2019 BBNC Annual Report | Page 54

(O) INCOME TAXES The Corporation and its subsidiaries file consolidated federal and state income tax returns. The Corporation accounts for income taxes on the liability method. Income tax expense includes income taxes currently payable and those deferred because of differences between financial statement and tax basis of assets and liabilities. The Corporation records a valuation allowance to reduce the amount of the gross deferred tax assets to the amount that is more likely than not to be realized. Factors considered in determining the amount of the valuation allowance include historical levels of taxable income, projected levels of taxable income in future years, expected future Corporation trends in results from existing operations, and the scheduled reversal of deferred tax liabilities. Deferred tax liabilities are recorded as they arise. The effect on deferred tax assets and liabilities of a change in tax law or rates are recognized in earnings in the period that includes the enactment date. The tax benefit from tax-deductible contributions to settlement trusts are recognized as a reduction to income tax expense from continuing operations. The Corporation recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Corporation records penalties and interest related to unrecognized tax benefits as part of interest expense. (P) USE OF ESTIMATES The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. These estimates are based on management’s current judgment and may differ from actual results. Significant items subject to estimates and assumptions include accounts receivable, estimates of total contract costs for fixed price contracts, the fair value of investments, impairment of long-live assets, intangibles, and goodwill, and the tax valuation of oil and gas rights, and deferred tax assets. (Q) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires a company to recognize revenue when the company transfers control of promised goods and services to the customer. Revenue is recognized in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. A company also is required to disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB also has issued several amendments to the standard, which are intended to promote a more consistent interpretation and application of the principles outlined in the standard. Companies are permitted to adopt the standard using a retrospective transition method (i.e. restate all prior periods presented) or a cumulative effect method (i.e. recognize the cumulative effect of initially applying the guidance at the date of initial application with no restatement of prior periods). However, both methods allow companies to elect certain practical expedients on transition that will help to simplify how a company restates its contracts. The Corporation currently anticipates adopting the standard using the cumulative effect method and expects to elect the practical expedient for contract modifications. The standard is effective for the Corporation for annual periods in fiscal years beginning after December 15, 2018. The Corporation will implement the provisions of ASU 2014-09 as of April 1, 2019. Because the standard will affect the Corporation’s business processes, systems and controls, the Corporation began its assessment of the standard during 2017 and developed a comprehensive change management project plan to guide the implementation. The project plan includes analyzing the standard’s effect on the Corporation’s contract portfolio, comparing its historical accounting policies and practices to the requirements of the new standard, and identifying potential differences from applying the requirements of the new standard to its contracts. The Corporation does not expect the standard to have a material effect on the consolidated financial statements, other than for the additional disclosures required by the standard. 52 BBNC FY2019 ANNUAL REPORT