Posted by Hannah Erdman Posted on
By: Angie Holsen, Principal
New changes in revenue recognition are on the horizon with requirements beginning as soon as March 2017. The change, resulting from newly converged standards released by both the FASB and the IASB, moves revenue recognition from a prescriptive to a more principles-based approach.
Rather than just reviewing your contracts – and some of you are – create a company-wide approach now to avoid headaches and additional work later.
According to a recent survey conducted by KPMG1, approximately 80 percent of respondents are still assessing how changes to Revenue Recognition will impact their organizations.
Given the scope of the task ahead and the time it will take to implement changes, the time to act is now.
Make a roadmap
The first step should be an enterprise-wide assessment to determine the amount of risk and the extent of the areas impacted by the necessary changes. Here are thought-starters to get you going on your roadmap:
- Which revenue streams might have contractual performance obligations?
- How standardized are your customer contracts?
- Do you understand the processes, systems and controls currently in place?
- Could those processes, systems and controls enable you to recognize revenue properly under the new standard?
It’s important to look broadly at your organization to ensure full comprehension of all the potential impacts. That will ensure your solution is sustainable, controlled, and leverages technology where appropriate.
The second step is to validate your findings with a contract review. And keep in mind that more than just accounting will be impacted by the change. This list represents a sample of other potential changes to consider as you develop your roadmap:
- Increased disclosures
- Accounting policies/procedures revisions
- Systems and processes adjustments
- Internal control additions
- Appropriate timing of revenue recognition and comparative financials
- Customer contracting
- Budgeting and forecasting practices
- Tax Impact considerations
- Human resources rewards and recognition practices and policies changes
Salo Can Help
If you aren’t sure where to begin or how to manage a project of this scope, we can help. Contact Salo to set up time to discuss these changes in greater detail and hear what others are doing.
1Source: The Great Accounting Challenge, KPMG’s 2016 Accounting Change Survey, 2016.
Angie Holsen is a Principal in Salo’s Chicago office. Click here to connect with Angie.