There are many changes occurring in the accounting industry that will have a direct effect on the banking industry as it relates to customer loan covenants and financial results. Here is a quick breakdown of those changes:
Effective for December 31, 2018 financial statements:
C-Corporations will classify all deferred tax amounts as non-current. Previously they could be current or non-current.
Effective for December 31, 2019 financial statements (2018 for public companies):
Unrealized Activity for Equity Securities
For equity securities classified as available for sale, unrealized activity will flow through net income as a non-operating activity. Currently, they flow through other comprehensive income.
The revenue recognition changes are complicated and will have varying impacts on financial statements depending on industry. If you have customers in the industries below (not all inclusive), start the conversation with your customers now to determine the impact, if any.
Industries likely to be most affected
||Oil and Gas
||Power and Utility
Effective for December 31, 2020 financial statements (2019 for public companies):
Leases that were previously not reflected on the balance sheet (formally referred to as "operating leases") will be recorded on the balance sheet. They will be recorded similar to how capital leases are now. The change primarily affects lessees; there will be minimal impact to lessors.
As with any change, the impact of these accounting changes will be different for all companies. Discuss them with your customers to ensure they have considered the effect the changes will have on their reporting requirements to the bank. The changes detailed above, along with tax reform, will impact every business in some manner.
Nancy Cox is a partner based out of our Buffalo, NY office.