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Perspectives

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.

Revenue recognition standard for private companies: No free passes

Lessons learned from public company implementations of the new standard

New accounting rules for revenue recognition are about to go into effect. We're talking, of course, about 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, the guidelines that take effect for public companies in 2018 and private companies in 2019.

ASC 606 and IFRS 15 replace almost all current revenue guidance (including industry-specific guidance). The new standard greatly enhances the related quantitative and qualitative disclosure requirements. It also introduces concepts that don't exist under the current revenue recognition model—including many that involve significant judgment, such as estimating transaction price.

Every company is likely affected and the time to comply is drawing near. For private companies, the rules take effect for annual reporting periods beginning after December 15, 2018, and interim periods within annual reporting periods beginning after December 15, 2019.

There is some good news, however. Because public companies have adopted ASC 606 or IFRS 15 a year earlier than private companies, the experience of public company executives during the implementation process may prove relevant to private company executives as they begin their own journey to compliance. The most prevalent theme among public company executives we talk to is that implementation is a bigger effort than they anticipated. In addition to the significant time involved in implementation, they were often surprised by the impact it had on many facets of operations and elsewhere throughout their organizations.

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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.

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