ERISA

A financial institution’s core banking system, or core processing system, is an essential software that provides the backbone for day-to-day operations and transaction processing. Accounting for the costs of these systems can be tricky because of the complexities often involved in these contracts.  

The contracts tend to be long-term, as it would be infeasible (and undesirable) for financial institutions to have to re-negotiate and possibly switch core providers on a frequent basis. In addition, the contracts often include varying fees and provisions listed throughout the contract. The accounting team is often provided this lengthy contract and then left with the task of deciphering what is meaningful from an accounting standpoint.  

There are two key pieces of accounting guidance to consider when analyzing core contracts: 

1) Accounting Standards Codification (ASC) 705 – Cost of Sales and Services 

2) ASC 350-40 – Intangibles – Goodwill and Other – Internal-Use Software 

Core contracts may provide incentives or credits that can be applied against the fees charged by the core provider. According to ASC 705-20-25-1, “consideration from a vendor also includes credit or other items (for example, a coupon or voucher) that the entity can apply against amounts owed to the vendor (or to other parties that sell the goods or services to the vendor). The entity shall account for consideration from a vendor as a reduction of the purchase price of the goods or services acquired from the vendor…” 

As an example, let’s say your financial institution receives a one-time credit as part of signing a new core contract of $100,000 and the contract is to provide services to your institution over five years. This credit can be applied to future invoices received from the core provider. The contract has a monthly maintenance fee of $20,000 (likely among other charges). This credit would thus reduce the monthly maintenance expense of $20,000 to $18,333 (reduced by $100,000 divided by 60 months). This is a simple example, but hopefully, it will provide insight into the mechanics of the accounting for credits and incentives. In reality, these contracts tend to be much more complex, with variable fees and possibly even credits or incentives that can only be applied against certain fees. These credits/bonuses may not be recognized fully up front as a gain, revenue, or reduction of expense.  

There are often many fees listed in a core contract and these fees tend to be for various services related to the contract. Each fee should be considered on its own and assessed against the criteria listed in ASC 350-40-25, which establishes three project stages for internal-use software: 

1. Preliminary Project Stage. This stage may include: 

a. Conceptual formulation of alternatives 

b. Evaluation 

c. Determination 

d. Final selection 

All costs associated with the preliminary project phase shall be expensed as incurred. 

2. Application Development Stage. This stage may include: 

a. Design 

b. Coding 

c. Installation 

d. Testing 

Whether or not costs in this stage shall be expensed or capitalized is dependent on the type of cost: 

1. Costs incurred to develop internal-use software shall be capitalized. 
2. Costs to develop or obtain software that allows for access to or conversion of old data by new systems shall be capitalized. 
3. Training costs shall be expensed as incurred. 
4. Data conversion or clean-up costs shall be expensed as incurred. 
5. Postimplementation-Operation Stage. This stage may include: 

a. Training 
b. Application maintenance 

All costs associated with the post-implementation-operation stage shall be expensed as incurred. 

Costs incurred for upgrades and enhancements to internal-use software shall be expensed or capitalized in accordance with the guidance provided above. Costs incurred for maintenance shall be expensed as incurred.  

As an example in applying the above project stages, let’s say your institution has hired your core provider to develop an application programming interface (API – essentially a “bridge” between two software programs, allowing them to “talk” one another) so a new automated account reconciliation software can interface directly with your core. The core provider is charging you directly for the design of this API. These costs would be capitalized. Once designed, the core provider also provides your institution training on the API (for a fee) – these training fees would be expensed. Any internal training expenses, such as ongoing training, would be expensed as incurred. Furthermore, if your core provider charges a maintenance fee for ongoing maintenance of the API, these fees would also be expensed as incurred. 

Given these core contracts, and the fees associated with them, can be quite voluminous, it is best practice to establish a list of the services and associated fees listed in the contract. An accounting determination can then be made in accordance with ASC 705 and 350-40 and listed next to each service/fee. Such a list can also be helpful in tracking the various credits and incentives that are being provided and how much of these credits and incentives remain to be utilized by your financial institution. 

