AKAO 2017 Annual Report

101 term, on a generally straight-line basis. This ASU will be effective for us in fiscal year 2019. Early adoption is permitted. We are currently assessing the potential effects of this ASU on our consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. This ASU defines a five- step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. We expect to adopt the new revenue standard as of January 1, 2018 using the modified retrospective method. We have completed our assessment and determined that our government contracts and non-profit foundation grant are not in scope of ASC 606 and there is no impact on our consolidated financial statements. In March 2016, the FASB issued ASU No 2016-09, Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting . This ASU simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. This ASU will be effective for fiscal years beginning after December 15, 2016, including interim periods. We adopted this ASU effective January 1, 2017 and elected to account for forfeitures on an estimated basis. The adoption had no impact on our consolidated financial statements. In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting . This ASU provides guidance about which changes to the terms or conditions of a share- based payment award requires us to apply modification accounting. This ASU will be effective for us in annual reporting periods, including interim reporting periods, beginning after December 15, 2017. Early adoption is permitted. We are currently assessing the potential effects of this ASU on our consolidated financial statements. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. We are exposed to limited market risk related to fluctuations in interest rates and market prices. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. The primary objective of our investment activities is to preserve our capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of cash equivalents and investments in a variety of securities of high credit quality. As of December 31, 2017, we had unrestricted cash, cash equivalents and short-term investments of $164.8 million consisting of bank deposits, cash, commercial paper, cash repurchase agreement investments, money market funds deposited in highly rated financial institutions in the United States and corporate debt securities of institutions with investment grade credit ratings. A portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase. However, because our investments are primarily short-term in duration, we believe that our exposure to interest rate risk is not significant. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. Assuming a hypothetical increase in interest rates of one percentage point, the fair value of our total investment portfolio as of December 31, 2017, would have potentially declined by approximately $0.1 million. We actively monitor changes in interest rates. We contract for the conduct of certain clinical development and manufacturing activities with vendors outside the United States. We are subject to exposure due to fluctuations in foreign exchange rates in connection with these agreements. For the year ended December 31, 2017, a 1% movement in foreign exchange rates would not be material to us. We do not believe that inflation or fluctuations in foreign exchange rates had a significant impact on our results of operations for any periods presented in our financial statements.