It’s understandable that FASB’s new revenue recognition standard
might not be top-of-mind for private company finance personnel
despite the impending effective date.
The standard takes effect for private companies for annual
reporting periods beginning after Dec. 15, 2018, and interim
periods within fiscal years beginning after Dec. 15, 2019. So
effectively, private companies must adopt by the 2019 year end.
The steps that private companies take to make sure they are able
to make an effective transition to the new standard
- Identify your “point person.” Your
organization needs somebody in charge of this implementation to
make sure it gets done correctly. That’s likely to be someone from
the finance department. It’s also important to make sure this
person has the support of people from operations, sales, legal, and
other departments to help the implementation go smoothly.
- Determine the resources you will need. Will
your point person be able to handle this implementation alone? Will
it be necessary to get other help, perhaps from consultants or
temporary accounting services? You need to make sure you have the
right people to do this job.
- Develop a timeline. A well-organized set of
milestones, roles, responsibilities, and accountabilities will help
you make orderly progress.
- Scrutinize your contracts. The information in
your contracts is the key to complying with the five-step revenue
recognition process described in the new standard. In some cases,
this close examination of your contracts may show you improvements
that can be made in operations. For instance, if you find that
certain contracts are losers from a revenue perspective, you may
choose to renegotiate them.
- Evaluate systems. “You have to go through the
five-step process,” Westervelt said. “Do I have those controls in
place, and am I able to implement this? And on top of that, you
have to look at, ‘Does my accounting system give me the ability to
do this?’” If your system can’t do the job, it may be time for an
upgrade.
- Create strong controls over adoption. If your
adoption processes are not airtight, you will be susceptible to
problems later.
- Pick the right transition method. In many
cases, the modified retrospective version will be easier for
companies to implement. But the full retrospective transition will
provide investors and others with more of the information they need
to compare the past to the present.
- Pay close attention to disclosures. One of the
principal goals of the revenue recognition standard was to provide
investors with more disclosures and useful information than in the
past. It’s important to make sure your systems capture the right
data to enable those disclosures to be made correctly.