A new year means new revisions to the FFSC Financial Guidelines for Agriculture. Stay up to date by ordering the 2020 edition of our guidelines document.
The Financial Guidelines for Agricultural Production provides recommended standards for format and content of financial reports, recommended financial measures common to all sectors of agriculture, and example statements and measures.
You can order the guidelines here.
What’s new in 2020?
In this edition of the Farm Financial Standards Council’s Financial Guidelines, there are a few important changes to note. As the FFSC integrates new GAAP pronouncements, frequent adjustments are required to the Guidelines. This edition includes updates with respect to leases, hedging, deferred taxes, revenue recognition, and guaranteed debt disclosures.
Many of the changes in this edition affect Appendix B, which is an example of accountant-prepared financial statements. The case farm has not changed. However, fairly extensive changes were made to the financial statements and accompanying footnote disclosures. The financial statements now illustrate the reporting of a couple of different types of hedging strategies (see note 8). The format of the income statement and the statement of owner equity has changed to accommodate reporting other comprehensive income (loss) from certain hedging activities. Also, the income tax rates used in the case were updated, so income tax amounts and deferred tax amounts changed (see note 4). Appendix B now illustrates the new GAAP standard on reporting for operating leases, which requires the addition of an operating lease right-of-use account to noncurrent assets in the balance sheet and the addition of current and noncurrent operating lease liability accounts (see note 11). Other new footnote disclosures were added disclosing revenue from contracts with customers (see note 7), disclosing the fair value of commodity derivatives (see note 9), and disclosing guaranteed debts (see note 12). Note 1 was also updated to incorporate a policy for derivative instruments associated with hedging and options activities. The supplementary information was also updated to conform to changes made to the financial statements. Please note that the footnote disclosures are required by GAAP, whereas the supplementary information is not. The financial measures and ratios included in Appendix D have been updated to reflect the changes made to the financial statements in Appendix B.
One significant recent change in GAAP is a new lease standard. The new standard already applies to financial reporting for publicly-held business entities. It will become effective for business entities that are not public in 2021. It was originally scheduled to go into effect in 2020 for such businesses, but on November 15 2019, the FASB decided to defer its effective date for one year to give not-forpublic business entities more time to prepare for implementing the new standard. Under prior GAAP, operating lease assets and liabilities weren’t recognized on business balance sheets. Under the new GAAP standard, operating leases with a term in excess of one year must be reported on business balance sheets in financial statements prepared in conformity with GAAP. The reporting for capital leases, which are called finance leases under the new standard, is basically the same as under prior GAAP. However, the four criteria previously used to identify a finance lease have been altered and a new fifth criterion has been added. The five criteria applicable under the new standard are discussed in the revised Appendix G in this edition. The FFSC has studied the new GAAP standards related to operating leases and recommends the GAAP approach to reporting operating leases, but also suggests an alternative approach. The recommendations regarding accounting for leases are in Section II. The revised Appendix B illustrates the application of the new requirements to an example of financial statements prepared in conformity with GAAP by an accountant.
Another recent GAAP update requires reporting revenues received from contracts with customers separately from other components of revenues. This requirement can be met by reporting this type of revenue in the footnotes to the financial statements, which is illustrated in the revised Appendix B. This type of revenue could also be separately stated in the income statement.