This week’s GAAP Flash includes articles about the impact of ASC 606 (revenue recognition) implementation on financial reporting, bank deregulation through the repeal of Dodd Frank provisions, an interpretation on dual reporting, and accounting for cloud computing costs.
(March 5, 2018) – CFO (@CFO)
With the new revenue recognition rules of ASC Topic 606, Revenue from Contracts with Customers, in full effect for public companies and reports on earnings of early adopters beginning to circulate, analysts and investors are starting to see various impacts on revenue, but how much actually relates to the adoption of ASC 606? It appears that companies are disclosing the impacts in a variety of ways. Which method the company chooses to adopt ASC 606 will also impact historical comparisons of revenue.
How It’s Relevant: The implementation of a major standard like ASC 606 represents a significant change for some companies and an immaterial one for others. The impact that each company experiences can be different, either negative or positive, and the way they choose to disclose that impact presents even more of a variety in external financial reporting. So how do we make sense of the overall impact? How do we perform an analysis to quantify the impact of the implementation, if the financial reporting isn’t consistent across the board? The answer is . . . it will be difficult to do so, and in some cases, it might be nearly impossible! I anticipate that as we see more and more financial reporting from companies, under the new guidance, it will generate more and more questions from the investor community, analysts, and even from regulators. If I could predict the future, I would say that we will see more clarification and maybe even prescriptive guidance from the FASB or the SEC. Do you have questions regarding ASC 606? If so, check out our step-by-step guide to ASC 606 where we address all of the important changes.
(March 6, 2018) – Vox (@Voxdotcom)
The Senate is slated to vote on legislation that would rewrite parts of the 2010 Dodd-Frank Act, which was the landmark financial regulation that overhaled banking regulations. This new legislation would adjust the size at which banks are subject to certain regulatory scrutiny, including stress tests, and exempt small banks (less than $10 billion in assets) from some requirements for loans and mortgages, among other measures.
How It’s Relevant: We all remember the financial crisis of 2008 and the banking regulations that resulted in the form of the Dodd-Frank Act (or you learned about it in college!). Many have claimed that the systematically important financial institutions (SIFI) thresholds for these regulations were too low (banks with at least $50 billion in assets) and, as a result, were very onerous on the smaller regional and community banks. The new legislation has provisions for increasing the SIFI thresholds at which banks are subject to certain federal oversight, including stress testing, up to $250 million! I believe that there is opportunity to create relief for the smaller banks; however, I do have my concerns about the consumer protection side of things being sidelined with this new legislation. Dodd-Frank created a lot of good and much needed stability, so I hope the Senate doesn’t throw the baby out with the bath water! As a reminder, we offer a 2-week "banking boot camp" for your new hires, or a 1-day Banking Update course, where we’ve got you covered to ensure your personnel are knowledgeable of the latest developments affecting banks and other financial institutions.
(March 6, 2018) – Journal of Accountancy (@AICPA_JofA)
The AICPA Auditing Standards Board (ASB) issued Auditing Interpretation No. 4 to help auditors comply with reporting requirements under both AU-C Section 700, Forming an Opinion and Reporting on Financial Statements and the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. Interpretation No. 4 applies when an auditor may be required by law or regulation, or voluntarily agrees, to perform an audit in accordance with PCAOB standards for a company whose audit is not subject to PCAOB oversight.
How It’s Relevant: As an auditor, the most critical deliverable that you produce is the audit report. With changes to the PCAOB auditor’s report now in effect for audits of calendar year-end companies, and further changes coming with the inclusion of critical audit matters, it’s becoming more and more important for auditors to ensure that they are issuing the correct report for the type of audit engagement. When a company is not subject to PCAOB standards but PCAOB standards are required to be applied in the audit, it can be a bit tricky in determining what audit report guidance to follow. Interpretation No. 4 aims to clarify the questions about the differences in requirements between the PCAOB and the AICPA audit reports. This is a great tool to have on hand to make sure you have all your ducks in a row for your next audit report.
(March 1, 2018) – Accounting Today (@AccountingToday)
The Financial Accounting Standards Board (FASB) has proposed an accounting standards update (ASU) aimed at improving how to account for the costs of implementing cloud computing as it relates to a service contract. The proposed update also requires additional disclosure of quantitative and qualitative information about implementation costs.
How It’s Relevant: As a society, we’ve evolved to a way of life where we want access to information and data no matter where we are. When the idea of “the cloud” was introduced over a decade ago many, including myself, were hesitant to trust this intangible concept to run, store, and backup our most critical business applications. Fast-forward to today and it’s almost hard to imagine our favorite software applications not having a cloud-based solution. As more and more companies move to utilizing and even developing their own cloud-based solutions, knowing how to account for these costs and appropriately reflect them in financial statements is critical. This proposed ASU offers even further clarification on cloud computing implementation costs, even after the FASB issued this ASU in 2015. It just goes to show that all things in life, and business, continue to evolve.
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