Year in Review — 2023

Welcome to Quarterly Accounting Roundup: Year in Review — 2023. The challenges associated with uncertainties in the current macroeconomic and geopolitical environment have continued to be top of mind for many companies and investors. During 2023, we have seen evidence of these challenges in the form of banks failing or being downgraded; businesses struggling to raise capital; and companies announcing layoffs, broader restructuring plans, and impairments. Some of the more prominent factors affecting businesses include risk of recession; high market interest rates; tightening of credit and concerns about the banking sector; concerns about the residential and commercial real estate sectors; continuing inflation, including geographic- and sector-specific impacts; tightened labor markets; changes in foreign currency exposure as a result of both the geopolitical environment and supply chain challenges; and climate risk.

Sustainability disclosure requirements continued to gain significant momentum this year, both domestically and internationally. In the United States, California Governor Gavin Newsom signed into law two state senate bills and one state assembly bill on October 7. The bills collectively require certain public and private U.S. companies that perform specific business activities in California to provide disclosures about their greenhouse gas (GHG) emissions, climate-related financial risks, voluntary carbon offsets (VCOs), and certain climate-related emission claims. And globally, the International Sustainability Standards Board (ISSB) issued its inaugural disclosure standards in late June. The purpose of these standards is to “require an entity to disclose information about its sustainability-related risks and opportunities.” Further, the European Commission adopted the European Sustainability Reporting Standards (ESRS), which provide guidance for companies within the scope of the E.U. Corporate Sustainability Reporting Directive (CSRD), including certain U.S.-based companies with activities in the European Union.

In terms of accounting-specific news, Accounting Standards Updates (ASUs) released by the FASB in 2023 include those on:

• Enhancements to the guidance on reportable segment disclosures.
• Accounting for and disclosure of crypto assets.
• Income tax disclosures.
• Use of the proportional amortization method to account for investments in tax credit structures.
• Joint venture formations.
• Leases between entities under common control.
• Amendments to the FASB’s disclosure requirements to reflect SEC guidance.

The Board also issued two new chapters of its conceptual framework — Chapter 2, “The Reporting Entity,” and Chapter 5, “Recognition and Derecognition.”

It was also a busy rulemaking year for the SEC. Especially notable final rules include those that amend the rules governing money market funds and enhance public companies’ cybersecurity disclosures (the SEC’s Division of Corporation Finance has released additional guidance on this rule). In addition, SEC Chief Accountant Paul Munter recently released a key statement addressing the importance of the statement of cash flows to providing investors with high-quality financial information. Mr. Munter notes that the staff has “observed that preparers and auditors may not always apply the same rigor and attention to the statement of cash flows as they do to other financial statements.”

And the PCAOB recently announced that, in 2023, it “has taken more formal actions on standard setting and rulemaking than any year in the last 10 years.” Of particular note was its issuance of a final standard on the auditor’s use of confirmation.

Quarterly Accounting Roundup: Year in Review — 2023 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, please see issues of Quarterly Accounting Roundup for the first three quarters of 2023.

In addition, 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 2023 issues of Quarterly Accounting Roundup. Events without asterisks were covered in previous issues.