Financial Statement preparers have their hands full implementing the most significant overhaul of existing accounting rules in decades with new standards on revenue, leasing, and financial instruments (credit losses and classification and measurement), Financial Executives International’s Committee on Corporate Reporting (CCR) said in an Oct. 17 letter to the Financial Accounting Standards Board.
FEI members don’t believe there is a foundational accounting area that needs to be fixed at the current time, the group said in response to FASB’s invitation to comment (ITC) about its future standard-setting agenda.
“A survey of our members found that none of the projects listed in the ITC had broad-based support for being added to the FASB’s formal project agenda,” FEI says.
CCR member companies represent approximately $5 trillion in market capitalization.
FASB Holding Roundtables.
The ITC, issued by FASB in August, seeks advice on whether the board should revise accounting standards in four areas: intangible assets--including research and development; pensions and other postretirement benefit plans; distinguishing liabilities from equity; and reporting performance and cash flows.
Those topics were picked as a result of feedback FASB received from its stakeholders and advisors as areas that needed standard-setting improvements or revisions.
FASB received 38 comment letters on the ITC as of Oct. 21, according to its website. The board plans to hold public roundtable meetings in November.
Under Heavy Pressure!
Preparers are already under significant pressure to apply the new rules and need assistance and support from the board and staff during the implementation phase of these principles-based standards, CCR said.
“The need for support and assistance from board and staff during the implementation phase of these principles-based standards in our regulatory environment should not be underestimated,” the letter states.
The organization also said that preparers are “heavily focused” on successfully implementing the new rules, which will impact all companies -- whatever size, industry or sector.
Many Still don’t Know Full Impact.
To date only a few public companies are prepared to early adopt the new Revenue Recognition (Topic 606) standard, CCR says, “and history would suggest that implementation issues only increase the closer one gets to an adoption date.”
Regarding the Leases (Topic 842) standard, many companies don’t know its full impact, and won’t know until they determine how many leases they have that are applicable to the rules.
“Collecting the data, understanding the contracts, locating and determining the value of the liability and right-of-use assets may prove challenging and time consuming for many,” CCR says.
“In addition, companies need time to consider the impact to accounting policies, processes, controls, and IT systems which will require significant time and effort and more importantly, a concerted focus by management,” the committee says.
Most significant in Decades.
The changes occurring with credit losses (Topic 326) is the most significant accounting change financial institutions will adopt in decades -- equivalent to revenue recognition for a deeply affected industrial company and requiring similar time, effort, and focus.
“Similar to revenue recognition, this standard is principles-based and will require extensive coordination across functional lines,” CCR says.
For example: accounting, risk management and auditing as well as communication among peers to ensure all application questions have been addressed to achieve consistency in approach.
Unlike revenue and leasing standards, regulatory involvement will be another significant complicating factor affecting the adoption effort of the credit losses rules, the letter says.
Drowning in Changes.
In conclusion, CCR said FASB should favor adding a limited number of projects that will ease the financial reporting burden of companies during this time of unprecedented change.
FEI’s CCR letter isn’t the only complaint, other letters -- though not all, and not the majority --have alluded to the same concerns.
One letter, from a small business owner, says “Stop! We are drowning in changes and the last thing we need is new standards.”
Continue the discussion on the impact of the new accounting standards at: Bloomberg BNA Accounting LinkedIn.
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