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Dec. 7 — The top accountant at a giant maker of farm equipment—a company far along in preparing for new, sweeping revenue accounting rules—had three words of advice Dec. 6 for her large audience of management CPAs and auditors: “Document, document, document.”
Lara Long, vice president for accounting and corporate reporting at Atanta-based AGCO, the makers of Massey-Ferguson tractors, corn cribs and poultry feeding equipment, said: “It’s so important that you document every process that you’ve gone through.”
And in the documentation and related tasks, “lawyers are your buddies,” she said.
The processes to which Long referred include making an inventory of contracts with customers that generate revenue, the timetables and terms of those agreements and how those contracts and other arrangements may change with the advent of the far-reaching accounting standard on revenue recognition that public companies must apply in 2018.
Such documentation likely will be important down the road because, as Long and others on a panel at a conference of the American Institute of CPAs suggested, the application of the new accounting rules requires judgment -- and eventual explaining of actions and rationales for revenue reporting to auditors and audit committees.
Some 180 pieces of disparate, industry-specific, prescriptive guidance are being replaced by a one-stop set of accounting principles issued by the Financial Accounting Standards Board in 2014 (ASU 2014-09; ASC 606). The application of those principles calls for careful decisions on how to apply them.
Globally, many thousands of companies will shift to the new FASB standards or those similarly-worded revenue rules of International Accounting Standards Board (IFRS 15), also issued some 30 months ago.
The new revenue accounting master blueprint also presents prospects of broad change to reporting, the most important line in a company’s financial statements and a long-time leading topic of SEC enforcement.
Long and others on the panel at the annual AICPA conference reinforced a common, but still noteworthy message for companies and their accountants in preparing for the shift to the new revenue reporting regime: “Get started,” as Chad Kokenge, at PricewaterhouseCoopers partner and the panel’s moderator, said.
“For those not started, definitely get started,” said James Dolinar, a partner at accounting firm Crowe Horwath and chairman of the AICPA’s Financial Reporting Executive Committee. The panel plans to release a guide to using the new revenue rules - with a focus on the aerospace/defense and asset management sectors, later this month.
“Maybe, second, I would just add to that,” Dolinar said, “don’t forget about the internal controls —from top to bottom, start to finish—and definitely focusing on disclosures.”
Brian Allen, a partner with KPMG who is on FASB’s Transition Resource Group for revenue recognition, counseled that companies and auditors should communicate.
“Communicating within your company, communicating with your auditor, communicating within your [audit] firm,” he said. Audit clients, auditors, and regulators all are “going to be going through a learning process.” Such communicating “makes sure you’re not looking at something with blinders on and not recognizing something’s that important,” Allen said.
Josh Paul, director of accounting at Alphabet, Inc., advised: “Have the courage to think about things differently.” Earlier in the Dec. 6 discussion, Paul noted “the fact that many times people are hesitant to make the difficult judgments.”
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