TheCorporateCounsel.net

October 11, 2016

New Accounting Standards: SEC Staff on Best Practices

This Deloitte memo reviews recent comments by senior Staffers from the SEC’s Office of Chief Accountant addressing best practices in implementing the upcoming new accounting standards on revenue recognition, leases & credit losses.  Specific recommendations include:

– Management may need to exercise greater judgment under the new credit loss ASU and should implement any changes to internal controls necessary “to support the formation and enforcement of sound judgments” under the new standard.

– Auditor input regarding the implementation of new accounting standards and the accounting for complex transactions will not raise independence issues so long as management makes the final determination based upon its own analysis as to the accounting used, and the auditor does not design or implement accounting policies.

– When a company can’t reasonably estimate the impact of adopting the new standards, it should consider providing additional qualitative disclosures about the significance of the impact on its financial statements. The SEC staff would expect such disclosures to include a description of:

– The effect of any accounting policies that the registrant expects to select upon adopting the ASU(s).

– How such policies may differ from the registrant’s current accounting policies.

– The status of the registrant’s implementation process and the nature of any significant implementation matters that have not yet been addressed.

Also see this blog that Broc ran last week on our “Mentor Blog” entitled “Disclosure of New Accounting Standards: SEC Seeking Incremental Qualitative Disclosures.”

New Accounting Standards: KPMG Says “Get Moving!”

Meanwhile, in this memo, Baker & McKenzie’s Dan Goelzer notes that KPMG is sounding the alarm about a lack of readiness for two of these new accounting standards with rapidly looming effective dates. Companies must apply FASB’s new revenue recognition standard for periods beginning after December 15, 2017 – while the new lease accounting standard kicks in a year later.

KPMG reports that more than 2/3rds of companies are still in the assessment phase when it comes to the new revenue recognition standard – and that less than half have begun to assess the impact of the new lease accounting standard. Here’s an excerpt from the memo:

Audit committees should be actively monitoring the company’s plans and progress with respect to implementation of these new standards. Given the importance of revenue recognition to virtually all companies, and the fast-approaching effective date, a realistic work plan and adequate resources for implementation of that standard are becoming critical priorities. KPMG states: “[I]t is becoming increasingly evident that some companies will be forced to implement the standard using manual processes and controls with the ability to introduce system changes until sometime after the effective date. As reliance on manual processes increases, companies will be faced with heightened risk of errors, increased costs, and less efficient operations.”

While there is somewhat more time available for implementation of the leasing standard, audit committees of companies that engage in any significant amount of leasing should make sure that the company has an implementation plan and has begun its assessment efforts.

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Boards: Portfolio Managers as New Directors
– LSE: Changes AIM Rules to Reflect ‘Market Abuse Regulation’
– PwC Violates Auditor Independence Rules – Yet Again
– US Foreign Bond Issuers: Fed Cracks Down on Form SLT Reporting
– Delaware Supreme Court Affirms Chancery’s Lack of Damages Award as Remedial Discretion

John Jenkins