Big Companies: Don't Wait on New Revenue Rules

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By Steve Burkholder

Nov. 14 — Some big U.S. companies that are moving along in implementing far-reaching accounting rules on revenue recognition said their extensive preparatory work is paying off in preventing major administrative headaches.

Still, the task of shifting to the new revenue standard issued in 2014 presents myriad challenges—especially to aerospace contractors such as the Boeing Co., the company's accounting chief said Nov. 14—that require involved preparation.

That advice from financial executives from Boeing, Johnson & Johnson and Intel Corp. has been a common refrain as the revenue rules’ January 2018 effective date for public companies approaches: don’t wait on moving to the new rules. They spoke on a Nov. 14 panel at an annual conference of Financial Executives International in New York.

In 2014, the Financial Accounting Standards Board issued a set or rules on revenue (ASC 606) that reduced almost 200 separate pieces of guidance to one. The standard, issued jointly with international rulemakers, will affect virtually every commercial enterprise, but is expected to have a significant impact on the defense, telecom and technology, life sciences, and media and entertainment sectors.

“Ultimately, revenue recognition is the basis of what we all do and why we’re all here,” panel moderator Christine DiFabio, assistant controller at Zoetis Inc., said

Revenue often is described as the most important line in financial statements.

First Step: Assessment

A recent survey conducted by PricewaterhouseCoopers LLP and the FEI’s research arm showed that 75 percent of public companies are still assessing what revenue reporting tasks lie ahead and what they must do to effect the new accounting standard.

Some 8 percent of companies haven’t started work to prepare for the advent of the new rules, the survey showed.

Kevin McBride, Intel’s vice president of finance and corporate controller, described his company carrying out “mock closes” in financial reporting under the new rules, or simulations of the revenue reporting processes to be done in the future.

Those typically involve many departments, said McBride and Steve Rivera, Johnson & Johnson’s global senior director for financial compliance and procedures.

They advised constant communication among units as diverse as the legal department, marketing, human resources and compensation. “You’re going to find that you might not have the right solutions,” McBride said.

“The time for those dry runs is getting much shorter,” DiFabio said.

Choice of Transition Route

Michael Cleary, Boeing’s vice president for accounting, said the impact of financial effects likely will be much deeper than that for Intel and Johnson & Johnson.

Cleary said it will involve a significant amount of change. He described a general shift in accounting for contracts from a point-in-time recognition of revenue to more over-time recording of those amounts.

FASB has prescribed a choice in how companies shift to the new rules: a full retrospective approach or a less onerous, modified retrospective method. McBride advised against waiting to choose a transition route, saying that can influence the performance of tasks down the line.

Cleary said Boeing is leaning toward the retrospective approach. It entails following the current revenue guidance and the new-for-2016 and -2017 reporting, in preparation for the full shift in 2018.

“This is the path we’ve taken. I hope we can do it. My job is counting on it,” Cleary said, drawing some sympathetic laughter.

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn., at sburkholder@bna.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bna.com

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