By Jim Staats, Senior Account Manager at Zuora
EY recently conducted a Revenue Recognition Survey to understand the corporate state of readiness in implementing the new revenue recognition standards. The survey found that many companies are behind their own schedules implementing the new standard, finding the effort to modify business processes and information systems a more taxing effort than anticipated.
Results from the survey by EY of public company finance and IT leaders indicated 70 percent of respondents have not yet completed implementation efforts, with 14 percent yet to even start on the new standard, which is set to go into effect for public companies in 2018.
With the mandatory effective date approaching, some companies are re-evaluating how much system change can be accomplished, and what other methods they will deploy to implement the new standard by the effective date. According to the survey, nearly half of the responding companies are planning system changes specifically around the new revenue recognition requirements, but 45 percent of those planning system changes expressed concern over the ability to meet the deadline for having that system up and running.
Companies may not be able to get automated solutions fully functioning in time for their adoption date, and instead may be required to develop manual workarounds. And, even those who get some of their systems in place in time may have to work outside the automated systems to arrive at some of the judgments and estimates required under the new standard.
There are also control considerations companies should keep in mind.
According to John McGaw, EY Accounting Change Leader for the Americas, “companies should focus on assessing risks and implementing controls to address them.”
“Controls over data should also be in place whether a company uses new systems or manual workarounds,” McGaw added.
“We believe a lot of organizations are planning to perform new record keeping using a manual, or partially automated approach to achieve their adoption date, with some pursuing more robust systems automation at a later point in time,” said Jeff Johnson, Executive Director, EY. “For organizations with a moderate to high impact on their existing processes and systems, we suggest they consider a parallel effort that leverages their work on a manual or partially automated approach to build out a more fully automated approach that is able to be deployed later in their adoption year or early in the year that follows.”
While manual workarounds can offer something in the way of stopgap solutions, companies can only build certain models or perform certain calculations up to a point of scalability in spreadsheets or desktop databases. Getting even that far assumes, however, companies have completed technical accounting analysis on the new standard’s impact, something many companies are still working through.
Utilizing this unique point in time to uncover broad business benefits requires a collaborative effort and across-the-board buy-in among departments held accountable to implement the new standard. Unfortunately, the EY findings highlight challenges in organizational alignment.
While survey findings highlight management buy-in that the changes required by implementing the new revenue recognition guidelines offer an opportunity for broader business benefits beyond mere compliance, some top-down misalignment to come out of the findings is also being well-reported by ComplianceWeek, AccountingWEB and others.
The survey shows the majority (85 percent) of CIOs confident in their IT teams provision of support and skills necessary to implement the new standard, while only 60 percent of CFOs are in agreement on that fact. Alternately, while 80 percent of CIOs view the collaboration between finance and technology staffers on needed systems and process changes as successful to date, only 68 percent of CFOs are in unison with that positive assessment. As the survey indicates, the likely disconnect between CFOs and CIOs stems from differing challenges requiring their attention.
“The results shine a light on the importance of internal alignment among finance, IT, and other functions, as well as with internal and external audit teams,” notes McGaw.
Read more on the EY survey here.