In the “Quarterly Perspectives: Financial Reporting & Beyond / Q4 2024” webinar from Forvis Mazars, we provided a Washington outlook anticipating President Donald Trump’s first 100 days in office and looked at accounting topics that may affect you from the most recent AICPA & CIMA Conference on Current SEC & PCAOB Developments. Read our webinar recap below and sign up for our upcoming webinar for more timely insights.
Looking Back
Disasters & Accounting
Recent natural disasters in late 2024, such as Hurricane Helene and Hurricane Milton, have triggered a number of accounting issues for companies, such as impairment considerations and accounting for insurance recoveries.
Third-Party Sale-Leaseback Transactions
We have seen third parties “marketing” sale-leaseback transactions that have accounting consequences that may not be fully appreciated. A few years ago, many third parties were marketing Employee Retention Credit calculations that appeared reputable until auditors started asking questions. Now a similar situation is happening with sale-leaseback transactions, where financial institutions are told they can sell a branch, lease it back, and immediately see a gain on their books. However, we find that these transactions are often done at off-market prices or with other contractual terms that can cause a failed sale leaseback.
In addition, we’ve seen those third parties doing appraisals for properties themselves. The third party that’s marketing the transaction can’t also do the appraisal due to a conflict of interest. Businesses should beware of third parties who are not accounting experts and may not really understand accounting rules.
For more information on sale-leaseback transactions, see our FORsights™ article, “Sale & Leaseback Transactions Accounting Refresher.”
PCAOB
We saw the depth and quantity of PCAOB activities substantially increase in 2024, especially toward the end of the year, as they have intentionally worked to update their standards, most of which were inherited from the American Institute of CPAs (AICPA) two decades ago. The board released almost 10 proposals in the last 18 months and in just the past year adopted—or been in the final stages of adopting—at least five auditing standards and two—potentially three—amended rules and reporting requirements for audit firms. The changes affect how audits are performed and the information that auditors need from clients.
For more details on PCAOB activity, see our FORsights article, “PCAOB’s 2024 Priorities: Key Insights for Audit Committees.”
Here & Now
Washington Outlook
As we move through the first 100 days of U.S. President Donald Trump’s second term, there are a lot of tax issues facing the new Congress, most notably the effort to extend provisions of the Tax Cuts and Jobs Act of 2017 that are set to expire. Some new ideas that may be considered include no taxes on tips, as well as corporate tax rate cuts that could be tied to domestic production.
With their slim majorities in Congress, Republicans may try to pass not one, but two reconciliation bills that would just require a majority without needing bipartisan support, allowing them to advance as much of their agenda as possible. There are some items lawmakers could address in the first bill unrelated to tax reform that may be less difficult and controversial, e.g., defense spending and border security.
During changes in presidents, it’s typical to have “midnight rulemaking,” in which the outgoing administration tries to put as much of its agenda in place before leaving. However, the incoming administration can then review any regulations in process. The Administrative Procedure Act allows the new administration to go back through the entire process to remove or amend regulations already recently issued. Congress has the ability to review regulations as well.
For more of the latest happenings in Washington, D.C., see previous editions of our timely “From the Hill” series.
AICPA & CIMA Conference on Current SEC & PCAOB Developments
This year’s conference had a political feel due to the change in presidential administrations and how that may affect regulation. Paul Munter, the then-current SEC chief accountant, spoke on how accountants serve the public interest and gave his perspective on financial reporting, which he called a communication activity and not a compliance activity.
Erica Williams, PCAOB chair, also spoke on the board’s continued efforts to enforce quality in audits and the need to increase transparency to stakeholders. There was acknowledgment of enforcement cases involving some of the larger firms and related ethics and cheating scandals.
Some topics addressed at the conference included:
- Use of non-GAAP measures in applying Accounting Standards Update (ASU) 2023-07 segment reporting improvements
- Slippage in compliance with non-GAAP measure requirements in general
- “Checkbox” reporting on the cover of a Form 10-K under the SEC’s clawback rules
- General commentary on management’s discussion and analysis disclosures
- Debt and equity classification issues during various sessions
There also was some discussion regarding artificial intelligence (AI). The SEC said companies shouldn’t just disclose how they are applying AI but note the potential risks.
See more SEC developments in our FORsights article, “SEC Regulatory Outlook 2025 – Registrants.”
New PCAOB Standards
New auditing standards will be effective in the next 18 to 24 months as PCAOB seeks to modernize audits. With a focus on due care and professional skepticism, changes to an auditor’s general responsibilities will include more supervisory review and increased expectations of documentation throughout an audit. Other standards involve designing and performing audit procedures that involve technology-assisted analysis of information in electronic form. Companies can expect to feel the effects of these standards in the requests from and interactions with their auditors.
Conversations You Should Be Having
As we move through the new year, we encourage accounting professionals to not underestimate the effort to adopt some of FASB’s more recent standards, including immediately for ASU 2023-07 on segments (generally effective for 2024 annual financial statements) and in the near future for ASU 2024-03 (generally effective for 2027 annual financial statements) on disaggregation of income statement expenses. In addition, there should be a focus on internal control over financial reporting by all entities, particularly as we move away from a remote environment to being hybrid or fully back in the office.
Forvis Mazars will continue to cover the latest in the accounting profession at our next Quarterly Perspectives webinar. Register now!
If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.