Change to Leasing Implementation

The FASB is in the process of issuing an important amendment to the leasing standard that public companies must adopt in 2019. (Private companies get one more year and must adopt in 2020.) The change will allow companies to defer the date of initial application of the standard to the date of adoption.  The change is optional. That is, companies could decide to not change the date of initial application and follow the requirement of the initial standard to use the date of the earliest financial results presented as the date of initial application of the standard.

What does the change really do?

The change in when the standard is applied impacts the historical comparative periods presented in the financial statements.  The option is like the modified retrospective option in the revenue standard in that it would not require the restatement of prior periods.  An example would probably help you understand the impact.  Assume a public company enters into a five-year lease at $100 a year on January 1, 2016.  Under the initial lease standard, the company would have to restate its 2017 and 2018 financial results to reflect the new leasing standard.  Under the new option, a company would not have to restate the 2017 and 2018 financial results, but instead would just reflect the changes in the 2019 financial results.

The option would, at first glance, appear to be a no brainer to use because the work needed to adopt the standard would be reduced.  Any leases that expired before January 1, 2019 would not need to be included in the adoption work effort and there would be two years less data to have to get re-audited.  These are good benefits, but there are some implications that need to be considered.

The first implication is lack of comparable information. Will your investors be satisfied with not providing comparable information, or will they ask for comparable results anyway?  Many companies may think that this is a balance sheet only exercise and because the income statement impacts for operating leases are not really changing, there isn’t much of a comparability issue. That is true unless you have changes that do impact the income statement, such as deferred gains on sale-leaseback transactions, that will disappear under the new standard and potentially significantly increase your lease rent expense.

The second implication is a little less obvious, but one that should be considered.  Because the standard requires that the lease term on all existing leases be considered to start as of the date of initial application, the option to delay the date of initial application has the impact of effectively shortening all the lease terms on existing leases.  A shorter lease term will result in a lower discount rate, resulting in a higher present value of the remaining lease liability.

Whether or not such differences matter will be up to company management, but the point is that implementing the option has implications beyond just the adoption work.  The decision to elect the option should therefore be subject to at least a high-level analysis of the differences, rather than simply made in a vacuum, by the team working on implementing the new standard.  In the end, I believe most companies will likely elect the option to not restate prior periods.  The reduction in work to implement the standard is too compelling, but I will be interested to see which companies don’t make the election and, more importantly, why they don’t.  That is, if they are willing to share such information.


Double Threat Talent

Shohei Ohtani is taking Major League Baseball by storm.  If you don’t know the name, Ohtani is a rising star from Japan making a big splash. He is a pitcher whose team has won six of his seven starts (his official record is 4-1) and strikes out more than one batter an inning on average; and a hitter whose batting average is over .300 that hits with power.  When he isn’t pitching, he is the designated hitter for his club the Los Angeles Angels. On the one hand, everyone is acting as if this is the first time anyone has ever done such a thing, which at the major league level is mostly true.  The difference is that if you go back to little league and even high school, usually the pitchers are the best players, including the best hitters, on the team.  It’s only when the player becomes a professional baseball player that he (and for now every major league player is a he) specializes and become either a hitter or a pitcher.

A similar process happens in the accounting profession.  Most start off as one of the best and brightest students in high school, but over time they specialize in tax, audit, managerial accounting or any of several areas; and people seem to forget that most accountants come with a keen analytical mind which is perfect for adapting to the data analysis world we now live in.  Professional accountants have been steeped in data analytics for decades, but somehow people seem shocked that accountants are knowledgeable about such a “new” area.  The only thing new about data analytics is the volume of data and the computing power to analyze it all.  The concept of looking at data to make better decisions has been around at least as long as the accounting profession.

Accounting work is already dependent on several specializations such as tax and valuation work.  Now we are adding data analysis to that list.  Will the addition change the profession?  Yes.  But this isn’t so much a revolution as a continued evolution on the path we have been on for the past several decades.  Those entering the profession today are like the high school baseball stars that can pitch and hit.  Many wanting to become professionals understand accounting and data analytics.  Some may decide to specialize in the new area of data analytics, which to those outside the profession may seem like something other than accounting.  But I think the real answer is that these data analysts will be embraced by and become part of the profession because, in the end, it’s not specific skills, but a desire to help and serve the public interest that already binds the accounting profession together today.

Family vacation time

As summer approaches, many workers are facing two very important questions.  Where will the family go on vacation this year and what will I do about all of the work that will pile up while I’m on vacation?  While the first question has been around as long as anyone can remember, the second question has exploded over the past 20 years, with it taking on an added dimension in the last decade, with the proliferation of smartphones connected to your work email.

Before we had always-on wireless internet connections, we had different problems like how many times you could play car games like alphabet and find the states before the kids finally lost it and you had to find that playland to let them blow off some steam.  As parents we thought we were in heaven when we found the nine-inch TV with built in video cassette player that could plug into the cigarette lighter.  At least it was like heaven until the eight-year-old, five-year-old and two-year-old had different ideas about which video they should watch next!

