With the new revenue recognition standard scheduled to go into effect in 2018 for public companies and 2019 for private companies, it’s imperative to begin planning if you haven’t already. The new guidance provides a principles-based, five-step process for recognizing revenue that’s in sharp contrast to the current rules-based, industry-focused standards that have been in use for decades.
If your organization issues financial statements based on generally accepted accounting principles (GAAP) in the United States, the most important thing to understand about the new standards is that the transition will involve significant planning, training, and process changes, regardless of the effective date. Any delay on your part could cause significant difficulties as the effective date approaches. This is not like a tax deadline, where you can count on extensions.
The implementation can be broken down into the following four phases:
- Initiation phase
2016 for public companies
2016 to early 2017 for private organizations
- Gap & Impact analysis phase
2017 for public companies
2017–2018 for private organizations
January 1, 2018 for public companies
January 1, 2019 for private organizations
2019 ongoing for public companies
2020 ongoing for private organizations
Serving as your advisor – Our team can provide feedback on your implementation efforts throughout the process including evaluating plans, reviewing analysis and application, providing recommendations, and consulting on design and monitoring.
Serving in a collaborative approach – Beyond advising, our team can share responsibility for the coordination and oversight of teams. Collaboratively, we can help you determine areas of judgment applicable to contracts, develop a training plan and materials, and share in the delivery of the materials. Our experts can also assist with the development and implementation of your transition approach. During implementation and post-implementation, we’ll can be by your side providing observations and insights for a successful transition, and can work with your team to establish a framework for monitoring compliance, analysis, and continuous improvement.
Help with operational impacts – Most organizations will approach the FASB’s new revenue recognition standard under a potentially fatal misconception: The new standard will only affect how your organization recognizes revenue. The truth is the new standard could fundamentally change the day-to-day operations of your organization. Waiting to evaluate system changes will save time now, but could cost you down the road.
- Enhance reliable financial reporting – We can advise you on new processes, systems, and controls required to ensure you produce high quality, timely, and reliable financial reporting under the new standard.
- Evaluate ERP compliance – We can evaluate ERP system compliance required to support the new standard. If non-compliant, we can evaluate alternative solutions, including the implementation of new software solutions.
- Assess operational risk – We can help assess operational risks which result from the new standard, including revised contract profitability, changes to financial ratios on company commitments, and contract administration inefficiencies. If you have financial reporting covenants, we can develop a financial bridge outlining changes to financial reporting to assist in communicating with lenders and other stakeholders regarding appropriate changes to financial covenants.
Revenue Recognition Resources
To ensure you’re ready for this new revenue recognition standard, we’ve created resources to help you understand what’s changing, the impact, timeline, and how we can help.