If you enjoy change, 2014 should be a good year.
The months ahead will see the accounting profession gearing up for new regulations and handling significant financial reporting developments, including preparing to implement changes in accounting for revenue.
Here are a few of the likely financial reporting and regulatory developments in 2014 that CPAs need to be aware of:
1. New revenue recognition standard. Scheduled to be released in the first quarter of the year, the standard that’s in the late stages of development by FASB and the International Accounting Standards Board will have some effect on virtually every entity that uses U.S. GAAP or IFRS for financial reporting.
U.S. GAAP preparers who are accustomed to voluminous industry-specific guidance will have to get used to the more principles-based approach in the converged standard. GE Technical Controller Russell Hodge, CPA, said implementation will be “a huge undertaking.”
“It’s very cross-functional,” Hodge said during a presentation at the AICPA Conference on Current SEC and PCAOB Developments. “That’s what makes this particular standard adoption unique. It crosses over to tax, IT, so many functions, that it’s going to be quite a project.”
2. Continued regulatory pressure. The Patient Protection and Affordable Care Act, P.L. 111-148, remains a regulatory challenge for some, even though the shared-responsibility penalty for large employers that fail to provide minimum essential health coverage for employees will not take effect until 2015.
May 31, 2014, is the deadline for submitting the first Conflict Minerals Reports to the SEC for the 2013 calendar year. And complying with the newly implemented Volcker rule, which is designed to keep banks from making risky bets with their own money, will be a concern for some in the financial industry.
Regulatory requirements and changes were ranked as the top challenges for organizations in each of the final three quarters of 2013 in the AICPA Business and Industry Economic Outlook Survey. Those challenges don’t appear to be going away in 2014.
3. Focus on auditors. Audit reports may divulge the names of engagement partners and contain new disclosures as a result of new initiatives that have been proposed by the PCAOB.
PCAOB Chairman James Doty would like the board to decide by the summer of 2014 whether to issue a standard that would require the engagement partner to be named in the audit report. The board also has proposed a standard that would include more feedback from auditors in disclosures of “critical audit matters” in auditors’ reports.
Audit firms’ provision of nonaudit services to audit clients also will be examined by the PCAOB as prohibitions on certain services have received preliminary approval in the European Union.
4. EU audit firm rotation fallout. Late in 2013, the EU moved closer to a mandatory audit firm rotation requirement that would limit engagements to 10 years, with limits of 20 years if the audit engagement is put out for bid and 24 years in cases of joint audits.
These rules may have consequences for foreign companies that list securities in the United States or for foreign subsidiaries of U.S. companies, according to SEC Deputy Chief Accountant Brian Croteau. He said in December that the commission’s staff has been receiving more questions about these consequences.
“Regardless of the reason, any time there is a change in auditors, proper planning is necessary to ensure that independence conflicts, if they exist, are resolved,” Croteau said. “This could mean that the issuer may need to identify a new auditor well before the commencement of the audit and professional engagement period.”
These questions seem likely to persist in 2014.
5. Penchant for pensions. GASB’s new pension standards take effect for governments for fiscal years beginning after June 15, 2014.
For pension plans that administer benefits for governments, new standards take effect for financial statements beginning after June 15, 2013.
The new standards will place unfunded pension liabilities on government balance sheets as the burden of pensions on public-sector finances remains a highly publicized issue in municipalities such as Detroit.
Pensions also may become a focus beyond the government sector, as FASB Chairman Russell Golden has said he believes the board should consider looking at improving accounting for pensions.
6. Relief for private companies. FASB is scheduled to release in January the first two Accounting Standards Updates detailing GAAP alternatives for private companies that were advanced by the Private Company Council (PCC).
Private companies will be able to take advantage of a simplified hedge accounting approach in certain interest rate swaps and will be exempted from having to perform impairment tests for goodwill after business combinations.
More relief may be on the way. FASB will vote on a PCC-approved, private-company exemption from applying consolidation guidance for variable-interest entities under common-control leasing arrangements.
—Ken Tysiac (firstname.lastname@example.org) is a JofA senior editor.