Certain reclassifications have been made to the prior period amounts to conform to the current year presentation. More specifically, accrued compensation, other accrued liabilities and common stock warrant liabilities, which were previously presented separately on the consolidated balance sheet, have been reclassified into a single caption, other current liabilities. These reclassifications did not affect our financial position, net loss, comprehensive loss, or cash flows as of and for the periods presented.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

We analyze our collaboration arrangements to assess whether such arrangements, or transactions between arrangement participants, involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities or are more akin to a vendor-customer relationship. In making this evaluation, we consider whether the activities of the collaboration are considered to be distinct and deemed to be within the scope of the collaborative arrangement guidance and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of the revenue with contracts with customers guidance. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.

For elements of collaboration arrangements that are not accounted for pursuant to the revenue from contracts with customers guidance, an appropriate recognition method is determined and applied consistently, generally by analogy to the revenue from contracts with customers guidance. Amounts related to transactions with a counterparty in a collaborative arrangement that is not a customer are presented as collaboration revenue and on a separate line item from revenue recognized from contracts with customers, if any, in our consolidated statements of operations.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the consolidated balance sheets. If the related efforts underlying the deferred revenue is expected to be satisfied within the next twelve months this will be classified in current liabilities. Unconditional rights to receive consideration in advance of performance are recorded as receivables and deferred revenue in the consolidated balance sheets when we have a contractual right to bill and receive the payment, performance is expected to commence shortly and there is less than a year between billing and performance. Amounts recognized for satisfied performance obligations prior to the right to payment becoming unconditional are recorded as contract assets in the consolidated balance sheets. If we expect to have an unconditional right to receive consideration in the next twelve months, this will be classified in current assets. A net contract asset or liability is presented for each contract with a customer.

For arrangements or transactions between arrangement participants determined to be within the scope of the contracts with customers guidance, we perform the following steps to determine the appropriate amount of revenue to be recognized as we fulfill our obligations: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) we satisfy each performance obligation.

At contract inception, we assess the goods or services promised in a contract with a customer and identify those distinct goods and services that represent a performance obligation. A promised good or service may not be identified as a performance obligation if it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other promises in the contract (either because it is not capable of being separated or because it is not separable in the context of the contract), or if the performance obligation does not provide the customer with a material right.

We consider the terms of the contract and our customary business practices to determine the transaction price. The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained, which is when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations based on the relative stand-alone selling prices unless the transaction price is variable and meets the criteria to be allocated entirely to one or more, but not all, performance obligations in the contract. The relative selling price for each performance obligation is based on observable prices if it is available. If observable prices are not available, we estimate stand-alone selling price for the performance obligation utilizing the estimated cost of the performance obligation with an estimated assumed margin. Once the transaction price has been allocated to a performance obligation using the applicable methodology, it is not subject to reassessment for subsequent changes in stand-alone selling prices.

Revenue is recognized when, or as, we satisfy a performance obligation by transferring a promised good or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset. For performance obligations that are satisfied over time, we recognize revenue using an input or output measure of progress that best depicts our satisfaction of the relevant performance obligation. Revenues from performance obligations associated with a purchase order of Fintepla will be recognized when the customer obtains control of our product, which will occur at a point in time which may be upon shipment or delivery to the customer.

Management may be required to exercise judgment in estimating revenue to be recognized. Judgment is required in identifying performance obligations, estimating the transaction price, estimating the stand-alone selling prices of identified performance obligations, which may include forecasted revenue, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success, and estimating the progress towards satisfaction of performance obligations.

Revenue generated in 2017 consisted of contract manufacturing services provided for one customer under a long-term supply agreement, which was terminated in 2017. Contract manufacturing revenue was recognized under the legacy revenue recognition standard when all of the following criteria for revenue recognition have been met: (1) persuasive evidence of an arrangement existed (2) delivery has occurred or services have been rendered; (3) the fee was fixed or determinable; and (4) collectability was reasonably assured.

We evaluate acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not we have acquired inputs and processes that have the ability to create outputs which would meet the definition of a business. Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets.

If the transaction is determined not to be a business combination, it is accounted for as an asset acquisition. For asset acquisitions, a cost accumulation model is used to determine the cost of an asset acquisition. Common stock issued as consideration in an asset acquisition is generally measured based on the acquisition date fair value of the equity interests issued. Direct transaction costs are recognized as part of the cost of an asset acquisition. We also evaluate which elements of a transaction should be accounted for as a part of an asset acquisition and which should be accounted for separately. Consideration deposited into escrow accounts are evaluated to determine whether it should be included as part of the cost of an asset acquisition or accounted for as contingent consideration. Amounts held in escrow where we have legal title to such balances but where such accounts are not held in our name, are recorded on a gross basis as an asset with a corresponding liability in our consolidated balance sheet.

