Marsha Hunt, who joined the FASB on July 1, 2017, wants to ensure that the accounting board remains aware of the overlap of internal control audits with the implementation process for the standards it develops.
“As the standard-setters, we’re focused on the financial statements, and we’re focused on the presentation and what the financial statements look like,” Hunt said during a media briefing at the Current Financial Reporting Issues (CFRI) conference sponsored by Financial Executives International (FEI) in New York on November 13, 2017. “The system only works if the auditors can give an opinion on that.”
Before she joined the FASB, Hunt was the vice president and corporate controller for Cummins Inc. While there she witnessed the interaction of internal control audits and the implementation of new standards, particularly as the Columbus, Indiana, diesel engine manufacturer implemented Accounting Standards Update (ASU) No. 2014-09, Revenue From Contracts With Customers (Topic 606).
“There’s a source of natural tension in the implementation process that I experienced, and that I understand,” Hunt said. “In some ways the companies and the preparers want the decisions earlier than some in the system are prepared to give them.”
Hunt cited the SEC’s Staff Accounting Bulletin (SAB) No. 74, Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period, as a major part of the internal control focus for many companies. Auditors’ reviews of internal controls have a scope that goes the implementation of Topic 606, Revenue From Contracts With Customers, and encompasses the transition from Topic 605, Revenue Recognition.
External auditors “also going to have to modify their scope to be comfortable that the company has the proper controls over the implementation of the standard, which is a one-time set of audit work in the year” of adoption, Hunt said.
As much as auditors are heavily focused on revenue recognition for 2017, Hunt said she expected a comparable degree of scrutiny to the internal controls for the transition to the FASB's lease standard in ASU No. 2016-02, Leases (Topic 842), and loan loss accounting standard in ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The lease standard goes into effect in 2019 for public companies. Private companies and other organizations have until 2020 to follow it for annual reports and until 2021 for interim period and quarterly filings. Public companies and large banks have to begin following the credit loss standard in 2020. Small banks, private companies, not-for-profit organizations, and employee benefit plans have to start following the credit loss standard in 2021.
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