Getting Ahead of the Curve: Preparing for Changes in Risk and Compliance

In Weaver’s Q1 2025 Accounting and SEC Update webinar, we offered updates and critical insights on several accounting and finance topics. A summary of the status of federal tax legislation included information about potential tax cuts and changes in federal spending priorities. To start the year off right, Weaver’s professionals offered tips for audit and SOX compliance, M&A risks and system implementations. Following a discussion of economic trends impacting financial reporting and disclosure strategies, the webinar closed with updates on several accounting standards updates (ASUs).

Federal Tax Update: Budget Dynamics and Proposed Cuts

At this early phase of the budget process, we can only project potential scenarios based on what has been said on the campaign trail and what happens from day to day as part of the political process in Washington. It helps to understand the overall process of budget adoption, from resolution to reconciliation to law.

First, both chambers of Congress must adopt a concurrent budget resolution, which sets top-line spending limits and serves as a framework for future legislation. This resolution does not carry the force of law but enables the budget reconciliation process — an important legislative tool that allows certain tax and spending measures to bypass the filibuster and pass with a simple majority.

House Budget Resolution Bill

The U.S. House of Representatives passed its version of the FY2025 budget resolution on February 25, 2025. It opens the door for up to $4.5 trillion in net tax cuts over the next decade. To make the math work, the House must come up with $2.5 trillion in mandatory savings over the same period to offset spending increases.

Mandatory Spending Cuts

The resolution provides impacted congressional Committees a minimum decrease in mandatory spending:

The largest proposed reductions come from Agriculture: $230 billion; Education and Workforce: $330 billion; and Energy and Commerce: $880 billion. Since Energy and Commerce manages funding for Medicaid and Medicare, these proposed cuts are the real elephant in the room. Targeted areas include Medicare fraud and waste payments. At this stage, the President has committed not to cut funding for Medicaid.

Other House committees directed to make cuts are: Financial Services: $1 billion; Natural Resources: $1 billion; Oversight and Government Reform: $50 billion; Transportation and Infrastructure: $10 billion; and "Unspecified Committees:” $500 billion. This big number indicates that, at this stage, the House couldn't find other places to cut, so someone's going to have to find another $500 billion to get to the $2.5 trillion in cost savings.

Three House committees have mandatory spending increases that reflect an increased focus on areas within the President’s agenda: Armed Services: $100 billion, Homeland Security: $90 billion, and Judiciary: $110 billion.

Potential Tax Cuts

In terms of tax reform, extending the 2017 Tax Cuts and Jobs Act (TCJA) is at the top of the agenda. Key provisions — such as lower individual income tax rates, expanded standard deductions and the higher estate tax exemption — are set to expire after 2025. Continuing these provisions is estimated to cost $3.3 trillion over 10 years. Section 199A, which provides a 20% deduction for pass-through business income, is also up for extension. This move would help preserve tax parity between flow-through entities and C corporations. Restoration of 100% bonus depreciation for capital expenditures and continuation of international tax benefits (such as the deduction for foreign-derived intangible income) could push the total package even higher.

On the campaign trail, several new tax cut proposals emerged. These include eliminating taxes on Social Security benefits ($1.14 trillion), tips ($69 billion) and overtime pay ($604 billion). Repealing the $10,000 SALT deduction cap would add an estimated $1.1 trillion in costs, with wide-ranging effects for high-income earners in states with higher property or income taxes.

Tax changes are likely to come via a budget reconciliation bill (simple majority needed) later this year. Expect the final details to emerge over the coming months — so maintain flexibility in tax planning and forecasts.

Planning for the Year Ahead

Audit and SOX: Rising Scrutiny, Smarter Preparation

Audit and SOX scrutiny is on the rise, driven by increased regulatory focus on audit quality and internal control effectiveness. Auditors are under growing pressure from regulators — which is putting more pressure on finance teams in the form of more questions, larger sample sizes and extra documentation. So, how can you stay ahead and keep this year’s audit on track?

