Here’s what you know:
The newly converged standard for revenue recognition was announced last year by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) following more than a decade of painstaking effort on the parts of those governing boards.
In response to outcry from companies seeking extra time to transition to the massively overhauled guidelines, some parts of which are still in the process of being altered, the FASB agreed last week to delay by one year the effective date for the new revenue standard. As a result, U.S. public companies and some other entities will apply the new rules to annual reporting periods beginning after Dec. 15, 2017. All other entities will apply the new rules to annual reporting periods beginning after Dec. 15, 2018. If companies are prepared, they now have the option to adopt the rules under the original timeline. The IASB is moving along the same extended timeline as the FASB.
Here’s what you need to know:
The new revenue recognition standard itself.
Yes, that’s right. The first of the many steps involved in this transition for any entity is a committed understanding of what the rules changes mean and how they will need to be interpreted.
Don’t just take our word for it. In the context of ‘an oldie, but a goodie,’ we reference this article published by the Journal of Accountancy when the new revenue standard was announced because the thorough examination of this industry-shaking change hits upon some key items we hope to delve into further in the coming days.
As the article states, “companies may need to consider what the standard means for them much sooner in order to choose the appropriate transition method. Under the full retrospective method, public entities would be required to restate two comparative years prior to the implementation date.”
In other words, for some folks this process starts as early as the beginning of 2016.
As a reminder, this article was published a year ago. Your efforts at understanding the standard should be well underway by this time.
We understand this is no simple task. For U.S. firms accustomed to prescriptive, industry-specific guidance, this is a drastic change. Which is why there is no time to waste to begin this effort.
Resources are in place to help in this understanding, including the joint Transition Resource Group (TRG) established by the FASB and the IASB to assist with implementation questions.
A deep understanding of what these rule changes mean for your company is necessary in order to choose a transition method, build a proper implementation team and project plan and analyze your contracts and revenue streams.
We will examine those various topics in the coming days in this space. Stay tuned…