Beyond the New Revenue Standard—Upcoming Tasks for Accounting Profession

What are the reasons, we know so far, make the new revenue recognition standard so difficult to apply that companies are still not ready yet to implement? One reason is that the new standard is principles-based that would require accounting professionals to make estimates and judgments. Estimates and judgments that haven’t normally been bywords of this profession.

On Sept. 17, panelists from various industries and standard setters discussed the implementation challenges as well as what companies should look out for at a Bloomberg BNA conference on revenue recognition in New York. 

Implementation Challenges.


When answering the question regarding the challenges of implementing a principles-based standard, Stephen Rivera, Johnson & Johnson Senior Director, said that his biggest challenge is to get his finance team to think about making judgment. “Accountants are used to follow the ‘black and white,’ ‘yes and no’ rules,” they need to be used to a different way of thinking---to think of how to look at contracts and how to account for them.

Panelists agreed that “deferred revenue” is one of the items that would be affected the most by the new standard. “Based on the [old] rule I can defer the revenue 100 percent, very simple.” Rivera said. He talked about how the current principle would be different, “But today I can’t do that, zero is not the answer, that’s the challenge. Today I have to answer the question of what are the assumptions I’m using, and how did I come up with the assumptions.”

Legal Perspective, More Defense. 

However, the new standard might give companies and its board of directors more “cover” from the legal perspective. Lisa Starczewski, counsel of Buchanan Ingersoll & Rooney said that unlike the old  rules, principles-based accounting requires you to “make a judgment, make an estimate, apply the general principle based on the context, as long as you have enough documentation to support [your judgement and your estimate], it’s hard to argue something is ‘wrong.’”

New Requirements for Accounting Profession.


The Securities and Exchange Commission deputy chief accountant Wesley Bricker also said in the conference, “As a profession we must be up to the task of making well-reasoned, practical judgments necessary to provide the most relevant information about revenue arrangements since investors and other financial statement users need it.” He added, “To do this, the financial reporting community which includes preparers, auditors, and other regulators must lead the implementation effort by making sure those judgments are grounded in the principles of the standard, and each step outlined in the standard is applied in a practical way that considers the utility of the resulting information to users.”

Bricker also mentioned that companies need to assess and continually reassess the impact to their existing accounting and financial reporting competencies and make adjustments as appropriate to their training, retention, and recruitment programs.


With other FASB’s standards that are principles-based coming down the road, entities not only need to change their relevant business processes and the control activities, but also need to re-think accounting overall as a profession.

As panelists said, accountants need to have the skillset of making judgments and estimates for the upcoming principles-based standards. “Accounting 101” might need to shift its focus, so that people come out of school would not only be able to do “debits and credits,” but also to think critically and articulately.