Financial statement preparers are busy implementing new accounting standards for revenue recognition, leases, and credit losses. Here are tips from experts on how to handle the transition without getting overwhelmed.
Finish your revenue recognition assessment. Finance, process-focused, and IT-focused personnel should reach a collective conclusion on what changes need to be made to systems and processes, according to Stephen Thompson, CPA, KPMG LLP's revenue recognition advisory leader. Companies need to finish collecting the information required to design systems and process changes before the end of the year, Thompson said. That would give them at least 12 months to design and implement those systems and processes.
Bring tax to the table. The new revenue recognition rules may affect existing tax-compliance processes, taxable income, accounting for income taxes, tax accounting method changes, and other areas of tax, including transfer pricing, according to KPMG. The new lease accounting rules also are expected to have a tax impact.
Examine your current lease structure. As companies begin their lease accounting implementation, they need to start developing a project plan, said Sheri Wyatt, CPA, partner for capital markets and accounting advisory services at PwC. "Part of that project plan is understanding what your current lease [environment] is," she said. "So do I have one centralized spreadsheet or system, or do I have subsidiaries that may maintain multiple [systems] that I then have to aggregate? What's the level of data in the system? So I think that's the initial step."
Be mindful of debt covenants. Because the lease accounting standard will bring new liabilities onto company balance sheets, it has the potential to affect debt covenants that may be based on debt-to-equity ratios. Companies should have a discussion with their bankers as soon as possible about the impact of the leasing standard on the balance sheet, said Dean Bell, CPA, KPMG LLP's advisory leasing leader. "Because of the lead time here that FASB has given to companies, they're going to be able to have a conversation with the creditors to say, 'Here's what the impact is going to be based on our modeling. What can we do to make sure our covenants aren't affected as a result?' " he said. "And we are seeing some leeway that's being provided by the creditors as a result."
Consider dual solution to credit losses. Multinational banks may wish to expedite their assessment of the new FASB standard to take advantage of work they are already doing for implementation of IFRS 9, Financial Instruments, which was issued in 2014, according to Reza van Roosmalen, a managing director for KPMG LLP. "The costs of regulatory compliance have been very high for this whole sector, and where they can find efficiencies and scalability, I would think that's in the interest of the banks," he said.
Editor's note: This checklist is excerpted from the article "How to Tackle Implementation of Multiple High-Profile Accounting Standards," JofA, July 13, 2016.
—By Ken Tysiac (firstname.lastname@example.org), a JofA editorial director.