The coming year promises plenty of teachable moments in accounting and auditing, as companies dig into big new accounting standards and learn more about how to satisfy audit demands.

“The big one that most companies will be thinking about heading into 2015 is revenue recognition,” says Beth Paul, a partner with PwC. Many public companies are still just scratching the surface in understanding what adoption of the massive new standard on revenue will mean. The Financial Accounting Standards Board and the International Accounting Standards Board issued one converged standard in mid-2014 to take effect in 2017, although planning should begin a lot sooner. “It will not be effective in 2015, but many companies will be thinking about implementation and what it means for their systems and other agreements, so that will be top of mind,” Paul says.

Companies did spent some time in 2014 at least studying the new standard, says Diana Gilbert, senior consultant with RoseRyan. “A lot of people have taken some time to try to get familiar with it, but the bigger companies have made the investment sooner,” she says. “I am seeing companies that are just starting to think about it, so it will be a big focus in 2015.”

Chris Wright, managing director at Protiviti, says companies preparing to adopt the new standard and running into implementation issues are likely watching FASB’s recent news that it will ponder whether an extension of the effective date is warranted. “If the delay comes, it will be because companies need more time to get ready, so well-advised companies will use that extra time to get ready,” he says.

Companies might also want to use time in early 2015 to learn the revenue recognition standard because it could be followed later this year by new standards on leasing and financial instruments. FASB and IASB are still toiling with a number of details related to both standards; Wright believes it possible FASB will issue its final rules on either area, or possibly both areas, in the coming year.

The good news: None of those rules would be effective in 2015. Standard setters are expected to offer long lead times to allow for preparation. “Implementation resources will be an issue for some entities,” says Mark Scoles, partner in charge of the accounting principles group at Grant Thornton. “Not all entities are impacted by all of those standards in the same way, but some entities will be significantly impacted by all of them, or by one or more of them.”

“Folks have come to see IFRS as the boy who cried wolf, so people are naturally skeptical.”
Joseph Ucuzoglu, National Managing Partner – Government, Regulatory, and Professional Matters, Deloitte

Phil Wedemeyer, audit committee chairman for Atwood Oceanics, says he expects some focus on a new standard that will take effect in 2015, requiring management to warn investors if it has doubts about the company’s ability to continue as a going concern. “It’s going to take time for management and companies to come to a view about what they need to consider in deciding what their disclosures will be around going concern,” he says. “My notion is that nobody is very good at predicting the future of a company unless it’s obvious the damn thing is dead.”

Although 2014 was the year of internal control headaches, many financial reporting experts expect that focus to carry into 2015 to some degree. Companies that delayed adopting the newly updated COSO Internal Control—Integrated Framework will face that chore in 2015; companies that did adopt it may well need to refine their control documentation after their year-end audit or after their auditor faces its annual inspection from the Public Company Accounting Oversight Board. “I don’t think anyone can tell where this will land,” Wedemeyer says. “It may take a couple of years in terms of inspections.”


Below, FASB explains the need for a new standard on revenue recognition.
Revenue is one of the most important measures used by investors in assessing a company’s performance and prospects. However, revenue recognition guidance differs in Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS)—and many believe both standards are in need of improvement.
On May 28, 2014, the FASB and the International Accounting Standards Board (IASB) issued converged guidance on recognizing revenue in contracts with customers. The new guidance is a major achievement in the Boards’ joint efforts to improve this important area of financial reporting.
Presently, GAAP has complex, detailed, and disparate revenue recognition requirements for specific transactions and industries including, for example, software and real estate. As a result, different industries use different accounting for economically similar transactions.
The objective of the new guidance is to establish the principles to report useful information to users of financial statements about the nature, timing, and uncertainty of revenue from contracts with customers. The new guidance:

Removes inconsistencies and weaknesses in existing revenue requirements

Provides a more robust framework for addressing revenue issues

Improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets

Provides more useful information to users of financial statements through improved disclosure requirements, and

Simplifies the preparation of financial statements by reducing the number of requirements to which an organization must refer.
Click here to access full project information from FASB.
Source: FASB.

Joseph Ucuzoglu, national managing partner for Deloitte, says he expects plenty of continued focus on internal controls into 2015. “There is a lot of noise in the system about what the auditor and the company need to do,” he says. “It’s about elevating the quality of the work on the company side and the audit side to make sure key controls are truly operating effectively. 2014 was a period of change; 2015 will be better. With a period of change comes a level of disruption, so now we will see it settle into a more steady state.”

At EY, partners Neri Bukspan and Matt Posta say 2015 is the year companies will (or should) step back from the sheer chore of making disclosures, looking for ways to make them better. The Securities and Exchange Commission is looking at ways to make disclosures more effective and is calling on companies meanwhile to take measures of their own without waiting for new rules. FASB also is considering ways to improve financial statement disclosure requirements.

“The SEC is on record saying they will issue a position paper on the topic quite imminently,” Bukspan says. “It’s a topic that many are attracted to for various reasons. It’s almost an inflection point where many in the system realize the system needs to be optimized.”

Another issue that could crop up in 2015 is the question of whether and how the SEC might consider incorporating International Financial Reporting Standards into the U.S. financial reporting regime, Ucuzoglu says. SEC Chief Accountant James Schnurr has said in recent months he’s expecting the full Commission to take some kind of action on IFRS, although what the SEC might do remains unclear. Ucuzoglu says companies should follow the dialogue in case the SEC issues any kind of concept release or proposal looking for input. “I think a lot of folks have come to see IFRS as the boy that cried wolf, so people are naturally skeptical,” he says. “I think we’ll see some kind of forward progress, but it won’t be radical.”

Companies should also be on the lookout for new standards from the PCAOB that could affect next year’s audit, Wright says. Auditors are under orders to take a closer look at any related-party transactions or other significant unusual transactions, and the PCAOB is expected to finish some kind of rule to require audit firms to name the engagement partner on public company audits. “The PCAOB has an aggressive agenda, and that could affect their audit clients,” he says.