The new look of financial statements – welcome to the future of accounting
In the not too distant future, assets may not equal liabilities, up may become down, black will be white, and night becomes day... Or so it might seem. Get ready - the accounting world as we know it may be turned upside down with a proposed financial reporting overhaul.
The proposed change, driven by the Accounting Standards Board, plans to break financial statements into two pieces: a "core" piece which includes core activities (how a company makes money) and a “non-core” piece (all the things a company does that create revenue but are not core). That means the balance sheet won’t balance normally because assets and liabilities will be broken out for core and non-core operations.
It also means two companies might account for the same item differently - a financial institution might record investment proceeds as core while a manufacturer might list those same proceeds as non-core.
On paper and in practice, this change makes sense. It creates transparency and shows investors and stakeholders how a company makes money. Standardization reduces costs. Plus, a single standard in the capital markets is in the best interest of everyone - and the new format will mesh better with international accounting standards.
The downside is that the changes will ripple throughout the organization. Financial software, compliance, budgeting, ERP, training – everything will be touched and no department will be spared.
As you think about the future, how will you anticipate the impact of these changes? Does your management team have what it takes to visualize the future and understand the ripple effect caused by the upcoming topsy-turvy world of new accounting practices?
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