More than three-quarters of US companies still have not attempted to quantify how their financial statements will be affected by the new revenue recognition standard that was issued in May 2014, according to a new survey.
The US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) worked together to create the new revenue recognition standard, which is designed to enhance comparability across jurisdictions and industries.
Based on concerns voiced by preparers over implementation difficulties, the boards agreed earlier this year to defer the effective date of the standard by one year. Some preparers have not been in a rush to work on implementation, according to the survey of 335 US companies by PwC and the Financial Executives Research Foundation.
Seventy-eight per cent of respondents said their companies have not attempted to quantify the financial statement impact of the new standard. More than one-fourth (27%) have not even started an initial impact assessment in their implementation efforts.
One reason for the delay may be the still-fluid status of the standard. FASB and the IASB have proposed – but not finalised – clarifying changes to the standard based on implementation concerns expressed by preparers.
As the boards work out those issues, 14% of respondents said they are waiting for clarification on accounting topics with respect to the standard, and 13% are waiting for finalisation of the proposed amendments.
Dusty Stallings, CPA, a member of PwC’s professional services group, said that although the standard is “moving around a little,” it’s mostly done. She advised companies not to wait on implementation.
“There is a lot of work that companies can go ahead and do that won’t be affected by any changes that FASB and the IASB make,” she said in an interview. “So if that’s the reason for your delay, I think one of the priorities should be to put that behind you and move on.”
The survey also showed that:
- Half of respondents believe the standard will not have a material impact on their financial statements. But the survey also shows that many companies have not yet done the work to validate those beliefs.
- About two-thirds (67%) of respondents believe implementation of the standard will require either a significant or moderate effort.
- 53% of respondents expect to have to make at least some system changes to accommodate the new standard, and another 23% are not sure if they will need to make system changes.
At least some of the system changes will come as a result of companies adjusting to the increased disclosures the standard will require, Stallings said.
“One thing pretty much all companies are admitting is that they’re going to have a lot more disclosure than they’ve had in the past,” Stallings said. “… One of the things in terms of systems changes that they’re having to do is capture information that they didn’t capture previously, because they need that information for these additional disclosures.”
Stallings recommended the following actions for companies with respect to the new standard:
- Get started. For companies that haven’t started implementation work, it’s important to create a project plan and form a team to execute it. Assessing the impact of the standard becomes much easier when companies have a plan and deadlines, she said.
- Review contracts. “It can be difficult to figure out what population of contracts needs to be reviewed,” Stallings said. “But the contract review process is what validates that assertion of whether or not you’re going to be significantly affected. That part of the process invariably takes companies longer than they think it would.”
- Educate staff. This is not just for the finance staff, Stallings said. Sales and marketing, legal, tax, and other groups also should be educated in a cross-functional approach, she said.
- Look at your business model. Accounting shouldn’t necessarily drive business models. But the new standard may create opportunities to change the business model in ways that benefit the company and investors. One-third (33%) of survey respondents say they expect at least some changes to their business model as a result of the new standard, and another 23% are not sure if their business model will change.
—Ken Tysiac (firstname.lastname@example.org) is a CGMA Magazine editorial director.