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Revenue recognition implementation for a private company

Insights and planning, lessons we've learned

For private companies developing a revenue recognition implementation plan, we share key lessons learned from public company implementations.

No free passes for private companies

New revenue recognition accounting guidelines are taking effect for private companies for annual reporting periods after December 15, 2018. Yes, that’s after the Financial Accounting Standard Board's (FASB's) Accounting Standard Codification (ASC) 606 and the International Accounting Standards Board's (IASB's) International Financial Reporting Standard (IFRS) 15, take effect for public companies, but these new guidelines bring with them significant shifts and concepts that don’t exist under the current revenue recognition model.
These include:

  • Internal controls
  • Budgeting
  • Governance
  • Data and systems requirements
  • Disclosures
  • Financial close process
  • Income taxes
  • Compensation plans
  • Legal
  • Employee training
  • Coordination with auditors

Lessons to be learned

Private companies face significant changes from ASC 606 or IFRS 15. Fortunately, public companies have diagnosed many of the issues associated with implementation and private companies may benefit from their efforts. If there’s an overarching conclusion to be drawn from these lessons, it’s this: No one gets a free pass. Assemble the internal resources you need to carry out the new standard. Engage outside help, as needed, to supplement their efforts. Don’t underestimate the amount of work that’s involved, and don’t delay—2019 is just around the corner.

Are private companies ready for the new accounting standard?

In a recent webinar poll,1 approximately 5,400 participants spanning multiple industries and at varying job levels responded to questions on implementation readiness, anticipated challenges, and how the standard will impact their businesses.

Poll responses were collected from a Deloitte Dbriefs webcast, "Revenue recognition standard: Lessons learned from early implementations,” which was held in March 2018.

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Implications of the new standard

Private companies know, at this point, that the new accounting standard are coming. The question, though, is whether all of them understand the full implications of these new standard.

According to a recent Deloitte poll, 23 percent of respondents are still in the preliminary stages of assessing the standard’s impact across business functions and a full 32 percent are not sure if parts of their organization outside of accounting are even considering the implications of the new standard.

Here we talk through the five-step model for recognizing revenue based on the new standard.

Accounting spotlight

Revenue recognition—Evaluating whether an entity is acting as a principal or as an agent
There is a difference in the principal-versus-agent indicators under the new revenue standard because of the standard’s shift from a risks-and-rewards model to a control model. Gain a better understanding of judgments required to evaluate if an entity is acting as a principal or as an agent.

Revenue recognition—Accounting for costs of obtaining a contract
Did you know that accounting for costs of obtaining a contract can be one of the more challenging aspects of implementing the new revenue standard? The experience public companies had with implementing the standard’s new cost guidance can provide useful insights for private companies that are still transitioning to the standard.

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Our services

The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances.

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