For many, 2016 was a rough year. From Brexit and data breaches to political upheavals and climate change, 2016 was a year to remember.
But now that 2017 has arrived, the new question is: Will this year be any better? There's no way to know for sure, but one thing is certain—2017 will be a year of change, especially for accounting, financial reporting, and compliance professionals. With new leadership in the White House as well as at the SEC and new FASB standards on the horizon, preparing for these changes will be of utmost importance.
Here’s what you will need to keep top of mind throughout 2017:
SAB 74 requires disclosure of the impact of issued, but not yet adopted, accounting standards. Much like the focus of the SEC to move filers away from boilerplate language in the MD&A, disclosure of a company’s progress in the adoption of new standards should be a thoughtful exercise that shows the incremental progress being made. Plan to include progressive updates throughout 2017 and interim filings documenting the progress your company is making toward the adoption of new standards.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606) is required for public companies, certain not-for-profit entities, and employee benefit plans for interim reporting periods within annual periods beginning after Dec. 15, 2017. For filers who pass on early adoption, this means that Q1 2018 will require disclosure of interim results under either full retrospective or modified retrospective transition method.
ASU 2016-02, Leases (Topic 842) is required for public companies, certain not-for-profit entities, and employee benefit plan for interim reporting periods within annual periods beginning after Dec.15, 2018. Most filers will be reporting on leases obligations in Q1 2019. The new standard’s three biggest takeaways are:
- The lessee must take control of an identifiable asset
- Enhanced judgment will be required in the determination of a lease
- Lease obligation of 12 months or less will remain exempt from being classified onto the balance sheet
ASU 2016-13, Credit Losses (Topic 326) is required for public business entities for interim reporting periods for annual periods beginning after Dec. 15, 2019. In 2017, companies should look to assemble an adoption team to evaluate the far-reaching implications of the standard and begin to identify stakeholders in building a project plan.
Internal control over financial reporting (ICFR)
Strong internal control over financial reporting is essential to the successful implementation of revenue recognition. The SEC and PCAOB continue to reiterate that more needs to be done to improve ICFR. There are many ways to improve your internal control documentation—however, collaboration between preparers and auditors is critical.
COSO Framework update
Although the revised COSO Framework became the authoritative framework at the end of 2014, companies have until the end of 2017 to update their internal control processes. An updated internal control process should ensure each control component has sound judgment in determining and documenting whether all five components are present, functioning, and operating together.
A recent audit fee study by Financial Executives Research Foundation (FERF) suggests that larger companies are improving collaboration among internal and external teams. The results show that there is greater success with efforts to mitigate or reduce audit fee increases through audit preparedness, negotiating with auditors, improving internal controls, and other initiatives.
Accurate and progressive disclosure will be an important theme for accounting and financial reporting professionals throughout 2017. For more information about how to prepare for these changes, review the standards and download the practical white paper on the subject, 2017 Regulatory Trends: SAB 74, FASB standards, and ICFR.