Accounting rulemakers' Sept.15 webcast on revenue reporting ended with a slide meant to send clear messages about shifting to the landmark rules that become effective for public companies Jan. 1, 2018:
“2018 is closer than you think— get started on implementation”;
“Take a fresh look at your accounting, revenue disclosure and internal controls”;
“Leverage FASB, IASB and other implementation resources”; and
“Implementation of new disclosures should not be an afterthought”.
Those are words to read and heed, members of the Financial Accounting Standards Board and the International Standards Board suggest. And read them again, and act, please—soon—for the good of your going concern, standard-setters urge.
For starters, the folks at the “CorpFin” division of the Securities and Exchange Commission will be watching, as will government CPAs at the SEC’s Office of Chief Accountant. [For many years, dubious revenue reporting was a leading area of securities law enforcement.]
So will investors, who likely will be ready to pore over the newly prescribed enhanced disclosures on how revenue is booked.
A One-Hour Primer and Advice Manual.
In the Sept. 15 webcast’s one hour, members of the FASB and IASB, as well as revenue mavens on the staffs of each board, offered a comprehensive primer and advice manual on the jointly written standards that were issued more than two years ago. The rules’ original 2017 effective date was deferred a year to give companies more time for a smooth transition to them.
In their on-line presentation, FASB Vice Chairman James Kroeker, IASB member Mary Tokar, senior staff accountants Cullen Walsh (FASB) and Henry Rees (IASB) and the FASB staff’s Mary Mazzella, supervising manager of the revenue recognition project, cut to the essence of things even while drilling down into issues and going through illustrative examples.
Here are some highlights, including rulemakers’ pithy quotes, plus news that FASB and IASB want you to use:
Understand the Transaction: Kroeker spoke of “the need for companies to challenge their revenue recognition practices to date,” and of gauging how an entity got to a particular conclusion today, which could help in applying of the new standard;
There Will Be Judgment: The new rules and the five-step revenue recognition process t will require judgment, but “that isn’t boundless judgment,” said the FASB vice chairman.
Disclosures are Huge: Today’s typical footnote reporting on revenue is seen as incomplete and not especially illuminating, so the two boards prescribe beefed-up disclosures related to the revenue reporting process—and companies shouldn’t wait to the last minute to get ready for those, IASB’s Tokar said.
Disclosures Should Tell a Story: Footnote reporting requirements shouldn’t be treated as a checklist, but should be regarded as an opportunity for a company “to tell its story about its different sources of revenue and how it has applied the principles” in the rules to its particular lines of business and types of contracts, Tokar added.
Big Effects of IDing Performance Obligations: Of the rules’ prescriptions, having to identify performance obligations in revenue-generating contracts —a critical step in the accounting—seems to be affecting many companies the most, according to a webcast polling question.
Maybe a Need to Step Back: If a company or its auditors are finding “a lot more or different performance obligations” than deliverables recorded under current accounting, said the FASB staff’s Walsh, “it might be a good idea to step back and think about, ‘How did you identify the deliverables that you have today and do you really think it makes sense that you have change?’ ”
The FASB may or may not hold a meeting in November of the advisory Transition Resource Group for Revenue Recognition. Implementation questions submitted to the TRG that have gained traction are fewer and further between – a good thing as the 2018 effective date draws nearer, Kroeker suggested.
As company CPAs roll up their sleeves and start tilling the new soil of revenue, they likely will benefit from spending some quality time with the Sept. 15 webcast. Accountants, financial executives and auditors will have a chance to tune into the archived recording of the webcast for 180 days by going to http//src.bna.com/iDF.
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