ARE YOU READY FOR THE EXAM?
Have you hit the snooze button one too many times on your revenue recognition alarm? It’s every student’s (or accountant’s) nightmare: before you know it, the term has ended, and one of the most important tests of the year (ASC 606 and IFRS 15: Revenue from Contracts with Customers), is here. Your teacher will soon hand you the revenue recognition standard exam – but are you ready?
There is an abundance of literature on the upcoming revenue standard, ASC 606 and IFRS 15: Revenue from Contracts with Customers, that deals with the ‘who’, ‘what’, ‘when’, ‘where’, ‘why’, and, maybe not so much, the ‘how’, of compliance. Therefore, this blog will ultimately focus on the ‘how’ of complying with the new revenue recognition standard.
Below, we compiled some tips and tricks that will allow you to pass your revenue recognition exam, regardless of which phase your company currently is in.
HOW MUCH TIME DO YOU HAVE LEFT BEFORE THE BIG EXAM?
The date of the big exam is an important factor to consider when preparing for the new guidance. Companies are required to be ASC 606 compliant, effective as follows:
• Public entities reporting under US GAAP are required to apply the new revenue standard for annual reporting periods (including interim periods therein) beginning after December 15, 2017.
• Nonpublic entities reporting under US GAAP are required to apply the new revenue standard for annual reporting periods beginning after December 15, 2018. It should be noted that nonpublic companies are permitted to apply the standard early. However, adoption can be no earlier than annual reporting periods beginning after December 15, 2016.
WHAT IS YOUR CURRENT STATUS OF REV REC?
Some companies have been able to adopt the new revenue standard early and are ready to go. Some are working toward ASC 606 readiness, and may have a lot of work to do. Some are just in the beginning stages of ASC 606 implementation. And there are likely some companies that fall somewhere in-between these degrees of ASC 606 readiness. Regardless of where your company stands, the one thing all companies have in common: class has started and the exam has been scheduled.
The good news is that your company is not alone. In December 2017, Softrax hosted a webinar with a panel of revenue recognition experts to discuss the “when” topic of adopting ASC 606 and IFRS 15.
Hundreds of attendees across all industries and levels attended the webinar, “Understanding the New Revenue Recognition Rules & Achieving Cost-Effective Compliance”. During the webinar, it became clear that many companies are still in the early stages of getting ready for the revenue recognition rules when we took a poll on current readiness. In the survey conducted during the webinar, 14% of companies reported they “Have Not Started” an assessment of ASC 606 at all, and 52% of responding companies reported they were in an “Assessing” stage. That amounts to 66% percent of the class that is about to take the exam with minimal to no preparation! So, if you’ve fallen victim to this state of “procrastination”, again, you are not alone.
REVENUE RECOGNITION GRADING POLICY
With any exam, it’s important to know how you will be graded. Revenue Recognition is not just about turning your test in on time and meeting the compliance deadline; companies will be graded on the accuracy of adhering to the new guidance. This exam is pass/fail out of the gate, rather than a traditional letter grade.
Companies that make inadvertent mistakes, misinterpretation and misapplication of revenue recognition standard will fail the exam and could receive scrutiny from the U.S. Securities and Exchange Commission (SEC). The repercussions of failing to comply with the new regulations (noncompliance) can be time consuming and costly. For this reason, passing the revenue recognition exam is paramount.
TALK TO SOMEONE WHO HAS PASSED THE EXAM
Now that the deadline is here, it’s normal to feel some anxiety before the exam. You may be feeling overwhelmed by the various intricacies of revenue recognition. Do you know someone who has already adopted early? When you get insight from others who have passed the revenue recognition exam, it can help calm your nerves before for your exam day.
During our December webinar, Tony Sondhi, President of A.C. Sondhi and Associates and member of the FASB’s Emerging Issues Task Force, provided guidance as to how early adopter information and experiences can be identified and used to aid in your company’s adoption: Tony Sondhi, Revenue Recognition Expert.
However, the reality is that many companies may be falling behind. Alexander Shaposhnikov, Principal at BlackTower Advisors, relays his experiences and considerations if your company is in this position: Are companies falling behind adopting the new revenue recognition standards?
So, what challenges are companies facing when adopting the new guidance? According to the polling results in our webinar, 28% of respondents were still “Awaiting Accounting Interpretations”, while 29% had “Competing Priorities” listed as the primary challenges they were facing during the adoption process.
Jon Hansen, a Partner at Dixon Hughes Goodman, discussed overcoming some of these challenges: Overcoming the challenges faced during implementation of ASC 606.
And captured in the following clip, Tony Sondhi shared additional expertise while discussing the challenges of adopting the new guidance: Revenue Recognition Implementation Challenges. These insights should help you decide whether or not you are studying for the exam the correct way, or want to try an alternate route.
THINGS YOU CAN DO BEFORE THE REV REC EXAM - WAYS TO BEAT ASC 606/IFRS 15 REV REC PROCRASTINATION
Don’t just hope for the best. One of the most effective ways to prepare for an exam is to study for it. That way, you will be prepared when the deadline arrives.
If possible, avoid further procrastination. Compliance can take a lot of work and preparation. It’s imperative that your organization fully understands how the new revenue recognition guidance will impact not only the revenue management, but the overall business. And thoughtful preparation will allow you to act deliberately to implement the new revenue provisions.
There are ways to initially adopt and then progress to a state of complete and steady automation in a controlled manner. Whatever your company’s position of readiness for ASC 606 and IFRS 15, it’s important to make the most of the time that you have left. With that being said, avoid pulling that infamous all-nighter. The last thing you should do is try to cram for the new rules by implementing a “Brute Force approach” that ultimately means detailed and tedious spreadsheet maintenance and an unyielding number of manpower hours. Implementing ASC 606 guidance takes time, and it’s important not to underestimate the amount of preparation needed.
During the revenue recognition webinar, there was excellent discussion amongst the panelists around what companies should do if they are behind regarding ASC 606 readiness for the compliance deadline. One of our revenue recognition experts, Shauna Watson, Global Managing Director at RGP, provided a practical, real-world, answer for public companies that fall into the 66% bucket as described above: Advice for companies at risk of missing revenue recognition deadline. Just like you would prepare for a final exam, it’s important to learn preparation and implementation techniques to boost your company’s chances of compliance.
PASS THE EXAM WITH SOFTRAX
It’s important that you get systems ready well in advance of the exam, as well - don't leave it to the day before to suddenly realize you aren’t ready to adopt, or are unsure how your systems will be impacted. Make a schedule, and work out how much time you need for adoption, including ample time for updating new systems and processes. And then add on some extra time! You never know what will happen during the timeline, and available resources (including human) are a major consideration. But at the end of the day, when it’s all said and done, having the right tools in place to take over your newly adopted revenue recognition policies will be less stressful and require less effort than the brute force approach of spreadsheets and manual workarounds. Imagine: a seamless transition into ASC 606 compliance, and passing the exam with flying colors.
Don’t be afraid to ask for help. If you are struggling with anything from your initial assessment of ASC 606 impacts, to implementation, to system upgrades, phone a friend. Please connect with us, any of our revenue recognition experts noted above, or with other revenue recognition professionals on LinkedIn to join the conversation. For more links and resources on the new revenue recognition rules, visit revenuerecognition.com!
Good luck and happy studying, from Softrax!