Shauna Watson, Global Managing Director of Finance & Accounting for RGP, joins Matt and Jim with some thoughtful feedback directed at companies that think the new revenue recognition guidance isn’t a ‘big deal’ or poses little impact.
We asked Shauna what she would say to a representative of such a company.
“I would say very few companies aren’t affected at all,” she said.
Shauna added: “When companies look at the amount of disclosure they have to do, most of them aren’t accumulating that data currently. So they need to make some changes in their systems or figure out how they’re going to accumulate that data in an auditable format. Companies that are going to be excluded would be those that specifically and exclusively deal in areas that are scoped out, which are leases, financial instrument and insurance contracts. But, even financial services companies and insurances companies are finding there are revenue streams they have that are scoped in so they have to be specifically and exclusively excluded by that standard in order to basically have no impact. So, most companies will have some sort of an impact.”
On the topic of retail, Shauna said such firms should consider the potential impact for coupons or discount and loyalty programs.
To clarify, we asked if a company has coupons or, say, a loyalty program, could there be some issues with the new standard?
“Loyalty programs can be separate performance obligations, and in most cases will be, and would need to be tracked separately with some revenue allocated to it,” she said.
We asked Shauna if she could think of a company with no impact from the new standard?
“If there was an insurance company that had all their contracts specifically accounted for under the insurance guidance that is scoped out, then that company would not be (impacted), but most companies will have some revenue streams, revenue or something that will be scoped in,” she said.
Is the impact affected at all by the size of the company or is it just all on what kind of revenue streams a company has?
Shauna replied, “The size of a company will affect the size of your implementation and the level of effort that’s involved, but private or public, as far as their contracts with customers – and the contract definition is certainly broader than it has been in the past – those are all going to be scoped in, so while the effort may be smaller, it’s still going to be a big effort since smaller companies typically have fewer staff.”
And, of course, we couldn’t not ask her why so many people are delaying adoption of the new standard?
“That’s a really good question that I’d like to know the answer to myself,” Shauna said.
“I think some of it is a little bit of denial and hoping that it will go away,” she added. “Unfortunately, this one is not going away. Some of it is just other pressing issues. There are other things they have to attend to, the 10-K, for instance, and also a few (companies) just looking at it and going, well, (the effective date in) 2018 is pretty far away. And, of course, the companies we talked about already that don’t think they have much of an impact and (for whom) this isn’t going to be a big deal.
“Certainly, I’m a little bit concerned for those companies if they find out at the last minute that it’s a bigger deal than they thought it was.”
What would Shauna say to get folks moving faster with this effort?
“The obvious answer is do the assessment and have something documented,” she said. “Run it by your auditors and prove it out early, and if it’s really no big deal to you, then you can take a break in 2017. It’s better to know the answer now rather than have a surprise at the end and risk some of the terrible consequences that could come (such as) material weaknesses, restatements, not being able to file your 10-K on time, some things that while not catastrophic, are near catastrophic.”
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