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Revenue Recognition Standard Implementation Challenges: Stories from the Trenches


Help, Support, Service, Guidance, Assistance, Advice consultation road signsThe new lease accounting standard issued by the Financial Accounting Standards Board (FASB) goes live in 2019 for public companies and 2020 for private ones. But a year before that, companies will be busy trying to implement another major accounting rule change: the revenue recognition standard. Like the lease standard, the revenue recognition standard is expected to require sweeping changes for a wide variety of businesses.

Published in 2014, Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, is effective in 2018 for most public companies and 2019 for most private companies. It replaces reams of industry-specific guidance in U.S. Generally Accepted Accounting Principles (GAAP) with a broad, principles-based method for most businesses to tally revenues. Retailers generally don’t expect to see a significant change in how or when they record revenues, because a customer buying, say, sweaters at a store, is a straightforward transaction. But companies that enter into specialized, long-term contracts with customers are a different story.

Significant Work

Last November, during a panel discussion at Financial Executives International’s (FEI’s) Current Financial Reporting Issues Conference, representatives from large companies that are at an advanced stage of the implementation process issued a collective warning: Even if the new accounting standard isn’t expected to have a major effect on a company’s reported revenue, management still faces a lengthy and complicated implementation process.

“Regardless of where your end point is and what may be the financial impact this standard causes, or if this changes the timing of revenue or the amount of revenue recognized, there’s no doubt that this standard and implementation is significant,” said Christine DiFabio, assistant controller at Zoetis, a manufacturer of medicines for animals. “For those people who haven’t started or are very early [along], try to start to speed it up, because while you may not think it will have a significant impact financially, it’s a significant impact in workload — and documentation efforts as well.” She described the accounting change as “all encompassing.”

Michael Cleary, Boeing vice president of accounting and financial reporting, said the changes would be “significant” in terms of when his company records revenue. So, he formed a steering team, including officials from the communications and human resource departments, tasked solely with implementing the new standard. “One of the things we’ve learned — there are a lot of interdependencies, and it’s very important for us to understand, if we’re making a big accounting change, it’s important to understand what the other changes we are making in the company at the same time,” Cleary said. “We worked hard to keep all those things in alignment.”

Johnson & Johnson, a seller of consumer goods, doesn’t expect to experience as much complexity in implementing the revenue recognition standard as companies in other industries. But Johnson & Johnson’s worldwide senior director of financial compliance and procedures, Steve Rivera, still reportedly plans to invest substantial time going through customer contracts to assess the level of the change.

The Lesson?

As these real-life implementation stories demonstrate, complying with major accounting updates can be a time-consuming process that extends beyond the accounting and finance department. Companies that have had a late start implementing the changes may be in for some unwelcome surprises in the years ahead.

Surprisingly, the SEC reported at the recent FEI conference that roughly one in five public companies haven’t yet started to implement the revenue recognition standard. With an extra year to make the changes, even fewer private companies are likely to have started the implementation process. To help encourage timely compliance, the AICPA’s Financial Reporting Executive Committee is preparing a revenue recognition standard guide for a 2017 publication date.

Daniel J. Ward, CPAIn the meantime, contact Dan Ward, Principal, Audit Services, at 314.983.1237 or with any questions.


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