New FASB revenue recognition standards may not become official until 2017, but the clock is ticking, and there is a lot of prep work to be done. Protiviti has teamed with Financial Executives International (FEI) to provide a series of webinars on this critical transition and how it affects various aspects of corporate infrastructure. I would encourage you to attend as many as you can, or at least watch the archived segments.
In the interest of raising awareness, we will be touching on some of the issues here, although, again, this issue is complex enough that I would also strongly recommend the more detailed examination, and supporting documentation, provided in the webinars.
Protiviti’s proprietary Six Elements of Infrastructure Model is a useful tool for the earliest stage of this transition, which involves analyzing the scope of the new rule’s impact. Each of the Protiviti/FEI webinars explores a different infrastructure element.
Policy changes put people in motion because people are the foot soldiers of policy. People execute processes.
Key tasks are assigned to people with the necessary knowledge, skill and expertise. As people take on transitional responsibilities, their roles, accountability and relationships with other transitional team members should be clearly defined. Process owners should be satisfied that everyone’s job is clearly spelled out so that they can hold people accountable, both within and outside the organization.
This transition affects people throughout the organization — not only in accounting, internal audit and treasury, but also HR (staffing and training), IT (systems, processes and reporting), legal (contracts and compliance), and even sales and marketing (deal structures, product bundling, commissions, pricing and performance obligations).
Here are some critical success factors to keep in mind when dealing with the People portion of your infrastructure during this transition:
- Executive Awareness — Make the senior management team, key stakeholders across the organization, the board of directors and investors aware of adoption alternatives under the new standard, as well as the resulting potential impact.
- Education — Establish training materials and provide training to prepare the organization’s personnel for the impact of the new standard.
- Project Management — Manage the adoption process and provide for appropriate change management protocols.
- Resourcing — Identify and assess additional resource needs. Develop staffing planning and execution.
- Consider Policy Options — Analyze current revenue policies and processes against the proposed standards to identify expected changes. Consider the implications for upstream and downstream linked processes (such as contract management and revenue assurance).
- Gap Analysis — Perform a high-level analysis of system and data gaps. Assess whether required information will be available from your existing processes. Determine whether system changes, or new data flows using the same systems, will be required. Evaluate dependencies on external partners’ data and systems.
- Transition Strategy — Develop a strategy for the transition methodology. Select the transition method (retrospective or cumulative). Consider the complexity of performing the transition and whether specific tools, systems and third-party expertise may be required.
That’s a lot to digest. Again, the webinar delves much deeper and provides helpful tools and context.
The important takeaway here is that even though the new revenue recognition rule has an effective date of 2017, there are some critical decisions that need to be made now to avoid extra work, costs and potential compliance issues later.
This is a big deal. It’s time to take it seriously.
Register for the new webinar in the series, The New Revenue Recognition Rules: Using a Methodology to Identify Gaps in Current Business Processes, which is on March 18. Mark your calendar.