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Delay for Revenue Standard Is Being Seriously Considered

The FASB is months away from deciding whether to delay the effective date of the revenue standard it issued in May 2014, but the standard-setting body’s officials recognize the importance of the issue. The FASB staff is trying to find out which companies are well along in modifying their financial reporting systems and processes to accommodate the new standard and risk incurring extra costs if the effective date is delayed. They also want to meet with companies that have fallen behind and are concerned that they won’t meet the effective date.

The FASB remains months away from deciding whether to delay the effective date of the revenue standard it issued in May 2014, but the standard-setting body’s officials recognize the importance of the issue.

“We are taking it seriously,” said Cullen Walsh, an assistant director with the FASB’s research staff during a November 17, 2014, press briefing at Financial Executives International’s Current Financial Reporting Issues conference in New York. “People need clarity on the question one way or another.”

The FASB staff was doing “an intense amount of outreach in the short term” to determine where companies stood in their implementation processes and the effective date question, Walsh said. Staffers were trying to find out which companies were well along in modifying their financial reporting systems and processes to accommodate the new standard and were at risk of incurring extra costs if the effective date were delayed. They also want to meet with companies that have fallen behind and are concerned about meeting the effective date.

The FASB published its version of the standard in May as Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. The IASB issued its version as IFRS 15, Revenue from Contracts with Customers. The standard is scheduled to be effective for financial statements prepared for the first quarter of 2017. Given the requirements for two years of comparison results for the initial reports, companies will have to begin implementing changes to their financial reporting systems in January 2015, and many companies have complained that the seven months between the standard’s publication and the beginning of the implementation process left them too little time for the modifications.

Companies that want to use what’s called a full retrospective approach, which means they’ll adjust their two most recent years of financial results when they publish 2017 financial statements, will have to have the necessary system modification in place for 2015’s first quarter. Companies that expect the new standard to bring with it significant changes to their revenue totals may lean to this approach despite the extra work involved because they’ll want to show professional investors and securities analysts clear comparisons of three years of results.

Other companies may be under less pressure if they believe they’ll use the less demanding cumulative catch-up method. This would require businesses only to use the new revenue guidance for long-running contracts that exist as of the standard’s effective date. Businesses must disclose in 2017, however, what their revenue figure would have been under the old guidance, so investors can make year-over-year comparisons.

From the FASB’s perspective, the main issue is that the implementation process cause as little disruption as possible.

“We know that implementation is ultimately key to the overall success of the revenue recognition project,” Walsh said.

FASB member Marc Siegel said that the TRG and the task forces working under the AICPA’s Financial Reporting Executive Committee (FinREC) have worked well together.

FinREC is scheduled to use part of its November 18-19, 2014 meeting to consider issues presented by the task forces, and, if necessary bring them to the TRG.

“The FinREC process is an important one,” Siegel said.

The SEC also has a stake in a smooth adoption process. Two weeks prior to the FEI conference, James Schnurr, the SEC’s newly installed chief accountant, said he was “personally concerned” about the standard’s effective date.

“There are a significant number of implementation issues that have been identified, within industries and across industries to the point where, within industries, there is fundamental disagreement how you should implement the standard,” Schnurr said.

Siegel said the SEC had not contacted the FASB about the effective date since Schnurr, who retired as a partner with Deloitte & Touche LLP, started as chief accountant in early October.

Siegel said it’s possible the issues that have been presented to the regulatory agency overlap with the issues that have been put before the TRG or FinREC.

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