By Jim Staats, Senior Account Manager at Zuora
The year 2017 is a big one for revenue recognition, like it or not.
As was made clear for the umpteenth time, this latest eye-opener coming from the Wall Street Journal, most corporations still have a lot of work to do when it comes ASC 606, “Revenue From Contracts with Customers,” the incoming revenue recognition rules.
The WSJ article highlights the fact just 15 companies in the S&P 100 have taken the step of disclosing transition plans for the new accounting standard. This, even though the Securities and Exchange Commission (SEC) made clear its expectation of detailed information about the impact of the new rules is to be included as part of year-end or quarterly reports received, according to the agency’s chief accountant.
“Revenue is one of the most significant measures used by investors in assessing a company’s performance and its prospects,” said Wesley Bricker, that same SEC chief accountant, at an accounting conference last month in Washington D.C., as quoted in the Journal piece.
At that same conference, Russell Golden, Chairman of the Financial Accounting Standards Board (FASB), the governing body which jointly with the IASB issued this new guidance set to become effective in 2018, acknowledged the year 2017 must factor in the need for everyone to play catch-up on the massive overhaul.
In response to requests for feedback on where the FASB should focus priorities this coming year, Golden said a number of folks “opined that we should slow down on new projects until they’ve had the chance to absorb new guidance issued in recent years,” according to a recent report on AccountingWEB.
Golden noted, however, that while the board would factor in the pace of change and a need to focus on implementation, a number of potential changes would still be considered in 2017.
We asked a number of the industry professionals we work with day in and day out for their own expectations (fears? challenges?) for 2017. Here’s what they had to say [editor’s note: Please keep in mind the following comments reflect the personal views of the respondents, not the views of the organizations they represent]:
Shauna Watson, Global Managing Director, Finance & Accounting, RGP
“The year 2017 is sure to be a busy year for implementing the new Rev Rec standard. During this upcoming 10-K season, the SEC has been clear that the disclosures should be more robust, and audit committees will likely be pushing management to ensure the implementation timeline is on track. Several companies may even early-adopt, so we’ll be able to see the first disclosures and impact to financial statements, with SEC comments surely to follow. We’re seeing a lot of activity as companies scramble to find talent and resources to supplement their own teams and plan for the fast-approaching compliance date.”
Jeff Johnson, Executive Director, Advisory Services, EY
“What I’m expecting in 2017:
– A scramble to get 606 adoption programs underway and completed. Many organizations are behind schedule and some will find they have significantly underestimated the effort.
– A shortage on knowledgeable and experienced resources who understand revenue accounting in general and can develop new business processes and systems to support the record-keeping that will be required.
– “practical expedient” become the most Googled words on the internet
What I’m looking forward to most in 2017:
– FASB delays adoption until 2019 !!
– Tom Brady and the Patriots win another Super Bowl” [editor’s note: this last opinion is not endorsed by others, and, in fact, is likely to be flagrantly un-endorsed by a few. Except for San Francisco 49ers fans as there is no hope.]
Ramon Sheffer, Director of Financial Reporting Advisory Services, Habif, Arogeti & Wynne, LLP
“What I expect to see next year is a lot more companies starting to really dig into the new guidance. It’s a lot more work than you think it is. I’ve been talking about this since 2008. If you do have a change, you’ve got to do the work. You really need the practical expedients, and the industry perspective, to be able to apply it because it’s so broadly defined.’
Sheffer noted of the clients he works with in software companies big and small, “many are sleeping on it.” He said most are SaaS-based, feel it’s business as usual and think they’ll be OK, “but I think they’ll have challenges.
“I think a lot of companies that didn’t separate out revenue before will have to, and now it’s a question of corrective costs,” said Sheffer, calling it a “software-specific problem.”
He said the new guidance will make for a much different world for those in the consumer space as much more, items such as slotting fees and upfront money with retailers, will need to be captured to recognize and allocate revenue. “In the past, they did more of an accrual-based accounting, but now they will have to make sure revenue is reflected appropriately.
“Those are some of the challenges I’m seeing” for the coming year, said Sheffer. As a point of summary, he mentioned Bricker’s comments at the recent accounting conference, referenced earlier, as “very alarming as far as the urgency of getting in front of this standard.”
Kathy Pearson, Director of Technical Accounting, Zuora
“My expectation for revenue recognition in 2017 is challenging. Challenging in the decisions that need to be made and amount of work that needs to get done to be ready for the ASC606 effective date. Challenging in finding the right resources to get that work done. Enjoy the holiday as it might be the last time you see the family for a while.”
Diana Gilbert, Senior Consultant, RoseRyan, Inc.
“I am looking forward to companies actively engaging with the implementation of the new standard in 2017. We have a few early adopters – who have a significant new revenue stream and want to start it out on the right foot. And, we have a few who are making changes in estimates in 2017 to ease their way towards the new standard and reduce the impact of adoption. I’m curious to see how ready companies are to disclose their adoption and transition plans in their 10-Ks this season.”
Jagruti Solanki, Audit Senior Manager, Habif, Arogeti & Wynne, LLP
“On the audit side, with respect to the new revenue recognition standards, we have a number of clients who will be impacted, however, there does not seem to be an urgency for them to react to the new standards just yet. They know we are on top of the new standards and will assist them with the changes and the impacts to their businesses as we approach the year of adoption. And while this is OK, because we will continue to look out for our clients, we are asking them not to wait another few years to take action. They should prepare now to make things easier as we close in on the year of adoption.”
Solanki also works with a group of clients she categorized as “super proactive,” who are ahead of their peers and are getting ready to early adopt versus waiting for the mandatory year of adoption. This is very industry dependent, she said, noting some clients were in software, telecommunication, construction, engineering and some were headquartered internationally where the U.S. subsidiary may early adopt and ask the international parent to do the same.
She said though 2016 was busier than 2015 with regard to the new guidance, “going into 2017, we’re expecting to see a lot more movement and more companies working to get on top of the new standards as they learn about what their peers are already doing.”
Solanki said her firm continues to provide a lot of education on the new guidance for their client base through webinars and in-person seminars, and they are continually studying specific revenue streams and offering advice customized to their client’s unique situations. “We’re starting to see it pay off, but we need to continue educating the market so they know what’s coming and how this will impact their businesses, and not just financial reporting process.”
Stephen Winder, Director, Technical Accounting, Zuora
“I expect that we will see a furious sprint from many organizations to prepare for ASC 606 adoption starting at 1/1/2018 and beyond. As companies come out of their fiscal year ends many will have that OMG moment where they see that they have very little time to finalize their processes and readiness for the new standard.It will be very interesting to see how various companies start preparing for for the new standard, particularly those public, December 31 year end companies. Will they go into panic mode, throw teams of consultants at the projects, rush to get any revenue automation solution in place, pretend that it isn’t really happening, or some other approach. Everyone is going to be very busy, stressed, unsure, and in learning mode in preparation for what will take place starting on January 1, 2018.”
Venki Kumar, Co-founder and Principal, Protominds
“As a system integrator (SI), we are looking forward to address the challenges in the 606 adoption by companies, and to help them become compliant with the new guidelines using RevPro. In other words, more revenue for us!”
Seems appropriate to end this – and start the year – on a hope for additional revenue. Let’s see what that bodes for us for 2017….