This is a guest blog post by RGP Director of Client Service, Stuart Fisher.
On May 28, 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), also known as the Boards, issued converged final revenue recognition standards, which eliminate most industry-specific GAAP and significantly changed 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.
Implementing these changes will be complex and time consuming. In a recent survey RGP conducted, 82% of respondents said they anticipate implementation will be somewhat challenging 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.
Our Revenue Recognition experts offer the following tips to companies affected by the new standards:
- Assess the impact:
Organizations can avoid costly implementation issues and/or delays by assessing the cross-functional impacts that ASC 606 and IFRS 15 will have on their operations. Understanding what the enterprise-wide impacts are early on can help develop a clear roadmap with appropriate actions that are needed for a smooth implementation.
- Select a transition method:
If you haven’t already done so, now is the time to choose a transition method and implement a plan to capture contract data. The full retrospective method is a popular choice because it is preferred by the investor community.
- Evaluate significant revenue streams and key contracts:
Identifying required changes, and the specific business units where these changes may have the greatest impact, will be a necessary step.
- Establish a Project Management Office (PMO):
Revenue recognition implementation doesn’t have to be a burden. It can be an opportunity to open communication among departments and business units, and to improve processes. Ensuring your revenue recognition project is efficiently managed and successfully executed leads to sustainable results.
- Determine the impact on your systems and data:
From sales compensation to closing the books, your company depends on critical systems and accurate data. The system and data impacts may be greater than anticipated.
- Establish a suitable contract management process:
Analyzing current requirements, and creating a contract management process that fits the needs of your organization, will help reduce risk and improve efficiency.
Implementing the new revenue recognition standard is a complex and time-consuming initiative. If you have any questions about how your company should handle the new standard or how RGP can help you, please contact me at 973-401-2565 or email@example.com.
Stuart Fisher is the director of client service at RGP, a multinational consulting firm that helps leaders execute internal initiatives. RGP was founded in 1996 within a Big Four accounting firm and today it is a publicly traded company with more than 3,300 professionals, annually serving over 1,800 clients from 70 global locations.