Getting Ready for the Revenue Recognition and Lease Accounting Changes

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Is your organization prepared to implement the upcoming changes to Revenue Recognition guidelines?  How about the new Lease Accounting standards coming in 2018? 

Many Finance departments may be heads-down on mid-year reporting, updating forecasts, and planning for the 2nd half of 2017.  But it’s also important to be planning for these upcoming changes in accounting standards and guidelines.

Revenue Recognition Changes Coming Soon

The new FASB Revenue Recognition guidelines are coming quickly – effective for public companies for the first interim reporting period for fiscal years beginning after Dec. 15, 2017.  Non-public companies have an additional year and will begin adopting after Dec. 15, 2018.

business partners 123rf.jpgThe previous guidance was complex and inconsistent under US GAAP and IFRS rules.  The FASB’s new guidance will address inconsistencies and weaknesses in the existing guidelines.  This will also improve comparability across companies and industries.  The changes are significant.  In many cases, they’re expected to allow companies to recognize revenue earlier and, in some cases, may result in deferrals of revenue based on performance obligations. 

Per a recent E&Y survey, 70 percent of companies don’t have their revenue recognition programs complete.  Meanwhile, 45 percent of companies implementing or upgrading to a new system are having difficulties and are concerned about not having a fully functioning system in place for the deadline.

So it’s time to get moving!  A recent Accounting Today article provided an overview of the FASB’s revenue recognition steps, as well as recommended steps for implementing the new Revenue Recognition guidelines.  

These changes don’t only impact reporting and disclosures related to Revenue Recognition.  They also impact budgeting and planning for future periods.  And the experts recommend that companies currently running their budgeting and planning processes on spreadsheets will need to implement purpose-built planning applications that can more easily address the complexities of the new guidelines.

Changes in Lease Accounting Also on the Horizon

While there’s been a lot of buzz in the market about the changes in Revenue Recognition guidelines, the changes in Lease Accounting standards could also significantly impact companies. 

office-space-for-lease.jpgThe new FASB standards for Lease Accounting will be effective for public companies for fiscal years and the related interim periods beginning after Dec. 15, 2018, with retroactive application to the previous two fiscal years.  This means companies should have complete adoption effective Jan. 1, 2019, and retroactive application to 2017 and 2018 for both annual and interim financial statements.  For non-public companies, the required adoption date is for fiscal years beginning after Dec. 15, 2019.

Under the new standard, companies will include leased assets and the related obligation on their balance sheets, in addition to having to reclassify items on the income statement and cash flow statements.  The new model affects both financing leases (like the current capital lease) and operating leases.

The effort involved in the adoption of the new lease accounting standard could be significant.  The identification of all leasing arrangements for large companies will be a major exercise involving both business judgment and heavy-duty data collection.  In addition, the new accounting standard may require changes to financial systems and the related control environment.

Learn More

If your organization has been putting off the task of preparing for these changes, now is the time to study the changes, assess the impact on your organization, and start preparing. 

To learn more about the new Revenue Recognition guidelines and the impact on budgeting and planning, check out a recent webinar we sponsored on this topic. 

Watch the Webinar Replay 

Posted by on June 13, 2017
John O'Rourke

John O’Rourke is Vice President of Strategic Marketing at Host Analytics. With a background in accounting and finance, John has over 30 years of experience in the software industry and 20 years of experience in EPM product marketing at Hyperion Solutions, Oracle and Host Analytics. He has worked with many customers and partners on financial reporting and planning initiatives and has spoken and written on many topics in EPM. John has also held positions in strategic marketing and product marketing at Dun & Bradstreet Software, Kenan Systems, and Decisyon. John has a BS degree in accounting from Bentley University and an MBA from Boston College.

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