It’s a big year in the accounting world. Significant changes that have been on the horizon for several years are finally here. The result could change the shape of key business practices, from contracts with customers to leasing arrangements. Other macro events – such as Great Britain’s “Brexit” from the European Union and technological developments – are also expected to have an impact on the global market. The following are some of the top accounting issues that could affect your business.
Implementation of major accounting updates
Two of the most significant updates to accounting processes – the new revenue recognition standard and the new leasing standard – are in play for 2019. Private companies are implementing new guidance for recognizing revenue from their contracts with customers, which could affect a company’s EBITDA if revenue is accelerated under the new standard. Public companies are implementing the new leasing standard, which requires all leased assets and liabilities to be recognized on the balance sheet; the result could affect debt covenants. With these major accounting updates, financial statements and the business processes that rely on them might look a little different in 2019. Accounting processes, internal controls and other reporting functions will also need adjusting.
Blockchain, the technology that makes cryptocurrencies like Bitcoin possible, has the potential to dramatically change the accounting landscape. The electronic ledger tracks and encrypts transactions, potentially reducing bookkeeping costs. Artificial intelligence (AI) is also playing an increasingly important role in accounting. In the future, more and more firms could use it to help with technical accounting and tax preparation to create efficiencies within their workflow.
Automation can help improve quality by diminishing the potential for human error, but the need for human accountants won’t be going away any time soon. Human intelligence will continue to play a vital role in strategy and the execution of business processes.
Cyber threats to sensitive information are here to stay. At a regulatory level, companies are being asked to be more descriptive about the steps they take to protect their electronic data. Cybersecurity will be an increasingly important part of boardroom discussions, especially when it comes to bringing on new vendors or evaluating acquisition opportunities. The SEC, in particular, has asked public companies to be more “forward-looking” when it comes to managing their cyber risks. It wants to see more disclosures around how breaches are communicated and the role boards of directors are playing in managing their organization’s cyber risks.
Great Britain’s time in the European Union is supposed to be coming to an end, but the uncertainty around the Brexit plan promises to make any eventual withdrawal disruptive to the global market. Goods coming in and out of Great Britain will be affected. American companies will need to understand the extent to which Brexit could affect their operations and be prepared to communicate the ramifications that a so-called “hard” Brexit could have on their business.
Companies that incorporate these and other accounting trends into their strategic discussions will be well equipped for what this year may bring. Be sure to plan early and adjust often.