New Revenue Recognition Standard: Build Your Implementation Plan Now
The Financial Accounting Standards Board’s new revenue recognition standard presents the most significant accounting change many veteran CPAs have seen. The standard touches every entity (public and private, including not-for-profit entities) that reports under U.S. GAAP and will require CPAs to reexamine the underlying economics of large numbers of established business practices. The new standard applies to most transactions and contracts with customers except for leases, insurance contracts, most financial instruments and guarantees (other than product or service warranties).
At first glance, the implementation period for Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, might seem adequate if not generous. Public companies, for whom early adoption is not permitted, are required to adopt the standard in 2017 (for reporting periods beginning after December 15, 2016). Private companies get an additional year—starting with 2018 for their annual reports—and two more years, beginning in 2019—to start applying the standard to interim reports. Private companies may choose to adopt the standard on the public company schedule.
After further study, however, many organizations may find the implementation period to be extremely aggressive and the task daunting. There are many components to be analyzed and many questions to be answered:
- How will the standard affect operational and performance metrics?
- What IT changes will be needed?
- How will you retrospectively adopt the standard?
If a public company chooses full retrospective adoption, revenue and the direct effects of change in accounting principle to all contracts must be restated for 2015 and 2016 to show comparative financial statements with a cumulative adjustment as of January 1, 2015.
You are encouraged to advise clients and employers to begin developing an implementation plan as soon as possible.
The AICPA has organized a major effort including industry work groups, training, and organizational tools to assist CPAs with this monumental implementation.
You can use the following key tasks based on the AICPA’s New Revenue Recognition Accounting Standard—Learning and Implementation Plan as a high-level road map to begin organizing your organization’s implementation. Read more here:Revenue Recognition Article.