Emerging Issues in Financial Reporting

One of the outstanding features of the UST Master of Science degree in Accountancy is the emphasis on public speaking experiences that forge professionalism in communications. UST MSA students recently gave insightful presentations on several current financial reporting topics.

Big GAAP vs. Little GAAP
Generally accepted accounting principles (GAAP) is the term for how U.S. companies report their financial statements. Regular U.S. GAAP (called “BIG GAAP” in the presentation) is the standard that public companies use to report their financial statements. For private companies, BIG GAAP can be too complex and costly. Sometimes, it does not make sense for private companies to report using BIG GAAP standards because some of the rules are not relevant to them.

Many private companies elect to use a more simplified, principle-based reporting standard, called little GAAP, when issuing their financial statements. The presenting MSA team concluded that little GAAP is a good option for private companies to use because it allows them to report financial statements in the way that they feel is best for the company and their particular stakeholders.

Globalization has given companies the opportunity to have a competitive advantage by using international financial accounting standards (IFRS). IFRS is used by companies in more than 120 countries, yet the United States has decided to continue to use its own standards: GAAP.

The U.S. believes that adopting IFRS would be too costly and would take away the detail within the literature. Because GAAP is rules-based and IFRS is principles-based, there are many differences which can be seen in accounting for inventory, revaluations and impairment of property, plant and equipment, research and development, sale and leaseback transactions, and many more.

Currently, the U.S. is working with the international accounting standards board on convergence projects to make the financial statements across companies more comparable. It is a slow process, but will ultimately allow the United States to keep using GAAP and will improve the ability of investors and other financial statement users to compare companies.

Revenue Recognition
The Financial Accounting Standards Board (FASB) is working on changing the process for recognizing revenue. Under the current guidance there are four steps:

  1. persuasive evidence exists,
  2. delivery has occurred,
  3. price is fixed, and
  4. collectability is reasonably assured.

Now under recommendation is a five-step process:

  1. identify the contract,
  2. identify any separate performance obligations,
  3. determine the transaction price,
  4. allocate the transaction price to separate performance obligations, and finally
  5. recognize revenue.

This new process for recognizing revenue will be going into effect in the U.S. in the next few years.

Here the MSA team presented on the emerging issues related to lease accounting. They first reviewed the current accounting for leases. This included the differences between capital and operating leases, specifically the four criteria for capital leases.

Then, they moved into the proposed lease accounting standards. These new standards would require all leases to be capitalized that have a lease term greater than 12 months. Finally, the team compared the financial statement effects of both the current and the proposed lease accounting standards. They ultimately recommended adopting the proposed lease accounting standards because it increases transparency and reliability among financial statements.

The UST Master of Science degree in Accountancy is the most established program of its kind in Minnesota. Through experiences like these research presentations not only does a UST MSA help students earn credits toward CPA licensure, it polishes professional skills and provides the confidence and personal support needed to succeed and excel.