It should be noted that the Financial Accounting Standards Board (FASB) has an ongoing project related to the accounting for and disclosure of software costs. More details and a current status update on the project can be found on the FASB’s website. A proposed Accounting Standards Update (ASU) was issued in October 2024. The proposed ASU would eliminate the project stages detailed above. Instead, costs would start to be capitalized when both of the following occur: 

1. Management has authorized and committed to funding the software project. 
2. It is probable that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete recognition threshold”). 

Again, this is just a proposed ASU at this time and until a final ASU is issued, financial institutions should continue to follow the project stage guidance detailed above in assessing the accounting treatment for the fees in their core contracts. As always, your BerryDunn team is here to help should you have any questions! 

FINRA is launching a broad review of its regulatory requirements to modernize rules, reduce unnecessary burdens, and support innovation in financial services. This initiative aims to enhance investor protection and market integrity by adapting regulations to evolving market conditions and technological advancements.

The review will begin with two key areas:

• Capital formation: Examining how regulations impact capital acquisition brokers, “limited purpose” broker-dealer models, research analysts, and capital-raising processes
• The modern workplace: Addressing regulations related to branch offices and remote work, registered representative credentialing and education, customer communication methods, and recordkeeping practices, particularly with respect to communications.

FINRA invites member firms, investors, and stakeholders to provide feedback on other areas that may require modernization, including economic costs, technological changes, and regulatory overlaps. The comment period is open until May 12, 2025, and submissions can be made online, via email, or by mail. The Regulatory Notice lists specific questions to consider when responding.

This effort aligns with FINRA’s commitment to continuous improvement through industry engagement, ensuring that regulations remain effective, efficient, and relevant to the evolving financial landscape.

Focused on providing industry expertise and advisory relationships that extend past audit and tax seasons, BerryDunn's Financial Services team can help you enhance, grow, and adapt your operations to surpass your future goals. Learn more about our team and services. 

Last month, in honor of Women's History Month, we had the opportunity to speak with two women making waves in the parks and recreation industry—BerryDunn’s Becky Dunlap and Lakita Frazier. Both have built meaningful careers driven by a passion for community impact and the outdoors, forging paths that inspire others in the field. 

Finding their calling in parks and recreation 

Lakita Fraser didn’t set out to work in parks and recreation—it found her. A summer job as a part-time recreation leader sparked an unexpected love for the field, leading her to make it her life’s work. “I quickly realized how much I loved engaging with the community and creating meaningful experiences for people,” she recalls. Over the years, she gained valuable experience in local government, eventually transitioning to consulting. Though she misses the day-to-day interaction of working within a team, she now helps parks and recreation professionals navigate challenges and build stronger programs. 

Becky Dunlap, on the other hand, discovered her passion in college when a professor encouraged her to consider parks and recreation as a career. “That conversation changed everything for me,” she says. Her journey took her through various leadership roles in local government before moving into consulting, where she enjoys the ability to innovate and drive change without bureaucratic obstacles slowing the process. 

Overcoming challenges as women in the field 

Lakita’s journey hasn’t always been easy. She recalls battling imposter syndrome early in her career as a young department head. “There were days when I questioned whether I truly belonged in a leadership position,” she admits. “But I leaned on my mentors, and they reminded me that I earned my seat at the table.” Today, she focuses on connecting with parks and recreation professionals, elevating the importance of their work and advocating for more opportunities for women in the field. 

For Becky, balancing ambition and personal commitments has been one of her biggest challenges. As a working mother, she has learned to manage her bandwidth—sometimes pulling back to ensure she can fully dedicate herself to the commitments she takes on. Despite these obstacles, she thrives on problem-solving and making tangible improvements in the field. “If I can help create better systems or funding models that make parks and recreation more effective, then I know I’m making a difference,” she says. 

Looking ahead: Challenges and optimism for the future 

Both women recognize the hurdles parks and recreation agencies face today, from funding shortages to the lingering effects of the pandemic. Lakita emphasizes the importance of resilience, believing the industry will continue to push forward despite challenges. “Our field is full of problem-solvers,” she says. “We’ve overcome budget cuts, crises, and uncertainty before, and we’ll do it again.” 

