While the deferral of the new revenue recognition standard may buy time for reluctant filers, it also offers a chance to rethink key aspects of a company’s operations.
The one-year delay offered by the U.S. accounting rule maker to adopt new revenue recognition standards offers financial executives a rare opportunity to rethink their approach to everything from contracts to products, says Steve Hobbs, managing director of Protiviti’ s Public Company Transformation practice.
Hobbs will discuss the new rev rec rule and its impact on operations on a webcast scheduled for this Thursday, July 23.
The new standard offers financial reporting professionals and business line executives a chance to rethink their revenue practices “holistically,” Hobbs explains, allowing them to do everything from planning new ways of putting together products and services to developing pricing strategies.
Financial executives have been anticipating sweeping changes to accounting for revenue recognition for some time, but in the spring the Financial Accounting Standards Board board voted to delay the implementation date of the new standard by a year.
Under the proposed timeline, public organizations would apply the new standard to annual or periodic reporting periods beginning after December 15, 2017, and private companies would apply the standard to periods starting after December 15, 2018.
“The impact of the rule change is at a much larger scaled than many people assume, especially when they realize it has cross-functional applications,” Hobbs explains. “The devil is in the details, and it’s much more significant than a financial reporting exercise. The deferral offers a chance to capture that opportunity.”
Adopting the new standard will allow companies, for example, to automate the expensive task of manually reporting and capturing of revenue data. The new rule will also remove the “bright line” accounting around some terms and conditions in revenue-related contracts, offering companies ways to rethink how they deliver products and services to clients.
But first the C-Suite needs to be convinced that the move to the new standard is something more than another rule change that will drain valuable corporate resources, Hobbs explains.
“Many boards will ask “Is there is a return on investment, or is this simply a compliance exercise?” Hobbs says. “Those companies that realize the impact on key elements of the infrastructure will have a competitive advantage.”
You can sign up for the revenue recognition webcast here.•