Revenue Recognition – Bite-Size Education
Lessons from Public Company Adoption
Lessons from Public Company Adoption:
- The new Standard often requires companies to obtain new information to meet the accounting and disclosure requirements
- Even though the effect on revenues themselves may not be significant, the effect on underlying internal controls as well as policies and procedures likely will be
- The best time to consider new internal controls over new revenue recognition information is when this information is first assembled as opposed to waiting to consider controls at a later time
- There are likely to be questions around gross vs net presentation and performance obligations. Companies should carefully consider these areas along with other implementation issues specific to their facts and circumstances
- The understanding by those charged with governance of management’s implementation plans and the status of progress, including any required updates to internal controls, has a positive impact on implementation efforts
- Auditors often play an important role in the implementation efforts
- Dedicate the appropriate resources to planning for the preparation of related disclosures and to incorporating any necessary updates to existing processes and controls
- Entities will need to apply reasonable judgment when preparing the new disclosures so that the disclosures meet the objectives described in the standard
- As management completes portions of its implementation plan develops an assessment of the anticipated impact, effective internal controls should be designed and implemented timely to identify disclosure content and ensure that appropriate informative disclosure is made
- Disclosures should be consistent with other information provided to the users of the financial statements
- Entities should not be reluctant to disclose reasonable estimates, even though amounts upon ultimate adoption may differ
Changes in the new standard will impact ALL COMPANIES. Even if the revenue effect may be small, the related change in disclosures may be significant. Companies will spend many hours understanding and learning the new standard, documenting each revenue stream, reviewing each type of sales contract, and determining if their current ERP system can track contracts appropriately to provide required disclosures.