Are You Ready for the Adoption of the Major Financial Reporting Standards?
Dec. 19, 2016
By Sydney K. Garmong, CPA, and Staci Shannon, CPA
The Financial Accounting Standards Board (FASB) has finalized three major accounting standards – revenue recognition, leases, and credit losses – and entities are in the midst of implementing the accounting and disclosure changes stemming from those new standards. Individuals involved in financial reporting, from accounting managers to audit committee members, must be engaged in the implementation process.
Almost every entity will see changes in financial reporting as a result of these new standards. Among those changes, revenue transactions will now be evaluated under a control framework instead of a risk and rewards model, operating leases are coming on balance sheet for lessees, and expected (rather than incurred) credit losses will be measured and recorded for financial assets.
Implementation efforts are all-encompassing – from conducting scoping exercises to changing accounting policies, developing new disclosures, and implementing new internal controls over financial reporting – to address the required changes in generally accepted accounting principles (GAAP). Public companies in particular must consider keeping investors informed of implementation efforts through disclosure. Specifically, the Securities and Exchange Commission (SEC) made a staff announcement, at an Emerging Issues Task Force (EITF) meeting on Sept. 22, 2016, to address situations where an SEC registrant does not know or cannot reasonably estimate the impact that adoption of the recent major accounting standards is expected to have on its financial statements. If true, a statement to that effect should be disclosed, and the registrant should consider additional qualitative disclosures related to the significance of the impact that the standard will have on the financial statements when adopted. See a discussion of this staff announcement on the Crowe website.
The effective dates of these major accounting standards are spaced by one year for most entities, to allow time for implementation (see table, “When Are the Major Standards Effective?”). Despite the spacing, preparation for each of the standards must begin now in order to timely transition to them by the required effective dates.
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When Are the Major Standards Effective?