Dealing With Accounting Changes--What Companies Are Saying About Their Experiences

From implementing the new revenue recognition standards (ASC 606 and IFRS 15) and the new leasing standard (ASC 842 and IFRS 16), to preparing for the new hedge accounting guidance of ASU 2017-12--companies are very busy making accounting transitions.


To find out how companies are coping with this unprecedented “wave of accounting changes,” PwC recently surveyed more than 600 finance professionals from various industries to learn about their experiences.  


Difficult vs Not So Much--What Companies Are Saying About the Accounting Changes


The survey results are broken down by industry, company size, and other variables (e.g., public or private ownership). In addition to information about implementation status and costs, the results show which implementation challenges the 600 financial executives found to be not difficult, somewhat difficult, very difficult, or were unsure how to categorize.


One surprising highlight from the survey is that 27 percent of technology, media, & telecom company respondents found that implementing an IT system for the new revenue recognition standards was very difficult, while only five percent of financial services companies agreed.


Another surprising highlight is that 28 percent of technology, media, & telecom company respondents have not started implementation of the new leasing standards.


According to PwC partner Chad Kokenge in an interview with Bloomberg Tax, companies that are still in the process of implementing the new standards can use the survey results as benchmarks to better allocate their time and effort during their own implementation journey.


“The survey results can help companies [in different industries] to decide what part, in the implementation process, they should be focusing on,” Kokenge said.  


Regarding the implementation challenges of the new lease accounting standards, thirty five percent of energy/utility company respondents said that identifying their lease population was very difficult, compared to only nine percent of financial services respondents. This means that if you are in the energy/utility industry, you probably need to focus and spend a little more time determining whether you have contracts that should be categorized as leases.


Additionally, less than ten percent of the companies surveyed (one percent of energy/utility, three percent of financial service, three percent of industrial products/manufacturing, seven percent of retail & consumer, and eight percent of technology, media, & telecom) found that identifying IFRS/US GAAP lease differences was very  difficult. So, this might not be something worth spending most of their time on.


Hedging Rules


The new hedging guidance (ASU 2017-12) will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. Public companies are required to comply with the rules by January 2019.


In preparing for the transition to the new hedge accounting rules, Kokenge said that companies should analyze their resources in order to make the transition go smoothly. “The reactions from the survey indicate that it takes companies more work than they thought it would to comply with an accounting standard change, therefore, companies should plan ahead,” he added. 

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