For public companies considering the retrospective method adoption method, a significant implementation issue related to the five year selected financial data requirement. Would the SEC require all five years to be presented under the new revenue recognition rules?
SEC Provides Some Relief
At the Financial Accounting Standards Advisory Council (FASAC) meeting, a SEC staff member indicated the SEC staff would not object if companies electing a retrospective approach to adopt the new revenue standard DO NOT recast the earliest two years in their selected financial data disclosures. Accordingly, a company would reflect the accounting change in the five year selected financial data disclosure only for the three years for which it presents full financial statements elsewhere in the filing. The other two years included in the table would be presented under previous revenue recognition rules. Companies would be required to include clear disclosure about the lack of comparability.
What Does This All Mean?
Companies considering transition under the retrospective method generally now have more time to assess the impact of the new rules. Before the SEC’s announcement, companies electing the retrospective adoption method would have had to recast transactions in 2013 and thereafter under the new revenue recognition rules to comply with the five year selected financial data table requirements. This would have created a potential longer dual reporting period and accelerated the implementation timeline. While this announcement certainly reduces the burden of electing the retrospective method, companies should not underestimate the complexity and time required to successfully implement the new revenue recognition rules.
We continue to encourage companies to begin early in assessing the impact of the standard. As these new rules impact all businesses and multiple functions within an organization, we recommend companies develop and carefully design an implementation plan which considers the effects to the various parts of the business (sales, planning and analysis, investor relations, legal/contracts, IT, tax, finance and accounting).