With less than 200 days to go until the 1 January 2018 effective date for public companies for the new revenue recognition standard, many accounting and finance professionals are in high gear preparing their organisations and clients for the transition.
In a recent article in Accounting Today, PwC shared some of the lessons learnt by three companies that have either adopted or are well along in adopting the new revenue recognition standards. Experts from Alphabet (Google’s parent company), Ford and Lockheed Martin participated in a discussion on the change in guidance, which is top of mind for so many of us today. Here were some of their key insights:
- The time is now: At this stage, it’s important not only to have started the complex and extensive work the transition requires, but also to choose an adoption method. For many organisations, the practical reality is that the full retrospective method, which applies the standard to each period presented (2016, 2017 and 2018 for public companies), may require older data that is simply unavailable. The panelists suggested that the modified retrospective method is more popular: 42% expected to go that route, while 12.4% planned to adopt the full retrospective method, with the remainder undecided. If your company hasn’t already made the choice, it’s time to pick a method and move forward with implementation.
- Reach out: Participating in industry working groups, submitting questions to the FASB, and, in some instances, seeking pre-clearance from regulators can help companies find more solid ground on tricky interpretive questions. Additionally, although some organisations have orchestrated their implementation in-house, many others have turned to outside consultants as an additional resource. Consultants can help with structuring project management, coordination, drafting white papers and new policies, and providing tax and industry expertise, among other things.
- Set up your team for success: Establishing the right cross-functional team and processes for this effort is a big component of a successful implementation. While there is not one “right” way to get this done, our panelists agreed that effective project management is essential. A few possibilities to consider: The team at Ford included four fully dedicated team members, regional technical accountants and subject matter experts, whose participation was essential to embedding the new approaches and policies in the broader organisation. At Alphabet, a broad cross-functional team includes internal audit, investor relations, finance, IT, and sales and products as well as human resources. Additionally, involving the Audit Committee and external auditors earlier rather than later can go a long way toward facilitating the transition process.
- Leasing looms: Finally, it’s not too soon to focus on the change in leasing accounting guidance due for adoption in 2019 (public companies). Among the panelists, about 18% said they had not yet started planning for the lease accounting changes. Approximately 35% responded that they are assessing the impact of those changes and developing a transition approach, and another 21% stated their transition is underway and on track. Applying best practices and lessons learned from transitioning to the revenue recognition standard to your leasing transition can help smooth the path forward on leasing standards.