This week’s GAAP Flash includes articles about the presentation of foreign currency derivatives (ASC 815), projected tax savings for individuals next filing season, new IASB guidance intended to decrease unnecessary disclosures in financial statements under IAS 1, and a recap of the Toys ‘R’ Us bankruptcy filing and whether or not they previously indicated a going concern problem.

Foreign exchange derivatives may be hiding as much as $14 trillion in debt (September 18, 2017) – MarketWatch (@MarketWatch)

According to the article, foreign exchange swaps and forwards are instruments that allow companies to borrow money without that total debt stated on their balance sheets. The net value of these derivatives is reported on the balance sheet in accordance with U.S. GAAP and IFRS, rather than the gross amount. The portion that appears on the balance sheet is the change in replacement value (or fluctuations in the exchange rate) of the foreign currency. All of the detailed information can be found in the footnotes, but it is impossible for readers to get an accurate picture of the total outstanding “debt” by simply looking at the balance sheet.

How It’s Relevant: What the article fails to point out is that although an entity may have “debt” outstanding because of these transactions, it also has a “receivable” from the counter party. In my opinion, U.S. GAAP and IFRS is correct as reporting the “gross” notional amounts would unnecessarily gross up the balance sheet trillions of dollars! As the article notes, this information is available in the footnotes, but may not be understood by the average reader. Accounting for foreign exchange transactions is complex, and it is a topic for which we consistently receive training requests. Want to brush up on your knowledge of Foreign Currency Matters under ASC 830? Check out our free slides!

Wolters Kluwer predicts 2018 inflation-adjusted tax limits (September 18, 2017) Accounting Today (@AccountingToday

Wolters Kluwer Tax & Accounting released their inflation-adjusted estimates for the upcoming tax year. Although the IRS will not release the final adjustments for months, these estimates help tax payers plan early. Bloomberg BNA and Thomson Reuters released similar predictions last week. It looks like there will be the highest tax savings since 2007, no matter what happens in Washington with tax reform. It is likely the personal exemption and standard deduction amounts will increase, along with tax bracket thresholds.

How It’s Relevant: These predictions should not be relied upon until the IRS releases the final numbers later this year, but it is good news for most taxpayers! If Congress does agree on tax reform, it could be retroactive which may provide additional tax savings. As we mentioned in last week’s blog, make sure you file your return ASAP! As a result of the Equifax data breach, it is possible more fraudulent returns will be filed. If you are expecting a refund, it will take much longer to receive it if someone has already filed a return using your social security number!

Global accounting body steps up attack on ‘data dump’ company statements (September 14, 2017) - Reuters (@Reuters)

The IASB has published new guidance to encourage companies to be more selective about the information included in financial statements. The guidance sets out a four-step process to “identify, assess, organize and review whether a piece of information is material.” This movement towards more concise financial statements will help minimize the information that is irrelevant to investors.

How It’s Relevant: To stay on the safe side, many auditors and companies have the tendency to over disclose information on financial statements. Having specific guidance on how to apply judgment when considering disclosure requirements will shave down the length of the reports. This IASB guidance encourages companies to focus on the useful information for readers, rather than covering all the disclosure requirements in the IFRS standards. Want to learn more about the guidance? We provide an informative (and fun!) IFRS update course, that is customized specifically for your needs!

Toys ‘R’ Us Files for Bankruptcy, Crippled by Competition and Debt (September 19, 2017) – The New York Times (@nytimes)

This week Toys ‘R’ Us filed for Chapter 11 bankruptcy to help pay off their long-term debt of more than $5 billion. The company hopes that filing for bankruptcy will give them a chance for long-term growth. JPMorgan Chase and other lenders will provide $3 billion to the company to help pay their supplies and employees while they work towards formalizing a plan. In the meantime, the Toys ‘R’ Us and Babies ‘R’ Us stores will operate as usual and intend to keep their shelves stocked for the holiday season.

How It’s Relevant: There have been numerous retail bankruptcies in the past year, with this being one of the largest. The easy culprits to blame are Amazon, Target, and Wal-Mart. But Toys ‘R’ Us did not formalize a plan to move their business towards online commerce to keep up with the competition. There is something to be said for the magic a child feels going into a toy store and seeing aisles filled with toys! But the cost of running storefronts is simply becoming harder for retailers to justify. It is interesting that ASU 2014-15 requires companies to disclose if there is a substantial doubt about a company’s ability to continue as a going concern. According to the financial statements issued only 5 months ago, Toys ‘R’ Us did not disclose any going concern issues! 

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