The American Institute of CPAs has almost finished the process of providing accounting guidance on industry-specific issues related to the new revenue recognition standard.
The AICPA’s Financial Reporting Executive Committee, also known as FinREC, has been overseeing the initiative. That work has been in progress ever since the Financial Accounting Standards Board released the long-awaited standard in May of 2014 after working with the International Accounting Standards Board for nearly a decade on harmonizing U.S. GAAP with International Financial Reporting Standards. The converged revenue recognition standard largely eliminates the industry-specific rules in the old standard, taking a more principles-based approach. But that doesn’t mean particular industries aren’t facing issues in getting ready for the new standard, which takes effect in December. FASB left it to the AICPA to develop industry guidance.
The AICPA’s Rev Rec Working Group has been trying to ease the transition challenges by issuing working drafts of accounting issues for 16 sectors as the standard’s implementation date of December 15 for public companies approaches. The main goal has been to help financial professionals in industry and CPAs implement the standard.
“From my perspective we’ve made significant progress from where we were a year ago,” said FinREC chair Jim Dolinar. “The taskforces have been very busy cranking through the papers, and I think we’re in a good place today.”
The first edition of the AICPA’s Accounting Guide on Revenue Recognition was issued last December, and the AICPA has updated it on a quarterly basis ever since. The latest information is available on the AICPA's revenue recognition web page.
“To give you some perspective on the magnitude of the project, if you were to access the online subscription today it would have almost 600 pages of content,” said Dolinar. “It’s got a meaningful amount of guidance included within it. In addition all the other papers or most of the other papers that are in process of being deliberated or at this point have been at a level of review. Those are posted on the AICPA’s website, so between the two, a user would have the ability to access more or less the majority of the papers that the AICPA has been working on for the past few years.”
The AICPA takes comments on the various drafts of the guidance for various industries before finalizing it.
“Our revenue recognition working group, which is a newly formed working group we’ve put together for this project that’s made up of individuals from the top eight accounting firms that are basically the rev rec techies, they’ve reviewed all of the 140 issues and at this point FinREC has also reviewed about 96 percent of the issues,” said Kim Kushmerick, staff lead on the rev rec project. “I’m happy to say that as of December 1, we’ll have 92 percent of the different topics exposed. When the issues are exposed, they’re put on the individual industry task force web pages, and those exposure drafts stay on the web pages until they’re completely finalized and available in the revenue recognition guide. When issues are finalized and in the rev rec guide, then they come off the task force web page, but not until then. If you have the online subscription to the guide, you’re going to be able to access all of the information, either through the guide when it’s finalized or the exposure draft that’s available on the web page.”
The AICPA charges for the finalized guide, but just enough to recoup its costs, and the guidance is also available through many third-party accounting research services. “In many respects this is very consistent with how the AICPA handles all their guides,” said Dolinar. “People generally will subscribe to the ones that are relevant to them. There’s a number of industry audit and accounting guides that exist today, and those are all out on a paid subscription basis.”
The goal is to provide accountants with guidance on thorny issues involving the new rev rec standard, which companies are finally beginning to tackle as the effective date approaches.
“I think we’re getting to a point now in light of what I’m been seeing and hearing recently where companies are really getting at this very earnestly right now,” said Dolinar. “If you were to ask me what I felt a year ago, I was very worried. Today I feel a lot better than where we were. I’m sure there’s going to be a lot of work that’s going to happen between now and March when companies are really going to have to start implementing it for sure, but I’m not getting a sense or hearing an outcry that people are just not going to be ready.”
Some of the issues for particular industries that have been problematic have involved performance obligations and the question of principal vs. agent.
“After working on this project for several years now, one of the things that’s come through loud and clear is that it’s so based on the facts and circumstances,” said Dolinar. “What we’ve learned by working through all of these 16 industries is that things can be different between one industry and another because their facts and circumstances are so different and so unique. For example, an airline has a very different model from a retailer. It’s hard to apply broad generalizations that cover the gamut. That said, from what we’ve seen there’s a lot of judgment involved in the standard where people seem to have the most challenges. Some of the ones that probably come out are identifying the performance obligations for contracts that have multiple elements to them, determining if you have variable consideration, or is it really an option to acquire additional goods and services. The principal vs. agent, in some industries, can be more complicated than others where it’s very straightforward. Those are probably some of the examples that we’ve seen and that we’ve talked about as we’ve worked through these papers.”
The technology industry also faces issues in terms of subscriptions and licensing contracts.
“Clearly the technology and software is one of the industries that was impacted significantly more than others, as well as the telco industry,” said Dolinar. “Both of them have very unusual transactions that are addressed by the standard and that require them to do a lot more analysis in order to reach their conclusions.”
In addition to the revenue recognition standard, the AICPA is working on guidance for FASB’s credit loss standard, but not for the leasing standard.
“What we have heard about the leasing standard is it doesn’t have the level of complexity that the revenue recognition standard has,” said Dolinar. “To date we haven’t felt a need to develop a comprehensive guide. Clearly, there doesn’t appear to be a need to do it by industry. That being said, the AICPA continues to be ready to address that issue if the profession and practice identifies a need there for additional guidance. As it relates to CECL [current expected credit loss], the AICPA actually does have a task force that is actively working on developing a guide. It’s still in process. That one has several different aspects to it. It’s got a section focusing on auditing issues, accounting issues, and then relating to the accounting issues, there’s a lot devoted to valuation issues. All of that is currently being worked on by several task forces, all under the broad umbrella of CECL.”
Dolinar and other experts plan to discuss the revenue recognition standard during the AICPA’s SEC-PCAOB Conference next week in Washington, D.C.
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