This week’s GAAP Flash includes articles about the FASB proposing lease implementation improvements and addressing financial statement reporting impacts resulting from the next tax law, what to expect from the new CECL model, and what audit committees will be dealing with in 2018.

FASB proposes lease standard implementation improvements (January 5, 2018) – Journal of Accountancy (@AICPA_JofA)

The FASB recently issued a proposal designed to ease and reduce the costs associated with the implementation of the new leasing standard (ASC 842). The proposal included two major changes: adding an option for transition by allowing a company to recognize a cumulative-effect adjustment to retained earnings on the date of adoption (instead of applying the transition requirements to the earliest comparative period presented); and adding a practical expedient, by classes of underlying assets, where lessors would not have to separate nonlease components, similar to the lessee rules, if certain conditions are met.

How It’s Relevant: Now that revenue recognition is effective for public companies, we are only going to focus on lease articles! I’m just kidding - we’ll have plenty to discuss when it comes to implementing ASC 606 this year, but this article was important to include because the FASB is listening to feedback received on the lease standard implementation and wants to see a successful transition. These changes are aimed at reducing costs and complexities so hopefully they will be beneficial. In case you need some additional guidance on ASC 842, check out our list of accounting resources relating to implementing the new leasing standard.

FASB addresses financial reporting impacts of new tax law (January 10, 2018) – Journal of Accountancy (@AICPA_JofA)

The FASB recently addressed numerous financial reporting implications of the tax reform (also referenced as the “Tax Cuts and Jobs Act” or “P.L. 115-97”). They discussed five implementation issues and agreed to propose a one-time reclassification of stranded tax effects from accumulated other comprehensive income into retained earnings as a result of the new corporate tax rate (which decreased from 35% to 21%). The reclassification proposal also includes specific disclosures that will need to be made in the period the reclassification is recorded.

How It’s Relevant: The new tax reform is certainly a hot topic among companies and accounting firms due to all of the new changes and impacts on financial statements. The other five implementation issues that were also discussed included: private companies and not-for-profits applying SAB 118; whether to discount the tax liability on the deemed repatriation; whether to discount AMT credits that become refundable; accounting for the base-erosion and anti-abuse tax (BEAT); and accounting for global intangible low-taxed income (GILTI). The decisions on these implementation issues will be communicated through a Q&A that will be posted to a new FASB tax reform website. In the meantime, here is a link to the FASB’s main website discussing the new tax reform implementation issues.

What to expect with the new expected credit loss model (January 4, 2018) – Accounting Today (@AccountingToday)

This article provides a great summary of ASU 2016-13, Financial Instruments – Credit Losses (ASC 326), otherwise known as CECL (current expected credit losses). Additionally, it discusses why CECL was adopted, what you need to know to prepare for adoption, and “rumors” surrounding the impact of adoption. CECL is first effective for public companies (filing with the SEC) as of January 1, 2020.

How It’s Relevant: Yes, you have some time to prepare for CECL, but it is considered one of the biggest accounting changes that will significantly impact banks (or any entity that records receivables and investments, or that is exposed to credit risk through guarantees/commitments). CECL will move companies away from the current “incurred” loss model (loss recorded when probable) to an “expected” credit loss model, which is more forward looking. Adopting CECL is going to be a significant process but we have you covered! Whether it’s a 2-week "banking boot camp" for your new hires, or a 1-day Banking Update course, we ensure your personnel are knowledgeable of all the latest developments, including CECL.

Audit committees will be dealing with new accounting standards and tax reform this year (January 10, 2018) – Accounting Today (@AccountingToday)

Public company audit committees will have plenty on their 2018 agendas, including new accounting standards and tax reform. Additionally, outside of these two obvious factors, audit committees will also need to consider threats from cyber security, preparing for the new auditor report (disclosures of critical audit matters), and reputational risks/tone at the top/tone at the “middle.”

How It’s Relevant: While the adoption of ASC 606 (revenue recognition) and tax reform will be front and center this year, audit committees also can’t forget about preparing for the new lease standard and CECL adoption. Also, as evidenced last week with the Intel chip bugs, cyber security can change on a daily basis, so audit committees need to be up to speed and discuss concerns with CIOs. And finally, while tone at the top is always important, the tone at the “middle” of the organization is also especially important. Working with the company’s internal auditors will help the audit committee to make sure the tone throughout the entire company is being upheld. For additional information on board/audit committee matters, here are links to the Big 4 centers: Deloitte, EY, KPMG, and PwC.

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