The Implementation Landscape
Almost 2 years ago now, the FASB issued its long-awaited, sweeping new revenue recognition standard. The standard initially provided for a 2017 effective date for public companies (2018 for private), which was subsequently deferred a year in order to give companies ample amount of time to implement the standard effectively. This resulted in an implementation period of over 3 ½ years for a calendar year-end public company (even more for others), an unprecedented amount of time by FASB standards. Amazingly, we are now almost half way through this implementation period.
Over the next couple months, I will be posting a series of articles that take a comprehensive look at the considerations, challenges and best practices surrounding implementing this new revenue recognition guidance. In this first article, I discuss the overall implementation landscape and where companies are in the implementation journey.
So what have companies been doing with this almost two years since the standard was issued? Based on recent surveys, as well as numerous conversations we’ve had with our clients…apparently not much. For example, a recent Deloitte survey indicated that less than 10% of respondents are currently executing the new standard, over 70% either are only in the preliminary assessment phase or have not done anything, and less than 15% have established a formal implementation budget. Based on our conversations, there are a number of reasons why companies have been slow to get started:
- Don’t expect a significant impact – I hear this one quite often
- Other more pressing priorities
- Waiting for clarification on additional accounting topics
- No time/resource constraints
- Simply haven’t even thought about it yet
The good news therefore is you are not alone (if you haven’t yet started). The bad news however is this does not mean you aren’t behind. While it’s true that some companies will end up with a minimal financial statement impact, all companies need to go through the process of analyzing and documenting their revenue arrangements within the context of the new revenue recognition model. And for those revenue arrangements that do change, the impacts are likely to be significant – ranging from processes to systems to controls to budgeting to tax, etc…there is almost no area of an organization that is fully immune. In addition, the new standard requires substantially more disclosures that are likely to require new data and updates and processes and systems (even if the accounting does not change).
In summary, implementation will be a major undertaking for many companies and it’s important to get started soon so the new revenue recognition standard can be implemented in an organized, thoughtful and programmatic manner. With this in mind, I will be addressing in my next post what companies should be doing now to get started.