New Guidance Through the Regulatory Lens

By Saloni Madhok September 17, 2015

During the past year we’ve made a concerted effort to keep revenue experts aware of the dramatic overhaul on the horizon for revenue recognition guidance. We’ve come at this from our point of view, from the perspective of longtime industry experts and from the vantage point of some key verticals.

Today, we take a more regulatory bent as we highlight a recent interview with Wesley Bricker, deputy chief accountant for the office of the chief accountant for the U.S. Securities and Exchange Commission (SEC), the government agency tasked with overseeing all activities of financial professionals. That effort includes a direct role in enforcing the standard for public entities.

Though Bricker made sure to point out in his interview with online repository, SearchFinancialApplications.com, that opinions provided were his own and not on behalf of the commission, the article still offered some illuminating tidbits.

Namely:

  1. When asked if the new standard might affect the bottom lines of organizations, Bricker said since the new standard could impact the timing of revenue recognition, it very well could affect the bottom line, though the extent to which that happens could vary greatly based on industry and/or transaction specifics.
  2. He views the main objective of these new revenue rules is to require companies to recognize revenue when a performance obligation in a contract is performed.
  3. He strongly advises each company to keep in mind how enhanced reporting could be used by investors as each of the new five steps at the heart of the new revenue standard are applied.
  4. He singled out software companies as likely needing to record revenue earlier than is done under existing guidance due to the performance obligations for related services bundled with the software.
  5. He stressed the need for companies to spend the time necessary to take a fresh look at all their transactions to understand exactly how the new standard will be applied.

When asked what SEC staff has been encouraging companies to do to be properly prepared for the new standard,  Bricker said “we’re encouraging companies to start now and to not underestimate the comprehensive nature of the effort involved.”

To emphasize his point of not underestimating the effort at hand, Bricker noted that the need to take a fresh look at all contracts will not only require the need to form quality judgments and estimates for the information in the financial reports, but enhanced accounting policy roles, designing systems and appropriate controls in place to support financial statement preparation with regard to the new standard.