Your organization may not be compliant with the new FASB / IASB Revenue Recognition Accounting Standards going into effect starting December 2018.
Public and private entities are now required to follow new standards for Recognition of Revenue set by the Financial Accounting Standards Board’s (FASB) and the International Accounting Standards Board (IASB).
The Important Dates
The effective date for public entities is expected to start with reporting periods beginning on or after December 15, 2018. The effective date for nonpublic entities will be deferred for one year to annual reporting periods beginning after December 15, 2019 and interims beginning after December 15, 2019. Early adoption is permitted one year earlier than these dates.
The Need to Know
The new disclosure requirements are extensive and require changes to the way companies collect financial information—even if they have no significant impact on reported revenue.
The objective of the new standard (ASC 606 and IFRS 15) is to make it easier to compare reporting within and across industries and capital markets by employing a single, comprehensive revenue recognition model for all customer contracts.
Makes sense, right? Except that revenue recognition is one of, if not the most, difficult financial and accounting process to get right. It represents one of the highest risks of material error on financial statements and is a leading cause of restatements.
However, in a recent PWC poll, fewer than 10% of respondents said their current financial systems support revenue accounting processes to achieve ASC 606 and IFRS 15 compliance. This means 90% may be exposed to revenue compliance risk.
Management will need to perform a thorough analysis of existing contracts, business models, company practices and accounting policies. For industries that applied industry-specific guidance under the old standard—including software, construction, entertainment, media, and communications—the transition to the principles-based single standard is expected to be a major challenge.
Right now, most existing financial systems are not adequately equipped to handle the transition. In fact, most financial systems haven’t been able to handle the revenue automation needed to meet existing GAAP requirements. Many organizations still handle multiple-element arrangements, revenue allocation, and contract provision-related revenue holds manually.
The Bottom Line
In addition to revenue recognition rule changes, the transition to the new standard involves dual reporting and related disclosures. The time, effort and business disruption this entails highlights the need to upgrade revenue automation capabilities as part of your company’s adoption planning.
JD Edwards has you covered. Application developers planned years ahead to ensure that version 9.2 made it easy for customers to follow and comply with these regulations. Additionally, 9.2 is enhanced to support the Affordable Care Act Employer Shared Responsibility provisions.
Your Managed Application Services Partner is empowered to help ease the upgrade transition and ensure you are compliant with all the new FASB/IASB Recognition of Revenue standards as soon as possible.