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eBook: Key concerns for revenue recognition implementation
Sharing fundamental learnings
In this e-book published by Compliance Week and sponsored by Deloitte, Deloitte shares fundamental learnings about implementing revenue recognition as well as recent findings that suggest a shift toward full retrospective adoption of the new revenue recognition standard.
Deloitte findings suggest shift to full retrospective adoption
Given the current focus on the new revenue recognition standard, Deloitte continues to monitor where companies are in their transitions and how they intend implement—full retrospective, modified retrospective, or a combination of both.
During the second half of 2015, Deloitte sponsored several seminars about the new revenue standard. Participants were asked to provide their current thinking regarding the transition method they may adopt. One-hundred and seventy attendees—primarily from technology, media, and telecommunications companies—were asked, “Which method will you use to adopt the new revenue standard?”
- Nearly 40 percent said they were either definitely adopting—or leaning toward—a full retrospective.
- Twenty-five percent were considering a modified retrospective adoption.
- More than one-third said they were undecided.
The deferral to 2018 gives entities more time. But for many—particularly public companies that will adopt the standard on a full retrospective basis—the first annual periods to which they will need to apply the standard are fiscal years beginning on or after January 1, 2016.
Key implementation considerations for the new revenue standard
The standard replaces almost all current revenue guidance (including industry-specific guidance), greatly enhances the related disclosure requirements, and requires entities to use significant judgment (e.g., in determining variable consideration in a contract with a customer or whether collectability from a customer is probable).
Entities, therefore, will need to establish appropriate processes, systems, and internal controls to account for contracts with their customers under the new standard. These activities are expected to require significant time and effort. The following are some key takeaways related to implementing the new revenue standard:
- We understand that many companies have decided to implement (or continue to consider implementing) the new standard by using the full retrospective transition method.
- Many investment analysts have expressed their belief that the new standard should be adopted on a full retrospective basis, contributing to companies’ thinking about whether to use that basis to adopt the new standard.
- Most companies are in the early phases of assessing the effects of the new standard on revenue contracts with their customers, and many companies have not begun a formal assessment process—in part due to recent clarifications that have not been finalized.
- Regardless of whether additional clarifications are made to the new revenue standard, companies will most likely be expected to provide information to stakeholders—investors, analysts, regulators, and others—about expected impacts related to their implementation efforts. Entities, therefore, will need to track such information.
- It will take time for companies to develop and test appropriate changes to their systems, processes, and internal controls related to accounting for contracts with customers and tracking information. Complexities due to an entity’s size, the number of geographical regions in which it operates, and the nature of its revenue streams could add considerable time to these efforts.
- For public entities (or nonpublic entities that may elect early adoption) that elect to implement the new revenue standard on a full retrospective basis, the annual period beginning on January 1, 2016, is the first reporting period for which revenue will need to be reported under the new standard.
- We believe that implementation of the new revenue standard should be a priority for companies in 2016.