CPA & Business Advisory Blog

accounting standards 2015 2016

Accounting Rule Changes You Need to Know

As we enter the last quarter of 2015, financial statement preparers should be aware of accounting rule changes and their effects  for calendar year 2015 financial statements.

PCC Standards

For most professionals, the headlining changes for this year will likely be the standards issued by the Private Company Council (PCC).  The PCC standards provide options for an alternative way of accounting under GAAP that are available to private companies. Three standards have been issued to date that are effective for the first time for calendar year 2015.  Although standard setters are considering relaxing this rule, if the three standards are not voluntarily adopted by private companies before issuing 2015 financial statements, it will become much more difficult to transition to them going forward.

1.) Accounting for Goodwill

The first PCC standard (ASU 2014-02) addresses accounting for goodwill.  Previous GAAP required companies to perform an annual impairment test of goodwill and record an impairment loss when there was a decline in fair value below carrying value.  The PCC standard allows companies to amortize goodwill going forward over 10 years and avoid the impairment test (unless a significant change in the business leads you to believe the goodwill is impaired).  This PCC alternative is applicable to existing goodwill as of the date of adoption of the standard as well as future goodwill.

2.) Hedge Accounting and Interest Rate Swaps

The second PCC standard (ASU 2014-03) simplifies the requirements for hedge accounting when a company has an interest rate swap on variable rate date.  Lenders will frequently require companies to enter into a swap to “fix” their variable rate.  The PCC standard is relevant when companies seek hedge accounting treatment for those swaps – that is, to record the change in the value of those swaps as an equity change rather than as income.  Under the PCC alternative, the criteria to obtain this hedge accounting treatment are loosened and companies have a longer time frame in which to establish their hedge accounting policies.

3.) Related Party Leasing

The third PCC standard (ASU 2014-07) allows private companies to remove related party leasing entities from their consolidated financial statements.  Previous GAAP often required a related party to be consolidated with an operating company when its purpose was to lease a building to that operating company.  The PCC standard, if applied, would allow that operating company to remove that related party leasing entity from its consolidated financial statements (assuming certain criteria were met), leaving only the operating entity’s financial results to be reported on.

Discontinued Operations

Another change for 2015 that will be relevant to all companies is the new accounting rule for reporting discontinued operations (ASU 2014-08).  Standards setters noted the diversity in practice in reporting for discontinued operations, and also that some companies that went through routine disposals of business units were “tripping” into discontinued operations reporting when it was not decision-useful for investors.  As a result, the new standard only requires discontinued operations reporting for disposals and planned disposals of operations that both represent a strategic shift for the company and will have significant impact on operations (measured by income, cash flows, total assets, or other relevant metrics).

Assessing Going Concern

Although it isn’t effective for 2015, financial statement prepares should also be aware of the new standard on assessing going concern (ASU 2014-15).  Previously, the responsibility for determining whether a company would continue in operations for the foreseeable future was put upon the financial statement auditor.  Under the new standard, management must assess the likelihood of whether the company will continue operations for the 12 months following the financial statement issuance date.  This means that companies generally have a longer window to consider future liquidity events (i.e. debt refinancing and balloon payments) and their overall ability to meet financial obligations. New disclosures are required when there is substantial doubt about this ability.

In summary, there are opportunities available for financial statement preparers to reduce the complexity of their company’s accounting if they take advantage of them.  And as always, there are new reporting rules to be aware of—consulting with your external advisors early and often will help the transition.

Ryan Siebel is a Principal with Skoda Minotti’s Accounting and Auditing Group. You can contact Ryan at 440-449-6800 or rsiebel@skodaminotti.com.

Skoda Minotti Speaker Series CTA

This entry was posted in CPA & Business Advisory, Mailchimp RSS and tagged , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Follow any comments here with the RSS feed for this post. Comments are closed, but you can leave a trackback: Trackback URL.
© Copyright 2016 Skoda Minotti | Privacy Policy | Disclaimer | Remote Support
Cleveland 440-449-6800 | Akron 330-668-1100 | Tampa 813-288-8826
Website designed and developed by Skoda Minotti Strategic Marketing