SEC Deputy Chief Accountant Sagar Teotia discussed the implementation of new Generally Accepted Accounting Principles ("GAAP") on revenue recognition, leases and measurement of credit losses on financial instruments.
Mr. Teotia encouraged firms to be mindful of upcoming timelines for implementation, particularly as to the revenue recognition standards (effective December 15, 2017 for public companies). He described how the new standards will impact internal controls and that corresponding systems changes that may be necessary. He cautioned that firms should be transparent as they take into account existing and new disclosure requirements (see Staff Accounting Bulletin No. 74).
With regard to revenue recognition, Mr. Teotia stressed that the full effective date is only a few months away. He reminded firms that the revenue recognition standards will require several new disclosures that will obligate firms to provide specific information about revenue and cash flows from customers.
The new standard of leases become effective in 2019, when "lessees will recognize an asset and a liability for all of their losses." Mr. Teotia characterized this as a "win for investors." He asserted that new lease disclosure requirements will contribute to enhanced transparency for market participants. The new standard will require several steps for effective implementation, including evaluation of contracts to determine applicability of the new standard. Mr. Teotia warned against waiting until the implementation for other standards before initiating lease standard implementation efforts.
In addition, Mr. Teotia said that the credit losses standard will have a significant impact on banks and financial institutions. He said that the Transition Resource Group is an important resource for implementation efforts, and pointed to recent remarks by SEC Chief Accountant Wesley Bricker (see previous coverage) for additional information on the new credit losses standard.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
