NORTECH SYSTEMS INC New Standards Disclosure
Adoption of New Accounting Standards
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326). The ASU introduces a new credit loss methodology, Current Expected Credit Losses (“CECL”), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities and other receivables at the time the financial assets are originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods in current U.S. GAAP, which generally require that a loss be incurred before it is recognized. On January 1, 2023, we adopted the guidance prospectively with a cumulative adjustment to retained earnings and recognized an allowance for credit losses related to accounts receivable and contract assets of $30, net of tax, and a decrease in retained earnings of $30 associated with the increased estimated credit losses.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting Topic (280): Improvements to Reportable Segment Disclosure. The ASU supplements reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses We adopted ASU 2023-07 during the year ended December 31, 2024. See Note 9 – “Segment Information” in the accompanying notes to these consolidated financial statements.
Recently Issued New Accounting Standards
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU enhances the transparency and decision usefulness of income tax disclosures and is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU No. 2024-03 (Subtopic 220-40), Disaggregation of Income Statement Expenses. The ASU requires public entities to disaggregate, in a tabular presentation, certain income statement expenses into different categories, such as purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The guidance is effective for fiscal years beginning after December 15, 2026, with early adoption permitted, and may be applied retrospectively. The Company is currently evaluating the impact of adopting the new ASU on its consolidated financial statements and related disclosures.
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About New Standards Disclosures
New accounting standards disclosures describe recently adopted pronouncements and those not yet effective, along with management's assessment of their expected impact. This section provides an early warning system for upcoming changes to how a company reports its financial results, often years before the new rules take effect.
Key signals: when management describes a not-yet-adopted standard's impact as "material" or "still being evaluated," it signals potential significant changes to reported metrics upon adoption. Watch for standards that affect a company's core operations — for example, revenue recognition changes for software companies or lease accounting changes for retailers with large store footprints. The transition method chosen (full retrospective versus modified retrospective) affects comparability with prior periods. Companies that delay adoption to the latest permitted date may be struggling with implementation complexity. Compare the disclosed impact assessments against peers in the same industry to gauge whether management's expectations are reasonable.