The cost of an asset acquisition, including transaction costs, are allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis. Goodwill is not recognized in an asset acquisition. Any difference between the cost of an asset acquisition and the fair value of the net assets acquired is allocated to the non-monetary identifiable assets based on their relative fair values. Assets acquired as part of an asset acquisition that are considered to be in-process research and development (IPR&D) are immediately expensed unless there is an alternative future use in other research and development projects.

In addition to upfront consideration, our asset acquisitions may also include contingent consideration payments to be made for future milestone events or royalties on net sales of future products. We assess whether such contingent consideration meets the definition of a derivative. Contingent consideration payments in an asset acquisition not required to be accounted for as derivatives are recognized when the contingency is resolved, and the consideration is paid or becomes payable. Contingent consideration payments required to be accounted for as derivatives are recorded at fair value on the date of the acquisition and are subsequently remeasured to fair value at each reporting date. Contingent consideration payments made prior to regulatory approval are expensed as incurred. Contingent consideration payments made subsequent to regulatory approval are capitalized as intangible assets and amortized, subject to impairment assessments.

If the acquisition is determined to be a business combination, all tangible and intangible assets acquired, including any IPR&D asset, and liabilities assumed, including contingent consideration, are recorded at their fair value. Goodwill is recognized for any difference between the price of acquisition and our fair value determination. In addition, direct transaction costs in connection with business combinations are expensed as incurred, rather than capitalized.

Our financial instruments, including cash and cash equivalents, other current assets, accounts payable and accrued liabilities are carried at cost, which approximates their fair value because of the short-term nature of these financial instruments. See Notes 6 and 7 for financial instruments measured or disclosed at fair value for marketable securities, contingent consideration liabilities and common stock warrant liabilities.

We invest our excess cash in marketable securities with high credit ratings including money market funds and certificates of deposit, securities issued by the U.S. government and its agencies, corporate debt securities and commercial paper. All of our marketable securities have been accounted for as available-for-sale and carried at fair value. We have classified all of our available-for-sale marketable securities, including those with maturity dates beyond one year, as current assets on the consolidated balance sheets as we may sell these securities at any time for use in current operations even if they have not yet reached maturity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income on the consolidated statements of operations and comprehensive loss. Realized gains and losses and declines in value determined to be other than temporary, if any, on marketable securities are included in other income (expense). Gains and losses on sales are recorded based on the trade date and determined using the specific identification method.

We evaluate our marketable securities to assess whether those with unrealized loss positions are other-than-temporarily impaired. We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. To date, there have been no declines in value deemed to be other than temporary for any of our marketable securities.

Financial instruments that potentially subject us to concentrations of credit risk are cash equivalents and marketable securities. As stated in our investment policy, the primary objective of our investment activities is to preserve principal and maintain a desired level of liquidity to meet working capital needs. Accordingly, our investment portfolio consists of investment-grade rated securities with active secondary or resale markets and is subject to established guidelines relative to diversification and maturities to maintain safety and liquidity. Historically, we have not experienced any material credit losses on our investments and we believe our exposure to credit risk related to our investing activities are limited. We maintain amounts on deposit with various financial institutions, which may exceed federally insured limits. However, management periodically evaluates the credit-worthiness of those institutions, and we have not experienced any losses on such deposits.

Certain materials and key components that we utilize in our operations are obtained through single suppliers. Since the suppliers of key components and materials must be named in a New Drug Application (NDA) filed with the FDA for a product, significant delays can occur if the qualification of a new supplier is required. If delivery of material from our suppliers were interrupted for any reason, we may be unable to supply any of our product candidates for clinical trials.

Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated on a regular basis by our chief operating decision-maker (CODM) in deciding how to allocate resources to an individual segment and in assessing performance of the segment. We operate as a single business segment: the research, development and commercialization of pharmaceutical products. Our CODM, which is our President/Chief Executive Officer, reviews our operating results on a consolidated basis and manages our operations as a single operating segment. Substantially all of our long-lived assets are located in the United States.

