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01/17/2011

2011 Brings Financial Statement Changes


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Although the US Securities and Exchange Commission has yet to make up its mind on whether the US will abandon US Generally Accepted Accounting Principles (GAAP) in favor of the International Financial Reporting Standards (IFRS), that doesn’t mean financial statement accounting is standing still. Rule changes and clarifications by various US based accounting standards boards affect a number of areas in US financial statements.

Obviously, changes in financial statement affect company results and how you interpret them. Here are the major issues that will impact financial statements from 2010:
  • Fair Value Accounting, FAS 157, and Improved Disclosures: Companies must include more comprehensive disclosures about valuation techniques and break out disclosures that were previously lumped together.
  • Improved Credit Loss Exposure Disclosures: In the wake of the financial crisis, FASB has tightened disclosure rules about the credit quality of financial receivables and the types of credit reserves held against them.
  • Milestone Method of Revenue Recognition: In an effort to shine further light on the issue of revenue recognition when a company delivers research or development on a milestone schedule, FASB issued comprehensive guidance.
  • Government Derivative Accounting: The financial crisis left many government entities in trouble with derivatives, particularly in regard to interest rate swaps they entered into to hedge their interest rate exposure. The Government Accounting Standards Board (GASB) recently issued FASB Statement 53 to clarify these matters.

The elephants in room for financial reporting are the progress of IASB and FASB convergence projects (which the G-20 has pushed to complete by the end of this year) and the SEC’s roadmap on IFRS conversion. A number of initiatives are underway, which cover issues such as financial instruments, leases, revenue recognition, statement of comprehensive income and fair value measurement. It’s unlikely that every issue on the convergence to-do list will be resolved by the end of year. The SEC’s roadmap on IFRS conversion is also still up in the air, with not much visibility on when this vital issue will be settled.

For all the details on these important financial reporting changes, as well as updates to the SEC’s IFRS roadmap and the FASB and IASB’s conversion projects, attend the NYSSA’s half-day seminar on Changes to 2010 Financial Statements.

–Amy E. Buttell is a journalist working in Erie, Pennsylvania and is a graduate of Mercyhurst College with a certificate in accounting.

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