It is hard to believe but we are almost half way through 2011. The numerous proposed standards issued in draft form in 2010 were generally targeted to have a June 30, 2011 final standard issuance date. To the surprise of virtually no one, this is not going to happen. The complexity of the proposed standards, the desire and mandate for convergence with the international rules and the generally methodical approach that is followed in the standard-setting process have all contributed to the delays.

With the above as a backdrop, let's explore the status of a few of the standards which have great application to preparers and users of private company financial statements. We will focus on the two standards regarding revenue recognition and accounting for leases and address changes, open issues and timing.

Revenue Recognition

This revenue standard addresses revenue under contractual arrangements. It is virtually impossible to determine how this standard applies to an individual company until the standard's requirements are matched with the specific contractual arrangements used by the company. It is possible that the impact may be limited as there exists substantial industry-specific guidance and a recent standard became effective for arrangements with multiple deliverables. Recent changes have addressed combining and/or segmenting contracts, accounting for contracted amounts not fully realizable, costs of obtaining contracts and warranties. A new draft and/or guidance is expected in the fourth quarter.

Leases

The significant (some would say, radical) changes to lease accounting remain, with major changes to many balance sheets a virtual certainty. The changes from the original exposure draft have addressed short-term leases, defining the lease term and consideration of variable lease payments. Addressing short-term leases (previously defined as those with a term of less than one year), it now appears that these leases will not be exempted from the requirement to record the right-to-use asset and liability on the balance sheet. Other changes are still being evaluated; the new standard is now expected by yearend.

So what do we do now?

As users of financial statements, you may be tempted to ignore these standards due to the delays. It is certainly unlikely that any of the delayed standards will require implementation before 2013. However, covenants under multi-year credit arrangements will be impacted and ongoing relationships will be enhanced by demonstrating your awareness of these issues. Being proactive is generally not a bad thing.

The above are the views of the author. If you would like more information on this topic, please contact your representative at Kieckhafer Schiffer & Co. or Mark Merriman.