Year in Review — 2021
Welcome to Quarterly Accounting Roundup: Year in Review — 2021. While the ongoing COVID-19 pandemic may not be receiving the level of media attention it was a year ago, it continues to have a significant impact on accounting and financial reporting. Since early 2020, companies have had to grapple with unprecedented operational and financial challenges. Now, as companies look to navigate the “new normal” while the economy emerges from COVID-19, additional uncertainties cloud not only the overall economic picture but also the outlook for individual companies. Inflation, supply chain disruptions, and labor shortages are all affecting an increasingly large number of companies in different industries to varying degrees. If a company’s business model and operations are affected, its accounting and financial reporting are likely to be as well.
Other hot topics in 2021 included environmental, social, and governance (ESG) issues and the accounting for special-purpose acquisition company (SPAC) transactions. In addition to releasing a number of different statements on SPACs, the SEC issued a request for input on potential climate-change disclosures and posted to its Web site a sample letter of comments the Division of Corporation Finance (the “Division”) “may issue to companies regarding their climate-related disclosure or the absence of such disclosure.” The SEC staff also recently released a public statement on the forthcoming “transition away from LIBOR as a reference rate for a number of different types of investments, including securities.”
The annual AICPA & CIMA1 Conference on Current SEC and PCAOB Developments returned to Washington, D.C., this year. The conference brings together key stakeholders to discuss developments in accounting, financial reporting, auditing, and other related matters, serving as a platform to address emerging areas of focus and trends affecting the profession.
While the effects of the COVID-19 pandemic were a theme at last year’s conference, this year they largely took a back seat to other issues. ESG matters emerged as a key topic. The importance of attracting and retaining professionals to support high-quality financial reporting was also frequently mentioned. Further, the importance of enhancing diversity, equity, and inclusion (DEI) in the profession was highlighted by leaders throughout the conference as well as during the discussions of a panel dedicated to the topic. And as they do each year, key stakeholders discussed the ever-changing landscape of accounting, financial reporting, and capital formation.
For more information about the conference, see Deloitte’s December 12, 2021, Heads Up.
The FASB was also busy this year. The Board’s standard-setting efforts in 2021 included the issuance of Accounting Standards Updates (ASUs) that:
- Allow lessees that are not public business entities (PBEs) to make an accounting policy election, by class of underlying assets rather than on an entity-wide level, to use a risk-free rate as the discount rate when the rate implicit in the lease is not readily determinable.
- Improve guidance for lessors with leases containing variable lease payments.
- Refine the scope of guidance on reference rate reform.
- Provide guidance on recognizing and measuring contract assets and contract liabilities from contracts with customers acquired in a business combination.
- Offer private companies and not-for-profit (NFP) organizations an alternative to the goodwill triggering event assessment.
- Allow a franchisor that is not a PBE to use a practical expedient when identifying performance obligations in its contracts with customers (i.e., franchisees) under ASC 606.2
- Provide guidance on disclosures about government assistance.
- Clarify guidance on freestanding equity-classified written call options.
- Offer a practical expedient to nonpublic entities for measuring equity-classified share-based payment awards.
In addition, in the fourth quarter, the FASB released proposed ASUs that would (1) amend the guidance on troubled debt restructurings and vintage disclosures in ASC 326 and (2) improve the effectiveness of interim disclosures in the notes to financial statements.
On the international front, the International Accounting Standards Board (IASB®) amended its guidance on (1) accounting estimates and disclosure of accounting policies and (2) deferred taxes related to assets and liabilities arising from a single transaction. The IASB has also recently released proposals that would enhance the disclosure requirements for supplier arrangements and amend its guidance on classification of long-term debt with covenants. Further, the IFRS Foundation (the parent organization of the IASB) has announced the establishment of a new International Sustainability Standards Board (see article below).
Note that Quarterly Accounting Roundup: Year in Review — 2021 summarizes final guidance that affects reporting and disclosures for the coming reporting season. With the exception of fourth-quarter developments, proposed guidance is not included. For more information about earlier proposals, see issues of Quarterly Accounting Roundup for the first three quarters of 2021.
In addition, note that in this year-end edition, an asterisk in the article title denotes events that occurred in the fourth quarter, including updates to previously reported topics, or that were not addressed in previous 2021 issues of Quarterly Accounting Roundup. Events without asterisks were covered in previous issues.
Chartered Institute of Management Accountants.
For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”