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Most Recent Significant Standard Change
The main significant Accounting Standard Update released recently by Financial Accounting Standard Board is the ASU 2016-14 Not-For-Profit Entities. It as a result of multi-year Financial Accounting Standard Board scheme conducted to amend reporting model in finance for not-to-profit which has been operating for around 20 years. FASB came up with areas that require upgrading or adjustments in financial reporting models which can give more efficient information to those relying on financial statements from not-for-profit.
1A. I consider it the most significant since it will affect a large number of not-for-profit industries which includes universities and colleges, charities, health care providers, foundations, cultural institutions, religious organizations and trade association, among others which are highly populated. It will improve, simplify and make it efficient the manner in which not-for-profit business categorizes its assets and how the organization gives its data in financial statements. This standard is expected to change the financial communication condition to their stakeholders, reducing cost and levels of complexity while handling financial statements.
B. The ASU 2016-14 Not-For-Profit Entities gives new directives for non-profit industries’ methods of financial reporting. Temporary restricted and permanently restricted net assets classes will be joined and accounted as net asset with restriction from the donor. Assets that are not restricted will be accounted as net assets without restriction from the donor. All non-profit agencies will have to report operating cost by both natural classes (for instance, duty, salaries, and rent) and functional (example fundraising and program). All this must be done in the notes or as a major statement unlike the current guidance where supplemental information is given. Another change from this standard is to the cash flow statements where organizations will no longer have the chance to choose between direct or indirect method. FASB prefers the direct method but then it is a must for the reporting organization to add the indirect reconciliation when using direct method (Jenifer, p388).
In addition, new disclosure requirements have been added which includes liquidity requirements extensive discussions and resource availability. ASU 2014-16 effective for 2018, give directives for revenue recognition under agreements that are contractual. The main objective is to recognize revenue when an organization’s performance is satisfying under the contract which follows specific steps as per the ASU. It will have an effect on income from government agreements in businesses, customer contracts and construction contracts where goods and services are given. For non-profit organizations, the standard could affect dues, tuitions, special events and other service fees agreements.
2. Evolvement of Financial Reporting
If a good research is built in the future, we could improve the financial reporting methods hence building a more prosperous society. In a period of ten years, I will expect research improvement in fair value, more reliable information that can be used to asses business, better information on risks and uncertainties, information that is conservative and unbiased and a well designed financial reporting guidance that can deliver the information users need. Hard work between FASB and IASB appear to have slowed down compared to effort made by these two organizations when their relationship was young. They are however expected to work together and achieve in the future. As more industries take on foreign operations and more investors take control of the international market, financial standards could slowly line up with market demand responses. Like everyone else, I expect these institutions to come up with significant new standards in the next decade.
Risk and uncertainties information in organization has not been omitted in research and financial reports. During allocation of capital, risks and uncertainties play a great role in financing. A good start has been shown though since finance reports today indicate market risk, credit risk and liquidity risk.
Fair value accounting means weighing liabilities and assets at a fair price and acceptance in losses and profits the changes in their reasonable values, other than modifications based on dispositions and investments (Landsman, p55). Research in fair value accounting shows that, these values are more important to users in making decisions, more than cost-based amounts. The FASB should try to look at the issue of fair value in the future, with its main concern being it would lack meaning in profit and loss in a world with extensive fair value accounting.
Intangible assets represent a big portion in organization’s assets. According to research, these assets are used by investors raising issues as to why they are excluded in financial reports. This makes investors depend on revenue when doing their calculations in accounting amounts (Weber, p378). Profitability is a major component to firm value not only revenue according to valuation theory. Even though the research on intangible assets has been present for a long time, dealing with the issue has never got traction. The authorities are fast in finding out these problems but they don’t explain why they have never tried to discuss a problem and it is a clear indication of better information.
3. Expanding Use of Sustainability Reporting
A. The Sustainability Accounting Standards Board places standards that are specific in promoting the effectiveness of capital markets by ensuring quality discovery of information in material sustainability that satisfies the needs of a potential or existing investor. The organization also measures the changes in cost due to change in climate, capture initiatives through a designed strategy and share the importance of these initiatives internally and externally.
B. CSR Benefits
Among the many benefits that make companies pay attention to CSR is for their own interests. This is a positive factor and indeed a significant one because CSR is an organization that is friendly when it comes to business. Small businesses have the feeling of a responsibility to build the economy; they are directed by an approach that is attractive from the CSR. Investors with long term goals go for companies with more efficient business approaches then the opposition. Sustainability, responsible and impact investing (SRI), over the past years has become a dominating driver for the CSR actions of many organizations (Altamuro, p391). Investors develop CSR agenda to advance and evolve their reach which sees them deliver a strong financial result. A CSR strategy can help you deliver more customers, lower capital income, and better access to talents and of course a better reputation. In a longer term, a change of culture and business innovations can be achieved.
Main aim of utilizing CSR in any organization is to change the whole thing of business activities and organization culture and make them efficient in three main ways; social, economical and environmental wise. But the challenge comes in implementing and paying attention to all of them. Most organizations have this mentality that CSR is an external factor when it comes in dealing with customers, and other organizations think that it is an internal factor. They further feel that treating the customer right in price and satisfaction is the main area of concentration but these aspects of business make them not realize the changes happening in the world of business.
Accountants face serious challenges which include demand for greater disclosure growing from the stakeholders. Increased customer interests are another big challenge. 50% of customers are taking into account punishing a organization on the basis of social actions, and a 30% portion of consumers in this survey had avoided the company for this reason (Environics International, Np).
Altamuro, Jennifer, Anne L. Beatty, and Joseph Weber. “The effects of accelerated revenue recognition on earnings management and earnings in formativeness: Evidence from SEC Staff Accounting Bulletin No. 101.” The Accounting Review 80.2 (2005): 373-401.
Weber, Manuela. “The business case for corporate social responsibility: A company-level measurement approach for CSR.” European Management Journal 26.4 (2008): 247-261.
Ball, Ray. “International Financial Reporting Standards (IFRS): pros and cons for investors.” Accounting and businessresearch36.sup1 (2006): 5-27.
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