This week’s GAAP Flash includes articles about the impacts of adopting ASU 2016-09 relating to share-based payments, the risks of delaying the adoption process of ASC 842, Microsoft’s double adoption of ASC 606 and ASC 842, and what kind of ripple effects CECL will have on financial institutions.
New accounting standard makes tax waves for Fortune 500 (August 7, 2017) – Accounting Today (@AccountingToday)
Analysts caution that a new accounting standard on share-based payments, ASU 2016-09, creates volatility in companies’ effective tax rates which may mislead investors if the disclosures surrounding the adoption are not clear and transparent. ASU 2016-09 became effective for public companies in 2017 and now requires excess tax benefits and excess tax deficiencies relating to share-based payments to be recorded in the income statement when stock awards vest or are exercised.
How It’s Relevant: The accounting change for share-based payments led to an average decrease of almost 5 percentage points in effective tax rates across almost 200 companies that early adopted the standard, but it’s important to remember that this does not actually translate to lower taxes being paid! Companies need to make sure the disclosures surrounding the adoption are detailed enough for investors to understand. For more information, check out our blog about ASU 2016-09, which was implemented to simplify the accounting for share-based compensation.
Why lease accounting laggards face serious risks (August 3, 2017) – Journal of Accountancy (@AICPA_JofA)
Many are worried that companies are underestimating the amount of work required to implement the new lease accounting standard (ASC 842). This article summarizes the many challenges companies may face during implementation which can include data gathering, understanding the lease portfolio, modifying systems and software, and understanding contract terms (to name a few), and why delaying the process will not make anything easier.
How It’s Relevant: Another day, another article about the risks of delaying the new leasing standard! Yes, we all know that you are probably focused on implementing the new revenue recognition standard, but I don’t want you to forget about leases! So where should you begin? The first step is to check out our list of accounting resources relating to implementing the new leasing standard. We love helping people make sense of complex accounting standards, so feel free to contact us if you need training on the new standard or have questions on interpreting the guidance.
Microsoft scales accounting mountain (August 4, 2017) – CFO (@cfo)
In a move only a company as massive as Microsoft would consider making, the company announced it will be adopting the two new accounting standards for revenue and leases (ASC 606 and ASC 842, respectively) at the same time. Starting with their first quarter ending September 30, Microsoft will issue financials that include restatements for 2016 and 2017, which are required for the early adoption of the rules.
How It’s Relevant: Both new standards at the same time?!? Wow! Microsoft wanted to simplify the communication of the adoption results as well as provide one set of restated financials to investors. I’ve been posting recent articles about the warnings of delaying the implementation process (see above!) so Microsoft must have been listening. Even though they are a large company with many resources, it’s important to remember that they must follow the same standards as every other company that needs to adopt. Make sure you’re up to speed on the new standards - check out our U.S. GAAP Update course offering or our free 1 hour eLearning module on revenue recognition!
The CECL Ripple Effect (August 8, 2017) – ABA Banking Journal (@BankingJournal)
With the Current Expected Credit Loss (CECL) standard for loan loss accounting set to go into effect starting in 2020 for SEC registrants, financial institutions still have time to consider where CECL’s impacts of adoption will appear across operational areas such as accounting, risk management and data analysis. For institutions looking to get ahead of the curve, data management is something to consider as a near-horizon priority.
How It’s Relevant: Did you think I would forget to remind you about the importance about preparing for CECL in this blog? Although 2020 is a few years away, there are many implications to start considering, especially when it comes to data retention and analysis. CECL will also require banks to implement new models, processes, systems, and internal controls – so don’t wait! Whether it’s a 2-week "banking boot camp" for your new hires, or a 1-day Banking Update course, we’ve got you covered to ensure your personnel are knowledgeable of the latest developments affecting banks and other financial institutions, including CECL.
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