Now is the time to start analyzing the impact of the new revenue recognition accounting standard and begin to take the next steps toward implementation for annual periods beginning after December 31, 2018 (2017 for public companies). Since this standard requires either a full or modified retrospective method of implementation for all years presented on your financial statements. Anyone presenting comparative financial statements will want to start their assessment in 2017.
The Core Principle of this standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for goods or services. This is accomplished by a five-step process:
As you might guess each of these steps may require significant analysis. Even if revenue recognition changes are not expected to materially impact your financial statements the new disclosure requirements can be extensive which could require new systems, processes, and internal controls to gather this information. This may not be too difficult for some of you, but if you wait until the last minute you may find yourself unable to provide accurate financial information needed for your financial statements, budgets, forecasts and any other financial reporting obligations you may have.
GKG suggests starting to identify and analyze all of your company’s different revenue streams now. Review a sample of those contracts related to your different revenue streams and begin to map out what your performance obligations may be in those contracts. Determine transaction prices for the contracts as a whole and analyze how you will allocate the transaction price to the separate performance obligations. Once you have allocated your transaction price to the separate performance obligations you can assess how this will impact current and deferred revenue going forward.
Contact GKG to learn more about how we can advise and assist with your implementation concerns and challenges.
Paul P. Conniff, CPA, CGMA