Accounting Update Key Takeaways
Although there have only been six Accounting Standard Updates (ASUs) issued to date this year, 2021 is a big year for CPAs. The standard everyone is talking about, ASC 842- Leases, that puts operating leases on the balance sheet, is (finally) going to be applicable for nonpublic companies for years beginning after December 15, 2021.
Some key highlights from our presentation and the leasing standard include:
- Right of Use (ROU) assets and lease liabilities on the balance sheet
- Applies to existing and new leases
- P&L and cash flow substantially unchanged
- Modified retrospective presentation in the year of adoption
- Limited changes for the lessor
- Changes to lease classification rules
- A broader definition of what constitutes a lease
- A narrower definition of which initial direct costs are eligible to be capitalized
- Changes to related party lease rules
- Significant input from management now to make accounting policy elections and provide estimates to calculate ROU assets and lease liabilities
There have also been new standards or standards that are now applicable that impact the following:
- Impairment analysis for goodwill
- Reference rate reform (no more LIBOR!)
- Revenue recognition for franchisors
- Accounting for credit losses (this includes accounts receivable!)
- Investments- equity securities and the equity method and Hedging activities
- Debt
- Equity-classified warrants and stock compensation
- Related parties and VIEs
- Income taxes
- Defined benefit plan accounting
- Changes to financial statement presentation and disclosures for defined benefit plans, for not-for-profit entities- specifically contributed nonfinancial assets, as well as for public banks and investment companies
- Long duration contracts for insurance companies
- Various codification improvements and simplifications
We look forward to assisting you with any and all of the above changes to the guidance. Many of these standards will change not just the numbers on our financial statements, but also significantly impact the footnote disclosures within them. For questions, reach out to Chris Rouse, Bobby Vercoe and Maggie Wise.
