The majority of companies admit they are behind on implementing the new revenue recognition standard from the Financial Accounting Standards Board, according to a new survey, despite a delay of the effective date by one year.
FASB and the International Accounting Standards Board released a long-awaited converged revenue recognition standard in May 2014, but later decided to extend the date it takes effect by one year to give companies more time to implement it.
However, according to a new survey by KPMG LLP of 140 companies, 60 percent of respondents indicated that they are running behind schedule in their overall implementation of the standard, which has an effective date as early as Jan. 1, 2018, for many organizations.
Nearly 80 percent of the public companies surveyed indicated that they have not completed an assessment of the impacts of the new revenue recognition standard.
The respondents indicated their revenue recognition implementation efforts are hampered by competing internal business priorities, human resources constraints, as well as financial limitations; our experts are concerned that companies are seriously underestimating the time needed and associated costs to effectively comply. While two-thirds believe implementation costs will total under $1 million, 17 percent foresee spending between $1 million and $2.5 million, and for 16 percent, up to $20 million.
“Organizations are running short on time, and need to turn greater focus toward their revenue recognition implementation efforts to meet FASB’s deadline,” said Steve Thompson, KPMG’s Advisory lead for Revenue Recognition, in a statement. “It is concerning that more companies have not completed their assessment activities, which is a fairly straightforward step – as compared to designing and implementing system changes that can easily take more than a year. Some companies appear to be underestimating the time, effort and resources needed to effectively comply with the standard.”
Another recent survey, in which Deloitte polled 5,400 financial and accounting professionals, found the majority of companies are also unprepared for FASB’s new leasing standard (see Less than 10% of Companies Ready for New Lease Accounting Standards).
A separate survey by PricewaterhouseCoopers and the commercial real estate services company CBRE of 500 executives responsible for lease accounting or lease management found companies at least beginning the process. Seventy percent of the respondents to the PwC survey said they have already begun to assess the reporting and/or operating impacts of the new standards for their business or plan to do so this year. However, 75 percent believe implementing new leasing IT systems will be somewhat or very difficult. A 56 percent majority of respondents told PwC and CBRE that more than half of their real estate holdings are leased, while only 4 percent own all their real estate assets outright.
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