Ah, the holidays. That magical time of year when shoppers rush home with their presents, visions of sugarplums dance in children’s heads—and CFOs pull out what’s left of their hair.
This December will be especially hair-pulling, given that new revenue recognition standards go into effect in 2018. The countdown to final compliance has begun, and finance teams are feeling the strain.
Companies across all industries are heads-down on efforts to comply with ASC 606 / IFRS 15 guidelines. Among the many changes is a new mindset, moving from thinking about “deferred revenue” to “performance obligations.”
Under the new principles, a company can recognize revenue only when it fulfills its commitment to deliver on the promised goods and services, and the customer acknowledges delivery. That means defining how to measure delivery timing and customer receipt.
For example, if I receive a holiday gift card that covers five spin classes at my local gym, can the fitness center recognize a fifth of the revenue each time I take one class?
Companies that bundle products with services, package “freebies” with purchases, sell warranties on goods, and so on, are the most heavily affected by the changes. They are busy implementing new accounting sub-systems, configuring accounting rules and setting up ledgers. Many need to capture and process data they have never captured before. They must adjust processes to “review at inception” and to accrue a “debt of goods and services when either party acts.” And then, they must prove and report using dual accounting formats—with extensive new disclosure requirements for financial reporting.
The new guidelines will not only impact reporting in 2018—they make it more complicated to provide an accurate year-over-year comparison to stakeholders. Financial teams will have to dive into previous years’ financial data and re-run old numbers against the new guidelines. They must replace deferred revenue with performance obligation liability on their cut-over date balance sheet, hitting equity rather than revenue with the difference.
That’s a lot to accomplish by January 1.
If yours is one of the thousands of companies rushing to meet the deadline, there is help. In an upcoming webcast with Financial Executives International (FEI), we’ll outline some best practices to help you place the finishing touches on your ASC 606 / IFRS 15 implementation. We’ll also help you prepare for the best long-term success.
In this webinar, you’ll learn about:
Attendance at this webinar qualifies as one continuing professional education (CPE) credit, so you can “earn while you learn.” Be sure to join us.