GE Outlines Approach to Implementing New Revenue Rules

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By Denise Lugo

Nov. 7 — General Electric Co., the Boston-based multinational conglomerate, has for some time been methodically preparing to implement the new revenue accounting rules that take effect in 2018.

“We’ve been on this journey for a while now,” Jan Hauser GE’s vice president, controller and chief accounting officer, said Nov. 2 at a Practising Law Institute panel discussion in New York. “It’s a significant undertaking that certainly we, as an entire organization, take very seriously—our audit committee as well has been quite involved.”

The Financial Accounting Standards Board in 2014 issued the standard, Revenue from Contracts with Customers (ASC 606). The board sought to replace dozens of industry-specific rules with a principles-based model for recognizing revenue globally.

Though effective in 2018, companies have the option of adopting it next year. For some companies, the standard could result in a change in the timing of recognizing revenue and therefore a change in earnings—not only historically but also going forward.

Hauser said the company has been monitoring clarifications provided by FASB’s revenue transition resource group (TRG), as well as companies in related industries with similar contracts.

Cross-Functional Effort

GE is primarily an industrial company that operates through segments including power and water, oil and gas, aviation, health care, transportation and GE Capital, among others. It has about 333,000 employees, and total revenue of $117.4 billion in 2015, according to its annual report.

Its implementation preparation efforts are being done cross-functionally with its project management officer. Everything starts with getting a handle on the technical and accounting aspects of implementation of the standard, so that is where the company has been spending the majority of its effort, until about the mid-part of this year, Hauser said.

“Since that time, we have been bringing together the implementation and operational aspects—those efforts require significant cross-functional dedicated resources,” she said.

Then there are monthly meetings with the CFO and the audit committee—doing “deep dives” on different technical topics and on matters that are unique to certain segments.

Seven Segments Affected

There are seven GE segments that are affected by the standard. Each segment has very senior technical controllers who have all read the standard and have worked to apply it to their contracts.

“Thus, we need to stitch together the various points of view and determine whether contracts with seemingly similar terms and conditions are being evaluated in the same way,” Hauser said. For example, how does the analysis look at the aviation segment versus oil and gas versus power?

“If it’s not all viewed the same way, then it’s an area that is worked through—weekly,” she said.

Project Management Team

Hauser gets detailed information from GE’s project management team, including a type of executive snapshot of updates on key areas, such as controls, disclosures and IT system implications.

There is also an update on the technical memos with nitty-gritty details, including a status update on technical memos completed and those that are still in process. They are scored as high, medium or low priority in terms of their impact.

Moreover, there is information about who has them open, whether they are technical or disclosures, how to do the retrospective lookback, and how to process and map the right general ledger accounts.

Underlying Systems

The company also looks at underlying systems issues because they are critical to the company's mission and the sustainability of its process and controls.

Once the accounting requirements are known, the underlying systems are examined to see what they have to produce in order to be sustainable, not only for the journal entries being booked, but also for the disclosures.

“We’ve been really focused on the disclosure aspect of it for a while, because it’s going to be a significant data-gathering exercise,” Hauser said.

The company is working on pilots to test those disclosure controls to ensure “everybody is rolling up in the same way.” For example, when disclosing contract assets and liabilities, are all the segments being defined in the same way?

“To examine this issue, you need to look at ledger accounts and controls for accumulating data,” she said.

Financial Planning and Analysis

Another step is working with financial planning and analysis (FP&A), Hauser said, because the expected outcomes and changes in financial expression are “important in terms of financial planning and ultimately speaking with investors” once the company has a solid view of translating the technical conclusions into numerical expression of the change in accounting.

“And, we need to thoroughly review actual contracts to accurately understand the accounting impacts,” she said.

In some areas, the change won't be significant; in other areas, the impact will be more significant. “It’s a very laborious exercise—huge number of man hours in terms of reviewing contract terms” to be able to “stratify those contracts based on terms; see where you have commonalities and where you don’t,” Hauser said. “There needs to be a game plan on how to deal with those issues.”

Moreover, the effort has to be cross-functional with both tax and legal teams involved. “Legal teams play a big part in gleaning insight when looking at contract terms and conditions about whether or not they’re going to yield the same technical accounting under the new standard,” Hauser said.

To contact the reporter on this story: Denise Lugo in New York at

To contact the editor responsible for this story: S. Ali Sartipzadeh at

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