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Implementing the new revenue recognition standard
Is your company prepared?
Get the roadmap to implement the new revenue recognition standard and learn the speed bumps you may encounter along the way.
November 20, 2017
A blog post by Bryan Anderson, partner, Deloitte & Touche LLP, Deloitte Risk and Financial Advisory*
Are you getting ready? The new revenue recognition standard (or "ASC 606") takes effect in January for companies with annual reporting periods beginning after December 15, 2017.
The adoption of ASC 606 is more than just an accounting exercise—it involves the whole company. Many internal and external stakeholders, such as regulators, analysts, shareholders, auditors, and IT, will have a hand in the actual implementation. That's why it's essential to connect all parties and get buy-in throughout your organization.
To date, many companies have completed the assessment of policies, processes, and systems related to the potential impact of ASC 606. Deloitte Risk and Financial Advisory partner Mike Dziczkowski, Consulting principal Mark Horn, Audit partner Amy Steele, and Deloitte Risk and Financial Advisory managing director Beth Kaplan presented on this topic and shared an example of a framework that could be considered for implementation.
Implementation and the road ahead
Once your company determines the impact of the new standard, it will need to shift from assessment to implementation. Full implementation can take six to nine months, so organizations should strike the right balance between resource constraints and the robustness of the solution while embarking on the following steps:
- Design and data mapping: This includes building out use cases to provide analysis of contracts, developing requirements to meet accounting and disclosure needs, identifying data sources, and analyzing fit gaps that allow you to look at the requirements and review alternate software plug-ins as needed.
- Build and test: The validation and implementation steps make design and data mapping a reality. Your accounting and reporting functions will remain heavily involved in this step to make sure the designed use cases deliver the information provided and are compliant with the new standard.
- Implement and operate: Implementing means training across many parts of your organization, not just back-office accounting. Sales, leadership, and management need training as they communicate the changes to shareholders and analysts. This step also accounts for sustaining the new system, process, and controls while building draft disclosure documents.
Some challenges in implementing a model for revenue recognition
Among the biggest challenges in implementing a complex model for recognizing revenue are disclosures and internal controls.
SAB 74 requires that companies provide investors with transition disclosures related to the impact. The SEC expects disclosures to become more robust and quantitative as companies get closer to the deadline. This could mean a significant undertaking for both companies and auditors in the pre-adoption period.
Under the COSO Framework, which most companies follow, there are five interrelated controls. One of them is the control environment. As part of the assessment of the control environment, management must consider some challenging questions:
- What's the appropriate tone at the top regarding the new revenue standard?
- Has the board of directors exercised oversight of the development of internal controls related to the adoption?
- Has the entity identified competent individuals to implement the new accounting standard?
Five key considerations
As mentioned in our last blog entry on strategies for implementing the new revenue recognition standard, engaging your auditors early and often throughout implementation is key to effectively adopting the new standard. Here are some additional considerations as you continue the ASC 606 process:
- Act now—understand how revenue recognition may impact your organization
- Develop a plan to confirm that you're in compliance by the adoption deadline
- Assemble a team of dedicated resources
- Determine the type of solution required to adopt ASC 606 (manual vs. system)
- Sustain the solution while continuing to improve it
Feel free to continue the conversation by sending me questions directly on LinkedIn.
*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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