Many years ago, when I was a young boy (and yes, this was MANY years ago), I watched a TV show called The Jetsons. The show featured a family in the future, and one of the coolest things about them was that their car flew! I assumed that by the time the 21st Century started, we would all have flying cars! Well, I am still waiting, and kind of disappointed. Seriously, every time I am stuck in traffic I ask, “Where is my flying car?”
As challenging as the flying car wait has been, I am not sure if the wait for the FASB and IASB’s new revenue recognition standard has been any easier! We have seen this project on the FASB’s agenda for over a decade, and I have to say, as an accounting geek, I am not sure which I am really more excited about, this new standard, or my flying car…
It is understandable why this new standard is taking so long. The scope of the project is immense and the challenge of finding a model that applies to all types and forms of revenue is enormous. And in the end, we will all likely be very glad that this project has been done without undue rush and with due care.
Thankfully, with the effective date of periods beginning after December 15, 2016 for public companies (periods beginning after December 15, 2017 for private companies), we will have time to plan and implement the new standard.
So, here are a few heads-up issues to think about as we wait for the final standard to be issued sometime soon!
1. A key point to see is that this guidance supersedes virtually all existing revenue recognition guidance, including software and percentage of completion revenue recognition standards in effect today. The new five-step contract-based model will require all companies to analyze whether and how the new standard will affect your revenue recognition.
2. Even if the new standard does not change much about the way you recognize revenue, it will affect you. Implementing the new disclosures will require significant work, and given the SEC’s focus on revenue disclosures, disaggregation of revenues and MD&A disclosures about revenues, both the notes to the financial statements and MD&A will be affected.
3. For counsel, the form of revenue related contracts might need to be revised to better fit into the five-step contact based mode in the standard.
4. We will all be learning a lot as discussion of the new standard evolves, and the FASB/IASB task force to deal with implementation issues will be a process to watch.
So, watch for the excitement of the new standard. Our workshops and conferences to help you deal with it will be announced soon. And, let’s hope for news on the flying car front soon also!