March 20, 2018
Businesses that were early adopters of the revenue recognition standard that’s taking effect for public companies this year have been running into some issues with regulators and investors, according to some observers.
The Financial Accounting Standards Board, with the support of the Securities and Exchange Commission, set an effective date of last December for public companies to begin implementing the standard. The results won’t be widely seen until corporations begin filing their quarterly financial statements this year, but some companies chose to adopt the standard early and have already been receiving comment letters from the SEC.
“Companies are now navigating these new rules as they engage in reporting to the SEC, and early indications suggest an uneven rollout,” said Rob Peters, a senior director at the SEC risk and compliance analytics firm Intelligize.
He has followed the SEC’s efforts to promote revenue transparency this reporting season. “The early takeaways from two high-profile case studies (Alphabet and GE) will not cheer information-hungry investors,” he said. “In fact, one could make an argument that the less information companies provide under the new revenue recognition standards, the better they fare.”
Alex Wodka, a partner at Crowe Horwath, noted that many companies have put a tremendous amount of resources into preparation for the new rev rec standard, and some of those efforts have been ongoing since the time that the converged standard was released in May 2014 by FASB and the International Accounting Standards Board. But many companies are still having difficulties adjusting.
He believes the standard will provide greater comparability in financial reporting. “It does create a common methodology, that being the five-step process,” said Wodka. “But it will also create and it has created some challenges because some minor differences in contractual terms can impact how a particular contract is recognized. From a disclosure perspective there likely will be a more robust and consistent disclosure within the various industries.”