The goodwill balance of $6.2 million at December 31, 2019 and 2018 is directly attributable to our business acquisition of Brabant Pharma Limited (Brabant) in 2014 to obtain worldwide development and commercialization rights to Fintepla. Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value assigned to the individual assets acquired and liabilities assumed. Goodwill is not amortized, but instead is reviewed for impairment at least annually on our assessment date of October 1, or more frequently if events occur or circumstances change that would indicate the carrying amount may be impaired. Goodwill is assigned to, and impairment testing is performed at, the reporting unit level. We determined we have only one reporting unit, which is the same as our operating segment, as well as our reportable segment. Accordingly, our impairment testing is performed at the entity-wide level.

For 2019, we performed a quantitative impairment test by comparing the fair value of our net assets with their carrying amounts. As we have a single reporting unit, an appropriate measure of the fair value of our net assets is our market capitalization on the assessment date. Our market capitalization, excluding any potential adjustment for a control premium, exceeded the carrying amount of our net assets as of October 1, 2019 by a significant amount and we determined our goodwill was not impaired. There were no goodwill impairment losses recorded for all periods presented.

The indefinite-lived intangible asset balance of $102.5 million at both December 31, 2019 and 2018 consists of IPR&D related to Fintepla acquired through the business acquisition of Brabant in 2014. IPR&D represents the fair value assigned to incomplete research projects that we acquire through business combinations which, at the time of acquisition, have not reached technological feasibility, regardless of whether they have alternative use. The primary basis for determining the technological feasibility of these projects at the time of acquisition is obtaining regulatory approval to market the underlying products in an applicable geographic region. The amounts are capitalized and are accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the associated research and development efforts. If the research and development efforts are successfully completed and commercial feasibility is reached, we will make a determination as to the then useful life of the intangible asset and begin amortization. Upon permanent abandonment, we would write-off the remaining carrying amount of the associated IPR&D intangible asset.

Indefinite-lived intangible assets are not amortized, but instead are reviewed for impairment at least annually as of October 1, or more frequently if events occur or circumstances change that would indicate the carrying amount may be impaired. In performing each annual impairment assessment and any interim impairment assessment, the accounting guidance allows an entity the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative test. If we believe, as a result of our qualitative assessment, that it is more-likely-than-not that the fair value of our IPR&D asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required.

When performing a qualitative test, we consider the results of our most recent quantitative impairment test and identify the most relevant divers of the fair value for the IPR&D asset. The most relevant drivers of fair value we have identified are consistent with the assumptions used in the quantitative estimate of the IPR&D asset discussed below. Using these drivers of fair value, we identify events and circumstances that may have an effect on the fair value of the IPR&D asset since the last time the IPR&D’s fair value was quantitatively determined. We then weigh these factors to determine and conclude if it is not more likely than not that the IPR&D asset is impaired. If it is more-likely-than-not that the IPR&D asset is impaired, we will proceed with quantitatively determining the fair value of the IPR&D asset.

Under a quantitative test, we use an income approach to determine the fair value of our IPR&D asset. This approach calculates fair value by estimating the after-tax cash flows attributable to an in-process project over its useful life and then discounting these after-tax cash flows back to a present value. This estimate includes judgmental assumptions regarding the estimates that market participants would make in evaluating the IPR&D asset, including the probability of successfully completing clinical trials and obtaining regulatory approval to market the IPR&D asset, the timing of and the expected costs to complete IPR&D projects, future net cash flows from potential drug sales, which are based on estimates of the sales price of the drug, the number of patients who will be diagnosed and treated and our competitive position in the marketplace, and appropriate discount and tax rates. If the fair value is less than the carrying amount based on our test, any impairment loss is recognized in our consolidated statements of operations by adjusting the carrying value of the IPR&D asset on our consolidated balance sheet to its fair value.

Long-lived assets, including right-of-use operating lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (group) may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted net cash flows of the operations related to the assets (asset group) to their carrying amount. If the carrying value of the assets (asset group) exceeds its undiscounted cash flows, we then compare the fair value of the assets (asset group) to its carrying value to determine the impairment loss. The impairment loss will be allocated to the carrying values of the long-lived assets (asset group), but not below their individual fair values.

In accordance with accounting guidance for common stock warrants that may potentially require cash settlement under certain circumstances, we classify such common stock warrants as current liabilities on the consolidated balance sheet. At each reporting date, the warrant liability is adjusted for changes in fair value with an offsetting change recorded as a component of other income (expense) in our consolidated statements of operations.

