CPAs Lag in Revenue Recognition Implementation
by Kathleen Hoffelder, Content Editor, NJCPA –
March 31, 2017
More than 90 percent of the 120 CPAs polled in February by the New Jersey Society of CPAs (NJCPA) said their companies have either not started implementing the new revenue recognition standard for financial reporting that goes into effect in January 2018 or are in the assessment phase only. Less than 10 percent are actually in the implementation stage and less than 5 percent completed that phase.
That’s much slower than expected, according to Ralph Albert Thomas, CEO and Executive Director of the NJCPA. “By now, we would expect companies to be beyond the stage of just evaluating how the new revenue recognition standard will impact their companies and be putting in place actual steps on how to conform,” he said.
The Financial Accounting Standards Board (FASB) deferred the effective date of the new standard, ASU No. 2015-14, Revenue from Contracts with Customers, until after public companies’ annual reporting periods in December 2017. The extension allows additional time to align current technology systems with the new standard or seek out new information technology solutions, if needed.
Kevin Bogle, principal in KPMG’s Accounting Advisory Services group, agrees that if changes to IT systems are needed or new systems will be developed as a result of conforming to the new standard, it will take more time to complete implementation. This, as explained in his article in New Jersey CPA Magazine, will need to be factored into the design phase.
The new standard applies a more general, principle-based approach to recognize revenue from contracts that transfer goods and services, eliminating the industry-specific guidance currently used. It now requires companies to specify when control over the transfer of a company’s goods or services occurs over time. Challenges in adhering to the standard can arise when companies get paid for goods on an upfront basis or when trying to decipher whether to recognize sales when shipped, for example.
The American Institute of Certified Public Accountants (AICPA) suggests companies take a thorough, step-by-step method toward implementation from the start: “Assign individual company staff or form a task force to become experts and take the lead on understanding and implementing the new revenue recognition standard. Also be mindful of accounting, financial reporting, tax, internal audit, sales operations, IT, legal and human resources implications.”
Private companies as well as not-for-profit organizations will also have to adhere to the new standard, albeit with some stipulations. Private companies that have a calendar year-end reporting process will have another year to conform by January 1, 2019. Certain not-for-profit organizations that have issued debt securities or have been involved in conduit financing will also have to meet the standard in the annual reporting period beginning after December 15, 2017, but for others the standard takes effect after December 15, 2018.
Both FASB and the International Accounting Standards Board (IASB) released the converged revenue recognition standard in 2014.
For more guidance and events on implementing the revenue recognition standard, visit njcpa.org/topics/revenue recognition.