Why Did FASB Defer?

May 14, 2015

Editor’s note: Today’s post is the latest from our new guest columnist, Shauna Watson, Global Managing Director of Finance & Accounting for RGP. Shauna, a subject matter expert in U.S. GAAP, IFRS, SEC and PCAOB regulations, will share her valued opinion on a number of topics in this space. Here, she discusses the recent FASB proposal to delay the start date for the new revenue recognition guidance.

During the last few months, FASB has performed outreach to companies and learned of the significant difficulties encountered in implementing this standard. Companies are experiencing challenges in a few key areas: 1) Technical interpretations, 2) Internal resources, and 3) Systems solutions.

Technical: To address the technical interpretation issues, particularly for licensing, and identification of separate and immaterial performance obligations, FASB recently issued an exposure draft to amend the standard. The deferral should allow companies the additional time necessary to determine the technical implications, and perhaps present comparative financials under the full retrospective method, which many were finding impossible to achieve with the fast-approaching implementation date.

Internal resources: Feedback from many companies has been that implementation takes longer than they thought, even for those not expecting a significant change to the amount or timing of their revenue, due to additional documentation requirements, required disclosures, and changes in process. In many cases, their internal resources are not sufficient to assess the impact, design the necessary solution, and implement required changes to their systems and processes. The deferral should allow enough time to thoughtfully employ the right mix of internal and external resources to meet the deadlines, and potentially reduce costs.

Systems solutions: Companies are looking for the most efficient and controlled way to sustain this complex accounting on an ongoing basis. A long-term system solution like RevPro is recommended, as spreadsheets can have control issues and introduce additional risk into the revenue accounting cycle.

However, system solutions are not implemented overnight – these involve a somewhat lengthy process from capital budget approval to user testing. Ideally, companies electing a full retrospective adoption should plan to implement a new system for dual reporting beginning January 1, 2016, if possible.

Can I wait to implement?
Companies who have started implementing are finding it far more intensive and time-consuming to apply and interpret the Standard than initially expected. The deferral acknowledges that there is a significant amount of work to do to implement this standard – much more than may be apparent before an assessment is performed, especially with potential changes to systems. As such, companies who have begun their efforts should continue and those companies who have not should begin. We recommend assessing the impact now to ensure a controlled approach and avoid unwanted last-minute surprises resulting from a rushed timeline. For instance, a pilot implementation at one business unit to ensure information requests are complete and system/process changes are well designed could minimize the disruption to the business. Rather than delaying implementation efforts, use the allotted time to plan your strategy, explore accounting alternatives that fit the economics of the transactions, ensure impacts to other contracts/processes are addressed, consider whether comparability of your prior periods is preferable, and successfully implement a sustainable, automated solution for the years ahead.

So take a moment to breathe a sigh of relief at FASB’s proposed delay in the adoption date, but don’t delay your implementation, or you could get caught in the same time crunch FASB is trying to avoid.