This week’s GAAP Flash includes articles about a recent proposal on hedge accounting interest rates, increasing revenue streams through dynamic discounting when adopting IFRS 16, the SEC contemplating a change in the IPO process, and considering the benefits of AI.

FASB proposes hedge accounting interest rate tweak (February 20, 2018) – Accounting Today (@AccountingToday)

The FASB has issued a proposed ASU to expand the list of benchmark rates allowed under ASC 815, Derivatives and Hedging. ASC 815 provides guidance on the risks associated with financial assets or liabilities that are permitted to be hedged and one of those risks includes interest rate risk. Currently, there are four eligible benchmark rates used under ASC 815 to address interest rate risk and the proposed fifth rate would be an Overnight Index Swap (OIS) based on the Secured Overnight Financing Rate (SOFR).

How It’s Relevant: The FASB understands that ASC 815 can be a complex topic and by introducing this fifth benchmark rate option, they are hoping to alleviate some of the costs and complexities relating to the use of different cash flows and rates, plus allowing companies to appropriately plan their risk management strategies. This new rate is calculated daily from overnight transactions (the prior day’s trading activity) in certain specified segments of the U.S. Treasury’s repo market. Here is the full proposed ASU, so be sure to read through it and provide any comments to the FASB by March 30.

Why the time is now for driving revenue streams through dynamic discounting (February 21, 2018) – Financial Executives International (@FEInews)

As we noted a few weeks ago, the new leasing standard (which is similar to ASC 842) that has been issued by the IASB, IFRS 16, is effective in less than a year. IFRS 16 will require a company to report all leasing obligations on the balance sheet, but what kind of impact will that have on a company’s EBITDA or cash flows? What are companies planning to do to offset the addition of these lease liabilities? This article discusses the topic of dynamic discounting and serves as a reminder that cash management is key.

How It’s Relevant: Even though dynamic discounting has been around for years, it’s becoming a key tool of cash management innovation. Companies are moving away from holding on to cash and delaying payments and are instead focusing on paying early to earn a discount and create a supplier friendly environment, which in turn can lead to an increased bottom line! But to implement a successful environment of dynamic discounting, a company needs to be equipped with real-time system integration and have the speed and flexibility to keep up. If you’re in need of an IFRS refresher, we offer an IFRS update course where we are sure to cover the adoption of IFRS 16.

Companies could get more flexibility to start IPOs (February 22, 2018) – The Wall Street Journal (@WSJ)

The number of IPOs has declined in recent decades (approximately 50% from the 1990s) and in order to boost the number of public companies, the SEC is contemplating allowing all companies to have private talks with investors before announcing an IPO, which is referred to as “testing the waters.” Smaller companies have had the freedom to test the waters since 2012, which is typically an opportunity to share sensitive financial data such as revenue sources, corporate strategy, and C-suite background information.

How It’s Relevant: Out of all the companies that went public in 2016 that were eligible to test the waters, only about 25% took advantage of that “benefit.” Companies typically raise more money from private investors and institutions vs. selling stock, but the SEC believes this change could help modernize the IPO process and allow companies to join the process at an earlier stage. If your company (or client) is thinking about going public, make sure you are aware of all the audit requirements, including internal control considerations! Check out our audit quality course, where we focus on areas of recurring inspection deficiencies, including internal controls.

The accountant's guide to AI, cloud software and the robot revolution (February 14, 2018) – Accounting Today (@AccountingToday)

Robots, cloud software, and artificial intelligence (AI) are all hot topics in the world of financial technology, and we as accountants are afraid we’ll be replaced by the next new AI invention. But rest assured, the future of accounting is about new ways of doing business and adapting to the current environment rather than one single piece of technology! This article reminds us that we need to be focused on the solutions and not the advancement of specific tools.

How It’s Relevant: Do you realize that double-entry bookkeeping has been around since the 13^th century? We accountants are not going anywhere! The way we go about our day-to-day responsibilities might be changing, but that’s with everything in life. We have to be part of the solution and take advantage of the benefits that technology can provide us, so we can be more involved in the important decision making (rather than worrying about a reconciliation of a bank statement). The CPA Journal published a similar article last summer about drones, robots, and bots. EY recently announced they would be using drones to help with inventory observations, which is genius because I don’t know anybody who enjoys performing a cycle count! The SEC has also taken notice and has compiled a resource page on cybersecurity. Just remember that it’s extremely important to embrace all of these changes – they are meant to make our busy accounting lives easier!

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