“You may delay, but time will not.” These words, attributed to Ben Franklin, hold meaning for finance leaders as we rapidly approach the implementation of the new revenue accounting standard (ASC 606/IFRS 15). The FASB and IASB have already delayed the standard’s official adoption dates by one year, but it appears that leaders haven’t made the most of their deadline extension.
According to a recent article in the Wall Street Journal, 8 percent of public companies are still yet to assess or implement the new revenue accounting rules. These are the companies whose reporting under the new standards begins for reporting periods after December 15, 2017—just over a year to go.
For private companies, whose implementation date is just one year later, the number jumps to a dangerously high 47 percent, per PwC.
Big Changes to be Made—Immediately
The new standard is one of the largest, most extensive changes to the way organizations account for contracts, and this is why there was already one extension. There will not be another.
Robert Kugel, SVP and Research Director at Ventana Research, was quoted, “These changes require an extensive review of contracting and accounting policies and processes, and will likely require changes to procedures and—above all—systems.”
Making the Move
While certain businesses—generally in the Aerospace, Communications, Defense, Engineering, Law, Media, Information Technology, Management Consulting, Marketing Services, and Pharmaceuticals industries—have the most robust changes, ASC 606/IFRS 15 is set to replace over 200 specialized and/or industry-specific standards, so it is likely to affect all businesses in one way or another.
According to a survey of financial leaders by FERF and PwC, the coming changes will be difficult. When asked about seven key facets of implementation, respondents found everything about the standard to be either “somewhat” or “very” difficult:
- Contract Reviews (current and ongoing): 78%
- Developing and Implementing New Accounting Policies: 76%
- Documentation of Conversion Process and Associated Auditability: 76%
- Quantification of Adjustments: 72%
- Project Management: 71%
- Revisions to Systems and Associated Controls: 68%
- Identification of Accounting Differences Across the Organization: 64%
In essence, organizations need to act fast, because for many of the organizations that have made changes, they have been surprised at the sheer amount of change they’ve needed to make and the true impact that identifying performance obligations and accounting for variable consideration can have on their business.
The First Step
The new ASC 606 and IFRS 15 accounting standards—some of the most far-reaching changes to accounting since Sarbanes-Oxley—are only a few quarters away. To address this, Wipfli/Brittenford has announced a new whitepaper, The Definitive Guide to New Revenue Recognition Rules, which seeks to provide readers with more background, as well as offer best practices and advice to help readers prepare for the coming standard.