Financial Reporting Trends to Watch in 2019
What significant developments and trends in U.S. financial reporting should you anticipate in 2019? Here are six to watch, whether you work for a private firm, public company, federal grant recipient, or government agency.
1. The iXBRL mandate
- Test Inline XBRLTM on a quarterly report before your required phase-in date
- Brief your CFO and/or chief of SEC reporting on the iXBRLTM mandate and benefits of an internal test
- Make sure your software is set up for iXBRL, can support a test run, and allows you to make the switch between quarterly reports
After a two-year voluntary trial period, the SEC decided last September to mandate use of Inline XBRL starting in 2019. Currently, filers submit financial information in both HTML and XBRL. That duality can lead to errors if information is not kept perfectly aligned. But iXBRL (Inline eXtensible Business Reporting Language) lets a filer incorporate XBRL® tags into HTML-formatted financials, meaning the filer can create a single document that can be read by both humans and computers.
The benefits to filers include:
- Accuracy and consistency in tagging
- A controllable and reader-friendly presentation
- Time savings in creating new financials
- No need to re-tag prior-period financials
In 2019, operating companies should either file their first financial reports using iXBRL or experiment with test filing.
Large accelerated filers that use U.S. GAAP Taxonomy will need to comply with the iXBRL mandate for periods ending on or after June 15, 2019, meaning the second quarter of 2019 for many.
Large accelerated filers should plan on internally testing iXBRL with their first quarter 2019 report, said Tom Wacha, Director of Product Management at Workiva. The goal is to be comfortable with the iXBRL process—and the few presentation differences it brings—a week before the normal XBRL review of the second quarter 2019 filing begins.
The iXBRL mandate begins a year later in 2020 for accelerated filers that use U.S. GAAP and two years later for all other filers. Fund groups with $1 billion or more in assets will use iXBRL on risk/return summary information and related changes starting in September 2020. All other fund groups must do so starting a year later. For these groups, exploring iXBRL in late 2019 or early 2020 may be worthwhile.
“All filers should be preparing early, but the inline switch does not need to be difficult,” Tom said. Workiva has been helping customers ease the transition to inline format since submitting the first iXBRL filing with the SEC in 2016.
Also in the XBRL/iXBRL realm, look for more state legislatures to consider requiring XBRL for comprehensive annual financial reports (CAFRs) by their local governments. Last March, Florida enacted the nation’s first state law requiring local governmental financial statements in XBRL format, effective in 2022.
2. New revenue recognition and lease accounting standards
- Continue working with auditors to identify questionable items
- Identify your lease population
- Refine your memo or internal documentation of policy decisions
After a postponement, many filers will begin 2019 by wrestling with the new joint FASB-IASB guidance, Revenue from Contracts with Customers (ASC 606).
Public companies and certain nonprofit groups and employee benefit plans started applying the guidance to annual returns for years starting after Dec. 15, 2017. Other filers were scheduled to follow the guidance starting a year later.
ASC 606 sets out a five-step process to identify and recognize revenue from customer contracts. It also explains enhanced and required disclosures of the related cash flows from customers.
Public companies may find it tricky to meet those revenue-recognition measures at the same time they follow new leasing standards. More joint FASB-IASB guidance—ASU 2016-02, Leases (Topic 842)—takes effect in 2019 for annual filings by public companies and a year later for private entities.
The more dramatic changes will be for lessees’ balance sheets than for lessor accounting. For example, lessees will have to recognize a right-of-use asset and lease liability on virtually all leases. Significant changes to lessees’ accounting also will affect financial statement presentation and financial metrics, including many that relate to debt covenants and key performance indicators.
"By now, both public and private lessees already should be conversing with their auditors about the new lease guidance and identifying any potentially questionable items," said Laura Arterburn, Senior Director of Reporting and Technical Accounting at Workiva. Early 2019 is an ideal time to identify the period’s lease population and work on the associated memo, she said.
3. Streamlined disclosure rules
- Lead another review of your disclosures
- Be sure to address major national and world events
Your company may already have filed third-quarter 2018 financials under a host of SEC cleanup amendments to, or removals of, outdated or redundant disclosure requirements. This batch of several dozen changes to disclosure requirements was adopted last August and took effect Nov. 5. Examples of changes are elimination of SEC directives to disclose R&D spending and three years’ worth of segment financials, since U.S. GAAP requires the same things. Most certainly, your company will operate under these fresh SEC disclosure rules for fourth quarter 2018 and year-end 2018 filings.
“Don’t expect big-time savings,” Laura said. “For year-end, you’ll want to take a fresh read through your disclosures, and make sure you address big changes in the world, like Brexit.”
4. Continued rise of robotic processing automation in accounting
- Identify manual tasks that might be better addressed by automation
According to Accounting Today research, automation was already among the top concerns for accounting leaders. Look for additional momentum in 2019 for robotic process automation (RPA) to replace filers’ manual processes, including certain reconciliations.
Some larger companies have started implementing RPA for parts of their financial reporting, Laura noted. And the results have already been impressive—in some cases, RPA software has helped free up more than 50,000 employee-hours annually.
5. Potential new guidelines for federal grant recipients
- Look at areas of data commonality that may make for more efficient grant reporting
Be ready for Congress to potentially pass the GREAT Act sometime in 2019. The Grant Reporting Efficiency and Agreements Transparency Act would direct the federal government to create a standardized data structure for reports that federal grant recipients submit to Washington. In September, the full House and a Senate oversight committee approved the reform.
6. Ongoing debate over SEC reporting requirements
- Follow SEC conversations and meeting minutes to see if speculations solidify
The SEC is soliciting input on quarterly reporting by public companies following President Donald Trump's tweet calling for biannual reporting. But SEC Chairman Jay Clayton has let the markets know not to expect any changes to the filing schedule for larger issuers any time soon.
Meanwhile, the SEC also is being prodded by a group of investors and academia to develop rules requiring public issuers to disclose environmental, social, and governance (ESG) aspects of their operations, so that those disclosures are more consistent and comparable.
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