Financial reporting 2021: Quick-reference guide 

2/22/2021
Financial reporting 2021: Quick-reference guide

Organizations can overcome financial reporting complications with ready access to the right accounting guidance and insights.

In the wake of COVID-19 and ongoing economic uncertainty, financial reporting will continue to demand extra attention in 2021. Use our quick-reference guide to help your organization identify and face head-on the most complicated reporting challenges, from debt modifications to asset impairment.

Debt modifications

Accounting guidance

  •  ASC 310 (Receivables) 
  •  ASC 470 (Debt)
  •  Refer also to the FASB staff educational paper on Topic 470 (Debt), released October 2020

Reporting overview

Debt modifications can be treated as a troubled debt restructuring (TDR), a modification, or an extinguishment, depending on the facts and circumstances. The financial statement impact and disclosures differ for each outcome. Organizations should be aware of differences between the TDR models in ASC 310-40 (for lenders) and ASC 470-60 (for borrowers).

Keys to success

As a first step, finance teams should determine if the modification is a TDR. Failure to perform this step could result in a material misstatement. Additionally, lenders might be able to bypass the TDR assessment in certain circumstances.

If not a TDR, the modification should next be assessed to determine if it is substantial (more than minor). If so, the modification is treated as an extinguishment (new loan). Otherwise, the modification is accounted for prospectively (continuation of old loan).

For further guidance, contact us or view this debt modification FAQ.

Lease concessions

Accounting guidance

  •  ASC 842 (Leases – new standard) 
  •  ASC 840 (Leases – old standard)
  •  FASB staff Q&A document (April 2020)

Reporting overview

The accounting for lease concessions depends on whether the concession is granted under the original terms of the lease. If it is not, then modification accounting applies, which requires organizations to update their inputs into lease classification and possibly lease measurement. 

Keys to success

Organizations should first consider the FASB staff Q&A document, released in April 2020, that provides a practical expedient to simplify the accounting for COVID-19-related lease concessions. The practical expedient allows organizations to bypass a legal review to determine if the concession was granted as part of the terms of the original lease. It also permits organizations to bypass application of the lease modification guidance. Learn more in this FAQ.

Revenue contract modifications

Accounting guidance

  •  ASC 606 (Revenue From Contracts With Customers)

Reporting overview

For customer contracts, any changes to the transaction price or promised goods and services must be accounted for in accordance with ASC 606. A modification might need to be treated as a separate revenue contract, as a prospective change, or as a cumulative effect adjustment to revenue, depending on the terms of the modification.

Keys to success

Finance teams should establish clear communication with sales teams and others to make sure all modifications, accommodations, or price concessions – whether verbal or written – are accounted for appropriately. 

The ultimate accounting treatment for a modification will depend, in part, on whether the remaining goods and services are distinct from those already provided and whether they are priced at their standalone selling price.

Organizations also should remember that not all offers to customers will be treated as modifications. In some cases, an offer might need to be treated as a marketing incentive. 

Employee agreement modifications

Accounting guidance

  •  ASC 420 (Exit or Disposal Cost Obligations) 
  •  ASC 710 (Compensation – General) 
  •  ASC 712 (Compensation – Nonretirement Post‐Employment Benefits)
  •  ASC 715 (Compensation – Retirement Benefits)

Reporting overview

Choosing the correct accounting model for termination benefits depends on whether the benefits are part of an existing contractual agreement and whether they are offered voluntarily or involuntarily.

Keys to success

Organizations should start by considering the nature and terms of each proposed termination benefit. This may affect when the termination benefits should be recognized – for example, all at once or over time (if a substantive service period is required). Organizations also will need to consider which event ultimately gives rise to accrual of the termination benefit liability.

If questions remain, consult with our specialists.

Share-based compensation modifications

Accounting guidance

  • ASC 718 (Compensation – Stock Compensation)

Reporting overview

There are different types of modifications to share-based payment arrangements. The accounting for a modification will vary depending on the type of the modification and how the shared-based payment award is classified – as a liability or as equity.

Keys to success

Organizations must determine the fair value of the modified award (using current inputs) to determine the amount of incremental compensation cost to be recognized. If the original award was not expected to vest at the date of modification, the company will recognize compensation cost using the modified award's fair value.

