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Top challenges for implementing the new revenue recognition rules

As companies prepare for the new revenue accounting standard that takes effect in 2018, there’s no shortage of apprehension among financial executives. Given both the impact of the forthcoming changes as well as the adjustments companies need to make, companies still have plenty of work to do.

Revenue recognition is a critical and often complex accounting area that companies can't afford to get wrong. Many boards and investors will want to know what to expect. Regulators will also be looking for increased disclosures throughout 2017 as adoption draws closer.

Given this backdrop, we included a question on the greatest challenges pertaining to the new regulation as part of a recent survey of more than 700 accounting and finance executives conducted by PwC and the Financial Executives Research Foundation. When asked to rank the difficulty of different revenue recognition implementation issues, a significant majority of respondents saw all of the issues as somewhat or very difficult, suggesting the overall complexities around the process.

Revenue recognition implementation issues

With regard to ranking the difficulty of different revenue recognition implementation issues, contract reviews topped the list of concerns overall, per 78 percent of respondents. This is an important element of transition activities and it becomes more time consuming for companies as the number of individual and non-standard contracts increases. We’ve seen more than a few instances where companies are surprised by their volume of nonstandard contracts, leading to more effort than expected as well as challenges determining the right amount of "coverage" for documentation and audit purposes.

Developing and implementing new accounting policies, and documentation of the conversion process and associated auditability, topped the list at numbers two and three, being cited by 76 percent of respondents, respectively. Other areas of concern included quantification of adjustments, project management, revisions to systems and internal controls, and identification of accounting differences across the organization.

In our experience, many of these issues aren’t initially evident until companies begin applying the new guidance to specific contracts and transactions. So time is of the essence for financial executives to develop a plan and begin educating their organizations on the forthcoming accounting changes. This should extend beyond the accounting department because the transition to the new guidance is more than an accounting change; sales and marketing, legal, tax, HR and IT all need to be at the table to understand the true implications to the organization of the change.

Getting this right the first time is paramount, and that's going to involve efforts from individuals throughout the organization. Awareness and action by a cross-functional team is critical to making the transition a success.

For a timely summary of where many of your peers are in the implementation process, the results of the survey have been summarized in our online data explorer, accessible here. We hope you find this information useful as you move forward with your implementation plans.

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Financial reporting Accounting standards Accounting Audit PwC
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