Speaking at the annual SEC and Financial Reporting Institute Conference earlier this week, Wesley R Bricker, SEC deputy chief accountant, focused on  implementation activities related to the recently issued standards on revenue recognition (Topic 606/IFRS 15 Revenue from Contracts with Customers) and leasing (Topic 842/IFRS 16 Leases); the continued focus on internal control over financial reporting (ICFR); and stressed the ongoing importance of maintaining auditor independence.

Bricker said: ‘Given the pervasiveness of the new accounting standards on revenue recognition and leases, now is a good time for companies to focus on audit committee and investor outreach and education regarding the effect of the new standards on companies’ financial reporting.

‘It is also a good time for companies, their audit committees and their auditors to assess the quality and status of implementation plans so that the implementation of the standards achieves the financial reporting objectives intended by the standard setters.’

Leases and revenue recognition standards have both been jointly issued by the global and US standard setters, the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB), following intensive discussion and consultation. Although the standards were originally intended to be fully converged, there are differences between the US and international approach.

With a long lead time for both standards, Bicker added: ‘The SEC staff continues to actively monitor the profession’s transition efforts including the FASB’s revenue transition resource group (TRG) and the AICPA’s financial reporting executive committee, among others, to identify the nature and volume of implementation questions and views on those questions.’

He warned that ‘to the extent that preparers, industry groups, or other constituents have identified questions but have chosen not to raise them in hopes of preserving their current accounting, let me caution you that auditors, regulators, and others will look to understand those revenue policies and how they are consistent with the principles in the new revenue recognition standard.

‘It’s just a matter of timing as to when we gain that understanding, whether before or after companies implement the standard.

‘With two TRG meetings tentatively scheduled for the remainder of 2016, the time to escalate implementation questions is now.  The later a registrant or industry group waits, the less opportunity it has to weigh in on the outcome, and the greater the possibility of needing to narrow diversity through subsequent standard setting or, if the principles in the standard were not appropriately applied, through a potential correction in the financial statements.’

In light of the significant impact on balance sheets, Bicker stressed that it is vital for companies to communicate with key stakeholders and investors about the upcoming changes to accounting requirements and the impact on financial reporting.

He added: ‘Speaking of disclosures, the SEC staff has long advised that a registrant should provide transition disclosures to investors of the impact that a recently issued accounting standard will have on its financial statements when that standard is adopted in a future period.’

On the new leasing standard, Bicker said that ‘leasing will also require careful implementation planning, management, and oversight’.

‘Such changes in accounting have the potential to significantly impact many important areas of financial reporting and may extend beyond simple tweaks to the process-level control activities,’ he said. 

‘For example, a key consideration for all issuers should be setting the right “tone at the top” by creating an environment in which management and employees from all relevant levels and areas in the organisation can combine their respective expertise in performing the analysis and evaluating alternatives to arrive at well-reasoned professional judgments.’

A copy of Bricker’s speech is available here