Significant Changes Coming to U.S. GAAP
Back in 2002, the Financial Accounting Standards Board and the International Accounting Standards Board signed the Norwalk Agreement, marking the first major step towards formalizing their commitment to the convergence of U.S. GAAP and International Financial Reporting Standards. Nearly 10 years later, newly converged standards are on the verge of finalization. While the Boards have completed five priority projects to date (fair value measurement, consolidated financial statements [including disclosure of interests in other entities], joint arrangements, other comprehensive income and post-employment benefits), three priority projects remain: Revenue Recognition, Financial Instruments and Leases. Despite garnering a great deal of attention, it is often missed that these standards when finalized are going to be part of U.S. GAAP and will affect smaller nonpublic companies and not-for-profit entities; not only public companies.
The proposals in the revenue recognition convergence project would greatly affect the process in which companies recognize and disclose revenue, account for transactions and contractual arrangements. The project’s focus is to improve comparability across companies, industries and capital markets.
The financial instruments project aimed to improve the decisive usefulness of financial statements by simplifying and harmonizing accounting practices. The original proposal required accounting for all financial instruments, including loans at fair value, but has been narrowed down in response to feedback. The convergence also offered new guidance in fair value measurement; focusing on constructing a consistent measurement and disclosure of fair value in regards to financial instruments.
The lease project consisted of a requirement that the lessees and lessors must apply a right-of-use model in accounting for all leases. They are also reforming areas affecting short-term leases, lease terms, variable lease terms, leases definitions and classifications. Recently the IASB-FASB announced they would re-expose their revised proposal sometime after their deliberations are complete in Q3 2011.
The AICPA continually strives to keep its members updated with all new issues while offering its own professional perspective. To learn more about the FASB Big Three Proposals, please visit the AICPA’s new Financial Reporting Center.
Amy Eubanks, CPA, Director - Accounting and Auditing Publications, American Institute of CPAs. Amy’s responsibilities include the development of AICPA accounting and auditing publications, including series such as the Audit and Accounting Guides and Accounting Trends and Techniques, and she is responsible for the newly launched Financial Reporting Center on AICPA.org.