5 financial reporting issues to keep an eye on

March 11, 2022 9:00 AM

Change is the one constant. And 2022 is bringing changes for the accounting and auditing field as policymakers debate tax frameworks and standard-setters consider new reporting guidelines for cryptocurrencies and environmental, social and governance issues such as climate change.

Understanding the challenges that lie ahead can be a daunting task, but companies should be aware of potential developments as they prepare their financial reports. Being aware of key changes is crucial for financial statements and other stakeholder communications.

Planning is key. Here are five issues we’re monitoring.

FASB reporting requirements for ESG

Environmental social governance (ESG) text on wooden signpost outdoors in nature

Jon Anders Wiken/stock.adobe.com

The Financial Accounting Standards Board is studying whether new ESG reporting requirements are needed. As corporations increasingly focus on ESG, the accounting implications of ESG-related transactions will be of interest to regulators and investors. Monitoring FASB deliberations in 2022 will allow companies to anticipate how to present ESG-related transactions within a developing regulatory and reporting structure.

In addition to watching for new reporting requirements for ESG-related transactions, companies must also consider implications for data collection processes and controls and choose reporting methods that best deliver rigorous ESG reporting outside the financial statements. Companies should be preparing today for competitive and compliance-driven needs to enhance sustainability reporting as momentum grows toward a baseline global standard. KPMG supports the development of a global baseline ESG reporting standard to achieve greater consistency, reliability and comparability in ESG reporting. This effort not only serves the capital markets, but clear standards will also help companies develop cohesive ESG strategies to unlock value for investors, customers and employees.

Requirements for cyber, crypto and intangible assets

Moe Zoyari/Bloomberg

The Securities and Exchange Commission proposed new requirements for cybersecurity risk and incident disclosures. The last guidance issued for registrants was in 2018. The proposal is a step toward further transparency in the marketplace, offering more prescriptive guidance on disclosing cyber risks and incidents.

Additionally, FASB is examining whether new reporting requirements are warranted for cryptocurrency holdings and other intangible assets. If FASB decides to take up a project on accounting for digital assets, companies should monitor these developments for any significant changes from current practice.

Investors want to understand the value and risks of digital asset holdings. Corporations with digital assets should think about how they communicate the values of their holdings and understand the risks involved when going crypto.

Companies adopting a digital asset investment policy should update their corporate governance, accounting procedures and internal controls to support successful investment strategies.

Tax reform at home and abroad

Jozsef Szocs/stock.adobe.com

In a recent KPMG survey, 50% of C-suite executives said that global corporate tax reform efforts keep them up at night; 37% say the same about domestic corporate tax reform.

In the U.S., debates over domestic tax reform have stalled as President Biden’s Build Back Better legislation remains in limbo. While tax reforms at home will likely have the biggest impact on U.S. businesses, financial officers should also focus on developments in global tax reform.

Chief tax officers can prepare companies by communicating how OECD proposals will affect their organizations. Model legislation for a global minimum tax has been released, and dozens of nations appear poised to implement changes that could impact U.S. companies with foreign operations.

Changing technology

Kittipong Jirasukhanont/phonlamaiphoto - stock.adobe.com

As technology advances, companies should thoughtfully plan how to move important financial data to cloud-based platforms. Effective financial data processes and controls are key to maintaining integrity in the reporting process. Companies with sound processes for transferring important data to new technologies will benefit in 2022 and beyond.

SEC developments

Joshua Roberts/Bloomberg

Public companies should prepare their public filings with an eye toward potential changes in Securities and Exchange Commission requirements. Similar to FASB, the SEC is readying rules that may require disclosure of climate change risk management plans and greenhouse gas emissions. Those who prepare for the changing regulatory environment will be best positioned to implement changes in a way that balances business growth and environmental sustainability. The SEC is also proposing regulations related to executive compensation; companies need to monitor these developments so they have the proper data-gathering and other processes in place to meet evolving regulatory requirements.