Thursday, September 15, 2011

Seven Accounting Changes Which COULD Affect Your Bottom Line

Jim Brendel of Smartpros has picked out the seven accounting changes occurring during 2010 which he believes have the greatest chances of affecting a company's financial statements. The first is "multiple deliverables"--an example would be a auto dealer who sells both a car and an extended warranty. The new standard requires only estimates of the value of each rather than objective measuremnt. The second major issue is software enabled devices such as "smartphones." Revenue can now be taken at time of sale rather than allocating over the shorter of the life or service contract period.

Five other topics with potential to affect business results include: more detailed fair value accounting disclosure (three levels of valuing inventory and sales); going to a qualitative standard for analyzing beneficiaries of variable interest entities, expanded XBRL reporting requirements for publicly-traded companies, greater latitude in non-GAAP note disclosures and (by contrast) greater scrunity on loss contingency disclosures. Topics to watch out for in 2011 include short-term borrowing disclosures, Dodd-Frank disclosures (especially top management compensation) and (of course) IFRS convergence.

Brendel seems to have some good insights here; while smaller businesses may not be affected by more than one or two, I could certainly see even a medium-sized business being affected by four or more of the seven items listed.


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