As the primary accounting standards setter for the private sector, the Financial Accounting Standards Board (FASB) is constantly evolving its codification to improve financial accounting and reporting in U.S. companies.
While most updates to the FASB Accounting Standards Codification can be considered small, such as including more detail in notes to the financial statements, others are more comprehensive and significantly impact the accounting processes of both public and private companies.
Below, we’ll walk through examples of accounting standards updates, describe four common challenges companies face around new standards, and offer steps you can take to help maintain timely and accurate financial reporting.
Accounting Standards Updates, Big and Small
Two of the most significant updates FASB has made in recent memory are ASC 606 and ASC 842. In light of increasingly complex revenue arrangements, ASC 606 replaced previous revenue recognition guidance with a more principles-based approach and a five-step model. In response to the model, accounting teams had to rework tasks and workflows to accommodate each step.
The new lease accounting standard, ASC 842, aims to provide a more accurate representation of a company’s financial position and obligations, moving most leases onto the balance sheet and off the income statement. While not as complex as ASC 606, it has proven challenging for accounting teams to implement largely due to data gathering and process changes.
Examples of more recent and less dramatic FASB changes have come into effect for calendar years 2024 and 2025. One update, ASU 2023-01, addresses common control arrangement and related-party leases with a key mandatory provision that requires amortization of leasehold improvements over the useful life to the common control group. Another update issued in 2023, ASU 2023-07, requires public entities to provide investors with additional, more detailed information about a reportable segment’s expenses. While narrower in scope, finance teams still need to make sure their processes and systems account for the new requirements and controls.
Looking forward, the FASB is seeking feedback from stakeholders to shape future accounting standards through an invitation to comment (ITC) open until June 30, 2025. Similar to the approach FASB took in 2021 to formulate standard-setting priorities, these suggestions could have incremental or significant impacts on generally accepted accounting principles (GAAP).
Four Key Challenges
Companies often face obstacles to implementing new regulations and efficiently meeting compliance when accounting standards are updated. Some common challenges organizations face include the following.
1. System, Process and Workflow Change
Updates to accounting standards often require modifications to existing financial applications, processes and internal controls, leading businesses to re-evaluate and redesign tasks and workflows. Leaders must gain a strong understanding of new standards quickly so they can visualize the changes they need in data flow processes and reporting. This re-engineering process can be time-consuming and will likely require input from various departments, including finance, IT and operations.
2. Outdated Technology
ASC 606 compliance efforts illustrate this challenge. Some finance and accounting teams who redesigned workflows to implement ASC 606 found the challenges were compounded by existing software that failed to change along with regulations. CFOs and controllers had to design their new workflows with the limitations of their existing accounting system in mind, which often meant resorting to spreadsheets and extra hours by the team to overcome the constraints of outdated tech. It’s been several years since the full adoption and compliance of ASC 606, and it still proves challenging for companies in that situation.
The Public Company Accounting Oversight Board (PCAOB) found that 43% of financial statement audit deficiencies in 2022 were related to revenue and the auditing of complex contractual obligations and performance measures.
3. Resource Scarcity and Transition Costs
The accounting standards transition process can require dedicated investment in additional staff, training, consulting services and system upgrades. Accounting budgets, already stretched thin, have little room for these added costs. Companies want to invest in growth, not compliance.
4. Delays In Implementing Updates
Lease accounting remains a persistent challenge. As companies struggled to understand regulation changes, many delayed implementing the ASC 842 standard until the last minute and failed to update software, systems and processes. This placed additional stress and pressure on lean accounting teams leading to catchup work and risking inaccurate valuations.
These challenges highlight the need for companies to plan and prepare well in advance, allocate sufficient resources, and manage the transition process effectively when accounting standards are updated. Overcoming these challenges is crucial to ensuring compliance, maintaining financial reporting integrity, and providing stakeholders with accurate and timely financial information.
How NetSuite Helps Manage Accounting Changes and Updates
To navigate these challenges, companies should start planning early, seek the right software fit, get guidance from accounting professionals and allocate the necessary resources to make a smooth transition to any updated accounting standards. Here’s how NetSuite applications can help.
NetSuite ERP
NetSuite’s comprehensive approach to accounting regulation management is a key advantage for your business. With a centralized platform, you can navigate the complexities of regulatory changes. The integrated system simplifies the process of implementing new accounting practices, allowing you to automate and standardize your workflows efficiently.
By relying on NetSuite’s robust capabilities, your team can focus on strategic financial management, knowing that the system is designed to address the challenges of accounting regulation updates, helping your business remain compliant and efficient. This is the power of a trusted ERP solution built for your needs.
NetSuite Advanced Revenue Management
Revenue recognition software simplifies the complexities of evolving regulations. Whether revenue is based on a single performance obligation, a series of obligations spanning a time period or diverse obligations in a bundle, NetSuite Advanced Revenue Management automates allocation and reporting, allowing finance leaders to focus on strategic decision-making and financial management. The results are less manual revenue recognition processes, more efficient compliance, and real-time revenue intelligence and actionable data.
NetSuite Fixed Assets Management
Lease accounting software helps make financial reporting more efficient and accurate by reducing reliance on spreadsheets and time-consuming manual processes. NetSuite Fixed Assets Management helps companies maintain up-to-date records that comply with lease accounting standards and regulations by capturing lease agreement details and amortizing lease expenses.
Journal entries for lease and interest expense updates are automatically posted, and the remaining lease liability is updated to keep your information current, improving efficiency and control while reducing the risk of errors.
Continuous Compliance
New accounting standards are not a one-time change but an ongoing challenge that requires continuous attention and adaptation. The right tools automate processes, provide visibility and make accounting updates less stressful. By leveraging features such as real-time data integration, revenue management plans, automated lease accounting journal entries and real-time reporting, you can efficiently comply with regulations and keep your financials accurate and timely.
Need Help?
If you are interested in NetSuite or need help adjusting to new accounting standards, please contact us online or give us a call at 410.685.5512.
