Many companies are finding it more than challenging to comply with the disclosure requirements of the new revenue recognition standards while providing readers of such data with information both meaningful and understandable.
Corporate boards, as a result, are giving significant focus internationally to the content and presentation of financial statements as well as innovative ways to communicate the most important messages to their shareholders, as Accounting Today recently reported.
The Financial Accounting Standards Board (FASB) has propelled an initiative to simplify the accounting standards. The governing board has been engaging with financial statement preparers, auditors, customers and other stakeholders to maintain the reduction of cost and complexity of financial reporting. FASB’s chairman, Russel Golden, who took the post in 2013, shortly thereafter conveyed hope for a new approach towards change. The groundwork was being laid with the Private Company Council, formed a short time earlier to challenge questionable complexity in standards.
Mr. Golden, while committed to “putting the interests of investors first” and “working to make financial reporting as clear, transparent and useful as possible,” also stressed the importance of “never losing sight of the balance between costs and benefits.”
FASB has to date completed and simplified accounting and disclosure projects for extraordinary items, appearance of debt issuance costs and the measurement date of defined benefit of pension plan assets. FASB is still working on simplifying the accounting and disclosure requirements for other projects, such as income taxes, share-based payment, equity method of accounting and balanced sheet classification of debt.
As we’ve stated many times, determining and reporting revenues are among the most critical issues in financial reporting. Indeed, revenue recognition timing affects both the top and bottom lines of the income statement as well as the balance sheet. Such timing can have a significant impact on share prices as investors compare actual results with analysts’ forecasts. Furthermore, the classification and recognition of certain elements related to revenue activities can affect the interpretation of financial statements.
With all that in mind, here are some tips offered to management to achieve high quality financial reporting:
- Appoint a skilled staff and allow for careful planning and implementation of appropriate processes and controls.
- Dedicate the proper time in the early financial year to focus on the year-end reporting process.
- Establish a process to ensure the quality and integrity of financial statements including relevance, faithful representation, verifiability, comparability and timeliness.
- Make the time for frequent evaluation and streamlining of the process to confirm financial reporting obligations of the entity under existing rules and obligations to be followed by the management.
- Establish a timetable for completion of year-end reporting, and allow adequate time for all issues to be properly addressed.
- Set up a process to engage with auditors throughout the reporting period.
If this was not enough, click to find out more reasons to for choosing RevPro.