As we round the halfway point of the year and begin to approach 2018, many organizations are bracing for the implementation of the FASB revenue recognition standard. This standard seeks to produce one universal method for organizations to calculate revenue that will follow a more uniform process.
For public companies with a calendar year fiscal year, these standards go into effect at the end of 2017. Non-public companies must comply by the end of 2018.
While the goal of the new standard is to make revenue recognition more consistent across the board, the implementation process is always daunting. And while 2018 seems to be far off for many smaller non-public companies, it’s coming faster than you can imagine!
One particular area of concern for many organizations is the disclosure side of these standards. FASB requires more information than ever before about revenue activities and the transitions related to them. These requirements mean additional planning has to be put in place to the implement the disclosure requirements as well.
That’s what I want to discuss in this post. Specifically, the impact of the disclosure requirements and how to effectively plan for them.
Create a Timetable
As with any new standard, there are always a few potential roadblocks an organization has to be aware of when starting an implementation process. Frequently this will include timetables and hard deadlines.
This is why it’s so important to take note of these deadlines now. It will allow you to leave yourself ample time for planning, data collection and implementation.
Keep in mind these new disclosure requirements are complex. In fact, some organizations will need to comply with them quarterly in addition to at year end. These additional reporting requirements can wreak havoc on an organization that is unprepared to face a hard reporting deadline.
For many organizations these additional disclosure requirements could mean a massive amount of new data will need to be gathered, analyzed and sorted before the deadline. This data will need to be screened and new disclosure reports created, taking even more time.
Many businesses already feel squeezed when it comes to filing deadlines—now it will only feel tighter.
Develop Processes and Controls
If you don’t have a coordinated method that includes processes and controls for gathering the needed information in place, it’s time to start. More often than not, when working to implement new regulations, businesses often leave the disclosure aspect until the end of the process.
In this instance, that would be a costly mistake. The complexity of these requirements may require significant changes within the organization. These changes will likely take a significant amount of time.
For example, it’s not out of the realm of possibility that your organization will need to hire new personnel for the additional reporting and data gathering activities. Additionally, there will need to be a system in place for the data once it’s collected. The data will need to be screened for relevance. And that’s before any preparation or review process for the actual disclosures.
Each of these steps will need to be documented to become part of a standardized process throughout the organization. Once that process is created, it must then be tested and internal controls identified.
As with any implementation, the process takes time and will likely need tweaking along the way. It’s a crucial first step that must be put in place in the coming months.
It’s important to remember that your organization will have to prepare for these new disclosure requirements while also implementing the revenue recognition standards at the same time. That means preparation and organization are essential to meet the requirements within the next 18 months.
Many organizations have already begun creating strategies for collecting the necessary information and preparing the disclosure requirements. Doing so will allow them time to review the process and have a solid framework in place by the required implementation deadline.
If your company hasn’t yet begun planning for the new revenue recognition disclosure requirements, time is ticking. There’s no better time to start than right now.
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