Dealers across the country are working through year-end and all its implications. It’s a busy time filled with closing out 2024 and planning for 2025. This season is all the more charged with change as dealers consider the wake of the election, especially possible changes regarding EV regulation. Read this edition of Accelerate to understand audit, tax, and other considerations as your dealership finalizes the 2024 year.
A&A Updates for Dealers
Recently Issued Accounting Standards
Several accounting standards were issued prior to 2024. Dealerships can revisit these items to help ensure compliance and ongoing proper treatment of these standards. They include but are not limited to:
New Accounting Standards
The following accounting standards and their potential impacts should be considered for dealerships.
Accounting Standard Update (ASU) 2023-012 – Common Control Leases
This update went into effect in 2023 and provides private companies with a practical expedient to use the written terms and conditions of a common control arrangement to determine whether a lease exists and, if so, the classification of and accounting for that lease.3 Thus, ASU-2023-01 allows private companies to use written terms of a related party lease when accounting under ASC 842 (mentioned above), even if it is a month-to-month lease. In addition, the ASU allows leasehold improvements for these leases to be amortized over the useful lives of the improvements, even if the underlying lease is short-term.
ASU 2023-08 – Crypto Assets
On December 13, 2023, FASB issued ASU 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. The amendments in ASU 2023-08 require that an entity measure crypto assets at fair value in the statement of financial position each reporting period and recognize changes from remeasurement in net income.4
This update is effective for years ending after December 31, 2024 and requires valuation at fair value each reporting period. Dealerships holding any crypto assets must list gains and losses from crypto assets separately based on this guidance. In addition, enhanced disclosures about significant holdings, contractual sale restrictions, and changes during the reporting period are required.5
Upcoming Standards to Note
Dealerships should always have an eye on the horizon since upcoming standards can potentially impact their business and operations. These four areas could affect dealerships in 2025.
ASU 2024-01 – Compensation – Stock Compensation (Topic 718)
This guidance simplifies how an entity grants certain classes of equity or profit awards. The full ASU provides detailed examples for use in accounting for profits interest awards. Dealerships with profits interests in place or that issue new profits interest awards should be aware that this is effective for year-ends after December 15, 2025.
ASU 2023-05 – Joint Venture Formations
FASB issued ASU 2023-05 on August 23, 2023, wherein “the amendments address the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. The objectives of the amendments are to (1) provide decision-useful information to investors and other allocators of capital (collectively, investors) in a joint venture’s financial statements and (2) reduce diversity in practice.”6
The ASU requires a newly formed joint venture to be treated as a new reporting entity with measurement of assets and liabilities on the formation date effective after January 1, 2025. Dealerships that enter into or operate as a joint venture should prepare accounting accordingly.
ASU 2023-09 – Income Tax Disclosures
Amendments in this update were issued to “enhance the transparency and decision usefulness of income tax disclosures. Investors, lenders, creditors, and other allocators of capital indicated that the existing income tax disclosures should be enhanced to provide information to better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows.”7
This is effective for public business entities for annual periods ending after December 15, 2024. For taxable entities, the guidance includes some expanded requirements regarding rate reconciliations.
In addition to this, ASU 2023-09 makes changes to annual income taxes paid disclosures on federal, state, and foreign levels. Dealerships that are C corporations should begin reviewing their income tax disclosure processes and ensuring they capture the required information in compliance with ASU 2023-09.
ASU 2024-03 – Income Statement Expenses
FASB issued this update to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses in commonly presented expense captions (such as cost of sales; selling, general, and administrative expenses; and research and development).8
This update pertains to public companies only and goes into effect for annual reporting periods beginning after December 1, 2026.
Key Audit Considerations for Year-End
In addition to accounting standards, there are several audit items and reminders to reflect on as 2025 begins.
CDK Outage
Dealerships experienced an unprecedented event last summer during the CDK outage. Forvis Mazars shared action items for dealerships to take as they prepared to return to the CDK environment at that time, and those reminders are still relevant for the start of the new year. Specifically, dealerships can revisit their internal processes to look into critical areas such as employee education, penetration testing and vulnerability scans, backup processes, and third-party access.
Moreover, focus on accounting for insurance proceeds (if your company filed for them due to losses during the CDK outage). In order to recognize the income under U.S. GAAP before it is received, your insurance company must agree with the filed claim, and the claim needs to clearly cover losses incurred.
Year-End Reminders
By following industry best practices, dealerships can look for a smooth transition into the new year. First, revisit the previous year’s adjusting journal entries and your accountant’s prior year’s management letter comments. Reconcile key accounts (such as cash, floorplan, and factory accounts receivable/accounts payable), then compare actual results to your budget and/or previous year’s results, and review contracts for potential liabilities.
Next, dealerships can review their goodwill and franchise rights for potential impairment. For example, if your group previously paid a significant amount of blue sky for a store and that store is significantly underperforming, the goodwill and franchise rights assets associated with that store should be assessed for potential impairment under U.S. GAAP. Thus, it is important for dealerships to discuss impairment considerations early with their auditors. This is an area that requires significant judgment, and each situation is unique.
Third, an overarching, industry-agnostic best practice is to enlist time-saving strategies. This can help your dealership prepare for the future and set you up for ongoing success. Execute these practices by developing financial dashboards, utilizing automation (with continuous forecasting, routine tasks, and other areas that can be outsourced), and looking into technology such as artificial intelligence (AI). More information on AI usage and applicability to dealerships, risks and security concerns when using AI, and regulations related to the use of AI can be found in this edition of Accelerate.
Taking current and new accounting standards and key audit planning tasks into consideration can help your dealership prepare for the year-end process and help drive profitability, avoid risk, increase efficiencies, and enhance productivity over time.
End of Year Tax Considerations
While some may be expecting changes to tax regulation with President Donald Trump taking office, many updates will not be immediate. Keep these considerations in mind as you wrap up your tax documentation and plan for 2025.
Other Key Topics for 2025
Conclusion
There are many items for dealers to look into as they close out one fiscal year and start another. Whether you’re working through your end-of-year accounting or considering tax strategies for the new year, our team can help in these various year-end planning areas. Learn more about our Dealerships Practice and how we can help your dealership thrive in the new year.
- 1“Interagency Policy Statement on Allowances for Credit Losses (Revised April 2023),” federalregister.gov, April 27, 2023.
- 2“FASB Accounting Standards Update, Leases (Topic 842) Common Control Arrangements,” fasb.org, March 2023.
- 3“FASB Improves Leases Guidance on Related Party Arrangements between Entities under Common Control,” fasb.org, March 27, 2023.
- 4“ASU 2023-08: Accounting for and Disclosure of Crypto Assets,” aicpa-cima.com, December 19, 2023.
- 5“Accounting for and Disclosure of Crypto Assets,” fasb.org, December 2023.
- 6“FASB ASU 2023-05 – Business Combinations—Joint Venture Formations (Subtopic 805-60), Recognition and Initial Measurement,” fasb.org, August 2023.
- 7“FASB ASU 2023-09 – Income Taxes (Topic 740) – Improvements to Income Tax Disclosures,” fasb.org, December 2023.
- 8“Disaggregation – Income Statement Expenses,” fasb.org, November 2024.