Some of the usual suspects continue to create challenges for auditors in practice – although the exact issues vary.
Accounting firm leaders capped off Day 2 of the 2024 AICPA & CIMA Conference on Current SEC and PCAOB Developments – with all of the Big 4’s Chief Accountants and Crowe’s National Office Managing Partner discussing complex practice issues they and their teams tackle.
Here is our pick of the topics discussed.
The interaction between accounting standards and ever-evolving and complex transactions creates a steady stream of difficult accounting issues for preparers and auditors. The devil is almost always in the details and outcomes are highly dependent on the individual facts and circumstances.
Bob Malhotra
KPMG Chief Accountant
Continued complexity surrounds the issue of how to classify financial instruments like warrants. Should they be treated as debt or equity? Panelists discussed this issue in the context of financial instruments settled in a company’s own shares. In particular, it was noted that form matters, meaning that an instrument’s features require careful analysis. Read chapter 6 of our Handbook, Debt and equity financing.
Another issue panelists encounter frequently is whether a debt restructuring is a modification or extinguishment. Panelists discussed a recent EITF recommendation on this topic and the FASB’s recent tentative decision to simplify a portion of this guidance. See the FASB project page.
Panelists identified some issues and trends they have encountered as companies move toward adopting ASU 2023-07. They touched on the difficulty companies are having identifying which segment expenses to disclose, and agreed that companies are still weighing the risks and benefits of disclosing additional measures of profit or loss since those measures must comply with the SEC’s non-GAAP measures rules.
The discussion echoed some of the themes discussed by preparers on Day 1, Preparers’ perspectives on emerging issues. Read more about implementing the standard in our Handbook and about the SEC Staff’s latest clarifications in our recent Hot Topic.
No panel on accounting issues would be complete without a discussion of revenue recognition. Customer incentives and contract modifications were called out. Read more in section 5.7 and chapter 11 of our Handbook, Revenue recognition.
Cash flow statement issues have been the third most common area of restatements in the past 20 years. To mitigate the potential for restating cash flow statements, panelists urged companies to:
focus on the design and operating effectiveness of controls to ensure the cash flow statement receives the same level of attention as the other statements; and
think through the cash flow statement implications of nonrecurring and noncash transactions when they occur, not at the last minute when preparing the statement.
Read more in our Handbook, Statement of cash flows.
There is a commonality between issues encountered by preparers in implementing standards and the difficult accounting issues faced by auditors. Many standards, like ASC 606 (revenue recognition) and ASC 230 (statement of cash flows), are perennial features on the list of challenging topics, although the specific challenges vary over time. This year segment reporting joins the list – triggered by the FASB’s 2023 amendments.
Landon Westerlund
KPMG Deputy Chief Accountant
With the FASB’s Agenda Consultation about to be published, panelists generally agreed that the FASB should prioritize the following projects:
indexation issues regarding liability versus equity; and
simplification of hedge accounting.
Read more about the FASB’s emphasis on the role of stakeholders in recently completed and upcoming projects, All voices matter.
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