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Revenue Standard’s Effective Date May Be Delayed

The FASB expects to decide by the second quarter of 2015 whether to delay the effective date of the landmark revenue recognition standard it issued with the IASB in May of 2014. 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 to modify their financial reporting systems.

FASB Vice Chairman James Kroeker said the accounting board will decide by the second quarter of 2015 whether to delay the effective date of the landmark revenue recognition standard it issued with the IASB in May of 2014.

Kroeker announced the tentative plan at the October 31 meeting of an advisory panel the standard-setters formed earlier this year to help with the standard’s adoption, the Joint Transition Resource Group.

The FASB will first issue a proposal to solicit public comment on the plan before committing to it, but board members want to gather more information before they decide a proposal is warranted, Kroeker said.

The FASB’s version of the standard is 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. But 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.

Not long after the standard was published, AT&T Corp., Verizon Communications Inc., Tivo Inc., and Cadence Design Systems Inc. requested a delay of the effective date. An October 7 letter to the FASB from software developer CA Technologies Inc. said, “The changes required by the standard are so significant that companies require additional time to appropriately analyze the new guidance, as well as implement new systems and internal controls in compliance with Sarbanes-Oxley Act Section 404 requirements and the Internal Control—Integrated Framework that was published in 2013.”

Kroeker said other companies also requested a delay in one-on-one meetings with FASB representatives, but there are also some companies that have told the accounting board that they prefer it to stick with the planned effective date. Now the board wants to carry out a more orderly review of the overall status of the adoption process.

“We’ve embarked upon a process to actually do site visits and other outreach to preparers across the size spectrum, across industry, public and private, to understand where they’re at with their process, what the challenges are, and whether there are challenges associated with adoption,” Kroeker said.

Kroeker added that the FASB doesn’t plan to give extra weight to companies that simply haven’t begun implementing the standard.

“If at least what one board member hears is that the majority of folks have not begun the process of adoption, that won’t be a good fact pattern in my mind in terms of saying a deferral is warranted,” Kroeker said. “Those who haven’t begun the process of adoption and are asking: Get started, so we can actually have data to understand what the application challenges are in transition.”

IASB Vice Chairman Ian Mackintosh said the international board hasn’t received as much pressure as the FASB to delay the effective date.

The pressure that has built for much of the past year to delay the revenue standard is partly attributable to the significant changes the standard is expected to bring to accounting practices for many U.S. companies, particularly in industries like telecommunications, technology, media, and other businesses that had employed detailed, industry-specific standards. Companies will have to write footnote disclosures that explain how they arrived at their revenue totals.

The FASB and IASB dropped the industry-specific guidance because they wanted a uniform standard that would be adopted across all industries and in all jurisdictions that adhere to U.S. GAAP or IFRS. But companies have been concerned about many of the standard’s provisions, partly because of the greater than normal freedom the standard gives them to use judgment. Following the standard’s publication, many companies went public with their concerns about what they perceived as too short an adoption period.

Some FASB and IASB representatives have said they believe the 31 months between the standard’s publication and its effective date is an ample amount of time and that they would have preferred a shorter adoption period.

A decision to delay the effective date will mark yet another twist in a standard-setting project that has dragged on since 2006, when the FASB and IASB listed revenue as one of the standards they planned to write jointly in the Memorandum of Understanding, the outline of the long-range plan for converging U.S. GAAP and IFRS. The boards expected to release the final standard in mid-2013, but the publication was nearly a year behind schedule.

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