United States

Continued focus: Addressing accounting standards implementation


On June 7, 2018, SEC Deputy Chief Accountant Sagar Teotia addressed the 37th Annual SEC and Financial Reporting Institute Conference. His speech addressed the recent guidance related to the following, among other, matters:

  • Tax reform – Mr. Teotia emphasized that for the specific income tax accounting effects of the Tax Cuts and Jobs Act (a) that are not yet complete, but for which an entity can determine a reasonable estimate or (b) for which a reasonable estimate cannot be determined, an entity should be progressing in good faith to complete its accounting during the measurement period as required by SEC Staff Accounting Bulletin (SAB) 118. He also observed that the disclosures required by SAB 118 should not be overlooked as they provide important information to financial statement users. The SEC staff continues to monitor SAB 118 disclosures.
  • Revenue recognition – Companies that are still working on adoption of the new revenue recognition standard are encouraged to keep the momentum going. Mr. Teotia stated that staff of the SEC Office of the Chief Accountant (OCA) continues to be available to registrants for consultation. While consultations received to date have related to a number of topics, the most frequently discussed issues relate to the identification of performance obligations and the application of the principal versus agent guidance.
  • Leases – For those registrants that are not early adopters, the 2019 adoption of the new leases standard is quickly approaching. Mr. Teotia reminded registrants that high quality implementation of a new accounting standard takes time, and that doing anything for the first time can be challenging. Implementation will require (among other steps): understanding the accounting and disclosure requirements of the new standard; identifying relevant arrangements and leases within those arrangements; determining appropriate accounting policies, including applicable transition elections; applying the new standard to arrangements within its scope; preparing transition and ongoing disclosures; and establishing adequate and appropriate processes and controls to support implementation and application of the standard, including the preparation of required disclosures. It is especially important for registrants to ensure their implementation plans include sufficient time to identify arrangements that include leases subject to FASB ASC Topic 842. Registrants should ensure any issues related to adopting and applying the new standard are identified and resolved, and audit committees should understand management’s implementation plans to help achieve a high quality implementation. The OCA is actively monitoring implementation efforts.
  • Credit losses – The new standard on credit losses (CECL), which is effective beginning in 2020 for calendar-year-end public business entities that are SEC filers, will require careful planning, implementation and oversight for successful adoption. Although much of the focus has been on banks and other financial institutions, all reporting entities are encouraged to assess the scope of CECL. The OCA continues to welcome dialogue with stakeholders on both a formal and informal basis.

Mr. Teotia closed his remarks with two general observations on the implementation of the new accounting standards: (a) provide adequate time to make reasonable judgments, identify accounting questions and implement appropriate internal controls; and (b) put in place a good implementation process that enables the application of sound judgment, which includes gathering the facts and considering the accounting alternatives.