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Companies should prepare simultaneously for the onslaught of major new accounting rules coming over the next few years, SEC Chief Accountant Wesley Bricker warned June 8.
They shouldn’t follow a year-by-year adoption plan if they expect to make a good transition to landmark rules on revenue, leases and loan losses, the top accountant at the Securities and Exchange Commission told the 36th SEC and Financial Reporting Institute Conference.
Bricker’s warning about “a purely sequential implementation process for the new standards” comes against a backdrop of recent surveys by accounting firms showing companies’ apparent lack of preparedness for the January 2018 advent of the revenue reporting standard, ASC 606.
The leases and credit losses rules become effective annually after that.
“I believe effective adoption of the new standards can be bolstered by concurrent implementation planning, given the number of complementary activities and the coming effective dates,” Bricker said.
Some of those complementary tasks include building solid internal controls on financial reporting specific to each set of new rules, particularly those on revenue and accounting for credit losses. Those rules will bring the most change and are expected to have the most impact on companies’ bottom lines.
Banks especially have paid close attention to the new standard on credit losses, ASC 326. The financial crisis of 2008-09 in part spurred the rules. Banks then were seen as reserving “too little, too late” to stem the tide of loan losses.
Public companies must shift to the revenue standard in about seven months. The leases rules become effective for public companies in January 2019. The credit losses standard has to be applied by larger banks and all public companies starting January 2020.
Bricker and Financial Accounting Standards Board officials have stressed the importance of new, often fairly involved work in fulfilling enhanced footnote reporting requirements that are part of the new revenue reporting regime.
Those disclosures must be audited, as are internal controls that are aimed at reducing the risk of material misstatements and fraud.
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