In the months since FASB and IASB released the finalized update to their revenue recognition guidance, both boards have seen significant pushback on the effective dates and timeframes for this far-reaching new standard. Last month, FASB Chairman Russell Golden announced that the board was in the process of researching whether implementation deadlines for the guidance – originally scheduled for 2017 and 2018 for public and private organizations, respectively – needed to be pushed back.
Throwing further fuel on the fire, recent comments from the SEC’s Chief Accountant, Jim Schnurr, have raised the possibility that FASB may even revisit the guidance itself, making additional revisions to address uncertain or confusing areas. Speaking at an AICPA event last month, Schnurr noted that “there may be one or more issues that actually are going to require the standard-setters to go back and take another shot at the clarity of what they are trying to achieve.”
This prevailing uncertainty might have some companies feeling a bit more complacent about implementation, but organizations that understand the implications of the new guidance also know that there are plenty of reasons to keep moving ahead.
The biggest is also the most obvious: if there is no significant change in the effective date for the new guidance, any business that hasn’t already made preparations for the transition will be left in the lurch. And in cases like these, FASB is far less likely to show understanding if the company falls flat on compliance.
But the two new standards, ASC 606 and IFRS 15 are also large, complicated rule changes – the most significant since Sarbanes-Oxley – and will remain so regardless of how the debate around the guidance ultimately shakes out.
A Far-Ranging Transition Means Little Space for Complacency
What is it makes this particular transition so complex? One of the biggest hurdles businesses face is the need for interpretation: because ASC 606 replaces large swathes of industry-specific guidance within a “one size fits all” framework, companies have to understand how that framework applies to their existing business before any implementation can begin. And because the guidance is so generalized, even relatively simple activities like buying and selling goods online can be interpreted in more than one way.
As a consequence, expert advice isn’t always available. For months, accounting organizations have struggled to understand how ASC 606’s concepts translate to the complex, often idiosyncratic realities of the business world. The AICPA has gone as far as to form a number of task forces to look at interpretation on an industry-by-industry basis, in the process raising plenty of concerns and questions – some of which were serious enough to warrant additional deliberation by FASB and IASB. That creates additional headaches for companies planning their implementation, who may have to navigate a range of opinions and analyses to get the answers they need.
Scale and scope are other major problems, since changes required by the new guidance touch on everything from revenue recognition procedures to disclosures and tax accounting. Not every industry will be affected equally, but almost every company can expect to be affected to some degree. In a recent survey of US and international companies conducted by PwC and the Financial Executives Research Foundation, 77% of respondents expected to make at least some, if not significant, changes to their systems as a result of the new guidance, while a majority expected to see changes to their internal controls as well.
All this adds up to a major commitment in both time and resources. And while there’s a real chance that implementation may be delayed, the fact that organizations must understand, interpret and apply the guidance means many companies will need the additional breathing room just to meet basic compliance.
That goes double for the industries most affected by ASC 606. In telecoms, one of the hardest-hit sectors, major players such as AT&T and Verizon have been aggressively lobbying FASB for an extension of the effective date by arguing that there simply isn’t enough time to implement the sweeping overhaul the new guidelines expect. Smaller businesses that have not previously dealt with regulatory changes, or whose systems simply don’t have the depth to handle the additional demands, are likely to have an equally difficult transition.
Making the Most of Your Breathing Room
As challenging as the transition to ASC 606 will be, it’s also an excellent opportunity to revisit your processes and systems and creates a real incentive to streamline the way you do business. What’s more, there are plenty of scopes to be forward-looking: making the right changes to your infrastructure won’t just help your business meet current regulatory requirements, but could also simplify the adoption of future regulations.
However, balancing those ambitions with the reality of sunk costs and existing solutions isn’t always easy. Companies that have made significant investments into their ERP and financial systems often find it harder to pivot to the demands of new accounting guidance without resorting to custom code or offloading accounting activities onto manual spreadsheets and sidebar systems.
Here at SOFTRAX, it’s an issue that we’re very familiar with. And after 15 years of working with companies trying to bring their business up to speed with the latest guidance, we’re happy to offer a modular, open-ended solution that can handle new revenue recognition needs without the need to change or replace the systems your company relies on. We can even help you understand the potential impacts on your accounting processes, working with you to develop an implementation strategy that ensures your business is ready to meet the challenges of ASC 606 and beyond.