What We Learned and Recommendations
The new revenue recognition standard is required to be adopted in less than one month for many public companies. We offer several recommendations and key lessons learned from assisting companies with their implementation projects:
- It is more than accounting. Arriving at the appropriate accounting conclusions may not be overly difficult. One client’s larger challenge has been to manage information technology and business process changes. One client operates in a high transaction volume environment in multiple countries. The company dedicated significant time and resources to reconfigure its information systems. Such changes were necessary to avoid top-side entries and for the statutory reporting needs of international subsidiaries.
- Don’t forget about evaluating non-core revenue transactions. While companies should focus on material revenue streams, auditors will likely require work around non-core revenues. We incurred time to understand the nature of smaller revenue streams and how they might be reported under the new standard in part to satisfy auditor requirements.
- Going back in time to transition may not be easy. There may be significant effort required to transition to the new standard. The standard allows for certain accommodations to make adoption easier. However, it may be challenging to locate information, documents, and institutional knowledge to assess the impact on historical transactions.
- New disclosures may require different data. The new standard introduces new disclosure requirements. ERP systems may need to be modified to produce information to meet disaggregated revenue and contract balances disclosure requirements.
No Time to Delay
We hope most companies are far down the path in implementing the new revenue recognition standard. There is no time to wait, even if a company plans to book top-side adjusting entries. The SEC expects companies to provide robust disclosures in upcoming annual reports on Form 10-K, including quantitative adjustment estimates of adopting the standard.