Today the question centers on how much we should limit electronics to make sure everyone actually interacts with the family during family vacation.  To parents, one of the funniest, and at the same time most troubling scenes, in Avengers Infinity War was Groot playing a video game while ignoring everyone else trying to talk and interact with him. As parents, the most powerful tool we have is example.  If we don’t use electronics excessively, then our kids will see that and more often than not follow our example, even if they don’t want to admit it.

That brings up the question about how much electronic communication from work should be allowed to interrupt family vacation time.  I have seen articles where people say to send all emails to the trash and have an autoreply that says you are on vacation and will not look at the email, and if they wish to contact you to do so again after a specific date.  I’ve also seen a slightly less drastic article that says don’t look at email at all while you are gone.  While both solutions have their appeal, it seems to me that, like almost anything in life, we can find a better solution that depends on moderation more than absolutes.

For example, don’t look at email or anything work related while you are walking around the amusement part of playing at the beach with your family.  But you can look at email if you are an early riser and everyone else is asleep or during nap time if your kids are younger. When someone contacts you in a panic, pass them off nicely to a colleague who is handling the emergency situations while you are out; or see if the issue can really wait until you get back, which is almost always the case. I don’t believe cutting off all contact is the answer, but a child or spouse witnessing you tell someone that you will take care of them later because right now you are focusing on family may do more to help your kids realize how important they are than any cold turkey approach to work could do.

Professional Skepticism

What is professional skepticism; and is professional skepticism limited to those providing assurance services?  These are two important questions at the center of a consultation paper released by the International Ethics Standards Board for Accountants (IESBA) last week. The full paper can be found on the International Federation of Accountants website here.  The paper is relatively short with the main body totaling less than 10 pages, but it is a fascinating read on the expectations of professional accountants.

The IESBA believes that professional accountants are expected to (a) approach professional activities with an impartial and diligent mindset; and (b) apply that mindset, together with relevant professional expertise, to the evaluation of information with which they are associated.  The paper then asks if such behavior should be expected of all professional accountants, or if such behavior only applies to certain roles filled by professional accountants.  The paper also brings up the point that the term professional skepticism is already defined in auditing standards, so any defining in the code of ethics will need to address how the two definitions interact.

The IESBA outlines four possible avenues for dealing with professional skepticism in the code of ethics.

  • Require all professional accountants to exercise professional skepticism as it is defined in the international auditing standards.
  • Re-define professional skepticism that would be appropriate for all types of professional activity (and therefore change or deal with the different definition in the auditing standards).
  • Develop a different term to use with the definition of behavior expected of all professional accountants (and leave professional skepticism defined in the auditing standards).
  • Not define professional skepticism, or a different term, in the ethics code, but develop application material to expand upon the concepts underlying fundamental principles supporting the definition of professional skepticism in the auditing standards.

Some of you may think that international ethics standards don’t matter, but this is where change begins.  First the IESBA updates the international standard, then those changes filter down to the AICPA ethics code, which is then incorporated into ethical expectations by most every state licensing Board.  Once that train gets rolling it’s hard to stop, but this is your opportunity to steer the train down the track you think it belongs on; so take the opportunity and let the IESBA know what you think.

Cryptocurrency Accounting

How should companies be accounting for holdings of Bitcoin, Ethereum, and what seems to be hundreds of other cryptocurrencies that to come into existence daily now?  The IRS tells taxpayers to treat such currencies as investments, but tax and GAAP don’t always see transactions in the same light.  The SEC focus is on whether coin offerings should follow securities regulation rather than how a company should account for cryptocurrency holdings. Finally, the FASB staff has undertaken pre-agenda research on the topic of cryptocurrency, but proposals on the potential accounting are still a long way away.

In the meanwhile, accountants must actually do the accounting for cryptocurrency held by organizations.  What do we do? First, we should look at definitions of currency in GAAP.

All balance sheets include cash and cash equivalents.  That term is generally thought to include currency, coins, checks received but not yet deposited, checking accounts, petty cash, savings accounts, money market accounts, and short-term, highly liquid investments with a maturity of three months or less at the time of purchase such as U.S. treasury bills and commercial paper. The items included as cash and cash equivalents must also be unrestricted.

One could take the simplistic view and state a cryptocurrency calls itself a currency so it must be currency, but that is a somewhat circular argument no different than me saying a duck must be a goose because I decided to call it a goose no matter how much it quacks.  The dictionary defines a currency as “a system of money in general use in a particular country.”  If you stick with that definition a cryptocurrency can’t be a currency because it very existence is not related to a country, at least not yet.  Some people may say currency has a second definition of “the fact or quality of being generally accepted or in use” but if you go further that definition is not about monetary transactions.

But could a cryptocurrency still be a cash equivalent as “a short-term highly liquid investment?”  I think the answer is no because such investments generally mean investments that must be redeemed for currency after a set period would rarely, if ever, lose value in terms of an origination’s functional currency.  Cryptocurrencies do not seem to fit either of those requirements.

