If your financial statements are in disarray because of the economic downturn, we've got good news and bad news for you:
First, the good news: they won't stay in their current condition for long.
Why not? That's the bad news: they're about to change much more drastically.
Recently, the Financial Accounting Standards Board (FASB) met to discuss proposed sweeping changes to how financial statements are prepared. The changes, some of which are detailed below, are surprising in how much they depart from current standards.
Some potential changes include:
- Division of statements. CFO.com notes that "all three statements -- balance sheet, income statement, and cash-flow statement -- would be divided into two major sections: business and financing." Business, says the website, "would include what a company does to provide goods and services," while financing is intended to deal more with "activities that fund a company's business activities."
- "Unbalanced" balance sheets. Because of the proposed division of statements mentioned above, balance sheets would not balance in a conventional sense; that is, assets would not equal liabilities and equity, since assets and liabilities would be broken up into categories.
- Management decision on classifications. Ultimately, management would make the call on whether to classify items in financial statements as related to operations or financing. This could create a disparity between the financial statements at different companies, since one company's investment earnings could be another's operating earnings.
These changes and more -- such as using the direct method, rather than the indirect method, to generate a cash-flow statement -- are still being discussed through the accounting community, and some companies are already participating in field tests of some of the proposed changes. One thing is certain, however: in just a few years, financial statements will contain at least a few elements radically different from what we have today.
Learn More Contact DGK to discuss how to prepare for upcoming FASB changes
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