Chief Accountant Bricker warns about slow implementation of revenue standard

SEC Chief Accountant Wesley Bricker urged the almost 10 percent of public companies that have not begun implementing the FASB’s landmark revenue recognition standard that they have no choice but to start the process for the guidance that is scheduled to go into effect in 10 months.

“They are a minority, but not an insignificant number, of companies when asked in a survey context, ‘have you gotten started?’” Bricker said during a panel discussion at the SEC Speaks conference hosted by the Practising Law Institute in Washington on Feb. 25, 2017. “That’s a concern. And so if you have clients that you are advising who would provide that kind of a response, that’s a real red flag. There really is something here to be focused on in order to orchestrate the change.”

He said the vast majority of companies have started implementing the new revenue standard, but he emphasized the importance of good preparation.

“That’s an area that companies cannot afford to get the reporting wrong because the reporting is really capturing a company’s top line and runs all the way to the bottom, impacts the underlying … ratios as well,” Bricker said. “If that’s not on your agenda for conversations with audit committees, executive teams, and others, I really recommend it to be added, suggesting that conversation cover both the quality and depth of implementation plans, covering also the dialogue between those in governance as well as dialogue with the outside audit firm.”

The FASB and the IASB in May 2014 published the standard that will usher in major changes for reporting revenue. The FASB issued Accounting Standards Update (ASU) No. 2014- 09, Revenue From Contracts With Customers (Topic 606), which is largely converged with the IASB’s IFRS 15, Revenue From Contracts With Customers.

The revenue standards erase about 180 pieces of individual, industry-specific revenue guidance in U.S. GAAP and provide a single, principles-based process by which all businesses must calculate the top line in their income statements.

Bricker also reminded companies about transition disclosures that are required by Staff Accounting Bulletin (SAB) No. 74, Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period, (SAB Topic 11.M), which requires companies to disclose in their financial statement footnotes their expectations for how a new accounting standard will affect their financial results.

In January, the FASB published ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the Sept. 22, 2016, and Nov. 17, 2016, EITF Meetings. The update in part reflects SEC staff announcement made in September about SAB No. 74 disclosures for not only the revenue recognition, but credit losses and lease standards as well. The effective date for leases is 2019 and 2020 for impairment.

Bricker urged companies to make sure their internal controls over financial reporting are sound to ensure that their revenue reporting complies with Section 404 of the Sarbanes Oxley Act of 2002 during the transition to the new revenue standard.

“In order to get that done well, in order to get that with the accuracy that’s really expected by investors so investors have confidence in it, really also adds a focus to internal controls,” Bricker said. “So really think about controls that may be needed and may be changing in order to get to the right answer on a consistent basis.”

Bricker added that implementation requires a cross-functional effort at the company involving lawyers, the sales force and accountants.

“That’s really what it takes to get this orchestrated for good application in the future,” he said.

For in-depth analysis of the FASB’s revenue recognition standard, please see Catalyst: U.S. GAAP — Revenue Recognition, also on Checkpoint.

Additional analysis of the revenue standard can be found on Checkpoint in Accounting and Auditing Update Service [AAUS No. 2014-18] and the SEC Accounting and Reporting Update Service [SARU No. 2014-21] (June 2014): Special Report: Comprehensive Coverage of the New U.S. GAAP Revenue Recognition Requirements.

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