Research and development costs are expensed as incurred unless there is an alternative future use in other research and development projects. Research and development costs include personnel-related costs, outside contracted services including clinical trial costs, facilities costs, fees paid to consultants, milestone payments prior to FDA approval, license fees prior to FDA approval, professional services, travel costs, dues and subscriptions, depreciation, materials used in clinical trials and research and development and costs incurred related to our agreement with Nippon Shinyaku Co., Ltd. We expense costs relating to the purchase and production of pre-approval inventories as research and development expense in the period incurred until FDA approval is received. Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid assets on our consolidated balance sheets until the goods or services are realized or consumed. We classify such prepaid assets as current or non-current assets based on our estimates of the timing of when the goods or services will be realized or consumed.

Our expense accruals for clinical trials are based on estimates of the services received from clinical trial investigational sites, contract research organizations (CROs), contract manufacturing organizations (CMOs) and other third-party vendors that support us in our research and development efforts. Payments under some of our contracts with these service providers depend on factors such as the achievement of clinical milestones such as the successful enrollment of certain numbers of patients, site initiation, reservation of manufacturing capacity, or completion of a clinical trial. In accruing for these services at each reporting date, we estimate the time period over which services will be performed and the level of effort to be expended in each

period. If available, we obtain information regarding unbilled services directly from these service providers. However, we may be required to estimate our accrual based only on information available to us. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. Amounts ultimately incurred in relation to amounts accrued for these services at a reporting date may be substantially higher or lower than our estimates.

Income taxes are accounted for under the asset and liability method of accounting. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. We provide a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax asset will be realized. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the tax position.

We carry out extensive research and development activities that benefit from U.K.’s small and medium-sized enterprises (SME) R&D tax relief scheme, whereby an entity has an option to receive an enhanced U.K. tax deduction on its eligible R&D activities or, when an SME entity is in a net operating loss position, elect to surrender net operating losses that arise from its eligible R&D activities in exchange for a cash payment from the U.K. tax authorities. As the tax incentives may be received without regard to an entity’s actual tax liability, they are not subject to accounting for income taxes. Amounts realized under the SME R&D tax relief scheme are recorded as a component of other income after an election for tax relief in the form of cash payments has been made for a discrete tax year by submitting a claim, and collectability is deemed probable and reasonably assured.

We have certain foreign operations where their functional currency was determined to be their local currency. Local currency assets and liabilities are translated to U.S. Dollars at the rates of exchange in effect on the balance sheet date, and local currency revenues and expenses are translated to U.S. Dollars at average rates of exchange in effect during the period. The resulting translation gains or losses are included in our consolidated statements of comprehensive income (loss) as a component of other comprehensive income (loss) and in the consolidated statements of stockholders’ equity. We also recognize gains and losses on transactions that are denominated in a currency other than the respective entity’s functional currency in other expense, net in the consolidated statements of operations. Gains and losses from foreign currency translation and transactions were not material for all periods presented.

We recognize stock-based compensation for all equity awards made to employees based upon the awards’ estimated grant date fair value. For equity awards that vest subject to the satisfaction of service requirements, compensation expense is measured based on the fair value of the award on the date of grant and expense is recognized on a straight-line basis over the requisite service period. We account for forfeitures as they occur. From time to time, we may grant broad-based restricted stock units to employees, including executive officers, that vest upon the satisfaction of both service-based and performance-based vesting conditions. The performance-based vesting conditions are generally satisfied upon regulatory approval of a product candidate we have been developing. We recognize stock-based compensation over the requisite service period for awards with a performance condition if the performance condition is deemed probable of being met. Since obtaining regulatory approval involves numerous risks and uncertainties, many of which are outside of our control, achievement of regulatory approval is not deemed to be probable until the event occurs. As a result, our stock-based compensation expense may experience fluctuations, which may impact our reported financial results and period-to-period comparisons of our consolidated statements of operations.

Basic net loss from continuing operations per share is calculated by dividing the net loss from continuing operations by the weighted average number of common shares outstanding for the period reduced by weighted average shares subject to repurchase, without consideration for common stock equivalents. Diluted net loss from continuing operations per share is computed by dividing the net loss from continuing operations by the weighted average number of common share equivalents outstanding for the period determined using the treasury-stock method and as-if converted method, as applicable. For purposes of this calculation, stock options, restricted stock units and warrants to purchase common stock are considered to be common stock equivalents and are only included in the calculation of diluted net loss from continuing operations per share when their effect is dilutive.

The calculation of diluted loss per share also requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants to purchase common stock and the presumed exercise of such securities are dilutive to loss per share for the period, adjustments to net income or net loss used in the calculation are required to remove the change in fair value of the common stock warrant liability for the period. In addition, adjustments to the denominator are similarly made to reflect the related dilutive shares.