• The best defense? Start early: Rather than waiting for external auditors to uncover issues, start now, if you haven’t already, to review tricky areas in advance. Look carefully at areas that commonly have findings: revenue recognition methods, significant estimates (like impairments or allowances), lease accounting and the data feeding your controls. If you find errors, fix them internally before auditors come with questions. The more you can front-load the year, the better. If issues do arise, it leads to a very different conversation with your auditor in April, when there is ample time to remediate, rather than November or December, when time is extremely limited..
• Address last year’s issues before auditors reopen them: Review prior management letters and SOX deficiencies to ensure that issues identified in past years have been remediated and are not repeating. Prove to auditors that these issues have been resolved by preparing clear documentation showing how they were remediated. Clear evidence of remediation goes a long way in building trust with your auditors.
• Strengthen management review controls (MRCs): Make sure account reconciliations, variance analyses and approvals are happening on schedule and with rigor. Document your key judgments in plain English. If you made a judgment call — say, around an estimate — write down the rationale. This helps streamline auditor reviews and avoids unnecessary follow-ups.
• Don’t be afraid to push back: To reduce unnecessary testing and keep audit hours and costs in check, there’s nothing wrong with asking (nicely) the thought process behind audit requests that seem excessive with questions like “What’s driving this?”

M&A Accounting: Better Integration, Stronger Defense

With global M&A reaching over $3 trillion in 2024, the SEC and PCAOB are turning up the heat on deal-related disclosures and accounting. Key areas of concern include unrealistic synergy estimates, insufficient integration planning and unsupported pro forma adjustments. The SEC’s recent $9.9 million fine against John Deere is a high-profile example of what happens when post-acquisition controls fall short.

If your organization is contemplating M&A activity this year, follow these guidelines for a smooth transition:

• Don’t trust the rosy scenario — stress-test deal assumptions: Prove your deal model is resilient before someone else, such as investors or auditors, challenges it. Run worst-case scenarios on integration costs, potential loss of key people or customers and slower synergy realization. If your numbers can hold up to your stress tests, you’ll be in a much better position when you’re asked questions.
• Get ahead of working capital surprises that may derail deals: One of the biggest post close disputes in M&A are working capital adjustments. A lot of deals are negotiated assuming that the seller has the same accounting policies you do, but often that’s not the case. The target company might be aggressively under accruing liabilities. It might handle revenue cutoff a little bit differently. Its reserves may be understated because they're trying to make EBITDA look better. Uncovering these issues pre-close can avoid a lot of surprises when it comes time to your first audit post-acquisition.
• Be prepared for SEC scrutiny on pro forma financials and adjustments: The SEC is cracking down on this area because they are worried about overinflation in M&A deals. So, be prepared. If it’s not clearly supported, assume the SEC will challenge it. If you say something is a non-recurring expense, you need hard evidence to back it up. If you're trying to show revenue synergies, have actual signed contracts to support that.
• The first 100 days are critical: Poor integration planning can create internal control, and reporting nightmares. If you emphasize looking into the following three areas during the first few months, it can help fend off a lot of potential issues. First, make sure the acquired entity’s revenue recognition aligns with GAAP. That's particularly important with foreign acquisitions. Second, review their reconciliations and close processes for quality and consistency. Third, strengthen IT security systems to prevent vulnerabilities before issues arise.

System Implementations: Tech Risk Meets Business Transformation

System implementations are more than just IT upgrades — they’re business transformations that can redefine operations, reporting and even organizational structure. From ERP overhauls to bolt-on analytics platforms and AI forecasting tools, these projects promise major benefits but carry equally significant risk if mismanaged.

The stakes are high. Poor planning or inadequate controls can lead to data migration failures, reporting errors or even regulatory noncompliance. But with the right strategy and governance, a new system can increase efficiency, transparency and strategic agility.

How do you reap the benefits of new tech without the nightmares? It boils down to careful planning and strong IT controls throughout the process:

• Start with a clear-eyed assessment: A fresh look includes understanding the limitations of your current environment to identify what needs to change. This might mean abandoning legacy tools or manual processes that no longer serve the business. Sometimes, the right move is to stop patching a broken system and invest in a modern solution that supports long-term goals.
• Build a strategic implementation plan: Define what success looks like — both functionally and from a business outcome perspective. Set measurable objectives and key milestones and assign ownership across workstreams. This plan is your North Star, keeping teams focused and aligned throughout the implementation.
• Implement and integrate technologies: Don’t just install a single system — consider how it will interact with other systems via APIs or connectors. Think holistically about your tech stack and how everything will work together. Although APIs and other “bolt-on” systems can have the same benefits as a larger implementation, proper rigor is essential over the development and implementation of both.
• Plan for legacy system retirement: Determine a timeline and strategy for decommissioning outdated systems. Ensure compliance with data retention requirements (i.e., keeping data accessible for at least seven years for research or auditing).
• Establish project governance: Strong governance provides structure. Define who’s accountable for decisions, how escalations happen and how progress will be tracked and reported across teams and leadership.
• Restructure the organization: Consider whether new systems create an opportunity to reorganize teams, revise hierarchies or reshape business models. This can support a more efficient and adaptive organization.
• Improve business processes: Use the implementation to streamline operations and eliminate inefficiencies. Focus on aligning capabilities, ensuring proper roles are assigned and enforcing segregation of duties where needed. Avoid the mistake of using the new system to perform the same existing, inefficient, or broken processes.
• Manage change effectively: Recognize that change can be difficult — not just technically, but for people. Support your teams through communication, training and cultural integration to help them adopt and embrace the new system.
• Oversee project management: Monitor progress, assess risks and ensure expectations are clear. Thoroughly test systems to confirm they meet requirements. Include a strong post-implementation plan to support a smooth transition and long-term success.
• Don’t lose momentum post-implementation: Update IT general controls (ITGCs) to reflect the new environment, including change management, access reviews and cybersecurity protocols. Build reporting that provides actionable insights — not just raw data.

