Keep pushing forward on revenue recognition implementation, experts say

Companies need to keep pushing forward in their revenue recognition implementation despite the potential that the US Financial Accounting Standards Board (FASB) could defer the effective date of the new standard, experts said Wednesday.

FASB Chairman Russell Golden said Tuesday that the board is actively researching whether the effective date needs to be deferred.

The standard, published in May of this year, is scheduled to take effect for reporting periods beginning after December 15th 2016 for US public companies or reporting periods beginning on or after January 1st 2017 for companies that use IFRS. That timeline means that US-listed companies planning a full retrospective transition need to begin capturing data by January 1st 2015.

But exactly what data they need to capture is in question in some cases. FASB staff is researching whether further guidance needs to be issued on three significant issues with respect to licences, determining certain performance obligations, and determining when revenue needs to be gross versus net in certain situations.

“The reality is, right now people don’t have all the answers,” Kenny Bement, CPA, director of financial reporting for technology company and defence contractor Raytheon, said Wednesday at the American Institute of CPAs (AICPA) Conference on Current SEC and PCAOB Developments in Washington.

The lack of answers to all questions should not prevent companies from pushing forward with their implementation, Mark Crowley, CPA, a director in Deloitte’s national office, said at the conference.
“It’s important to make sure that companies start working on this, regardless of whether the effective date is moved back,” Crowley said. “It’s important for them to get started and make sure they understand how things are going to change going forward and how your contracts are now going to be accounted for under the standard, and work the process back from there.

“Figure out, do you have to change systems?” he said. “Do you have to change processes and controls?”

Raytheon’s experience offers an example of how companies can get started despite the uncertainty regarding the potential for additional FASB guidance.

It’s an overwhelming process because the company has approximately 15,000 contracts. To ensure successful implementation of the revenue recognition standard, Raytheon formed a core implementation team including representatives from functions such as finance, IT, tax, investor relations, and internal audit that are affected by the standard.

A review of roughly 40 representative contracts helped the team identify about a dozen core differences that will apply when the new standard goes into effect.

The team then organised into work streams to focus on updating the company’s process for contract accounting. The team is developing standardised checklists for contracts that will help bridge the gap between current and future accounting practices.

FASB’s lack of certainty will prevent Raytheon from completing its checklists by the target date of January 1st 2015, but the company already has done much of the important implementation work.

“There is a lot to this standard that you can be moving forward with, especially with your IT systems, etc., where you’ve got to make some changes in order to capture the data,” said Jim Dolinar, CPA, chairman of the AICPA Financial Reporting Executive Committee.

Dolinar expects many of the largest companies to use the full retrospective transition so their investors can see the full complement of comparable financial statements. For those companies, the January 1st date to capture data is just a few weeks away. He said deferral of the effective date – if it occurs – would help those companies resolve uncertainty.

But he said the uncertainty in a few areas should not stop companies’ implementation work. And FASB’s Golden said Tuesday that the board would not look favourably on delaying the effective date if it finds companies are not already doing any work related to implementation.

“We’ve got to keep the pedal to the metal,” Dolinar said, “and keep the momentum going.”

Ken Tysiac ( is a CGMA Magazine editorial director.