Hold on to Your Hat
As we approach the end of 2021, we find ourselves two years into a “once-in-a-century” pandemic. Unfortunately, at the time of this blog, there is no apparent clear path to an end. Instead, the virus seems to have a life of its own, as evidenced by its various mutations. The pandemic, and our response to it, has precipitated business closures, supply chain disruptions, travel issues, employee shortages, work stoppage, interruptions in the education of our children, anger, and, most tragically, the loss of life and health. On the macro level, collectively, this has led to inflationary pressure that is likely to continue deep into 2022. In response, the Federal Reserve has indicated the likelihood of interest rate increases for the coming year.
World of Accounting. The accounting profession has not been immune to the impact of the pandemic. The profession had its hands full addressing responses to federal programs designed to ease the burden of the pandemic. Such programs included the Paycheck Protection Program, recovery rebate credits, expansion of the child tax credit, and the employee retention credit.
The new lease standard has been in discussion for several years. Despite that, we predict that many companies will be surprised by its impact. It will be impactful in two areas:
- The amount of time it will take to capture all necessary information to properly account for leases under the new standard, and
- The change in the balance sheet. Essentially all leases will now be capitalized on the balance sheet, both operating and finance leases.
Companies should not underestimate how labor-intensive it will be to identify all leases the company may have. That’s because leases may be scattered in several departments. Additionally, certain leases may be “embedded” in other contracts and will have to be dug out. So the advice is to not delay implementation any longer. There will also be added complexity in determining the lease term subject to capitalization and other data points necessary for capitalization and extended disclosure.
Under the legacy lease standard, operating leases were not presented on the balance sheet. Instead, the future obligations were disclosed in footnote presentation. Under the new standard, the asset and the debt will be classified on the balance sheet. This may be shocking to company management when looking at the hard numbers for the first time.
Be sure and look at our blog posted May 18, 2021, on leases. Also, consider discussing lease accounting and presentation with your accounting professional.
Federal Income Taxes. It may come as no surprise, but we predict that corporate and individual income taxes will become more complicated, not less complicated, in 2022. There is a tendency among politicians to attempt to correct economic and social ill through tax legislation along with well-meaning attempts to incorporate fairness into the code. As righteous as this may be, it often has unintended consequences. Those consequences are corrected by further legislation, which results in incomprehensible and complicated tax law.
Working Remotely From Home. The pandemic accelerated the trend of working remotely from home. For many people, working from home was not an option. However, those who could work from home, instead of the office, found both pros and cons to the arrangement. The pros included:
- No commute. No fighting traffic to and from work.
- Eliminating the commute frees up more time for work without extending the workday. For the period I worked remotely in 2020 and part of 2021, I found that eliminating my commute made available an additional eight productive hours per week.
- Working remotely provided greater flexibility to handle personal matters that required attention during the workday.
The disadvantages of working remotely from home included:
- Working remotely results in a disconnect with those working in the office. It’s the old “out-of-sight, out-of-mind” thing.
- Remote internet meetings are great for many situations. However, there are numerous occasions when it’s a poor substitute for face-to-face interaction. For example, I have found no viable replacement for a live, person-to-person interface for training.
I predict that 2022 will move toward a balance regarding working remotely from home. The concept is not all good – nor is it all bad. Faster home internet connections and cloud computing have enhanced the possibilities of working from home. However, good old-fashion face-to-face interaction will never go out of style.