What is FASB and Their Proposed Topic 832
The Financial Accounting Standards Board (FASB) is a private, non-profit organization whose ultimate goal is to establish and improve the Generally Accepted Accounting Principles (GAAP) within the United States (in the public’s interest). FASB has a very complex task in front of them to set account standards for the most dynamic economy in the world. FASB derives their authority from the U.S. Securities and Exchange Commission (SEC), and the standards set forth by FASB are also authoritatively recognized by The American Institute of Certified Public Accountants (AICPA). FASB has been tasked with the mission to improve and establish clear and detailed information to companies financial reporting of government assistance programs.
What is FASB Topic 832
FASB Topic 832 was specifically developed to address the increase in levels of monetary assistance provided by federal, state and local governments. This government assistance has been provided in a variety of forms including, but not limited to tax credits, tax incentives, and government grants. FASB Topic 832 was therefore established to supplement a lack of clear financial reporting guidance under the GAAP. There are currently no clear guidelines for reporting government assistance programs.
What is the difference between FASB vs. GAAP?
Some people may think that the Financial Accounting Standards Board (FASB) is a part of the Generally Accepted Accounting Principles (GAAP). But it is FASB that has been tasked with maintaining and improving the GAAP. FASB is a private, non-profit, standard-setting body, whereas the GAAP is the set of rules (or guidelines) that makes up accounting standards. These rules have substantial authoritative support and are the rules that businesses follow to create their financial statements, such as balance sheets and cash flow statements. The GAAP essentially provides a clear standard for all financial reporting so that when investors look at companies financial statements there is a standardized form and structure to all the financial data.
What is FASB Codification?
The Financial Accounting Standards Board (FASB) codification is the process of establishing financial reporting rules and guidelines and is currently the only source of the Generally Accepted Accounting Principles (GAAP). The GAAP is maintained and improved upon by the FASB.
FASB Topic 832 is Inevitable, Being Prepared is Essential
Here’s the deal: The Financial Accounting Standards Board (FASB) Topic 832 is a pending regulation that establishes a new financial disclosure framework. With this new system in place, companies will have to disclose exactly how government assistance (like tax credits, for instance) impacts their corporate financial statements.
What’s the bottom line? While this soon-to-be-implemented FASB 832 disclosure framework does not yet have a start date, it’s on the horizon and fast-approaching. The upcoming transition will affect how corporate entities perform their financial reporting, including credit management, and your organization will need to comply.
If your organization is the beneficiary of government assistance, your company will also be impacted – which will require acute tax credit management to successfully fulfill the upcoming FASB regulations.
The reality is that FASB 832 is coming – so early preparation is critical.
Basics of The New Regulations
You might be wondering: What’s the point of the new FASB 832 rules?
There are a wide array of financial assistance programs of which businesses all over the country take advantage, as governments frequently use tax credits and incentives to lure in businesses and encourage existing ones to expand their operations locally. From bond guarantees to tax rebates to qualified opportunity zones, local authorities want to entice organizations to set up shop and stick around.
Before FASB 832, these government assistance programs have not been considered when it came time for financial disclosures. Generally Accepted Accounting Principles (GAAP) do not currently include the financial impact of government assistance – but this is set to change.
Why do businesses suddenly need to start disclosing information related to government assistance?
There are two main reasons: First, members of the investor community believe that government-backed financial arrangements like tax credits and loan guarantees should be included in GAAP standards. According to them, information regarding government assistance programs helps paint a fuller financial picture for any company that is on the receiving end. Consistent reporting on this topic will help those who must interpret companies’ financial results and potential for future cash flow in a more transparent fashion.
Second, the FASB 832 switch will bring US financial reporting protocol in line with International Financial Reporting Standards (IFRS).
So, how will this affect you?
What Does FASB 832 Mean For my Business?
To put it simply, the goal of FASB 832 is to make sure helpful data related to the impact of government assistance is reported. Businesses receiving assistance will need to disclose:
– The types of government-backed financial assistance they receive
– Terms and period of each agreement
– The accounting method used for government assistance
– The impact of the assistance on financial statement totals
If your firm has been the recipient of any kind of business tax credits, tax incentives, grants, tax rebates, abatements, bond guarantees, loan guarantees, or any other sort of government-backed financial aid, then you will eventually need to cough up the related details.
While it sounds somewhat easy on paper, the reality is complicated and stress-inducing – as businesses often receive a complex arrangement of financial help from the government. Conventional tax credit management hasn’t quite caught up yet.
Getting assistance from a leading tax credit software provider like The OIX is critical to correctly fulfilling the imminent FASB changes.
Utilizing Tax Credit Software to Prepare for FASB Topic 832
Once the effective date for the new FASB regulations is made public, public organizations will likely have less than one year to implement and comply – with private companies likely to have less than two years to make the necessary switch.
That’s not a lot of time to realign your organization’s entire accounting procedures.
As the effective date for the updated FASB regulations looms on the immediate horizon, it’s crucial for both public and private organizations to take early steps in getting ready – and partnering up with a seasoned tax solutions provider is the smartest and most efficient way to make a smooth transition.
Not only is it absolutely critical for healthy companies to gain total control, transparency, and visibility of their government financial assistance from a fiscal perspective, it is equally as vital – and an urgent necessity – to pay attention as soon as possible.
Waiting until the last minute, particularly with the potential for lengthy closing cycles, could be detrimental.
Thankfully, the experts at The OIX have developed the ideal roadmap and best practices for tracking, managing and reporting on every type of government financial assistance. Tax credit companies, like The OIX, offer tax credit management solutions that are geared toward both public and private entities of all sizes. More importantly, their tax credit software can guarantee a seamless transition into the next era of FASB financial reporting – helping businesses everywhere gain an edge over their competitors.
With such a critical shake-up coming so quickly, US organizations need to get it together ASAP.
FASB 832 can’t be stopped, but it can be effectively embraced if action is taken early.
Are you ready?