This week’s GAAP Flash includes articles about investor awareness of the new revenue recognition standards, the mortgage income decreases banks face, ethics in relation to SOX, and the new videoconferencing services the IRS is implementing.

Investors need to watch out for revenue recognition changes (July 21, 2017) – Accounting Today (@AccountingToday)

ASC 606 takes effect next year, and companies are working hard to comply with the changes. But investors need to also be aware of the new revenue recognition updates! There are certain industries that will be impacted more than others when implementing the new revenue recognition standard. Companies with complicated, drawn-out contracts with multiple components are likely to change their method for recognizing revenue. Investors should have a good understanding of the business model, so they can anticipate if the revenue stream will be accelerated or deferred.

How It’s Relevant: As a result of the new requirements, financial statements issued within the next year may look drastically different! Understanding the regulations and executing judgment to comply with ASC 606 is challenging. Some companies are looking to adjusting their contracts with customers, which not only affects revenue but possibly the entire business model! The SEC is encouraging companies to provide disclosures to help investors understand the regulations. But investors need to have a good understanding of the standard to fully comprehend why the changes are taking place. GAAP Dynamics has compiled many resources regarding ASC 606, including our own microlearnings on YouTube to help explain these upcoming changes!

Weak mortgage income hurts U.S. regional leaders (July 21, 2017) - Reuters (@Reuters)

Increased interest rates have certainly impacted the mortgage industry for both small and large banks! Refinancing volume is expected to decrease more than 40% this year in comparison to last year. Strong competition has resulted in lower profit margins, and in turn mortgage-related income has dropped significantly.

How It’s Relevant: With interest rates increasing, it is understandable why fewer people are looking to refinance. Experts believe that rates will continue to rise slowly as well, but there are times that it may make sense to finance. You may want to shorten the term of your loan – which typically comes with lower interest rates. Perhaps you purchased a home with an FHA loan, and can now refinance so additional interest is not charged. Crunch the numbers to see if refinancing makes sense! Banks are optimistic that the refinancing market will continue to stabilize, so in the meantime consumers should not disregard smart financing opportunities.

As Sarbanes-Oxley nears 15-year anniversary, ethics fall short (July 24, 2017) – Accounting Today (@AccountingToday)

It has been almost 15 years since Sarbanes-Oxley was signed into law. Deloitte recently conducted a study that found that ethics compliance continues to be a struggle for companies. There seems to be a deficiency in ethical standards related to incentives and program communications. Companies are performing required trainings, but have not actively assessed the results of those efforts. It is clear however, that overall Sarbanes-Oxley has helped with awareness, controls, and elimination of fraud.

How It’s Relevant: Some of the largest impacts of Sarbanes-Oxley were the creation of the PCAOB, and the internal control requirements. After the high-profile accounting scandals in the early 2000s, gaining investor confidence was of highest priority! Staying up to date with audit quality requirements is vital for any accountant of a publicly traded company. Noncompliance with auditing standards comes with consequences for both the executives and auditors. Make sure to stay up to date with our Audit Quality Course!

IRS pilots Appeals videoconference service (July 24, 2017) – Journal of Accountancy (@AICPA_JofA)

Starting next week, the IRS will offer some taxpayers and their representatives the option to speak to IRS Appeals officers through videoconferences. This technology allows for more flexibility and efficiency throughout the appeals process. At first there will be a limited number of appeals offices with the technology, as they intend on assessing taxpayer satisfaction with the new service. Telephone calls and in-person communications will still be available in all IRS office locations.

How It’s Relevant: In a GAAP Flash from a couple weeks ago, we discussed the move towards technology in the workplace. The IRS is not only making appeals more convenient for taxpayers, but for their employees! Years ago, I was representing a client regarding his home office deduction. I met the agent in the IRS Appeals Office with a stack of receipts and paperwork. The agent kept saying “I just wish I could see the office space for myself to confirm what has been reported on the return!” This step towards videoconferencing not only makes the process more personable and convenient, but can help the agent make more informed decisions.

Disclaimer 

This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.