Accounting Standards Update (ASU) 2018-18, Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606 makes targeted improvements for collaborative arrangements by (1) clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under the contract with customer guidance (Topic 606) when the collaborative arrangement participant is a customer, (2) adding unit of account guidance to assess whether the collaborative arrangement, or a part of the arrangement, is with a customer and (3) precluding a company from presenting transactions with collaborative arrangement participants that are not directly related to sales to third parties together with revenue from contracts with customers. Entities must apply the guidance retrospectively as of the date of their initial application of Topic 606 and should recognize the cumulative effect of initially applying the amendments as an adjustment to opening retained earnings as of the later of (1) the earliest annual period presented and (2) the annual period that includes the date of the entity’s initial application of Topic 606. ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted.

We adopted Topic 842 effective January 1, 2019 using the modified retrospective approach and elected the package of practical expedients permitted under the transition guidance within the new standard. Consequently, prior period financial information and related disclosures have not been adjusted and will continue to be presented in accordance with the previous lease standard. In addition, we elected the package of transition provisions available for existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct lease costs for existing leases. We did not elect the practical expedient allowing the use-of-hindsight which would require us to reassess the lease term of our leases based on all facts and circumstances through the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to the current contract portfolio.


	December 31, 2018		Adjustments Due to the Adoption of Topic 842		January 1, 2019
Assets
Operating lease right-of-use assets	$	—	$	8,641	$	8,641

Liabilities
Other accrued liabilities	1,845		$	(363)	$	1,482
Current portion of operating lease liabilities	—		1,058		1,058
Operating lease liabilities, net of current portion	—		11,776		11,776
Deferred rent and lease incentive obligation	3,830		(3,830)		—
Total	$	5,675	$	8,641	$	14,316

Prior to January 1, 2019, we recognized related rent expense on a straight-line basis over the term of the lease. Incentives granted under our operating lease, including allowances for leasehold improvements and rent holidays, were recognized as reductions to rent expense on a straight-line basis over the term of the lease. Deferred rent consisted of the difference between rent expense recognized on a straight-line basis and cash rent payments. Subsequent to the adoption of Topic 842 on January 1, 2019, we determine whether the arrangement is or contains a lease at the inception of the arrangement and if such a lease is classified as a financing lease or operating lease at lease commencement. All of our leases are classified as operating leases. Leases with an initial term greater than one year are recorded on our consolidated balance sheet at December 31, 2019 as lease ROU assets and lease liabilities. If a lease contains an option to renew, the renewal option is included in the calculation of lease liabilities if we are reasonably certain at lease commencement the renewal option will be exercised. Lease liabilities and their corresponding ROU assets are measured at the present value of the remaining lease payments, discounted at an appropriate incremental borrowing rate at lease commencement, or as of January 1, 2019, for our existing leases. Management uses judgment to estimate the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the ROU asset may be required for items such as initial direct lease costs, lease incentives, scheduled rent escalations and impairment charges if we determine the ROU asset is impaired. Operating lease expense is recognized on a straight-line basis over the lease term.

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments revises the measurement of credit losses for most financial instruments measured at amortized cost, including trade receivables, from an incurred loss methodology to an expected loss methodology which results in earlier recognition of credit losses. Under the incurred loss model, a loss is not recognized until it is probable that the loss-causing event has already occurred. The new standard introduces a forward-looking expected credit loss model that requires an estimate of the expected credit losses over the life of the instrument by considering all relevant information including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. In addition, this standard also modifies the impairment model for available-for-sale debt securities, which are measured at fair value, by eliminating the consideration for the length of time fair value has been less than amortized cost when assessing credit loss for a debt security and provides for reversals of credit losses through income upon credit improvement. The new standard is effective for us beginning January 1, 2020. We will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted (modified-retrospective approach). A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Based on the composition of our investment portfolio, which reflects our primary investment objective of capital preservation, current market conditions and historical credit loss activity, the adoption of this new standard is not expected to have a material impact on our consolidated financial statements or related disclosures.

ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04) simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value for a reporting unit is determined in the same manner as the amount of goodwill recognized in a business acquisition of the reporting unit. Under the amendments in ASU 2017-04, an entity shall recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The updated guidance requires adoption on a prospective basis. ASU 2017-04 is effective for us beginning January 1, 2020. The adoption of this standard update is not expected to have a material impact on our consolidated financial statements; however, any goodwill impairment losses recognized subsequent to adoption will be measured following the updated standard.

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement modifies the disclosure requirements in Topic 820 by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is

ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) removes certain exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This ASU is effective for us for all interim and annual periods beginning January 1, 2021, with early adoption permitted. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements and related disclosures.