Most Companies Unprepared for Revenue Recognition Standard

By Michael Cohn, Editor-In-Chief, AccountingToday.Com

The vast majority of companies are not prepared for the major changes in accounting and business operations required by the new revenue recognition standard, according to a new survey.

The survey, by PricewaterhouseCoopers and the Financial Executives Research Foundation, found that 78 percent of the financial executives polled said their companies have not yet attempted to even quantify the financial statement impact of the new revenue recognition standard. In addition, 75 percent of respondents have not yet completed or even begun an assessment.

Some of the main explanations given for why companies have not begun to address the change range from organizations not believing there will be a significant impact on their financial statements (50 percent) to resource constraints (18 percent), and the need for additional guidance (14 percent).

The survey found indecision among financial executives about which method of adoption to choose for transitioning to the new standard. Companies can choose between a full retrospective method requiring the standard to be applied to each period presented, or a modified retrospective method requiring the standard to be applied to existing and future contracts as of the effective date. Only 17 percent of respondents to the poll could definitively say they planned to use a specific method, while the remaining 83 percent were undecided.

FASB and the International Accounting Standards Board have decided to defer the effective date for implementation of the standard for one year, basically until 2018 for public companies and 2019 for private companies. That should give businesses more time to get ready for the new standard and allow the standard-setters to provide additional guidance and clarifications for them. So far, though, little progress has been made at the majority of companies. More than 66 percent of the financial executives polled indicated their company plans to take advantage of the one-year deferral. As only 5 percent of respondents said their companies have begun the actual implementation of new processes, progress in implementing the standard appears to be limited.

“This is arguably the biggest accounting change to happen in over a decade,” said PwC capital markets and accounting advisory services partner Dusty Stallings in a statement. “Given the levels of complexity involved, companies need to prepare and adequately plan for the new standard. But our research indicates that even after the delay in the new revenue recognition effective date, the overall state of readiness among corporate America appears to be lagging. Many companies do not yet even have a clear understanding of how the standard will impact their organizations, and given that likely impacts extend far beyond technical accounting, this state of unpreparedness is cause for concern. It is important that companies start an assessment and get well into it so that the level of impact can be properly evaluated—even if there is none.”

The report recommends that all companies should assess their business processes, data, systems and internal controls now to determine whether they can capture and report the information needed to comply with the new standard.