Last month, PwC and the Financial Executives Research Foundation (FERF) released the results of their 3rd collaborative survey on the impending revenue recognition standard. The questions centered on preparedness, cost, and top challenges for implementation.
The data is rich and compelling, and there’s no shortage of it. This post outlines three key takeaways from the survey to help you assess where your company stands as the implementation deadline looms nearer.
- You’re Not the Only One Still Assessing the Impact of the Standard, but there’s No Time to Lose
The study reveals that 65% of public and private companies are still assessing the impact of the standard, while only 13% have actually begun implementation measures. This leaves 22% of companies in the category of “not started.” If you’re anywhere outside of the group that’s already implementing, it’s time to buckle down and get serious about completing the assessment phase.
The revenue recognition standard is multi-faceted and complex. If the study illustrates nothing else, with just over a year left until the standard comes into effect, it’s critical to act now. PwC warns that soon boards and investors will be asking questions about your progress, and regulators are going to start looking for increased disclosures in 2016 10-Ks.
To help guide your own company’s strategy, start looking for these increased disclosures within your peer group. This doesn’t have to be a time-consuming, cumbersome endeavor; disclosure research solutions like DisclosureNet enable you to easily conduct targeted searches and set alerts on early-adopter revenue recognition filings. Get started immediately by signing up for your 30-day free trial.
- Adoption Methods are Still Up in the Air for Most
When adopting the revenue recognition standard, companies have two options:
Full retrospective method – This requires the standard to be applied to each period presented (e.g., 2016, 2017, and 2018).
Modified retrospective method – Using this option, the standard can be applied to existing and future contracts as of the effective date, with additional disclosure around anything in the financial statement that’s different from what would have been reported using the old method each quarter.
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52% of companies reported that their adoption method is still unknown. Because both options have advantages and disadvantages, it’s a difficult choice for many companies.
- The Transition is Challenging for Everyone
Perhaps the most telling survey results are those in which participants rank the perceived level of difficulty of various known revenue recognition implementation issues, as represented in Figure 1.
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In other words, all of the challenges are somewhat or very difficult, prompting PwC to draw the conclusion that, “None of this is easy.”1
The prevailing challenge concerns the review of all individual and non-standard contracts, which can have many nuances and whose volume isn’t fully appreciated until implementation measures begin. It’s not surprising then that PwC notes that when it comes to rev rec preparation, “the ‘devil is in the detail’ as many issues don’t become evident until companies begin applying the new guidance to specific contracts and transactions.”1
Revenue recognition will be here before we know it, and in the meantime, your company will undoubtedly face assessment and implementation challenges. Get on the road to compliance now by assessing early adopter filings with your 30-day free trial of Certent DisclosureNet.
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