Companies Lag in Implementing Revenue Standard
Six months before they must comply with a sweeping standard for calculating revenues, many U.S. companies are still not ready to implement what is considered one of the biggest accounting changes in decades. A survey of 300 major U.S. public companies shows that more than 70% do not have their revenue recognition accounting systems upgraded to accommodate the new revenue standard. One third of the companies said they are experiencing challenges and are at risk of falling behind schedule. “Revenue recognition changes pose significant finance, technology, and operational challenges for companies,” John McGaw, Ernst & Young Americas accounting change leader, said in a statement accompanying the June 5 report. “Those that take a strategic approach can actually drive improvements across their systems, processes, controls, and operating models. Those that are late to required implementation activities, however, will likely struggle to keep up and miss out on the opportunity to uncover broader business benefits.” Regardless of the accounting outcome, however, the workload involved in assessing the effect of the new guidance and gathering data is expected to be significant across all industries. At conferences and in webcasts after the standards were released, FASB and SEC officials warned that companies should not wait until the final weeks before the standard’s 2018 effective date to gather the data needed to comply.
Costs of Implementing Insurance Standard Draw Attention
The IASB has said that it expects insurance companies to incur significant costs implementing its new standard on accounting for insurance contracts, but the accounting board believes the benefits to investors justify the costs. “Clearly the IASB anticipated and expected that there would be a number of costs involved in implementing a standard this big, with changes this significant,” IASB member Darrel Scott said during a June 8 podcast discussing the accounting board’s recent activities. “We expect both the normal things, changes in systems, and changes in data to come through.” Still the board believes the standard’s benefits, given that it will help investors gain a better understanding of insurers’ risks and sources or earnings, outweigh its costs, Scott said. The board plans to help insurers dealing with the implementation process through an educational campaign.
Research on Going Concern Standard Continues
The PCAOB’s staff is continuing to research whether the board’s standard on going concern evaluations needs to be revised to accommodate the accounting changes from the FASB that now require management to assess a business’s financial viability. Because management and auditors now have different thresholds for evaluating a company’s ability to stay afloat, the PCAOB staff, among other things, has been monitoring how companies and auditors are applying the different rules to study whether changes are needed to audit standards, PCAOB Chief Auditor Martin Baumann said during a May 24 meeting of the PCAOB’s Standing Advisory Group (SAG) in Washington. “The staff is particularly interested in understanding situations in which auditors reported substantial doubt existed, but management did not,” Baumann said. “Management might have had other types of disclosures, saying they have certain concerns or conditions about their operations, but they did not report substantial doubt about the company’s survival. We are continuing to evaluate these reports.”