Don’t Wait to Automate

By Aarthi Rayapura October 13, 2015

A seismic shift in the governing standards of revenue recognition is coming. Fact.

The actual date when these drastically altered guidelines become the law of the land is in 2018, more than two years away. Fact.

Companies that don’t take advantage of the current pre-transition “downtime” to establish standardized processes while learning the new rules are wasting a golden opportunity. Fact.

Today’s climate of change within the revenue world, coupled with the extended grace period, could not provide a more perfect environment for forward-thinking organizations interested in not only hitting the ground running with the new standards, but hitting that ground while dressed in the proper attire for the elements and wearing a fully stocked survival backpack (pardon our excruciatingly stretched analogy).

Whether the new solution to your firm’s revenue accounting needs is to deploy revenue cycle automation software such as Leeyo’s RevPro® or something else, the window of opportunity to do this has never been better than it is right at this moment in time.

Why?

Dave Christensen, Managing Consultant with RGP and “@USGAAPGuy” on Twitter, highlighted a number of key reasons, including the significant complications in disclosures for the new guidance, an opportunity to simplify accounting models through contract modifications and the chance to truly have a say in the new standards before public accounting firms do it for them.

“Companies that wait until the last minute will be in for a rude awakening,” he said.

Typically, according to Christensen, a CPA, public accounting firms tend to get together and, in essence, create their own standards. He said those big firms can come in and expect company X to have A, B and C in order to be properly audited.

“If companies wait too long (to implement), they miss the opportunity to create their own standards and thresholds” with regard to how the new guidance is interpreted, said Christensen.

The enticing carrot being dangled before companies today, according to Christensen, is to modify their contracts and simplify their accounting models with such modifications before the new standard comes into play in 2018. He called it the most practical reason to get started now.

“I know that’s what I would be saying,” to a potential client, said Christensen.

fullretrotimeline

Recommended timeline for Full Retrospective adoption

One company Christensen is currently working with doesn’t plan to adopt the new standard until 2019, “but they want to make sure there are no skeletons in the closet and they’s why they are starting now,” he said.

To date, such proactivity seems to be the exception instead of the norm, said Christensen.

Officials for the governing bodies overseeing the rules are doing their part to light a fire under entities.

“Organizations should take a proactive approach to implementing the new revenue recognition standard,” said said John C. Pappas, a spokesperson for the Financial Accounting Standards Board (FASB), which joined the International Accounting Standards Board (IASB) in announcing newly converged revenue recognition standards in May 2014. “Doing so will help to ensure a smooth transition, and ultimately reduce the cost of implementation. By effectively implementing the new standard, organizations will provide financial statement users the information they need to make the right decisions about how to allocate their capital,”

Pappas said as part of the organization’s commitment to ensure a smooth transition, the FASB developed a Transition Resource Group (TRG) in conjunction with the IASB as a means of addressing potential issues arising from implementation of the new guidance.

modretrotimeline

Recommended timeline for Modified Retrospective adoption

“The TRG has been an important tool for the board, and has identified application issues in the new standard that are in need of additional guidance before it becomes effective,” he said. “Issues that the FASB  is currently addressing include performance obligations and licenses, narrow-scope improvements and practical expedients, and reporting revenue gross versus net.”

Christensen cautioned that many corporations are waiting to act out of an incorrect interpretation that the work being done by the TRG and the ensuing amendments are changes to the standard.

“Companies are saying, well why should we move forward if they are still making changes (to the standard),” he said. “However, if you look at those carefully, they are not really changes, but clarifications. I caution companies that (the FASB) is not changing the standard, (instead) they are clarifying what you should be doing.”

The FASB has publicly announced the TRG will meet for the final time in November 2015.