Perspectives

The new revenue standard — are you still assessing the impact?

This Heads Up provides Deloitte’s observations about public companies’ progress toward adopting the FASB’s new revenue standard (ASC 606).

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Introduction

As we move closer to the effective date of the FASB’s new revenue standard,we continue to monitor the implementation status of public companies. Our June 5, 2017, Heads Up discusses our observations from a review of SAB Topic 11.M (“SAB 74”) disclosures included in periodic filings with the SEC by a sample of Fortune 1000 public companies. This Heads Up provides updated observations from the second-quarter filings of our sample population and additional perspectives for companies to consider in the final months leading up to adoption.

Volume 24, Issue 23 | September 5, 2017

Overall Observations

We note that companies are making progress on their implementation efforts, with approximately 10 percent of our sample disclosing that they are “substantially complete” with their evaluations. Further, more than half of our sample registrants provided expanded or updated disclosures as compared with their first-quarter filings. Despite this progress, the disclosures also indicate that substantial work remains, with 90 percent of our sample companies disclosing that their implementation efforts are ongoing. In addition, as indicated in Figure 1 (see PDF for chart), only slightly better than half of our sample companies have provided any quantification of the standard’s impact (i.e., stated that the effect will be immaterial or  quantified some or all of the impact upon adoption).

Companies should be mindful of the important information to be conveyed to financial statement users through quantification of the impact that adoption will have on a registrant’s financial statements. Although such disclosures should be subject to a company’s internal control over financial reporting and disclosure controls and procedures, SEC registrants should not be discouraged from providing their best estimate of the impact upon adoption. At the 2016 AICPA Conference on Current SEC and PCAOB Developments, the SEC staff observed that if a registrant discloses a quantitative impact on the basis of its best estimate but the ultimate amounts recognized differ, the difference does not necessarily indicate a control weakness if the cause of the change was information that was not available when the registrant’s best estimate was developed. In the months leading up to adoption, such disclosures will provide important information to users of the financial statements.

Method of Transition

One notable area of progress since the first-quarter periodic filings is in the method of transition, with a number of companies electing a transition method during the most recent quarter. Under the standard, entities can use either the full retrospective method or the modified retrospective method. Figure 2 (see PDF for chart) shows the selected transition methods indicated by our sample companies. The majority of companies have elected the modified retrospective method as of the second quarter, with only 11 percent still undecided.

Qualitative Considerations

In a manner consistent with our prior reviews, we also considered certain qualitative disclosures, including those related to:

  • The identification of affected revenue streams.
  • A comparison of current and new revenue policies.
  • Details of the implementation process and the status of implementation project plans (“project management”).

Generally, these disclosures were similar to those in previous periods, although, as noted in Figure 3 (see PDF for chart), we continue to see enhanced disclosure about which revenue streams will be affected and a comparison with current policies.

In addition, as noted in Figure 4 (see PDF for chart), we observed an increase in the number of companies describing what their ongoing disclosure requirements will be under the new revenue standard as well as the standard’s effect on their accounting processes and internal controls.

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Heads Up newsletters, published as warranted, analyze important accounting developments, such as new FASB and IASB pronouncements or exposure drafts. Concise examples and answers to frequently asked questions assist readers in understanding and implementing the critical guidance.

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