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Controllership trends for 2019

Economic trends, regulatory changes, and continued transformation

From a tidal wave of new technology, the emergence of digital controllership, and economic growth in the US and abroad, 2018 was a landmark year for organizations, finance professionals, and controllers alike. What can controllers and accounting professionals expect out of the economy, the finance industry, and controllership in 2019? Will the year usher in more turbulent change and disruption or will the waters calm down a bit?

February 8, 2019

A blog post by Beth Kaplan, managing director, Deloitte & Touche LLP and David Cutbill, partner, Deloitte & Touche LLP.

During a recent Dbriefs webcast, “Controllership annual roundup: Preparing for the year ahead,” Patricia Buckley, director for Economic Policy and Analysis, Deloitte Services LP; Stephanie Buechele, senior manager, Deloitte & Touche LLP; Tim Kolber, managing director, Deloitte & Touche LLP; and David Stahler, partner, Deloitte & Touche LLP joined us to explore controllership trends and possibilities on the horizon for the finance industry as a whole. What was the consensus? The momentum of change coupled with better digital preparedness and a stronger economy may provide opportunities for growth and further accomplishments for controllership in 2019.

Economic outlook and its impact on the future of controllership

Forecast: Economic growth in the US through a majority of 2019 should remain strong to moderate, but there are some possible speed bumps to look out for in the year ahead.

Higher government spending and tax cuts spurring consumer spending and business investments helped created a foundation for strong growth in 2018 and those impacts are expected to continue to be felt well into 2019. However, by late 2019 or early 2020, that is likely to be reversed, with the tax policy stimulus in the past and falling government spending (the aftereffect of the agreement to temporarily raise spending in the fiscal year 2018 and 2019) becoming a potential drag on the economy. There are a few additional clouds on the horizon. Some monthly indicators of investment spending are beginning to weaken. Housing construction has started falling and foreign economic conditions are worrisome, with European growth slowing sharply and China struggling to contain the impact of US tariffs.

The current Deloitte US Economic Baseline Forecast estimates GDP growth of 2.4 percent for 2019 but has growth slowing to 1.0 percent in 2020. This increased fragility of the economy raises the likelihood that some type of shock, for instance, a sharply expanded trade war or an external situation such as an emerging market crisis, could potentially trigger a US recession.

Bottom line: At present, the economy is doing well, but economic signals point to a much slower 2020. With this increased fragility, we have raised the probability of a recession occurring in the next few years to 25 percent. For a detailed discussion of Deloitte’s forecast, which includes three alternative scenarios in addition to the baseline, please see United States Economic Forecast, 4th Quarter 2018.

Accounting standard updates

Controllers and accounting professionals should understand the possible impacts of accounting standard updates expected this year, notably credit losses, lease accounting, and targeted improvements for hedging activities.

Current expected credit loss (CECL) (ASU 2016-13)

Narrow amendments to align financial statement reporting dates and clarify the accounting for operating lease receivables.

Public company deadline: December 15, 2019
Private company deadline: December 15, 2021

How it can impact operations

  • Banks and asset portfolios will need to modify current processes for establishing an allowance for loan and lease losses and other-than-temporary impairments to facilitate compliance with new requirements.
  • Changes to operations will require a deep-dive assessment to prepare for CECL and create new processes modeling and valuation of the expected credit loss.

Lease accounting standard (ASU 2016-02)

The new lease accounting standard provides transition relief for comparative periods and lessors not to separate lease and non-lease components that meet certain conditions. Narrow-scope improvements were also issued for lessor accounting as it relates to sales tax, costs paid by the lessee, and variable payments.

Public company deadline: December 15, 2018
Private company deadline: December 15, 2019

How it can impact operations

  • Transferring all operating leases to the balance sheet adoption of the new lease accounting standard will likely present immediate and ongoing challenges to the operating model, talent resources, accounting policies, new systems, and communications.
  • Significant data sourcing and abstraction—as well as system—issues, are causing adoption challenges for many organizations. Preparation and communication will be vital to meeting the first deadline.

Targeted improvements to accounting for hedging activities (ASU 2017-12)

Targeted improvements to accounting for hedging activities amends the hedge accounting recognition and presentation requirements in ASC 815 and allows companies to revisit their current hedge accounting strategies and better align accounting with risk management strategies.

Public company deadline: December 15, 2018
Private company deadline: December 15, 2019

How it can impact operations

  • Companies will need to adjust their processes for the elimination of previously required financial reporting elements.
  • Overall minimal impacts may provide additional opportunities for net investment and component hedging.

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Digital controllership: Continuing the transformation

If 2018 had a principal theme, it was digital transformation. The emergence of automation, analytics, cloud computing, and new technology created a sea change within the controllership function. The more widespread adoption of automation and analytics helped free up controllers’ time for value-added analysis, further driving toward a more strategic controllership function. Expect the wave of new technology to continue this year, especially in the critical areas of accounting automation and controllership analytics.

Accounting Automation: While 2018 saw the emergence of robotic process automation, we are likely to see further adoption of intercompany automation, cognitive automation, and blockchain in 2019.

Controllership Analytics: As key performance indicators (KPIs), control dashboards, and cost-to-serve computing brought more value to controllership data in 2018, we expect to see an acceleration of this trend in 2019 through predictive risk sensing and prescriptive analytics.

Be on the lookout: Emerging trends this year and beyond Cryptocurrency

Cryptocurrency is a digital currency and peer-to-peer encrypted payment system that operates on a blockchain independently of a central bank or government body. A notable example of cryptocurrency is Bitcoin and, unlike US dollar (USD), it's not a fiat currency that derives its value from government regulation or law.

Cryptocurrency is currently considered an intangible asset because it does not meet the definition of a financial asset. However, it is being considered for the definition of inventory even though the Financial Accounting Standards Board has not addressed this formally.

Controllership transformation

This year looks to be another transformative one for controllership. The current economic growth should offer some breathing room to focus on the influx of new technology that is expected to empower finance to push further down the digital path. To take full advantage of the possibilities that lie ahead while reducing growing pains, organizations should prepare for what is certain—such as regulatory changes and deadlines—and focus on exploring the potential of strategic value-added technologies within the digital landscape.

Watch the full on-demand Dbriefs webcast, “Controllership annual roundup: Preparing for the year ahead,” for more insights and predictions for 2019.

Visit the Controllership Insights blog for additional blog posts.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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