Report: Revenue Recognition Implementation Delays Could Stall IPOs
The majority of private companies contemplating initial public offerings (IPO) are not prepared to for FASB’s sweeping revenue standard, according to Deloitte & Touche LLP. The audit firm surveyed 3,000 firms considering IPOs in 2018 and found that only 8% were ready to implement the revenue standard, which goes into effect in 2018 for public companies. Privately held businesses have an extra year to adopt the new accounting guidance, but companies contemplating an IPO in 2018 should be ready to meet the public company deadline, said Heather Gates, national managing director for Deloitte’s emerging growth company practice. “As you’re being marketed to shareholders, they’re really comparing you to your peer group,” Gates said.
Amending Interest Rate Risk Disclosure Guidance Dropped from Agenda
FASB’s controversial proposal to require banks to disclose new information about risks from interest rate fluctuations is officially dead. The board agreed, by a 6-to-1 vote, to remove it from its research agenda as it staked out its future standards-setting priorities. FASB member Marc Siegel cast the dissenting vote, saying that investors found information about exposure to interest rate fluctuations key to their analyses, especially at times when interest rates are volatile. Some information is available in the MD&A section of quarterly and annual filings and registration statements, he noted, but the information is based on how a business manages its risk. Some analysts and investors might see the project’s termination as coming at a sensitive time, given that interest rates have remained at historic lows for an extended period as central banks around the world shored up the markets that were damaged during the 2008 financial crisis. If rates do climb, the footnote disclosures about interest rate risk could help analysts evaluate the effect of rate increases on banks’ financial performance.
Auditors Request Clarification of Proposed Accounting Estimate Standard
In their comment letters to the PCAOB, accounting firms asked the board to clarify proposed changes to audit guidance for examining accounting estimates prior to the issuance of the final standard. The PCAOB has proposed replacing three standards with a single standard and aligning the audit requirements for accounting estimates with its risk assessment standards. “We are concerned that including bias as an explicit objective in any final standard could imply that the auditor is required to point to specific evidence to support the conclusion that the objective was met,” one firm wrote. “In our view, management bias is an important consideration for the auditor when performing his or her risk assessment and in executing procedures to evaluate whether the estimate is reasonably stated and free of material misstatement. Management bias is a key input to the design and performance of the auditor’s procedures, but in and of itself should not be a specific objective.”