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:
Deferred Taxes
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.
Revenue Recognition
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
| Aerospace | Gaming | Insurance |
| Airlines | Oil and Gas | Telecommunications |
| Asset Management | Power and Utility | Not-for-Profit |
| Broker-Dealers | Hospitality | Timeshare |
| Depository Institutions | Software | Construction |
| Healthcare | Contractors |
Effective for December 31, 2020 financial statements (2019 for public companies):
Leases
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.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.