Taking the internal control bull by its horns, the preparer community has assembled itself and developed its own guidance on how to assure sound controls with respect to new accounting adoptions.
The Committee on Corporate Reporting at Financial Executives International issued two guides to address internal control considerations as companies prepare to implement new accounting standards on leases and on credit losses. The committee wanted to put its own stamp on the formation of insights and best practices that might help preparers develop and apply internal controls as they transition to the new accounting requirements.
Public companies with a calendar year-end are in the final stages of adopting Accounting Standards Codification Topic 842 on leases, which takes effect Jan. 1, 2019. ASC 842 brings virtually all assets and liabilities associated with leasing out of financial statement footnotes and on to the face of the balance sheet, grossing up balance sheets by trillions of dollars.
ASC 326 on credit losses introduces the “current expected credit losses” approach to recognizing signs of stress in debt-related portfolios. The CECL standard, moving companies away from the current focus on incurred losses to a more forward-looking approach to reporting, takes effect for calendar-year public companies on Jan. 1, 2020. FEI’s documents are meant to provide a support system to help companies of various sizes execute successful implementations utilizing effective internal control over financial reporting.
“Internal controls must be top of mind for management at all times, but especially as new standards are operationalized and new systems and processes are implemented,” said Mick Homan, chairman of the FEI committee and vice president in charge of corporate accounting at Procter & Gamble. “These ICFR guides represent the collaborative efforts of leading preparers with input from their auditors. We believe this will help refresh the dialog between management and its auditors, leading to process improvements and better internal controls.”