This week’s GAAP Flash includes articles on improper accounting of revenue recognition under ASC 605, accounting errors totaling $6.5 trillion (yes, trillion!), business combinations under ASC 805, and the new accounting guidance for not for profit financial statements.

Hain Celestial Could Bring More Pain (August 24, 2016) – TheStreet (@TheStreet)

The Hain Celestial Group, Inc. is known for its natural and organic brands, such as Garden of Eatin’, Ella’s Kitchen, and Greek Gods. Their stock hit a record high on August 12, 2016, at a price of $55.35 per share. This is great news for stockholders and Hain Celestial, right? Think again! Hain Celestial’s share price quickly fell when it announced that it would be delaying the release of its quarter-end and year-end financial results. The stock plummeted to $37.31, a 47% decrease from the high.

Why did Hain Celestial delay releasing their results? It was discovered that Hain might have overstated revenue by improperly accounting for concessions granted to distributors (i.e. discounts) by accounting for them in the wrong quarters. The company’s audit committee is currently conducting an investigation as to the proper treatment of revenue in accordance with ASC 605, but it may be awhile before the final results are known.

How It’s Relevant: The guidance for revenue recognition under ASC 605 is still relevant and companies are still messing up as we discussed in this post. However, if companies are still having trouble with ASC 605, how in the world are they going to adopt the new revenue recognition guidance under ASC 606? ASC 606 will bring big changes to revenue recognition guidance under current U.S. GAAP and companies need to get prepared now. Ready to explore the new revenue recognition standard and its impact on your company? Check out our free, 1-hour eLearning module on the new standard.

Audit reveals Army's trillion-dollar accounting gaffes (August 23, 2016) – CNN Politics (@CNNPolitics)

It appears that no entity is immune to making accounting mistakes. In fact, in 2015, it was discovered that the US Army made accounting errors approximating $6.5 trillion. Yes, you read that correctly, 6.5 TRILLION DOLLARS. During an audit performed by the US Defense Department’s Office of Inspector General (OIG), the OIG found $2.8 trillion of errors in the third quarter of 2015. The errors that were identified in the third quarter led to additional procedures, as well as the discovery that the total accounting errors approximated $6.5 trillion. As a former auditor, I can’t even fathom finding errors that amounted to such a massive number. The number is so massive it’s like we’re talking about Monopoly money!

The article stated unreliable data was used to prepare the financial statements, leading to the possibility that the Army’s finances were materially misstated. What was the source of the unreliable data? Evidently, it was the US Army’s own accounting systems. Comforting!

How It’s Relevant: If the US Army can make a $6.5 trillion mistake, it’s a fair bet that all companies are all at risk of making some sort of accounting error (although I would bet it doesn’t come close to $6.5 trillion!) What can companies do? They can make sure that they stay on top of the latest accounting guidance, have proper internal controls in place, and they test accounting systems to ensure they are operating effectively.

Pfizer Confirms $14 Billion Takeover of Cancer Drugmaker Medivation (August 22 2016) – TheStreet (@TheStreet)

Pfizer and Allergan had to call off their merger because of new rules implemented by the U.S. Treasury. However, Pfizer won’t back down, they’ll stand their ground! They’ll keep this crazy world from dragging them down!

Pfizer recently announced that they will acquire Medivation, a biopharmaceutical company, for $14 billion. Medivation will help to strengthen Pfizer’s oncology franchise and add the prostate cancer drug, Xtandi to its oncology portfolio. Medivation has been a hot commodity this year. Sanofi offered $9.3 billion to acquire Medivation in April, and other drug companies were said to have expressed an interest in the company.

Yes, the acquisition of Medivation will help boost Pfizer’s oncology franchise, but is Pfizer overpaying? What does Pfizer see that Sanofi, with a bid of $9.3 billion, didn’t see? And is it worth $14 billion?

How It’s Relevant: Accounting for business combination under ASC 805 has been a hot topic lately given the record M&A activity in 2015. Accounting for business combinations brings with it accounting issues such as identifying and valuing intangible assets, measurement period adjustments, and contingent consideration. We’ve drafted a series of posts providing guidance on these issues that is summarized here.

FASB Updates Accounting Rules for Not-for-Profits (August 22, 2016) – AccountingWeb (@AccountingWeb)

On August 18^th, the Financial Statement Accounting Board (FASB) issued Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities and it’s about time! There have not been significant changes to the presentation of not for profit financial statements in over twenty years. The existing guidance is fine, but, honestly, it needed to be updated. The article states, “the changes will allow not-for-profits to better communicate their financial performance and condition, as well as reduce some costs and complexities in preparing financial statements.”

The new not-for-profit financial statement presentation guidance will bring changes in the following four categories:

• Net Asset Classification
• Information About Liquidity and Availability of Resources
• Information About Expenses and Investment Return
• Presentation of Operating Cash Flows

ASU 2016-14 is effective for annual financial statements issued for fiscal years beginning after December 15, 2017 (2018 calendar year-ends) and for interim periods within fiscal years beginning after December 15, 2018.

How It’s Relevant: Adopting a new standard is never easy; especially when it brings changes to something you’ve been doing for over 20 years! Although 2018 is over a year away, not-for-profit entities need to make sure they are taking the necessary steps to make sure they’re prepared for the changes. Nobody like’s a last minute fire drill! To help, we’ve summarized the changes to not for profit financial statements in this post.