Securities and Exchange Commission (SEC) staffers are continuing to monitor public companies’ progress implementing the major amendments to U.S. generally accepted accounting principles (GAAP) the Financial Accounting Standards Board (FASB) has published in recent years.
While staffers are satisfied with the progress they have seen companies make with the FASB’s revenue standard, they are urging companies to continue their efforts for the standards for lease accounting and credit losses that will become effective in the next two years.
“The high quality disclosures under the new revenue standard, including disclosure of remaining performance obligations and disaggregated revenue, are critical to financial statement users’ obtaining the full benefit intended by new revenue standard,” said Jonathan Wiggins, a senior associate chief accountant with the SEC, during a June 8, 2018, meeting of the FASB’s Financial Accounting Standards Advisory Council (FASAC).
Accounting Standards Update (ASU) No. 2014- 09, Revenue From Contracts With Customers (Topic 606), the FASB’s overhaul of revenue accounting, became effective with the first quarter filings for 2018. In addition, ASU No. 2016-02, Leases (Topic 842), becomes effective in 2019, while ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, becomes effective in 2020.
“As the adoption date nears, our focus continues to naturally increase,” Wiggins said, regarding the lease standard. At the same time, the SEC staff is monitoring progress with implementing the credit loss standard.
Detailed disclosures about the adoption of each standard is required by Staff Accounting Bulletin (SAB) No. 74, Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period, (SAB Topic 11.M). The staff guidance instructs public companies about the type of information they need to share with investors about their adoption of new accounting standards.
At the same time, the SEC staff is also monitoring public companies’ use of SAB No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, (SAB Topic 5.EE). The guidance was issued in December 2017 to help public companies deal with some of the more complicated financial reporting questions from the massive tax reform law.
The disclosure guidance in SAB No. 118 shouldn’t be overlooked,” Wiggins said. “Those disclosures really provide critical information to users about the financial reporting impact of the new tax act where the accounting is incomplete, and are a meaningful component of SAB No. 118.”
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