For the Investor
By Marc Siegel, FASB Member
How Can Investors Stay Educated About Accounting Changes?
With new financial accounting and reporting standards becoming effective in revenue recognition, leases, credit losses, the presentation of pension cost, and others, there is going to be a lot of change for investors to absorb in upcoming quarters and years.
With that in mind, what resources should investors use to look for data and analysis of these modifications to financial reports? This column will highlight some sources of information for financial statement users.
Company Annual Filings
For standards which have been finalized but are not yet effective, a great place for investors to look for the potential impact on a public company is in the annual report itself.
As the effective date gets closer, a company would likely include more robust disclosure about the impending change in reporting.
The Securities & Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) No. 74 requires companies to provide information in the footnotes of financial statements ahead of any implementation of a new, significant accounting rule.
An investor might expect that soon after the standard is issued by the FASB, the analysis provided in the footnote might be limited. However, as the effective date gets closer, a company would likely include more robust disclosure about the impending change in reporting.
SEC staff has indicated that, with respect to revenue recognition, in the most recently filed 10-K’s they would expect companies to disclose, if known:
- The expected directional impact on revenues
- Whether or not full retrospective adoption will be used, and
- Other qualitative information.
Both industry-specific sell-side analysts and the broader accounting analysts often provide their insights regarding the impact of significant new accounting requirements. Most sell-side analysts will walk through the impacts of significant accounting standards on the companies they cover in their specific industries.
Investors who cover more than one sector would be well-served to look at any available industry reports for their coverage universe.
For example, because companies in the retail sector are likely to be significant lessees, look to the sell-side analysts in that industry for how the leases standard would impact those companies. They may provide information before the new standard becomes effective, as well as detailed impacts on key performance and balance sheet. Investors who cover more than one sector would be well-served to look at any available industry reports for their coverage universe, as the impacts could possibly vary by industry.
Accounting analysts are sell-side analysts who study companies through the lens of accounting and the detailed regulatory filings. While a few exist within the Wall Street banks, there are a few companies that sell this type of research to investors on a subscription basis.
A publicly available subset of this type of research can be found at The Analyst’s Accounting Observer Blog.
There are two Senior Investor Liaisons on staff at the FASB who stand ready to help investors find information about the upcoming accounting changes likely to impact your analysis.
Within the FASB website, there is a wealth of information on new standards. While the full-text versions of the standards themselves are obviously available, there are plain-English materials also on the website about most of the impactful new standards.
For example, there are pages on the website devoted to the implementation of the large new standards on revenue recognition, leases, and credit losses with links to further details and other information sources. Webcasts are also available.
There are two Senior Investor Liaisons on staff at the FASB who stand ready to help investors find information about the upcoming accounting changes likely to impact your analysis. Their contact information and other details about how the FASB interacts with investors can be found at this page of the FASB website.
From time to time, the Senior Investor Liaisons and FASB staff post podcasts (often with slide decks) about topics of investor interest. For example, in January 2016 we posted a discussion about how the new revenue standard could affect software revenue recognition. That can be found at this link (note the table of contents by clicking “Show More” on the You Tube page—this allows for easier navigation of the podcast to find the areas of most interest).
Be on the lookout for additional podcasts later this year regarding revenue recognition, which is required to be implemented by calendar year public companies in 2018.
A podcast from earlier this year discussed how changes in accounting for stock compensation was impacting companies that took the option to early adopt a new standard. That podcast can be found here.
Be on the lookout for additional podcasts later this year regarding revenue recognition, which is required to be implemented by calendar year public companies in 2018. We have plans for several industry-based podcasts where we partner with corporations to help investors understand the kinds of questions they should be thinking about ahead of the effective date.
Hopefully, these resources provide some help for investors as a significant amount of change in financial reporting may be seen in many different industries. Check back on these sources regularly, as new information could become available.