Becky shares this optimism, noting that the future will depend on strong leadership and innovative solutions. She encourages young women entering the field to believe in themselves and not be discouraged by setbacks. “Mistakes are part of the process,” she advises. “And how you respond to them is ultimately more important than the mistake itself.” 

What's next for these leaders? 

Lakita plans to continue supporting parks and recreation professionals through her work at BerryDunn, while also expanding efforts with Women in Parks and Recreation to create more opportunities for women in the field. Becky, meanwhile, is focusing on developing innovative technology solutions to help departments run more efficiently and improve service delivery. 

Their experiences highlight the impact of women's leadership in parks and recreation. Despite obstacles, they have helped shape the path for future generations, demonstrating how passion, resilience, and dedication contribute to meaningful progress. 

BerryDunn's Parks, Recreation, and Libraries team works with clients across the country to improve operations, drive innovation, identify improvements to services based on community need, and elevate your brand and image―all from the perspective of our team’s combined 100 years of hands-on experience. Learn more about our team and services. 

The construction industry presents some unique accounting and financial reporting requirements when it comes to construction work-in-progress (WIP) schedules. To keep a solid pulse on contract financial status and results, it is important that these schedules are accurate and up to date. Here are five of the more common mistakes we encounter when working with clients:

1. Inaccurate inputs for the WIP schedule

Achieving 100% accuracy can be challenging as the WIP schedule depends on four main inputs. The four inputs include:

• Projected total cost
• Contract value
• Job-to-date cost
• Job-to-date billings

A miscalculation in any of these can cause inaccuracies in your work-in-progress reporting of revenues and contract assets and liabilities.

2. Estimated under/overbilling costs that don’t match contract scope or reflect actual costs

Has the project scope changed without including the corresponding change order? This can result in overstated contract revenues and underbillings. Are total estimated costs greater than they should be? This can result in overstated overbillings and understated contract revenues which, if it happens consistently, can materially skew reported revenues and gross margin.

3. Change orders and billings that are improperly included or excluded

The main determination if a change order should be included in WIP schedule calculations is if it is a continuation of an existing contract and is signed and legally enforceable or at least has a mutually agreed-upon scope and is awaiting price agreement. If so, the projections should be updated to include the change order. This can get complicated, though, so be sure to check with your accountant if there is a question.

4. Not reconciling the WIP schedule to the financial statements

It is important to understand the WIP schedule and how it ties into financial reporting. The general ledger or internal financial statements should be reconciled with supporting external sources as well as internal calculations or spreadsheets, including the WIP schedule. This includes reconciling contract assets, contract liabilities, and related income statement accounts.

5. Not including all contracts on the WIP schedule–including open and closed jobs

The WIP schedule should include all contract amounts, no matter how big or how small, or whether they are open or closed. Open vs. closed jobs should be noted as such on the schedule. It is a best practice to include job numbers for each contract; this way jobs can be tracked month over month, or year over year, and a gain/loss fade analysis can be performed.

BerryDunn’s Construction team partners with clients to provide meaningful insights on best practices in building capacity, stabilizing cash flow in growth, reducing tax liabilities, capturing reimbursable local taxes, and navigating state nexus. Learn more about our team and services. 

The FDIC's Quarterly Banking Profile for Q4 2024 reports positive performance for the 4,046 community banks evaluated. Here are the key highlights: 

Note: Graphs are for all FDIC-insured institutions unless the graph indicates it is only for FDIC-insured community banks. 

Financial Performance 

• Net Income Growth: Full-year net income decreased by $624.4 million (2.4%) year-over-year to $25.9 billion, driven by higher noninterest expense, higher provision expense, and realized losses on the sale of securities of $566 million. Quarterly net income decreased $440.7 million (6.5%) from the prior quarter to $6.4 billion, driven by the same inputs as yearly net income. However, compared to fourth quarter 2023, net income increased $535.3 million, or 9.2%, driven primarily by higher net interest income and noninterest income.
• Net Interest Margin (NIM): Full-year NIM decreased by 6 basis points to 3.33% due to higher asset yields outpacing the cost of funds. However, NIM quarter-over-quarter increased 9 basis points from the previous quarter and 9 basis points over the 2023 quarter four to 3.44%.
• Revenue Growth: Net operating revenue increased $1.9 billion (7.3%) year-over-year, with gains in both net interest and noninterest income. Operating revenue rose by $960.3 million (3.6%) over the previous quarter, following similar drivers of growth. 

