As 2023 begins, companies must prepare their accounting departments, and CEOs must plan for an unpredictable year.
FREMONT, CA: Accounting and financial reporting become increasingly complex each year due to the introduction of new standards, economic shifts, and company trends. The Financial Accounting Standards Board (FASB) has simplified generally accepted accounting principles (GAAP) to combat the growing complexity. It might be challenging to remain on top of financial reporting obligations due to a lack of in-house subject matter experts (SMEs), high transaction volumes, or difficulty learning and applying accounting standards. Even more so, organizations performing accounting fundamentals will be subject to challenges if they intend to engage in one or more big transactions.
Significant estimations: Cash flow projections are essential inputs for various accounting estimations, including asset impairment evaluations, the fair value of assets, and going concern calculations. Estimates will be influenced by the ultimate direction of interest rates and the eventual reality of a recession – or lack thereof. Using their cash flow projections, accounting departments must evaluate whether the firm will have sufficient cash, revenues, or income in future quarters to support its ability and determine whether impairment charges are necessary.
Budgetary insecurity: Foreseeing the future in any particular year is impossible. Currently, the level of economic volatility is exceptionally high. Uncertainty about the path of interest rates, fears of a recession and other factors create planning difficulties for accounting departments. All of the unknown variables can make making an annual budget nearly hard. Accounting departments must be able to conduct thorough scenario planning and stress testing to address any macroeconomic concerns.
New requirements: There is a need for accounting and financial reporting. Some of the most significant modifications to accounting standards in recent years, like revenue recognition and leasing rules are now completely integrated into the financial reporting procedures of the majority of businesses. The new regulations for reporting credit losses will have little effect on some companies but will significantly impact those with significant lending activities. If rules get implemented in 2023, ESG reporting standards would likely impose a substantially more considerable reporting burden on corporations as they define their environmental effect.
Labor market uncertainty: Accounting departments will confront difficulties managing the unpredictability of the labor market, as would departments in all other company fields. Accounting departments struggle to find qualified personnel familiar with GAAP, book-closing procedures, and financial reporting regulations. On top of these obstacles are the changing expectations associated with remote and hybrid work arrangements. Businesses undergoing a first-year audit, attempting to go public, or lacking robust control settings could confront many obstacles.
