Accounting & Auditing Update

The American Institute of Certified Public Accountants has assembled 16 industry task forces to examine industry-specific implementation questions that are emerging as companies prepare to adopt the new principles-based revenue recognition standard. The working drafts provide insight and examples around nine specific questions, says Kim Kushmerick, senior technical manager at the AICPA. Details inside.

A recent survey of 335 finance executives by PwC and Financial Executives Research Foundation found that 27 percent of executives said their companies had not yet started an initial impact assessment of the new revenue standard as of summer 2015, and 48 percent had started but not completed it yet. Dusty Stallings, a PwC partner, said: “It’s very difficult to know what else you need to do to be prepared for this standard. There is still a good pocket of the population that hasn’t gotten going yet.” More inside.

Third-quarter filings suggest companies are making progress implementing new revenue rules, but still have plenty of work to do in the fourth quarter.

Preparers seem more concerned about how they will gather and manage the data they need to comply with new lease accounting rules than they are about new IT system needs, according to a recent Deloitte poll. Tammy Whitehouse has an in-depth look at the survey.

As long expected, FASB has approved a one-year deferral of the effective date of the new standard on revenue recognition, pushing the adoption requirement out to 2018. The board will also allow companies to adopt the standard as of the original effective date, January 2017, if they are inclined to do so. More inside.

FASB has issued guidance related to the revenue recognition standard to clarify licensing and identifying performance obligations. The guidance says entities are not required to assess whether promised goods or services are performance obligations if they are immaterial in the contract with the customer. It also provides some clarification around how to interpret the requirements around symbolic IP, such as brands, trade names, logos, and franchise rights.

FASB has finalized its long-awaited standard giving companies a new, more forward-looking way to account for credit losses in their portfolios. The standard will require companies to reflect expected credit losses on financial assets based on their historical experience, current market conditions, and even forecasts. Tammy Whitehouse has an in-depth look at the standard.

The Financial Accounting Standards Board is considering both a deferral of its sweeping new revenue recognition rule and early adoption for companies ready to proceed, a FASB spokesman said Monday. FASB will decide later this spring on those ideas, after hearing more input from companies preparing for the current 2017 implementation date.

FASB will review research behind a possible delay in the new revenue recognition standard. The board might also consider allowing early adoption, currently prohibited under FASB’s standard. SEC Chief Accountant James Schnurrif said, “If the parties determine there are implementation issues that require additional standard setting, I would think that would be a reason why you’d have to delay the adoption.” Details inside.

FASB has proposed an update to its revenue recognition standard to clarify when an entity is acting as the principal in its interaction with a customer or when it is an agent for some other entity, helping a company determine if it should recognize revenue on a gross or net basis. Details inside.

After finishing rules on the recognition and measurement of financial instruments and on loan losses, FASB is turning its attention back to hedge accounting with a new proposal. Tammy Whitehouse reports.

Marking another milestone in accounting history, the Financial Accounting Standards Board has published its final standard requiring all companies that lease any kind of asset—from real estate to heavy equipment to office copiers—to recognize leased property as an asset they have a right to use and a liability that they must settle over time. “The new guidance responds to requests from investors and other financial statement users for a more faithful representation of an organization’s leasing activities,” said Russ Golden, FASB chair, in a statement.

A decade in the making, public companies now have a new standard that tells them how to measure and recognize the value of financial assets and financial liabilities in financial statements. Accounting Standards Update No. 2016-01 rewrites certain requirements under the Accounting Standards Codification for how to recognize, measure, and present financial instruments in financial statements, as well as the related disclosures. FASB Chairman Russ Golden said, “It improves the accounting model to better meet the requirements of today’s complex economic environment.”

The Financial Accounting Standards Board has issued a formal proposal to delay the effective date of the revenue recognition rule by one year, just as the International Accounting Standards Board voted to propose a one-year deferral for the international standard. FASB’s proposal is seeking comment on whether a two-year delay would be more effective.

FASB will issue its final leasing rule in 2016, effective 2019. IASB’s new leasing requirements will follow roughly the same timeline, although the boards still differ on how to reflect lease obligations in the income statement. “We believe that this new standard is important because it will provide investors, lenders, and other users of financial statements a more accurate picture of the long-term financial obligations of the companies to which they provide capital,” said FASB Chairman Russ Golden. Details inside.

Financial Accounting Standards Board Chairman Russ Golden has authorized FASB staff to conduct research on (1) how to apply the new revenue recognition standard to licensing agreements; (2) when revenue should be recognized on a gross versus net basis; and (3) how to determine performance obligations. The research should help determine whether the standard should be revised or delayed. More inside.

Guidance on when to recognize revenue on a net or gross basis is expected to be highly consistent across U.S. and international rules when the Financial Accounting Standards Board and the International Accounting Standards Board issue their final amendments.

Staff members of both the U.S. and international accounting rulemakers are recommending that their boards re-open their massive joint standard on revenue recognition to answer specific questions around implementation. The Joint Transition Resource Group has fielded nearly 40 issues that companies have encountered; FASB began to consider possible changes this week.

FASB and IASB have reached tentative decisions on how to address questions in the new revenue standard around when to report revenue on a gross versus net basis. While the boards are moving in different directions of how they will amend their respective guidance, FASB says the amendments to each set of rules will be similar. More inside.

FASB and IASB’s Transition Resource Group met one final time to work through questions surrounding revenue recognition. While the group forged ahead with such issues as treating customer options for additional goods and services, pre-production activities, and fixed-odds wagering contracts, uncertainty still exists for licensing. Big 4 accounting firm PwC wrote, “This lack of clarity continues to make it difficult for entities with right-to-use licenses fully assess the impact of the new revenue standard.” More inside.

The disturbing rise of non-GAAP reporting in 2016 has prompted standard setters to take a closer look at whether changes to current rules are in order. Tammy Whitehouse explores.

To answer early political pressure over the new accounting standard on revenue recognition, the Financial Accounting Standards Board is pledging its readiness to work through implementation issues as they are identified and brought to the board for action.

Now that the new revenue recognition standard is likely to be delayed by a year in the United States, the International Accounting Standards Board is recommending a delay until Jan. 1, 2018, for those who file under International Financial Reporting Standards. “We think that it is less confusing for the market if both IFRS and U.S. GAAP preparers apply the new standard at the same time,” IASB staff said. Details inside.