5 Accounting Updates for Public Companies
From time to time, the Financial Accounting Standards Board (FASB) suggests new rules to improve and reduce the complexity in accounting standards. Some of these changes impact all business entities that use GAAP. The latest updates have few important consequences for public companies. Here are the top five changes in 2017.
Simplifying Measurement of Inventory
New rules apply to companies using the first-in-first-out (FIFO) method for inventory. The rule mandates an entity to measure inventory at the lower of cost and net realizable value. The Standards defines net realizable value as the estimated selling prices in the ordinary course of business, less predictable costs of completion, disposal, and transportation. The rule applies for fiscal years starting after December 15, 2016.
Statement of Cash Flows
This new rule addresses the diversity that exists in the classification and the presentation of changes in restricted cash on the statement of cash flows. This new update will give clarity to companies in representing cash as operating, investing, or financing activities. The effective date of this standard update is 2018. But public companies can opt for an early adoption in 2017.
Revenue Recognition Standard
Previous revenue recognition accounting principles differed from the International Standards. New amendments were done to overcome these inconsistencies. All companies now need to apply five clear steps to achieve the core principle. Public companies who want to be an early adopter can apply to rule ASC 606, from Jan 1, 2017.
Employee Share-Based Payment Accounting
This impacts all companies that offer stock-based payments or compensation to their employees. This update will simplify several aspects including:
- Income tax accounting for share-based payment transactions
- Accounting for all excess tax benefits and deficiencies in the income statement
- Accounting for forfeitures/ losses
- Allowing companies to withhold up to maximum statutory tax rates
For public companies, these changes apply for annual periods after December 15, 2016, and interim period within this annual period.
Balance Sheet Classification of Deferred Taxes
This new rule simplifies the presentation of deferred income taxes. This makes deferred tax liabilities and assets as non-current in a classified statement of financial position. The deferred tax rules changes will apply to public companies from this year.
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