Panels at a Tuesday session at FEI’s Current Financial Reporting Issues (CFRI) conference said with a number of potential reporting and compliance mandates either coming or under consideration, senior executives have to pay attention and evaluate the potential effect on their organizations and their departments’ operations.
“We’ve talked about a lot of issues, “ said Jackson M. Day, Americas professional practice director, accounting standards, at EY. “Think about those, and think about the effects they could have on your year-end closing process. The biggest challenge is getting everything done in the short number of day we have to get stuff done.”
Among the immediate challenges financial leaders will have to address is implementing the 2013 update to the COSO internal controls risk management framework, which will supersede the existing COSO framework next month. Panelists said despite the short-term deadline, adoption of the new framework is uneven among the companies they work with.
Panelists said COSO implementation is likely to be mixed, with some companies adopting the 2013 framework and others continuing to rely on the guidelines issued in 1992.
Jeff Burgess, national managing partner of professional standards for Grant Thorton, said that, in general terms, bigger organizations tend to be further along in adopting the 2013 framework. Those organizations have largely mapped processes to the new framework, and are using the transition as an opportunity to improve some processes.
In other cases, many companies are finding upgrading to the new framework more complex than they first suspected, said KPMG partner Mark Bielstein.
“We’re encouraging companies to take the opportunity to look at their processes and controls, and consider how the company can improve its processes,” Bielstein said. “Companies should use the opportunity to make a process more effective and efficient, rather than viewing this as just a compliance effort.”
Recognizing Revenue
Panelists reported similar disparity in their clients’ implementation planning for the converged revenue recognition standard adopted in May by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).
“Among our client base, there’s great hunger for guidance with respect on how to implement the standard,” said Grant Thorton’s Burgess. “There are a lot of challenges involved with moving from [a standard] that at present is rules-based, to using a principles-based standard. A lot of companies are telling us that, and I think the AICPA industries task forces will help provide some commonality and consistency, at least among industries.”
Earlier in the week, Cullen Walsh, assistant director of FASB, said the board is considering a potential need to defer the implementation date to provide companies with additional preparation time.
Whether the standard is delayed or not, panelists stressed the importance to companies of maintaining momentum on their transition planning.
“If there is a deferral [of the implementation date], I’d encourage companies to keep their foot on the accelerator, and be ready to implement the new standard as quickly and efficiently as possible,” said Wayne Carnell, a partner in PwC’s National Professional Services Group. “If there is a delay, it’s human nature to not work on something, but that’s the worst thing you could do. If there’s a delay, use that time.”
IFRS Interest Waning
Panelists said despite renewed discussion from the Securities and Exchange Commission about the possible use of International Financial Reporting Standards by U.S. companies, they’re seeing less interest among their clients than was the case when the idea of IFRS adoption by U.S. filers gained momentum six years ago.
“Back in 2008, large multinational companies wanted to use IFRS, but we’ve seen that desire basically wane,” said PWC’s Carnall. “Few companies want to adopt IFRS now.”
Carnell said financial statements filed under IFRS tend to be larger than those prepared using U.S. GAAP. He cited one company whose report under IFRS had 56 percent more pages than the same information using GAAP, and he doubted the information presented under IFRS would be 56 percent more useful to investors.
KPMG’s Bielstein said when IFRS was a hot topic six years, there was an assumption there would be tighter convergence between U.S. and international accounting standards. With some convergence projects being dropped, there is less interest to continue pursuing IFRS adoption.