New Revenue Rules Heavy Lift for Those Expecting Little Impact

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By Denise Lugo

Companies that don’t expect new revenue rules to have significant influence on their financial reporting must still conduct much of the same extensive analysis and modeling as those for whom it will affect their economic results.

Financial statement preparers might have underestimated the level of effort required to implement the rules, chief accountants at a Financial Accounting Standards Board Advisory Council meeting said.

Significant Work Regardless

“The point about it not being material doesn’t mean the work to get there is not significant or material,” Ted Timmermans, vice president, controller and chief accounting officer of energy company The Williams Companies Inc., said. “Even though the business model may be fairly simple, from the outside the variety of contracts is significant,” he said.

Financial items or data are generally considered to be material if they can influence the economic decision of investors.

Though company contracts can be similar, they still have to be evaluated to determine the effects, if any, of the rules, according to the discussions, which focused on pace of change and implementation efforts of the new rules.

There are “a lot of them, but there are distinct differences and until you look at each one of them you don’t feel like you’ve really gone through the exercise—so that’s been a lot of the work, but by doing that you harvest out where the greater issues are,” Timmermans said at the Dec. 14 FASB council meeting.

The new revenue standard, Revenue from Contracts with Customers, ASC 606, takes effect Jan. 1 for public companies. It changes the way companies report earnings—a key metric used by investors to analyze profitability and financial health of a company.

More Than Half Don’t Expect Material Impact

Most companies still haven’t yet completed their implementation process for adoption, the discussions indicated.

A recent Deloitte LLP study of a sampling of companies’ third-quarter disclosures on the impacts of the new rules, for example, found only 15 percent of those surveyed substantially completed the implementation of the revenue recognition standard.

More than 50 percent of those companies who disclosed the financial impact said it would be immaterial, Dave Sullivan, national managing partner—quality and professional practice at Deloitte, said during the meeting. “All of them would agree the disclosure impact is not insignificant—those that adopted early found that to be one of the more time consuming areas,” he said.

Some of the amendments FASB made after issuing the standard might have slowed down the implementation process for some companies, the discussions indicated. “We’re not there yet, but there has to be enough time and I’m sure we’ll get there,” said Sean Miller, vice president of technical accounting at Sony Pictures Entertainment, a subsidiary of Sony Corp.

Miller said portions of the standard that were amended made the adoption timeline tighter.“ Going across the business—there’s tens of thousands of contracts, millions of customer transactions—to find those needles in a haystack that have those quirks that cause a change is pretty time consuming,” he said.

To contact the reporter on this story: Denise Lugo in New York at dlugo@bloombergtax.com

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

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