KPMG recently polled financial statement preparers across various industry groups regarding their progress towards implementing the new revenue standard.
- Less than 29% of corporate financial preparers say their companies have a clear plan to implement the new standard.
- Less than 13% say they have completed an assessment of the effects of the new standard and are planning implementation.
- 82% say they are still assessing its effects or have taken no action.
Public companies must apply the new revenue standard beginning after December 15, 2017, which includes all interim periods leading up to the reporting date. Private companies are delayed one year.
Clearly, most companies are seemingly behind on implementing the new standard. But why?
Well, we've compiled some common myths and facts we've consistently heard from F/S preparers preventing timely implementation below:
- "This new revenue standard sounds like IFRS convergence 2.0. It's never going to happen." Yes, IFRS convergence has practically been delayed into perpetuity...but ASC 606 is happening. The FASB has drafted and published the new standard and many industries will face drastic changes to the way they account for revenue from contracts.
- "I don't see how the new standard will affect my industry at all. My numbers won't change." While many industries will see significant changes to the way they report revenue, it's true that some industries will see no impact to the top-line numbers they've historically reported. However, under the new standard, companies will still have to modify disclosures on the F/S, update internal GAAP policies, make changes to their SOX programs, and potentially change the way in which they record and capture data.
- "It seems as if the standard is still being updated...I'm going to wait till it's finalized." While certain provisions of the new standard are still being reviewed by the FASB (namely the licensing guidance), the core of the new standard will not change. There are some key tasks to be performed that will not be affected by updates to the standard:
- Performing initial gap assessments and drafting new revenue models
- Understanding the data needed to comply with the new standard and current system limitations
- Updating accounting policies and revenue checklists
- Implementing SOX compliant contract review processes
- Training of accounting personnel
- "We will address the new standard internally as the convergence date approaches." ASC 606 is complicated. And it presents vast changes to the way many firms will be forced to recognize revenue. It will most likely be extremely difficult to rely on internal staff with already busy schedules to A) obtain the high-degree of ASC 606 knowledge required to understand the unique challenges each firm faces, and B) implement those changes across different functions of the business (finance, sales, IT, legal, etc.).
- "We don't want to spend the money implementing the new revenue standard at this time." Unfortunately, the demand for ASC 606 implementation is only going to increase. As the KPMG study indicated, most firms have not started preparing for this substantial accounting change. And since each company presents its own set of unique facts and circumstances, it will be difficult to find 'out-of-the-box', cheap, wholesale solutions. The companies that start this process sooner will save in the long run.