GAAP Flash – ASC 842 concerns, tax reform, and ASC 606 – 1/19/18
GAAP Flash – ASC 842 concerns, tax reform, and ASC 606 – 1/19/18

GAAP Flash – ASC 842 concerns, tax reform, and ASC 606 – 1/19/18

This week’s GAAP Flash includes articles about what is keeping financial executives up at night, the impact of the new tax reform on Bank of America’s financial statements, understanding the impact of the new revenue recognition standard (ASC 606) in 2018, and the elimination of entertainment expenses under the Tax Cuts and Jobs Act.

Finance execs worried about internal controls and lease accounting (January 17, 2018) Accounting Today (@AccountingToday)

Financial executives are losing sleep, and surveys suggest that internal controls, the new lease accounting standard, and cybersecurity are the main reasons! KPMG surveyed more than 500 finance executives and discovered that 30% noted that internal controls are keeping them up at night (compared to 21% in 2016). Additionally, 22% are losing sleep over cybersecurity (13% in 2016), and 34% have not started their lease implementation process.

How It’s Relevant: There is plenty of work to be done in 2018 so these executives need to stock up on some coffee! The new leasing standard (ASC 842) is the next significant implementation, which will also directly impact a company’s internal control processes and technology platforms. Effective internal controls are key to implementation and reducing audit deficiencies. Check out our free eBook, which helps understand trends in audit deficiencies, and our list of accounting resources relating to implementing the new leasing standard.

Bank of America net profit slumps on $2.9 billion tax charge (January 17, 2018) Reuters (@Reuters)

Bank of America’s 2017 net profit was almost cut in half due to the new tax reform (also known as the “Tax Cuts and Jobs Act”). The new laws require companies to reevaluate their deferred tax assets and pay a tax on profits that were kept abroad. These financial changes are impacting companies all across the board. But with a net income after taxes of $2.37 billion, it looks like Bank of America is doing just fine!

How It’s Relevant: The write-down of deferred tax assets is due to the decrease in corporate tax rates. Since the president signed the new law prior to December 31, 2017, the write down must be recognized in the fourth quarter of 2017. Between that and a one-time tax on foreign profits, net income numbers are going to be impacted! With the lower tax rate, companies are hoping to see higher profit margins in the future, with fingers crossed that it will more than even out in the next few years. This is just one of the topics we cover in our Essential U.S. GAAP Update course!

Changing revenue rules: A business perspective (January 17, 2018) Accounting Today (@AccountingToday

The new revenue recognition standard (ASC 606) is officially adopted for public companies! Revenue patterns will not be as predictable as before and may raise questions from shareholders and inventors. Helping them understand that the changes in revenue are due to accounting rules and not your company’s financial performance or accounting department is extremely important. Communication is key to make sure your teams are aware of the structure of your contracts and how the revenue reporting has changed.

How It’s Relevant: Hopefully you have a good grasp on ASC 606 by now. But it is a complex and confusing topic, and you might realize that your client or many people you interact with at your company might not realize that there was a significant change in revenue reporting! It is important to communicate the new standard and how it directly affects revenue, financial reporting, internal controls, and a company’s bottom line. Feel free to share our step-by-step guide, which covers all the concepts of ASC 606!

Taking Clients to Ballgames? The GOP Tax Overhaul Just Made It Costlier (January 12, 2018) BloombergPolitics (@bpolitics)

There were many notable changes to the tax law, including the elimination of the entertainment deduction. Under previous law, meals and entertainment were limited to a 50% deduction on tax returns. Meals can still be partially deducted, but entertainment expenses such as ball game tickets, golf outings, and tickets to shows are no longer deductible.

How It’s Relevant: Companies will need to determine if these expenses are worth incurring if there is no tax deduction. This change will likely hit smaller companies trying to promote their businesses and service-type businesses that may not be eligible for the new tax cuts. Luckily, the new tax law does not retract the 50% meals deduction, so expect more business meetings to take place at restaurants! 

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.

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