Managing Accounting Change
Today’s financial reporting environment is changing more dramatically than usual, according to Paul Munter, a senior partner with the Audit Quality and Professional Practice Group, at KPMG LLP, and a former professor and chair of accounting at the School.
In the ForUM panel session on “Managing Accounting Change,” Munter noted that the Federal Accounting Standards Advisory Board (FASAB) – which develops generally accepted accounting principles (GAAP) for financial reporting – is implementing new standards in areas like recognizing income, consolidation of financial statements, loan accounting, and treatment of commercial leases.
For instance, a new FASAB standard scheduled to go into effect in 2018 would recognize revenue when a company transfers control of a good or service – an expectation-based model that might or might not align with cash payments, Munter said. “That’s a major difference from the traditional standard of recognizing revenue when it is earned and realized,” he added. “It would make it difficult for capital providers to understand a company’s current financial position, particularly when compared with its past performance.”
Jose Gordo (AB '94), the chief financial officer a magicJack VocalTec Ltd., said it’s important for both private and public companies to educate their investor bases on pending standards. “Let them know that you’re not changing the business model, even if the reported results are different,” he said.
Daniel Quezada (BBA '97), a senior business analytics manager for Walmart US Dry Grocery, said the new standards could affect the Fortune 100 retailer’s “buy or lease” real estate decisions. “While we probably will do more leasing, business considerations rather than accounting treatments will remain the major driver,” he said. “However, there needs to be good integration between the controllership and the operational executives. In my experience, issues with lease accounting tend to result from losing touch with the business – particularly when relationships with real estate developers evolve over the years.”