns of investment (based on the nature of activity that generated the distributions)





Beneficial Interests in Securitization Transactions

Beneficial interest obtained by a transferor

Disclose as noncash

Collections on a transferor’s beneficial interests in securitized trade receivables





Cash receipts and payments with aspects of more than one class of cash flows

Each source or use of cash is separately identifiable

Classify each based on its nature

Each source or use of cash is not separately identifiable

Apply the predominance principle


Debt Prepayment or Debt Extinguishment Costs
Companies often incur costs when paying or settling their borrowings prior to maturity.  The Update requires that cash paid for debt prepayment or extinguishment costs, including third-party costs, premiums paid to repurchase debt in an open-market transaction, and other fees paid to lenders (e.g., a prepayment penalty) that are directly related to the debt prepayment or debt extinguishment, should be classified as financing cash outflows.

Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Insignificant Coupon Interest Rates in Relation to their Effective Interest Rate
A deeply discounted debt with a zero or near-zero coupon interest rate effectively includes payment for principal and interest components at settlement.  The Update requires the debt issuer to classify the portion of the cash payment attributable to the accreted interest related to the debt discount as an operating cash outflow and the portion of the cash payment attributable to the principal as a financing cash outflow at settlement. This guidance is only applicable to zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing.  Therefore, the guidance should not be applied to all other debt instruments.
Contingent Consideration Payments Made after a Business Combination
The Update requires that cash payments to settle a contingent consideration liability made by an acquirer soon after the acquisition date of a business combination be classified as investing cash outflows.  While the final amendments do not define the term “soon after,” the basis for conclusions indicates this is a relatively short period of time, such as three months or less. 
Cash payments to settle a contingent consideration liability made by an acquirer not soon after the acquisition date of a business combination should be separated and classified as follows:

  • payments to settle the amount of the contingent consideration liability[2] as financing cash outflows; and

  • any payments in excess of the amount of the contingent consideration liability[2] as operating cash outflows.

Proceeds from the Settlement of Insurance Claims
The standard requires proceeds received from the settlement of insurance claims, excluding proceeds received from COLI and BOLI policies, to be classified on the basis of the insurance coverage (that is, the nature of the loss).  For insurance proceeds that are received in a lump-sum settlement, an entity shall determine the cash flow classification on the basis of the nature of each loss included in the settlement.
Proceeds from the Settlement of COLI Policies, including BOLI Policies
The Update requires cash proceeds received from the settlement of COLI policies, including BOLI policies, to be classified as investing cash inflows. The Update does not prescribe the cash flow classification for premium payments on these types of policies, therefore they may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities, based on management’s judgment.
Distributions Received from Equity Method Investees
Generally, distributions that are considered return of investments are classified as investing inflows and distributions that are considered return on investments are classified as operating inflows.  Under the Update, an entity will select one the following approaches to classifying distributions received:

  • Cumulative earnings approach—Distributions received are considered returns on investment and classified as operating cash inflows unless the investor’s cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the investor. When such an excess occurs, the current-period distribution up to this excess is considered a return of investment and should be classified as an investing cash inflow.

  • Nature of the distribution approach—Distributions received should be classified on the basis of the nature of the activity of the investee that generated the distribution as either a return on investment (classified as operating cash inflow) or a return of investment (classified as investing cash inflow) when such information is available.

The Update requires that the same accounting policy election be made for all equity method investments of the reporting entity. However, if an entity elects to apply the nature of the distribution approach and determines that the necessary information for an individual equity method investee is not available, the entity should apply the cumulative earnings approach (and report a change in accounting principle on a retrospective basis) for that investee and the nature of the distribution approach for all other equity method investees.  The Update does not address equity method investments measured using the fair value option.
Beneficial Interests in Securitization Transactions
When a transferor sells financial assets (e.g. trade receivables) in a securitization transaction, the transferor, in addition to cash received, typically obtains (or retains) some beneficial interest in the financial assets sold (e.g. right to receive cash from collection of trade receivables).  For beneficial interests in a securitization transaction, the Update requires the following cash flow presentation:

  • Disclose the beneficial interest obtained by a transferor as noncash activity; and

  • Classify the collections on a transferor’s beneficial interests in securitized trade receivables as investing cash inflows. 

Separately Identifiable Cash Flows and Application of the Predominance Principle
In the absence of specific guidance, certain cash receipts and payments that have aspects of more than one class of cash flows should be separated by their identifiable source (for inflows) or use (for outflows) with each separated element classified based on its nature.  In situations in which those aspects cannot be separately identified, the appropriate classification depends on the activity that is likely to be the predominant source or use of cash flows for the item.  The entity should apply judgment when necessary to estimate the amount of each separately identifiable source or use within the cash receipts or payments.

Effective Date and Transition

The amendments are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019.  Early adoption is permitted.  If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  An entity that elects early adoption must adopt all of the amendments in the same period.
The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively, the amendments would be applied prospectively as of the earliest date practicable.

For questions related to matters discussed above, please contact Adam BrownAngela NewellGautam Goswami


[1] Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments

[2] More specifically, this represents the amount of a contingent consideration liability recognized at the acquisition date, including measurement-period adjustments, less any amounts paid soon after the acquisition date that were classified as cash flows for investing activities.

BDO Comment Letter - Employee Benefit Plan Master Trust Reporting

Tue, 09/13/2016 - 12:00am
File Reference No. EITF-16B, Employee Benefit Plan Master Trust Reporting 

We support the proposal and believe it will provide more relevant and useful information related to employee benefit plans.

SEC Flash Report - September 2016

Thu, 09/01/2016 - 12:00am
SEC Requests Comments on Management, Certain Security Holders, and Corporate Governance Disclosure Requirements  Download PDF Version

Last week, the Securities and Exchange Commission published a request for comment on the disclosure requirements of Subpart 400 of Regulation S-K, which relate to management, certain security holders and corporate governance matters.  The request is part of the Disclosure Effectiveness Initiative, a broad-based staff review of the SEC’s disclosure rules designed to improve the disclosure regime for both companies and investors.  The request follows the SEC’s proposal to eliminate redundant and outdated disclosure requirements in July 2016,[1] the Concept Release on Regulation S-K published in April 2016,[2] and the Request for Comment on the effectiveness of certain financial disclosure requirements of Regulation S-X published in September 2015.[3] The request will also inform the Commission’s study on Regulation S-K, which is required by the Fixing America’s Surface Transportation (FAST) Act. 

The request for comment can be found here on the SEC’s website.  Comments should be provided within 60 days following publication of the request for comment in the Federal Register.
For questions related to matters discussed above, please contact Jeff Lenz or Paula Hamric

  [1] Further information regarding the proposal can be found here in our Flash Report. [2] Further information regarding the Concept Release can be found here in our Flash Report.  Our comment letter can be found here [3] Further information regarding the Request for Comment can be found here in our Flash Report. Our comment letter can be found here.