7 Key Steps to Master Revenue Recognition Implementation

Published on December 22, 2017

Standard setters have made game-changing revisions to revenue recognition standards, and the effective date for implementation is fast-approaching. The new standard replaces the existing transaction- and industry-specific revenue approach with a principles-based approach. Is your organization ready for this shift? 

The new standard was originally issued by the Financial Accounting Standards Board as Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers , and several clarifying amendments have since been issued. The guidance affects all entities—public, private and not-for-profit—that have contracts with customers. The standard’s original effective date was postponed because of the complexity involved. 

  • Public companies, certain not-for-profits and employee benefit plans will apply the guidance for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.

  • All other entities will apply the guidance for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. 

Early application is permitted in specific cases. Some items—such as leases accounted for under FASB ASC 840, Leases; insurance contracts accounted for under FASB ASC 944, Financial Services—Insurance; most financial instruments, and guarantees other than product or service warranties—are not included. 

With those dates looming, how can organizations make sure they are ready on time? We recommend following these seven steps:

  1. Create a team of experts. Identify individuals and set up a working group tasked with developing an implementation plan and actually implementing the standard. Be sure to consider the impact on accounting, financial reporting, tax, internal audit, sales operations, IT, legal and human resources.
  2. Assess the changes. Determine how the new rules will affect how the organization accounts for existing revenue streams and reports them in the company’s financial statements. The standard may also impact operational and performance metrics, company contracts, compensation plans, accounting policies, internal controls and tax matters. It is also important to work with the organization’s auditor to ensure your implementation approach, and any changes in accounting for revenue recognition, are documented completely and accurately.
  3. Review retrospective adoption. Organizations should determine how to undertake retrospective adoption. Full retrospective adoption and modified retrospective application is permitted. If the organization selects one of these options, they will need to track the accounting differences for periods that require restatement. If they choose a modified retrospective application, they will need to make any additional disclosures that are required.
  4. Make IT adjustments. It may be necessary to make changes to IT systems or software applications to capture the required information, especially relating to retrospective adoption and additional qualitative and quantitative disclosures.
  5. Address interim disclosures. Issuers are required to make interim disclosures even before the revenue recognition standard becomes effective to disclose potential impacts of application of the new standard. Issuers can turn to SEC Staff Accounting Bulletin (SAB) No. 74 (Topic 11:M), Disclosure of the Impact that Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period, for help in deciding which interim disclosures to make before adopting the standard.
  6. Develop an ongoing plan. The steps you will have to take and the input you need will evolve as you move forward with implementation. With that in mind, be prepared to revisit your implementation plan regularly to update it as needed. That will include determining what training your staff will need to work with the new guidance.
  7. Educate key stakeholders. The audit committee, board of directors and investors should be informed about the changes that you expect to see in your company’s financial statements.

Time is now of the essence. Organizations that haven’t already done so should begin to tackle implementation issues immediately.

These seven steps should help put your company on the right track. To make them easier to fulfill, organizations can turn to a wealth of related AICPA resources, including a learning and implementation plan, as well as a road map to implementation, web events, information on industry-specific potential implementation concerns, guides and alerts. These and other tools can all be found on the AICPA revenue recognition webpage.

(Source: AICPA - CPA Letter Daily - AICPA Insights -December 7, 2017)