kim-kushmerick-aicpaWith the publication of its Audit and Accounting Guide on Revenue Recognition earlier this week, the AICPA is urging companies to move full speed ahead on implementing FASB’s sweeping new “rev rec” accounting standard.

Experts are urging companies to act as if the new standard were in force this year by running parallel under the old and new rules, to test and correct accounting and related internal controls – rather than waiting to pull the switch next year.

Public companies are required to implement the new standard in 2018. Private companies and not-for-profits must implement it in 2019.

The time is now
Kim Kushmerick, CPA, CGMA, the AICPA’s senior technical manager for accounting standards and project leader on revenue recognition, strongly encourages companies and auditors to make use of the AICPA’s guide as they work to understand and implement FASB’s new revenue recognition standard.

“A lot of people put off implementation efforts,” says Kushmerick, who notes time is of the essence, so companies can get it right. “The first thing companies need to do is understand what the new accounting guidance is saying, and determine how it will impact their individual contracts.”

Given the central role of the contract in determining the timing and amount of revenue recognition, finance staff will need to reach out to others, including business units, in-house and outside counsel involved with contracts, and information technology staff.

“Companies will need to consider, do we need to track things on a more disaggregated basis, make tweaks to internal controls?” Kushmerick adds. If companies rush adoption at year-end, they risk incurring significant costs in staff overtime and fees charged by outside auditors and consultants, as well as potential reputation cost or stock price impact from restatements or negative internal controls reports.

Kushmerick urges preparers to proactively engage with other members of the financial reporting supply chain, early and often. “Have discussions with your auditors, update your audit committee and other financial statement users on what changes they should expect to see in revenue or disclosures for next year. It’s not going to be a quick fix to switch over to the new standard; it’s going to take some time for people to dig into it and figure out how it will flow, the sooner you can get it on a parallel track, the better.”

The role of A&A guides in a principles-based regime
In the post-Enron, pro-convergence era since 2002, a range of stakeholders have recommended bringing a principles-based approach to accounting standard-setting to limit loopholes and simplify complex standards when possible without losing information value.

As such, the FASB has aimed to cut back on rules-based standards containing bright lines, which in some cases led to formulaic workarounds in which economic substance was sacrificed for conformity with the letter of the rule.

The revenue recognition standard is a major example of this dual goal of issuing principles-based standards that result in a single set of high-quality standards.

However, preparers and auditors noted that significant implementation questions arose with the revenue recognition standard, prompting the FASB and IASB to form a joint Transition Resource Group to help guide the boards in determining when further guidance may be needed, such as in the recently issued ASU 2016-21.

The AICPA has a long tradition of issuing guidance in the form of Audit and Accounting Guides, and although such guides are no longer officially a source of generally accepted accounting principles, the broad-based range of experts who reach consensus positions on A&A Guides provides a key source of high quality, generally accepted “other guidance.”

Sixteen industry task forces were formed by the AICPA to address industry-specific implementation issues at a practical level. Each task force publishes draft guidance for public comment, and when final chapters are issued on each topic, the general guidance in the A&A guide will be supplemented with new chapters. Special industry areas include health care, aerospace, telecom, asset management, and others.

Internal controls count
MACPA member Mike Buher, CPA, director of Assurance and Advisory Services at Clearview Group, a Baltimore-based CPA and Advisory firm, adds, “In addition to the technical accounting challenges of adopting the new revenue recognition standard, companies need to anticipate the impact on operations, internal controls, and risk management.”

Although the accounting and finance professionals in a company may have a good grasp of the standard, sales and operations professionals need to be educated on the nuances of the standard as well.

“If the business units are not brought up to speed, they may unknowingly negotiate contracts that cause unexpected accounting and reporting complications,” Buher said. “Time spent now in addressing the standard will save companies from last minute headaches.”

Learn more
The MACPA’s upcoming seminar on U.S. GAAP: Latest Developments and Key Topics for Business and Industry, led by Lawrence (Lee) Klumpp, CPA, assurance director at BDO Greater Washington D.C., Inc., on March 16 includes a revenue recognition update. MACPA members save $100 off the registration price vs. non-members.Take advantage of the early bird discount for this eight-hour CPE course by signing up by Feb. 16.

Loading