In the United States, businesses reported revenues of $1.325 trillion in 2014. To record these transactions, these firms manage a large amount of data. Accountancy boards standardize the methods these companies use to record financial information. To facilitate business accountancy cohesion, the boards have cooperatively created a new revenue reporting standard. The boards have also outlined the basic steps all firms should take when making the transition. Depending on the entity, the boards expect firms to adopt these new practices by a given date.
Managing Financial Data
United States business revenues reach staggering heights. These businesses, small and large, keep records and have fiduciary responsibilities and needs. Small sole proprietors may keep these records to make sure they are making profits after expenses. Large corporations report earnings to the government and shareholders. Global entities have these same needs and responsibilities and also report financial information to parent branches. For governments to manage these reports, a uniform code must exist to make taxing and regulating these entities possible. Each country has its own regulatory board, and there is also one board that all countries participate in to conduct international business.
The Financial Accounting Standards Board (FASB) regulates accounting practices in the United States. The board oversees a uniform accounting code called Generally Accepted Accounting Principles (GAAP). GAAP standardizes the methods American businesses use to report their financial activity. Individual boards, similar to America’s FASB, govern each distinct nation’s businesses; however, firms conducting trade across international borders are regulated by a board that specifically oversees international accountancy. The International Accounting Standards Board (IASB) dictates the standards that businesses use to conduct commerce globally. As the world seemingly becomes one large financial market, financial boards around the world make changes to move toward uniformity. The New Revenue Recognition Standard is the latest undertaking by the FASB and IASB to standardize global accounting.
The New Revenue Recognition Standard
There are different accounting standards for individual nations and a single standard for international businesses. The New Revenue Recognition Standard is a maneuver to reduce these differences and bring national and international standards in line with each other. United States firms that only operate domestically use GAAP accounting principles, and international firms use International Financial Reporting Standards (IFRS). These boards have cooperatively developed the New Revenue Recognition Standard to standardize accounting methods and to strengthen current income reporting regulations. Additionally, the boards developed the new standard to increase firms’ financial reporting transparency and require businesses to produce more meaningful financial data. With all the business entities and transaction types involved, it is easy to imagine that this is a massive change in the marketplace.
Making the Transition
To help firms manage the transition, the FASB and the IASB have developed a standard outline for making the switch.
The process includes seven basic steps:
1. Assign compliance responsibility to a staff member or group.
2. Examine the differences between GAAP and the New Revenue Recognition Standard.
3. Devise a plan to apply the new standards to past reporting for the requisite interim.
4. Examine the information technology requirements required to make the change.
5. Determine the firm’s fiduciary responsibilities in regard to the change.
6. Work up a transition project outline for all steps, and include a training schedule for all interested parties.
7. Present all forthcoming operational changes to the firm’s interested parties.
Previously, GAAP outlined different standards; the FASB designated different rules for different transaction types and different industry types. The new standards make reporting uniform for all but a handful of trade and transaction types; now financial reporting standards for almost all businesses follow common principles. The FASB and the IASB released the new standards in May 2016. The boards have set deadlines for all businesses, including non-profits, to adopt these new changes. The exact dates depend on a particular business’ structure and are subject to change.
Change Deadline for Companies
There are different deadlines for public and private firms and different adoption dates for firms currently using GAAP and IFRS. The accountancy boards are requiring companies using GAAP standards to make the change on these dates. All reporting periods inclusive of these dates are required to conform to the new standard.
The boards set December 15, 2016 as the deadline for publicly traded companies to adopt the new changes, and privately owned companies have until the same day in 2017.
Companies using IFRS standards may adopt the policies early. The boards recommend preparing for the transition immediately as the switch is a complex process, especially for larger firms.
Collectively, businesses take in impressive revenues. Regulations require that they report the earnings, resulting in considerable financial data. Each business is duty-bound to an accounting regulatory board. The boards’ new standards make it easier to translate financial information in a shrinking, melding business environment. To help firms transition to the new standard, the boards have also outlined important steps to follow when making the change. They have also designated when the firms will update their account systems to the new standard.
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