Maintaining compliance with Financial Accounting Standards Board (FASB) standards has thrown a wrench in the plans of many C-level executives, resulting in lots of anxiety, worry and confusion. If you’re unsure about being FASB compliant, you’re not the only one.
More than 70 percent of CFOs in a recent survey said that their company’s efforts to become FASB compliant are not complete. It’s apparent this is a problem for many organizations. In this post, we’ll cover what the latest FASB standards are, as well as a few ways to know whether your company is FASB compliant or not.
FASB Standards Summary
Yes, they can be confusing and difficult to understand, but don’t say you’re unsure about being FASB compliant unless you’ve given them a thorough read to try to understand them. There are several articles online that break down what’s all included in the latest FASB standards, but here’s a summary of the basic changes that were implemented in 2020:
- Leases longer than 12 months must have balance of lease payments documented as debts and assets.
- Current off-balance sheet leasing activities must start being reflected on balance sheets.
- There will be two lease types recognized moving forward:
- One that is consistent with the existing GAAP model (finance leases)
- One that recognizes lease liabilities based on remaining lease payment values and corresponding lease assets (operating leases)
FASB Standards Violation Penalties
The good news about FASB compliance is that it’s pretty simple: you are either compliant or you’re not. What happens if you’re not FASB compliant, though? Expect to pay heavy penalties in the future. Right now, consequences are still being worked out, but outlines and predictions are already being made. According to the National Retail Tenants Association (NRTA), here are some examples of the types of penalties you can expect for violating FASB standards:
- “Lawsuits from investors for the misstated financial statements
- Cost of bringing in fraud examiners to investigate (if it is determined fraud was involved)
- Cost of responding to an SEC Comment letter
- Cost of bringing in consultants to restate prior years
- Auditors getting fined for the misstated financial statements”
There’s always the possibility that these penalties could be retroactive to when the violations occurred, so ensuring your company is FASB compliant is a priority you need to fix ASAP.
Maintaining FASB Compliance Moving Forward
If you aren’t FASB compliant, you may be overwhelmed with what to do. It might be helpful to break up your FASB standard updates into three phases: preparation, transition and implementation. With the right CRE software, compliance is easier than you might think. Consider reviewing this Quarem article about FASB lease accounting standards, as it has checklists for the preparation, transition and implementation phases, as well as lets you get to know Quarem a little more.
If you’re interested in improving your FASB compliance, request a demo of Quarem today and see for yourself how the software can help.