"We're very encouraged by cooperation among all of the constituencies," said Shelly C. Luisi, senior associate chief accountant in the U.S. Securities and Exchange Commission's Office of the Chief Accountant, at Financial Executives International's Recognition: Focus on Implementation Conference in New York. "I haven’t seen this kind of effort toward implementing standard during my career, and it's encouraging. It's also necessary for the standard to meet one of its primary objectives of eliminating industry-specific guidance and practices."
Luisi said the commission was monitoring progress as companies moved toward adopting the revised standard, which was adopted in May of 2014 by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). The standard was designed to converge revenue recognition practices under U.S. GAAP and International Financial Reporting Standards (IFRS).
For instance, SEC officials are participating in industry, preparer and auditor groups in discussing implementation issues. In most cases, questions are resolved among industry participants or forwarded to a Transition Resource Group (TRG) organized by FASB and the IASB to help preparers and auditors clarify implementation concerns.
"These discussions are helpful in understanding how industries are dealing with implementation issues, and the [accounting] firms are helping us understand the process of how issues are being raised, debated and resolved."
Luisi said one of the commission's primary goals is to promote consistent interpretations of the standard as accounting firms develop implementation guides.
"If the [firms'] books have different views, that can be confusing," Luisi said. "Our hope try to encourage consistency in reporting of the standard, and firms not coming material differences in interpreting topics that really matter. We've been engaged with the firms to help drive that consistency."
Practical Approaches
As companies, standard-setters and auditors work on implementation issues, Luisi said the SEC is promoting a practical approach to adopting the new standard. As more people delve into the standard's details, for instance, there is potential for differing interpretations of nuances that, if taken too far, could detract from the standard's overall objectives.
She cited a speech earlier this month in which Chief Accountant James Schnurr advocated collaboration among preparers, auditors, and standard-setters to clarify terms such as "performance obligation" as concisely as possible, while avoid industry-specific interpretations.
"We're clearly supportive of practical implementation and not taking an unrestrained reading of the [accounting] literature," Luisi said. "We encourage companies and auditors to take a practical approach, and we encourage all parties to work together to read the literature in practical way."
Luisi said the commission understands financial and accounting executives will have to apply reasonable judgment as they apply the new standard, and suggested they document their decisions so they'll be able to answer any interpretative questions from auditors or regulators.
"Preparers should focus on the nature and purpose of a transaction, and what the customer believes the transaction is doing for them...." Luisi said. "Evaluating a transaction and determining the purpose of that transaction for customers will go long way in helping you determine whether the impact of that transaction is material."