Economic Trends and Financial Reporting in a Volatile Environment

Volatility is the name of the game right now.  This has been, and should likely continue to be, a focus of disclosures and headlines as companies report their operating results and try to provide insights to investors.

Over the past year, interest rates have swung by more than 100 basis points — adding considerable pressure to financial planning models and assumptions.

In housing, historically low mortgage rates are keeping homeowners from selling, reducing available inventory and slowing construction.

For companies with exposure to government contracts, ongoing uncertainty around federal budgets and short-term continuing resolutions complicates revenue projections and disclosure planning.  For companies with exposure to government contracts (often, representing some of their largest customers), ongoing uncertainty around federal budgets and short-term continuing resolutions complicates revenue projections and disclosure planning. These companies are facing uncertainty as to what those budgets will be, and what their ability to continue contracts that either are in place or renew those contracts.

Another area of uncertainty is income taxes. With all of staff reductions at the IRS, how quickly will they be able to process returns, especially refunds and credits. The typical turnaround time is likely to be longer as a result of workforce reductions as well as questions related to changes in tax policy and returns.

Changes in the regulatory landscape as the new administration comes in are also raising questions. With all of the changes at the top at the SEC and other regulatory agencies, we’re still finding out what the overall tone will be — specifically, what they are going to look at, and what they are going to enforce.

As anyone who is following the news knows, trade tensions and tariff escalations have begun to resurface. Recent U.S. policy actions have prompted retaliatory tariffs from international partners. Many companies are reassessing supply chains, exploring nearshoring, and disclosing potential impacts in earnings calls and SEC filings. Tariff exposure, labor availability and sourcing strategy are increasingly making their way into Form 10-K risk factor sections.

Disclosure Strategy: Communicating Risk in Real Time

In this fast-moving environment, companies need to ensure that disclosures are both transparent and forward-looking. The SEC expects registrants not only to report current impacts, but to communicate potential exposures as clearly as possible.

This means going beyond boilerplate language. Disclosures should address how interest rate movements, labor constraints or regulatory shifts may impact cost structures, access to capital or operational continuity. While speculation should be avoided, it’s appropriate — and expected — to disclose management’s view of material risks under various scenarios.

Effective disclosure is more than a compliance exercise; it helps set expectations for boards, analysts, and investors. As risks emerge, your disclosure strategy should evolve accordingly.

Accounting and SEC Developments to Watch

As we reported in our Q4 2024 webinar, segment reporting is receiving renewed attention from regulators, with expectations that companies align their reporting with how management views the business. This includes breaking down performance by meaningful operating segments and disclosing how leadership responds to operational trends. These expectations now apply not only to annual Form 10-Ks but also to interim filings.

Meanwhile, SAB 122 has replaced SAB 121, easing some of the requirements around custodial digital asset accounting. Companies no longer need to show gross presentation of assets and liabilities for crypto custody arrangements — instead, they must assess and disclose risk-of-loss exposures.

Finally, ASU 2024-3 continues the trend toward transparency and management-aligned financial reporting. Though not yet effective, this standard encourages organizations to think ahead about how operations are presented and explained to stakeholders.

From tax shifts and M&A risks to economic uncertainty and evolving disclosure expectations, 2025 is shaping up to be a dynamic year for accounting and finance teams. Proactive planning, tight controls and strategic communication are key to navigating the road ahead.

Weaver’s accounting and tax advisors offer companies several ways to sharpen their focus on upcoming accounting and tax regulations during Weaver’s Quarterly Accounting and SEC Update webinars, within their podcast series and in their Insights and Resources. To discuss your unique circumstances, we encourage you to contact us directly to schedule a consultation.

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