New Accounting Standards

High-quality accounting standards for general-purpose financial statements must continuously evolve, just as markets and investor behavior evolve over time. Against this backdrop, standards setting is not, nor can it be, a focus on maintaining the status quo in the face of evolving needs.

Even this year, several changes in accounting standards are effective that will result in better financial reporting to investors. For example, calendar year–end public companies are now reporting their revenue from contracts with customers under new revenue recognition standards issued by both FASB and the IASB. The reporting includes a substantial step forward for corporate reporting, including additional disclosures and greater consistency between the information reported and the underlying economics of contracts with those customers.

Across companies, this has been a substantial (though manageable) effort, which is a testament to the level of coordinated planning for the implementation from various industry groups. But stakeholders must now continue their focus on successful implementation of the leasing standard for next year and the implementation of the new credit losses standard in 2020. I’m confident that this period of accounting change will leave our financial reporting system stronger.

Companies are also planning how they will communicate with investors regarding changes in accounting requirements for stock held in other companies. Starting this year, companies will recognize a net income of the changes in the fair value of stock from one period to the next period. Investors will see the effects of management’s decisions to not only acquire or sell the stock, but also to hold it during the period. The reporting under the new standard reflects the economic realities of changing market values, and the standardized approach of reporting can facilitate comparisons across companies by investors and other users of the financial statements.

Market and regulatory forces are reshaping the accounting profession. Economic pressure and higher expectations, involving capital needs and technological innovation, are evident in virtually all aspects of the profession. And while those forces are individually familiar to many, their confluence is leading to changes within and across firms.

If we are to continue to have the best financial reporting system, the commitment from accountants to high-quality financial reporting must continue. Standards setters and regulators need to have and to hear from individuals with diverse perspectives and experiences. The financial information reaching the public must continue to be credible and decision useful, and we should all collectively work toward that end.