The Accounting Policy & Practice Report ® provides financial accounting policy makers, advisors, and practitioners with the latest news, expert insights, and guidance on emerging, evolving,...
By Steven Marcy
Dec. 6 — Companies must pay careful attention about where decision-making authority resides within strategic alliances or risk getting their accounting wrong, an SEC associate chief accountant told a financial reporting conference.
The expected proliferation of various types of business arrangements over the next year raises many issues over how to implement new guidance on revenue recognition, leasing, business combinations and asset impairment, Jonathan Wiggins, a Securities and Exchange Commission associate chief accountant, told the American Institute of CPAs’ annual conference on SEC and PCAOB developments Dec. 5.
“These highly structured arrangements can raise issues across various accounting topics, including consolidation, gain recognition, revenue recognition, derivatives, and leases,” Wiggins said.
“Whether an arrangement is a joint venture, partnership, long-term contract, or other type of structure, you should carefully evaluate the characteristics of the arrangement because they can have a significant impact on accounting conclusions.”
Entities must carefully consider whether their decision-making authority is “consistent with the substance of the underlying arrangements” for corporate governance, Wiggins said.
The SEC’s Office of the Chief Accountant has consulted companies on where in the organization such control resides and how it affects activities that “most significantly impact the economic performance of a variable interest entity,” he said.
In applying the new revenue-recognition standard, “it is important to distinguish between arrangements where the other party obtains the output of your ordinary activities, and arrangements where you participate in an activity with another party and share in the related risks and benefits (such as developing an asset in a collaboration arrangement),” Wiggins said.
Companies should invest the necessary time to determine how to apply the new standards to their various business arrangements and understand that making these determinations will require considerable judgment, Wiggins said.
To contact the reporter on this story: Steven Marcy in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: S. Ali Sartipzadeh at email@example.com
Wiggins remarks prepared for the conference are at https://www.sec.gov/news/speech/wiggins-2016-aicpa.html.
Copyright © 2016 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)