SEC Closely Watching Disclosures on Revenue Rule Expected Impact

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By Steve Burkholder

Companies should be ready by the third quarter to issue full, meaningful disclosures about the likely effects of new revenue rules on their financial reporting, accountants said May 8.

“I think it is definitely going to be an extremely hot topic as we get into Qs two and especially three,” Bryan Anderson, a Deloitte & Touche LLP partner, said at a Bloomberg BNA-Deloitte conference on revenue reporting.

In those disclosures, the staff of the Securities and Exchange Commission will be looking for much more substantive reporting on outlooks for applying the 2014 revenue standard—ASC 606. The rules are effective for public companies in January 2018.

The SEC staff also will be checking for clearer signs by companies of real progress in shifting to the new rules, Anderson and other accountants on a conference panel suggested.

The standard prescribes a new accounting regime on what is widely viewed as the most important line in the financial statements. The FASB rules portend big changes in financial reporting for many companies, if not material impacts on the timing for booking revenue and companies’ bottom lines.

SEC senior staff accountants have said for months that “transition disclosures” under commission rules should be more “robust” as the year progresses.

Managers, Auditors Potentially at Odds

Putting numbers to more concrete estimates of revenue reporting impacts in the disclosures can be a sensitive topic with a company’s managers, said Randy Rasmussen, vice president and controller at Medidata Solutions, Inc., New York.

Worries about competitive harm come into play, he said.

“Management may not want to disclose anything and your auditor may want to disclose everything,” he said. “You have to find something’s that between those two.”

Prepare Mock-Ups

Rasmussen and Paul Vigil, senior director for revenue recognition at BMC Software, Inc., Houston, suggested that company accountants should prepare mock-up disclosures before the actual quarterly filing is made in July, or especially October. That would help prevent unwelcome surprises for those in the executive suite.

“It’s important to do that as early as possible,” Vigil said.

Those mock disclosures should identify “where the pain points are going to be,” as well as forecasting potentially contentious issues, he said.

To contact the reporter on this story: Steve Burkholder, reporting from Washington, at sburkholder@bna.com

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

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