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New revenue recognition standard implementation strategy
Don't forget your auditors!
Learn ways to help make audit a part of an effective implementation of the new revenue recognition standard.
June 21, 2017
A blog post by Amy Steele, Audit & Assurance partner, Deloitte & Touche LLP, National Office Audit & Assurance Services*
As companies get ready to implement the new revenue recognition standard (or “ASC 606”), there is no shortage of angst. There are many potential challenges: Learning a new complex model for recognizing revenue, developing and implementing new accounting policies, documenting the conversion process, implementing new controls, monitoring implementation plans, performing risk assessments, and the list goes on. So much to do and now so little time to do it that it is no wonder that companies are reporting some stress, fear of the unknown, and anxiety about all that needs to get done. Given all the potential worries, I’d like to provide a framework for keeping one important subject off your list of fears: Your audit. Here are some ways you can help make the audit part of an effective implementation:
- Involve your auditors early and often!
- Perform a thorough assessment of risks that may arise as a result of applying the new standard, considering both the accounting requirements and the disclosure requirements.
- Use your auditors as a sounding board. Ask for their reactions, while there is still time to reevaluate, modify, and achieve high-quality financial reporting.
- Communicate initial accounting conclusions.
- Discuss potential changes to internal processes, systems, and controls. Work with your auditors to develop plans for testing new or modified internal controls, including controls over the implementation of new systems to track new or different information.
- Develop action plans that outline when key analyses, estimates, and disclosures will be ready for audit.
- Keep your auditors informed as to your implementation timeline and status.
- Plan your disclosures early, communicate those plans, and share draft disclosures.
- Bottom line: engage in open dialogue with your auditors. Share. Involve.
All of these items fall under a large umbrella called “take your auditors along for the journey.” This umbrella travels with you from the starting line to the finish line. This is how we take the journey together to quality financial reporting: under one umbrella.
The financial markets depend on companies getting this implementation right. Auditors cannot, and should not, act in the position of management. There are important boundaries to “involvement” that exist for a reason, and auditors must not overstep those boundaries.
However, inside the “safe zone” there is much that an auditor can do to positively impact audit quality and quality of financial reporting. In a period of significant accounting change like this, it is particularly important for auditors to be taken along for the journey. Auditors can provide input and feedback as management makes changes to accounting policies, processes, and internal controls. Auditors can provide their knowledge and point of view. Companies benefit. Investors benefit. And capital markets as a whole benefit. Working together, effective implementation, and quality financial reporting can be achieved. Don’t forget your auditors!
Are you taking your auditors along for the journey? What are your views on this framework? My next blog post will focus more on the auditor’s role in implementation.
*Note: The views expressed in this blog are those of the blogger and not official statements by Deloitte Touche Tohmatsu Limited or any of its member firms, including Deloitte & Touche LLP.
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