Companies falling behind schedule on revenue recognition standard

Many companies are at risk of falling behind schedule on implementing the revenue recognition standard, according to a new survey by Ernst & Young, and CFOs and CIOs are not in agreement on the reason why.

According to the findings, 70 percent of companies do not yet have their revenue recognition programs complete, while 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.

In addition, 61 percent of the survey respondents said revenue recognition changes are an opportunity to drive transformation, but 43 percent indicated they are too focused on getting the new standard’s financial reporting and disclosure tasks completed to be able to take advantage of the wider business benefits.

Revenue recognition implementation challenges

There also seems to be disagreement between chief financial officers and chief information officers on who is to blame. The survey found that 85 percent of CIOs believe the IT team is providing the support and skills needed to implement the revenue recognition standard, but only 60 percent of CFOs agree. For the survey, EY polled 300 finance and IT leaders from U.S.-based public companies in multiple industries in March.

“The competing perspectives between CFOs and CIOs reflect their different approaches to the implementation of the new revenue recognition standard,” said EY Americas accounting change leader John McGaw in a statement. “The results shine a light on the importance of internal alignment among finance, IT and other functions, as well as with internal and external audit teams.”

According to the CFOs polled, more than one-third of their companies are experiencing challenges and are at risk of falling behind schedule, including 14 percent of companies that haven’t yet started. The top five reasons cited by those who said their program may be at risk include:

• insufficient allocation of people resources (51 percent)

• lack of change management capability (46 percent)

• challenges interpreting the standard’s technical requirements (44 percent)

• difficulty collecting required data (42 percent), and

• insufficient financial resources allocated (42 percent).

To help fill the gap, 48 percent of the companies are hiring more people and 40 percent are making extensive use of consultants to fill the gap. Meanwhile, costs are going up: 54 percent of the survey respondents said they have seen their revenue recognition budget increase since the program started.

Despite all those challenges, 47 percent of respondents indicated their programs are on track and are fully confident of meeting critical milestones, while another 14 percent said their programs are ahead of schedule.

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