Private Companies Rush to Meet Revenue Recognition Effective Date
With the 2019 effective date of FASB’s revenue recognition standard rapidly approaching, private companies are running out of time. FASB members said the board was committed to answering last-minute questions and trying to make its implementation guidance easier for private companies to access as the deadline draws near. “I’m not sure if the board had said ‘we’ll give seven years [to implement the standard]’ we’d be having different conversation,” FASB member Christine Botosan said. “So it doesn’t seem that it’s an issue of time.” While the standard ushers in a new way of thinking about revenue and requires new judgments and estimates on how to arrive at the revenue figure, it does not significantly change the reported revenue in many industries. It does, however, change the timing of revenue recognition for many businesses, especially those with long-term, complex contracts with their customers. Software, technology, and aerospace companies are expected to experience big changes for revenue recognition, while retail companies, for example, are not.
Auditors May Have to Apply Judgment More Frequently to Lease Accounting
With less than three months until public companies must comply with FASB’s much-watched lease accounting overhaul, companies will need to make judgment calls to determine which rental agreements get recorded on their balance sheets and which get omitted. The key concept is materiality, said Mark Koppersmith, vice president of customer experience for LeaseAccelerator, Inc., an accounting software provider, on an industry webcast on October 10. Businesses can lease anything from vehicles to lunchroom vending machines, in addition to big-ticket items, such as office space and power plants. Under FASB’s new accounting standard, nearly all such leases must be reported on company balance sheets. This means companies will have to make case-by-case calls to determine what to report and what to skip. A telecommunications company with a heavy real estate leasing portfolio, for example, will likely report the leases associated with renting cell phone towers, administrative facilities, and sales offices, Koppersmith said. “But when they look at a portion of other types of equipment—laptop computers for their employees—those may have fallen to the shorter end of materiality,” he said. “Some of those customers are making decisions to not include those in the 842 accounting this first pass.”
Investor Outreach Event on Equity Characteristics Planned for November
The IASB plans an investor outreach for November 26 in Brussels, Belgium, to assess its Discussion Paper (DP) 2018-1, “Financial Instruments with Characteristics of Equity.” The event is scheduled to include a panel discussion that addresses various elements of the paper, such as the support for coming up with a new accounting model for debt and equity and the need to develop new principles to replace current financial reporting practices. The panel is also scheduled to discuss the accounting treatment for various types of financial instruments, such as derivatives, and the factors that are used to determine when they should be classified as debt or equity. Other topics before the panel include information about dilution of earnings per share shareholder and the accounting classification of financial instruments as it relates to outside factors, such as the law or economic influences. The IASB released DP 2018-1 in June and is holding it out for public comment until January 7, 2019.