Questions? Contact our specialists.

Nonfinancial asset impairment accounting

Accounting guidance

Depending on the asset type, follow impairment testing guidance and disclosure requirements under:

  •  ASC 330 (Inventory)
  •  ASC 350-30 (Intangibles Other Than Goodwill)
  •  ASC 350-20 (Goodwill and Other) 
  •  ASC 360 (Impairment or Disposal of Long-Lived Assets)

To determine fair value of an asset, reference:

  • ASC 820 (Fair Value Measurement)

Reporting overview

Organizations must evaluate whether any nonfinancial assets have been impaired, including inventory; intangible assets; property, plant, and equipment (PP&E); and goodwill. 

Correct evaluation requires close attention to the ordering of impairment testing, testing frequency, triggering events, and the specifics of each impairment model (for example, for PP&E, there is a two-step process). Measuring an impairment loss requires estimating the fair value of an asset versus its carrying amount.

Keys to success

Asset impairment analyses for 2020 and 2021 might require significantly more documentation of assumptions and management judgments than in years past. 

In addition, organizations should verify that the impairment analysis is performed using the correct inputs – that is, the facts and circumstances that existed at the time a triggering event occurred or the impairment analysis was otherwise required.

When determining the fair value of nonfinancial assets, the estimate should include the impact of current market and economic factors in underlying cash flow projections. Organizations might need to revisit and refine growth expectations, cost increases, or other factors. In addition, if observable market prices are available, they often cannot be ignored unless the underlying transactions are not orderly. Thus, even observable transactions in inactive markets might still need to be weighed or considered in the fair value estimate. 

Finally, organizations should remember to integrate these 2020 lessons learned.

Going concern assessments

Accounting guidance

  •  ASC 205-40 (Presentation of Financial Statements – Going Concern)

Reporting overview

Businesses are required to alert financial statement users about any “substantial doubt” surrounding their ability to continue as a going concern. An evaluation of an entity’s ability to continue as a going concern is required at all interim and annual reporting periods.

Keys to success

An entity’s going concern assessment period extends 12 months from the date the financial statements are issued (or available to be issued). 

Importantly, an entity must verify that estimates and assumptions used in its going concern assessment are consistent with those used for other accounting conclusions.

In addition, it is imperative that an entity document all judgments and assumptions used in concluding whether it is probable management’s plans to address the substantial doubt will be effectively implemented within the assessment period. 

For additional information, refer to this article, which includes background on disclosures that are required when substantial doubt is raised.

Government assistance

Accounting guidance

The accounting model to apply to government assistance will depend on the form of the assistance as well as any related terms and conditions. Some models that might apply include (but are not limited to): 

  • ASC 450-30 (Gain Contingencies)
  • ASC 470 (Debt)
  • ASC 740 (Income Taxes)
  • ASC 958-605 (Not-for-Profit Entities – Revenue Recognition)
  • IAS 20 (Accounting for Government Grants and Disclosure of Government Assistance)

Reporting overview

Stimulus legislation issued during the pandemic (such as the CARES Act and the Consolidated Appropriations Act, 2021) has given rise to a number of different government assistance programs, ranging from Paycheck Protection Program (PPP) loans to income tax relief.

The correct accounting model to be applied to government assistance will depend on whether the assistance falls in the scope of existing guidance and whether the organization has a preexisting accounting policy, among other considerations.

Keys to success

Organizations should begin by understanding which forms of government assistance they received, including federal, state, and local government assistance.

Next, organizations need to assess the substance of the assistance to determine which accounting model should be applied. In some cases, organizations will need to apply an accounting model by analogy. 

Significant uncertainty remains about how some terms and conditions of several government assistance programs will be interpreted by the governmental entities providing the assistance. Additionally, stimulus legislation issued in December 2020 significantly changed the terms and conditions of existing government assistance programs, including PPP.

Organizations must remain up to date on changes to these programs and related tax laws and on how these changes will affect them. It is also imperative that organizations document all assumptions, supporting facts, and eligible expenditures to satisfy potential regulatory reporting requirements. View more resources.

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