Firehose of accounting standard changes – get ready!

I was recently reading through this article and this article that provided good summaries of the upcoming changes in accounting standards proposed by the FASB as part of the GAAP/IFRS convergence project. I have provided a summary of these articles below:

There will be enormous changes in GAAP and IFRS in the next 18 months as part of the GAAP and IFRS convergence project. The anticipated change in accounting is the largest in such a short period of time. The convergence project strategy is for GAAP to get a lot closer to IFRS before SEC makes a decision on when to ‘flip the switch’ to IFRS. It is anticipated that the convergence process and the forthcoming new standards is a change far more substantial than experienced when SOX arrived in 2002. Additionally, these changes will have a global impact and will affect more entities than impacted by SOX.

FASB will release many new proposed standards by the end of second quarter of 2010, to review public feedback and finalize the new rules by June 2011 as part of convergence project of GAAP with IFRS. However, in an update provided by the FASB in June 2010, they committed to limiting to four the number of significant or complex Exposure Drafts issued in any one quarter. Since January 2010 to-date, FASB has already released five proposed accounting standards updates. See the fasb website for complete details of the releases. In the works are changes in lease accounting, fair value measurement, consolidation of subsidiaries, and even how financial statements are presented to investors.

Generally the new standards will be based on objectives or principles (the essence of IFRS) rather than prescriptive requirements (the essence of GAAP). This will require companies to use more judgment, rely on more estimates and engage in more valuation exercises. This will put pressure on accounting judgment. The focus of the new standards will be on the economic substance of a transaction to determine how it should be portrayed in financial statements.

How should an organization prepare for the changes?

Study FASB’s exposure drafts as they arrive over the next few months to get a sense of what’s coming.
Additionally, plan to comment on the exposure drafts as they are issued – without comments, your point of view is likely not to be heard. Lastly, assess how the new standards will impact critical accounting policies.

What is the impact of the new standards on Nonprofit Organizations?

Some of the new standards will be applicable such as changes to lease accounting standards and financial instruments. However, there are some areas where there is currently specific NFP accounting guidance (e.g. revenue recognition), and unless these specific standards change or the scope of the proposed changes in current standards is expanded to include NFPs (e.g. revenue recognition), accounting standard changes in these areas will not impact NFPs. It is typically clearly noted in the scope section of accounting standards if the standard is applicable to NFPs.

Other resources:

-FASB convergence update
-Impact of IFRS on Nonprofits


1 Response to “Firehose of accounting standard changes – get ready!”

  1. 1 Jenn
    June 17, 2010 at 8:43 pm

    Its easy to get burried in the day to day tasks and lose sight of the changes coming.

    Two major benefits of staying on top of proposed standards are:

    1)Keeping our board and senior management informed of changes which will significantly impact to our annual report and financial ratios.

    2)Being equipped to be a voice for our industry. I’ve seen several standards implemented without much consideration of the impact to specialized Non-profit reporting. If our industry can keep on top of proposed standards, we can have more input into how the final standard addresses non-profit issues.

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