Costs and Efficiency 

• Noninterest Expense: Up by $1.1 billion and $931.1 million (5.4%) year-over-year and quarter-over-quarter, respectively, to $18.1 billion. This was largely due to increased salaries and employee benefits expense.
• Efficiency: The efficiency ratio (noninterest expense as a share of net operating revenue) increased to 65.06%, increasing 26 basis points from a quarter earlier, reflecting the increases in noninterest expense.

Loan and Deposit Trends 

• Broad-Based Loan Growth: Total loans and leases grew by $24.4 billion (1.3%) quarter-over-quarter, with a notable increase in commercial real estate (CRE). Total loans and leases increased 5.1% from the prior year, with notable increases in CRE and residential real estate.
• Deposit Increases: Domestic deposits rose by $37 billion (1.6%) in the fourth quarter, with growth in both insured and uninsured deposits.

Asset Quality 

• Stable Metrics: Nonperforming loan levels remained low, despite a slight rise in past-due loans to 1.2%, an increase of 7 basis points from third quarter 2024. Net charge-offs were marginally higher but within manageable levels (0.22%, up 6 and 4 basis points from a quarter and year ago, respectively). This ratio remained 0.07% higher than the pre-pandemic average of 0.15%. The reserve coverage ratio decreased 6.17% from third quarter 2024 and 48.8% from a year earlier to 179.7%.
• Unrealized Securities Losses: Despite an increase of unrealized losses of $11.6 billion (29.6%) from the previous quarter, unrealized losses on securities declined $961.6 million (1.9%) from the prior year.

Capital and Structural Stability 

• Capital Ratios: Decreased slightly across the board, with the average Community Bank Leverage Ratio (CBLR) dropping to 12.22%, down 3 basis points from the previous quarter. Of the 4,046 community banks, 1,629 have elected the CBLR framework. 
• No Bank Failures: For the fourth quarter, there were no community bank failures, reflecting continued sector stability. However, total community banks declined by 36 from the previous quarter, primarily due to M&A activity. 

Conclusion and Outlook 

Another year has closed, and community banks continue to remain resilient. 2024 saw a dip in earnings as banks navigated increases in costs and depressed NIMs. The good news is; the NIM graph above shows the potential trend towards a rebound in 2025. The regulatory landscape continues to be closely watched by the banking community. Substantial changes throughout the federal government continue to create uncertainly. The impact these changes will have on the banking industry remains yet to be known. Many see opportunity in the changes. Community banks are pillars of their communities and trusted advisors to those they serve. In these times of uncertainty, it is critical for banks to leverage and strengthen those relationships with their customers, much as they did during the pandemic. 

Technology will likely continue to remain at the forefront of conversations in 2025 as the banking industry continues to monitor advances in artificial intelligence and how these advances can make an immediate impact on bank operations. There is a lot of hype surrounding technology, especially artificial intelligence, and banks will need to be deliberate in building these tools into their strategic plans and fully vetting out any tools before implementing them as there are often significant costs associated with these tools. However, using a “wait and see” approach is likely not sufficient, as customers will increasingly expect these tools to be part of their experience. 

There may also be anxiety amongst employees, as there are varying headlines and stories regarding the impact technology (again, especially artificial intelligence) will have on the workforce. It will be crucial for leadership teams to monitor this sentiment throughout their organization and provide clear messaging to employees. 

2024 was also year two of the current expected credit loss (CECL) standard for many institutions. As institutions gained comfort surrounding the new CECL standard and saw the impact of changing inputs and assumptions, the importance of a robust governance and oversight framework over the CECL calculation continued to be emphasized. 2025 will likely continue to be a year of refinement as historical trends and peer data continue to be built under CECL. As always, your BerryDunn team is here to help!