That leads us to consider treating cryptocurrencies as investments. Such a treatment seems consistent with the SEC focus on treating coin offerings as securities offerings that need to abide by offering regulations. And keep in mind that the IRS has already decided that crypto-currencies are investments for tax purposes, so tax accounting and GAAP accounting would align if cryptocurrencies are treated as investment.

For now, all signs point to treating cryptocurrencies as investments, but the FASB may have the final word on the topic.

Of course, there is one more accounting consideration think about.  GAAP defines functional currency as the main currency used by a business or unit of a business. Functional currency is the monetary unit of account of the principal economic environment in which an economic entity operates.  If Bitcoin or Ethereum ever meets the definition of a currency, I can’t wait to see the first organization that publishes audited financial statements using a cryptocurrency as a functional currency because that is the principle economic environment the organization operates in.  Such financial statements would be the ultimate representation of a borderless multinational organization which will make some people deliriously happy and other cringe with fear.


What do you think of when you hear the word robot?  Does the image of the robot (it doesn’t have a name) from Lost in Space come to mind?  How about C3PO, R2D2 and BB8 from the Star Wars films?  Maybe you think of big yellow machines welding pieces together on an assembly line.  Well, that is too narrow a view today.  Just as everything else in the world is going virtual, so are robots.  Robots, called bots for short, are increasingly software programs or applications designed to sift through data or interact with humans in ways not possible until recently.

The interface to these robots may be through a keyboard or voice commands (Amazon Echo or Google Home Mini anyone?), but the one thing they have in common is being able to do something asked of it that might have required a human in the past.  Robots can be ‘dumb’ and only do a repetitive thing over and over; or robots can be smart and learn and improve through artificial intelligence and machine learning technologies.  Either way, in a world where CPAs are increasingly asked to make sense of volumes of data that would take a person years to read, using robotic tools is the only way to provide the business insight being asked of the profession.

Does the world of robots mean our jobs are in jeopardy?  That depends on how you view your job.  If your job is completing a tax form; then yes, your job is in jeopardy.  In fact, you probably already lost your job.  Think of the millions of tax forms electronically filed by software.  The software doesn’t just present forms to fill out, instead the taxpayer is asked questions and the software knows where to put the answers across the myriad of forms needed to file taxes.  Our jobs now are coming up with those questions when the tax law changes or analyzing the answers for ways to provide additional value added services to the taxpayer.

The reality is that our jobs are changing to interact with robots rather than simply be replaced by robots.  Some of us may actually develop the robots.  Others may provide expertise to help the developers make sure the robots are coming up with the right answers. Many, however, will find the use of virtual robots to become as ubiquitous as the use of spreadsheets and pivot tables.  While I don’t think robots are going to replace CPAs in the foreseeable future, robots will change the profession just like 10-keys and computers have done in the past.  I’m excited about the prospects of providing better and deeper insights to business leaders.  I’m eager to apply robots to data to see what frauds can be uncovered.  I’m enthusiastic about the future of CPAs because I know we are willing to change, evolve, and think anew about what our ‘job’ truly is.


April 2018 TSCPA Executive Board Meeting

Texas Society of CPAs (TSCPA) leadership is focusing on how the organization needs to change to continue the Society’s superior support of the profession and members. Numerous topics were discussed including:

  • Branding
  • Committee Restructuring
  • Peer Review
  • State-Chapter Coordination
  • Sunset Review of the Texas State Board of Professional Accountants
  • Legislative Plans for the 2019 session
  • Membership Dues
  • 2018-2019 Budget

Many of us are rightly proud of our local chapter and the services and opportunities the chapters provide us as members. We are also pleased to be part of a state level organization that can provide benefits and advocacy a local chapter could never provide on its own. Because TSCPA members are all members of both a local chapter and the state organization, finding the best way for the two organizations to work together to better serve our joint members is in the best interest of everyone. We don’t have all the answers, but the executive board looks forward to working with chapter leadership to develop those answers together.

The need for CPA licensure may seem obvious to all of us in the profession. Such state level licenses are even required by some federal agencies such as the Securities and Exchange Commission. So asking the legislature to support the continued existence of the Texas State Board of Public Accountancy would seem an easy thing to get accomplished. But just ask the doctors in the state about how obvious licensing requirements can get caught up in politics unrelated to anything to do with the licensing process. The TSCPA is working for you to see that such a thing doesn’t happen so our 26,000 members don’t have to worry about such events in the middle of our busiest time of year.

Finally, we wouldn’t be CPAs if we didn’t think about the numbers. Our budget is the result of well-considered decisions on how to spend the dues trusted to us to provide important benefits you can’t get anywhere else. If there is more we can do, we would love to hear from you.

I would love to see my Texas readers at the TSCPA annual meeting this year in late June.  The meeting is taking place right here in San Antonio. Check out the TSCPA website for details on dates, times and how to register.