The unprecedented impact caused by the new revenue recognition standard and tax reform is compounding the usual complexities that finance teams face during quarterly and year-end reporting.
With companies still adjusting to these two major financial transitions and with calendar year end fast approaching, it’s time to take a closer look at issues needing remediation along with some key impacts and challenges associated with these new regulations.
Public companies are feeling the effects of the first full year of transactions being subject to ASC 606 – Revenue from Contracts with Customers. The new accounting guidance is proving formidable; changes are beginning to result in some financial reporting restatements, something to prevent if at all possible. Some preparers have also received comment letters related to ASC 606 reporting and the SEC indicates that businesses should brace for more. Key areas that have attracted attention include:
At the same time, companies should be finalizing their assessments of accounting implications posed by the Tax Cuts and Jobs Act of 2017 – some of the most sweeping changes to U.S. tax law since 1986. With the reporting deadline looming, accounting for complicated tax reform provisions for the first time while preparing year-end financial statements is proving daunting for many. A key issue is how the new tax law impacts a company’s ability to realize deferred tax assets (see diagram).
The realizability of deferred tax assets can have significant financial reporting impacts, and adds a layer of additional complexity in addition to other aspects of the tax law requiring recalculation of the deferred amounts and accruing tolling liabilities for deemed repatriated income. In response to tax reform changes, companies may need to modify their systems, processes, and controls to deal with the new complexities. Additionally, corporate restructurings that are starting to take place, driven in large part by tax reform (e.g., check the box elections, transfers of intellectual property, etc.), could pose some unique accounting challenges.
To help avoid comments or worse yet, a potential restatement from these sweeping changes, here are a few things you may want to consider addressing now:
PwC offers a team of accounting, investigation, controls, analytics, systems, and data knowledge professionals, combined with powerful technology solutions to help companies quantify and resolve their potential financial reporting issues and develop solutions to remediate the underlying triggers. Our professionals help you use technology enabled accelerators to bring cost effective solutions to your immediate reporting challenges as well as longer term business needs. Contact us to learn how we can assist you with a range of remediation and restatement solutions.
Observations from the front lines provides PwC’s insight on current economic issues, our perspective regarding the financial reporting complexities, and what companies should be thinking about to effectively address those issues.
Partner, PwC Deals, PwC US
Principal, Digital Risk Solutions Leader, PwC US
Partner, US Regulatory Enforcement Leader, PwC US
Brett E. Cohen
Accounting Services Group Partner, PwC US