Accounting for change: managing complex technical challenges ...

• Author: Marshall, Ken
• Position: FINANCIAL REPORTING

Standards setters in the United States are making ongoing changes to U.S. generally accepted accounting principles as they evolve accounting guidance in keeping with sound business and financial reporting practices--including changes being made as part of the convergence projects of the Financial Accounting Standards Board and the International Accounting Standards Board.

These changes aren't modest--and their immediate impact cannot be overlooked. For example, companies negotiating long-term leases, including for real estate, need to think carefully about contractual terms; otherwise, they may face unintended consequences when they adopt the new lease standard. Consequently, organizations are starting to consider incorporating lease decisions into capital approval and allocation processes to reflect the economics of bringing leases on balance sheet.

Lease accounting is but one of many changes. Altered revenue recognition leveraging guidance will a so impact companies across multiple sectors and industries. Companies entering into long-term service contracts are already starting to assess how performance obligations are structured in contracts currently being negotiated. Changing standards regarding accounting for derivatives contracts and various financial instruments will also affect companies in multiple industries. And more changes are in the queue.

As standards setters continue to consider how to evolve U.S. GAAP--including proposed changes to guidance in important areas--companies that had previously invested in developing a program for managing large-scale accounting change in anticipation of International Financial Reporting Standards are now leveraging that work to strategically review financial reporting across multiple jurisdictions, to improve process, promote consistent accounting policies and manage ongoing accounting change efficiently.

Not just an Accounting Issue

Equally important as the changes being considered by standards setters--and overlooked by some--is that the need to manage accounting change can be accelerated by an organization's own strategic initiatives.

For instance, large-scale enterprise resource planning system implementations or upgrades are prompting many organizations to review and assess the forthcoming changes as part of the design and blueprint phases of the project. Developing shared service centers to manage financial reporting is another situation where accounting and reporting processes may need to be reviewed. Many organizations have shared service centers for accounts payable, accounts receivable and/or procurement.

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