Have you ever considered disclosures of new accounting standards (SAB 74) from the user’s point of view? Over the next several years, companies will adopt the new revenue recognition, leases, and financial instruments impairment standards. Watch Gregory Johnson, a Director in our National Office with responsibility for many of our investor outreach activities discuss his thoughts on the user perspective.
Hi, I’m Gregory Johnson, a Director in our National Office with responsibility for many of our investor outreach activities.
While many practitioners think of SAB 74 disclosures from an accounting or technical standpoint, I want to share another way to think about SAB 74 disclosures. And that’s from a users point of view.
SEC guidance requires disclosure of the expected impact of adopting new accounting standards. But this is more than just about thewords in a Staff accounting bulletin.
Over the next several years, companies will adopt the new revenue recognition, leases, and financial instruments impairment standards.
Given the pervasive impact of these standards, users will be looking for dynamic disclosures that evolve over time, including the potential impact on the company’s financial results.
For example, if a company has not yet completed its analysis of licensing arrangements under the new revenue standard it could consider disclosing that the timing of revenue recognition may change from “over time” to “point-in-time.”
Look, no one likes surprises. So if a company’s financial statements are silent to the potential impact of a new standard, and upon adoption the amount is material, the street is going to be surprised. To avoid this, best practice is to disclose what you know and update as you know more.
The takeaway - this is more than a compliance activity, this is about a company serving the public interest and its relationship with its users. As they say, good communication is a cornerstone of a good relationship.
So as you are writing about the impact of new standards, think of ways to communicate about the status of assessment and implementation, so that upon adoption, you can have a transition party, and not a surprise party.
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