This week’s GAAP Flash includes articles about COSO’s focus on managing environmental risks, focus areas for revenue recognition (ASC 606) implementation, tax reform’s impact on accounting standards, and the impact of loan losses (CECL) in Europe.

COSO drafts guidance for managing environmental risks

(February 7, 2018) – Accounting Today (@AccountingToday)

The Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) internal control and enterprise risk management frameworks are widely used by companies around the world. In collaboration with the World Business Council for Sustainable Development, COSO released draft guidance for applying the enterprise risk management framework to environmental, social, and governance risks. The supplemental draft guidance aims to help organizations respond to the increasing prevalence and severity of these type of risks.

How It’s Relevant: As we experience more and more natural disasters, cyber attacks, and unpredictable economic changes, my auditor senses naturally steer me to thoughts about the processes, procedures, and controls that companies have in place to address these risks. I wonder how my favorite retailer might recover from a hurricane that destroyed a data center or if there is a natural resource sacristy that affects my favorite skin care company; will they still be able to produce the products I can’t live without? And I would bet that the auditors around the world have similar thoughts about the clients they serve. The COSO risk management framework provides companies an outline to address these entity-level risks and opportunities. For the millions of audits performed around the world, the COSO risk management framework can be a tool for auditors in assessing a company’s readiness to identify and manage the environmental, social, and governance-related risks they are susceptible to.

Revenue recognition: 3 areas of focus for 2018

(February 13, 2018) – Accounting Today (@AccountingToday)

Public companies have put in an extraordinary effort to get past the January 1, 2018 deadline to implement the new revenue recognition standard (ASC 606). This article highlights three longer-term considerations for companies to keep in mind as they continue to move forward under the new rules: get automated, balance your ASC 606 requirements with your ASC 842 (leasing) implementation efforts, and private companies take note.

How It’s Relevant: When implementing any major change in accounting guidance, it takes a monumental effort from multiple levels and departments within an entity. With the new revenue recognition and leasing standards right on the heels of each other, there are certainly some miracles being created in many accounting and IT departments of the world’s public companies. The private companies facing a 2019 implementation deadline for compliance with the new revenue recognition standard should learn a few things from the efforts of their public company counterparts. The most important lesson stressed in this article is to “keep brute force and band-aids as a last resort.” As a reminder, we provide comprehensive revenue recognition and leasing workshops, which are great resources to help you with your implementation efforts.

FASB plans accounting changes in reaction to Tax Cuts and Jobs Act

(February 13, 2018) – Accounting Today (@AccountingToday)

The Financial Accounting Standards Board (FASB) is continuing to move forward with a proposed accounting standards update (ASU) to reclassify the stranded tax effects from the change in the corporate tax rate and other tax amounts related to the application of the Tax Cuts and Jobs Act passed in December 2017. The FASB expects to issue a final ASU by February 16, 2018.

How It’s Relevant: The effects of the decisions made in our nation’s capital rarely stay within the boundaries of the beltway. The recent tax reform changes instituted by the Tax Cuts and Jobs Act result in some major changes for individual taxpayers, small businesses, partnerships, and corporations. Given the reduction in the corporate tax rate and changes to other items like deductions, foreign earnings, etc. it affects the accounting guidance for these items as well. The FASB is simply trying to keep pace with the changes in the tax law. The SEC even issued SAB 118 on accounting effects from the Tax Cut and Jobs Act. The FASB’s proposed ASU is expected to be effective for fiscal years beginning after December 15, 2018, and will require a lot of disclosures regarding an entity’s policies and transition. The final issued ASU will be one item for controllers, CFOs, and auditors alike to keep on their radar. It will be key for each of these groups to understand the new requirements and how they will affect the financial statements and disclosures.

Five charts that explain how European banks are dealing with their bad-loan problem

(February 13, 2018) – Bloomberg Markets (@markets)

European banks are still feeling the pinch of non-performing loans weighing down their balance sheets, to the tune of $1.17 trillion. These past-due and delinquent debts make it harder for banks to lend more money, ultimately hurting their earnings. The banks are continuing to receive pressure from authorities and investors to reduce their exposure from these non-performing loans.

How It’s Relevant: Some countries in Europe are still recovering from the sovereign debt crisis. This article focuses on the impact the crisis had and continues to have on banks regarding their portfolio of non-performing loans. When this article crossed my desk, I immediately began to think about the provisions for loan losses and the new CECL guidance. It also generated thoughts of impairment testing and if triggering events are lingering to be identified, leading to impairment charges on income statements in the future. For those in the banking industry, there are certainly some factors to analyze and consider regarding non-performing loans and their potential impact on several different areas of the financial statements and disclosures. Check out our 2-week "banking boot camp" for your new hires, or our 1-day Banking Update course, to ensure your personnel is knowledgeable of all the latest developments, including CECL.

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