Posted by Steve Hobbs on Monday, May 18, 2015 - 16:06
It has been nearly a year since the long-awaited revenue recognition standard was released by the Financial Accounting Standards Board (FASB). The objective of the new standard is to provide users of financial statements with valid information about the nature, amount, timing and uncertainty of revenue from customer contracts.
To provide the necessary information, companies will be required to perform numerous tasks, including:
- Identifying the customer contract
- Identifying the separate performance obligations in a contract
- Determining transaction prices
- Allocating prices to separate performance obligations
- Recognizing revenue when — or as — an entity satisfies an obligation
The new framework will impact all industries, but is most likely to affect those with longer delivery cycles or complex contract terms. Among the industries identified as potentially facing major change: software, telecommunications, asset management, airlines, real estate, aerospace and construction.
Adopting the new revenue recognition standard ultimately should simplify and increase transparency in the disclosure of financial information. However, its adoption will create significant additional work for companies — not just for their accounting and finance teams, but across the entire enterprise.
Companies are discovering that the “devil is in the detail” and what they expected to be a straightforward accounting exercise is actually affecting operations across the board. It is critical that organizations appropriately assess the potential impacts across the organization and involve all key stakeholders to tackle this project.
Tips for staying on target with the transition
While FASB has formally proposed delaying the effective date of the standard, companies should still move forward with preparations to conduct the necessary data gathering. Under FASB’s proposal, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date, public companies would be required to apply the new revenue recognition standard to annual reporting periods beginning after December 15, 2017. Nonpublic companies would need to apply the new standard to annual reporting periods beginning after December 15, 2018.
Companies are in varying degrees of readiness to use the new framework. It is imperative for organizations to continue moving in the right direction. There are time-sensitive decisions to be made, and there are consequences for making revenue-reporting errors. Companies risk damage to their reputation and could face restrictions limiting access to capital markets.
To help companies navigate the transition to the new standard, Protiviti, a Robert Half subsidiary, in partnership with Financial Executives International (FEI), is hosting a five-part webinar series outlining the most effective ways to meet the new requirements. The series focuses on managing the transition using Protiviti’s proprietary six key elements of infrastructure: policies, processes, people, organization reports, methodologies, and systems and data.
The fourth installment of this series — “The New Revenue Recognition Rules: Systems, Data, Reporting and a Transparent Audit Trail” — is scheduled for May 21 at 12 p.m. EDT. Participants in the live 90-minute interactive seminar can earn 1.5 CPE credits.*
- Kevin Swartzendruber, Vice President – Corporate Controller, Flextronics
- Chris Wright, Managing Director, Protiviti
- Steve Hobbs, Managing Director, Protiviti
- Siamak Razmazma, Managing Director, Protiviti
Key topics include:
- Overview of FASB’s one-year deferral
- Insight into system and data issues
- Impact on reporting
* Note that CPE credits are only available for those participating in the live webinar.
Steve Hobbs is a Managing Director for Protiviti.
- Webinar #1 – Revenue Recognition: It’s Here, Are You Ready? Transitioning to the New Revenue Recognition Standard
- Webinar #2 – Revenue Recognition: The People Elements – A Collaborative and Cross-Functional Collaboration Process
- Webinar #3 – Revenue Recognition: Using a Methodology to Identify Gaps in Current Business Processes