3 New Accounting Standards That Could Dramatically Change Your Business
You may have heard the Financial Accounting Standards Board (FASB) released new accounting standards that amend generally accepted accounting principles (GAAP). Many of these changes need to be implemented by January 1st, 2019.
Is this big news? Absolutely.
We’ve been communicating about these changes for months, but the time to act is now. Many organizations are seizing the change in standards as an opportunity to update or improve certain processes and systems. These new standards-specifically Accounting Standard Update (ASU) 2014-09, 2016-01, and 2016-02-could potentially impact your business in big ways. Now is
the time to make sure you’re aware of how they may affect you. To help you get started, here’s a quick look at each.
ASU 2014-09 – Revenue from Contracts with Customers
This standard will change certain aspects of the recognition, management, presentation, and disclosure of revenue. One of the most notable changes is the elimination of industry-specific guidance (e.g., construction, software, etc.) that existed under previous GAAP in favor of a single, comprehensive revenue recognition framework. Additionally, revenue will be recognized based on performance obligations and will also be subject to enhanced overall disclosure requirements.
ASU 2016-01 – Financial Instruments
This standard will change certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. Key changes you can expect to see range from the measurement of equity investments to the presentation of financial assets and liabilities on your balance sheet.
ASU 2016-02 – Leases
This standard introduces a new lease accounting model for both lessees and lessors. In doing so, it will change the way leases are accounted for, which means it will impact nearly every type of business. Generally speaking, all new and existing leases, with the exception of short-term leases that are 12 months or less, will be recognized as a capital lease-i.e., an asset and liability on an organization’s balance sheet. Because of this, your financial positions, operating results, financial ratios, and even your debt covenants could be affected.
What to do next?
- Analyze the effect of these new standards on your business operations.
- Amend your accounting policies and processes for the new standards.
- Implement those processes.
Abdo, Eick & Meyers has been down this road before and we have an experienced team in place looking to support our clients through this transition by:
- Working collaboratively with you to analyze your current accounting policies
- Walking through the steps of each new standard and how they apply to your organization
- Assisting with development of new written policies and procedures under the new standards and support implementation.
- Analyze projected financial statements under the new standards.
Please don’t hesitate to call if you have questions. When it comes to changes of this magnitude, the time is now to give us a call.