On May 28, 2014, the FASB and IASB (the Boards) issued converged final revenue recognition standards, which eliminate most industry-specific GAAP and significantly change revenue recognition. Now that the one year delay proposed by the Boards is finalized, the standards will become effective in fiscal years beginning after December 15, 2017 (calendar year 2018) for public U.S. companies, which is essentially the same for companies reporting under IFRS. Private companies are allowed a one-year delay. Whatever timeline you adopt, we can help you prepare.
Revenue Recognition is Changing
Implementing these changes will be complex and time consuming. In a recent survey we conducted, 82% of respondents anticipate that implementation will be somewhat to very challenging. Even companies not expecting drastic changes to the amount or timing of revenue recognition will likely be affected by necessary changes in documentation and information systems to track new data requirements and support the additional disclosures, estimates and increased use of management judgment.
Are You Prepared?
Ask yourself these questions:
- Have you determined how the standard will impact your business?
- Technical accounting & reporting impacts
- Business process impacts
- Systems and data accessibility impacts
- People / Organization impacts
- Has the adoption / transition method been determined?
- Have the key implementation risks been identified?
- Has a cross functional working team been mobilized?
- Has a comprehensive plan been developed to transition to the new standard?
- Do you have enough resources to assess the impact and implement necessary changes?
A Phased Plan Helps Scope Requirements and Implement Change by the Effective Date
We believe that a comprehensive assessment, including a gap analysis and development of a future road map, is the smart and effective way to launch this effort. The following chart depicts our high-level implementation approach.
Although the delayed date of 2018 for calendar year-end public companies (2019 for nonpublic) seems to allow ample time for implementation, the transition method selected will impact the amount of time companies have to comply. The “Full Retrospective Method” requires that all years presented be restated as if the new guidance had been in effect since the beginning. The “Modified Retrospective Method” requires recording the cumulative effect at the date of adoption (January 1, 2018 for calendar year-end companies) to Retained Earnings, with extensive disclosure for 2018 as to how each line item was affected by the new guidance. For either method, there’s a lot of work to do prior to the effective date.