Changes on the Way in Accounting
In 1939, partly as a response to the stock market crash of 1929 and the ensuing Great Depression, the American Institute of Certified Public Accountants (AICPA) created the Committee on Accounting Procedure. This body ultimately evolved into the Financial Accounting Standards Board (FASB) in 1973. Since 2008, the FASB has been responsible for collating and publishing the GAAP (generally accepted accounting principles) pronouncements, the accounting guidelines that companies, especially publicly traded corporations, must follow to be in compliance with the Securities and Exchange Commission.
In 2010, the FASB began collaborating with the International Accounting Standards Board (IASB) to develop international standards that would complement, and in some cases supersede, US GAAP, particularly with regard to multinational corporations. In 2014, this joint body issued some of its first recommendations and principles that would significantly change standard accounting practices in the United States and around the world.
Changes in Revenue Recognition
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Perhaps the most significant change from the joint FASB-IASB project deals with revenue recognition, perhaps the most important measure of a company’s performance. US GAAP issues specific requirements based on industry; this means that a standard revenue transaction is treated differently by a software company, for example, than by a real estate company.
The new guidelines provide a consistent and robust framework for recognizing revenue across various industries and capital markets. The guidelines also simplify the process for certified public accountants and internal auditors to prepare, review, and approve financial statements.
Improvements to Financial Statements for Non-Profits and Certain Health Care Entities
Current GAAP guidelines add an extra layer of complexity to the financial reports of non-profits and health care companies, due in part to the rules governing donations. A proposal under consideration by the FASB would decrease from three to two the number of asset classifications that deal with temporary and permanent restrictions on donors and their gifts. This new rule would decrease complexity and add transparency for potential donors and creditors regarding the organization’s liquidity. The regulation would also apply to health care entities and foundations that solicit and accept donations.
Policy Changes for Individual Retirement Accounts and Health Savings Accounts
While the FASB covers global changes in accounting standards and procedures, today’s CPAs and auditors must also stay on top of Internal Revenue Service rules and regulations that deal with U.S. tax policy. In 2015, many changes deal with individual retirement accounts (IRAs), health savings accounts (HSAs), and flexible spending accounts (FSAs). In 2015, income and contribution limits for IRAs are increased over previous years, while new limits are placed on rollover amounts.
In addition, the rules governing HSAs and FSAs are more restrictive in 2015. In the past, individuals were allowed to roll over unused monies from one year to the next. Beginning in 2015, individuals who roll over a balance of $500 or more will no longer be eligible for participation in an HSA in 2016.
While many accounting practices and principles are timeless, the discipline itself is highly dynamic and affected by both domestic and international policies. For accounting professionals, 2015 brings a plethora of both challenging and welcome changes.