Now is the time to get your financial reporting in order for year-end. Several major accounting standards took effect in 2017, and you'll want to make sure you're prepared for them. Some of the changes may require updates to processes and controls as well as internal and external year-end reporting.

All Entities


Changes to inventory measurement came part of the Financial Accounting Standards Board (FASB)'s Accounting Standards Update 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Entities must measure inventory at the lower of cost and net realizable value. This marks a change from previous guidance, which required entities to measure inventory at the lower of cost or market. Organizations that use last-in, last-out (LIFO) and the retail method are excluded from the change. Expect adjustments to information gathering, processes and measurement of inventory write-downs.

Private Companies


One of the most significant accounting updates taking effect for nonpublic entities this year is the consolidation guidance in ASU 2015-02, Consolidation (Topic 810) Amendments to Consolidation Analysis. Reporting entities will need to evaluate their consolidation decisions for variable interest entities (VIEs), potential VIEs and limited partnerships and similar entities. Investment companies and entities with interests in limited partnerships will need to be particularly mindful of the consolidation guidance. Also significantly changed is the evaluating for decision-maker and service provider fees and the related party tie-breaker test. The FASB may release additional changes before year end, so stay tuned.

Measurement Period Adjustments

Amendments under ASU 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement Period Adjustments (ASU 2015-16) requires the acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. Acquirers will also recognize in the year of the adjustment a catch-up of the effect of earnings, if any, as a result of the change to the provisional amounts. The catch-up is calculated as if the accounting had been completed at the acquisition date. This is an update from previous guidance, which required the acquirer to retrospectively adjust the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill and revise comparative information for prior periods presented.

Public Companies

Deferred Taxes

Public business entities will have new requirements for balance sheet classification of deferred taxes under ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes. The guidance simplifies accounting by eliminating the categorization of deferred tax assets and liabilities based on the classification of the underlying balance sheet item. It also does away with scheduling out the reversal of net operating loss carryforwards. Entities will continue to present all existing disclosures and net deferred tax assets and liabilities by jurisdiction and tax-paying component. Current taxes payable/receivable are presented separately from deferred taxes. Private companies may consider early adopting this guidance to simplify the preparation of financial statements at year end.

Employee Share-Based Accounting

Several updates were made to employee share-based payment accounting. Changes in ASU 2016-09, Compensation (Topic 718) Improvements to Employee Share-Based Accounting eliminate APIC treatment for excess tax benefits and the separation of cash flow related to excess tax benefits. The accounting update permits an entity-wide election to account for forfeitures when they occur. It also increases the threshold for requiring liability treatment for withholding shares for employee income taxes for more than the minimum income tax rate to the maximum. The update clarifies that withholding for employee income taxes related to stock compensation is a financing activity. Private companies may consider early adopting this guidance to simplify the accounting and bookkeeping for share-based awards.

Pay Ratio Rule

Public business entities will be required to make disclosures about their pay ratio rule, including the median of annual total compensation for all employees, except for the CEO; the CEO's annual total compensation; the ratio of the two amounts; and the methodology used, along with any assumptions and estimates. Some entities are excluded, including smaller reporting companies, foreign private issuers, emerging growth companies and registered investment companies. Disclosures are required to be included in proxy and information statements and registration statements and annual reports.

For More Information

MHM will continue to monitor developments in these and other accounting standards. For specific comments, questions or concerns, please contact Mark Winiarski of MHM's Professional Standards Group. Mark can be reached at or 816.945.5614.

Published on October 24, 2017