Officials with the Securities and Exchange Commission are keeping a close watch on how companies are adjusting to the new revenue recognition and leasing standards.

“The time until required application of the new revenue standard is limited for most public companies (except for those who have already early adopted),” said SEC Chief Accountant Wesley Bricker, during the AICPA’s Conference on Current SEC and PCAOB Developments, in Washington, D.C., on Monday. “For those companies whose implementation efforts are still underway, we urge you to keep the momentum going. Companies cannot afford to get the accounting for revenue wrong for investors and other users of the financial statements.”

He pointed to the disclosures in the new standard, which takes effect this month for public companies. “Upon adoption, the disclosures required by the standard will provide investors with additional information about revenue from a company’s contracts with its customers,” said Bricker. “We encourage companies to dedicate the appropriate resources to planning for the preparation of those disclosures and to incorporating any necessary updates to existing processes and controls. Companies may need to apply reasonable judgment when preparing the new disclosures so that the disclosures meet the objective described in the standard.”

He noted that some companies have opted to adopt the standard early and are now applying the new revenue standard. “In those cases, investors are benefitting from enhanced financial reporting under the new revenue standard,” said Bricker.

Barry Kanczuker, associate chief accountant in the SEC’s Office of the Chief Accountant, which Bricker runs, discussed some of the principal versus agent considerations in the new standard, and how they might affect some industries differently. “I have observed that applying this guidance can be challenging in some fact patterns,” said Kanczuker. “I believe that some of the challenges are amplified in certain industries, such as the digital advertising industry or other industries in the technology space, where there are often multiple parties involved in providing the good or service, and transactions often take place within the blink of an eye.”

The SEC is also keeping a close watch on the leasing standard that will be taking effect in a year’s time, and the SEC is urging companies to take stock of their leasing contracts.

“The new leases standard will also require careful implementation planning, management, and oversight,” said Bricker. “For companies that have not yet commenced their implementation efforts for leases, when you do begin, we would suggest that you consider starting by identifying the population of relevant contracts and evaluating whether or not those arrangements are or contain a lease. These steps can potentially be time consuming and are reminders of why getting started as soon as possible is important. Additionally, we believe it is important for companies to be actively involved in raising accounting questions related to the new leases standard in order to maximize the preparers’ role in the profession’s current dialogue regarding the identification and resolution of accounting issues related to this new standard. This is another reminder of why being engaged in the implementation of the new leases standard is important.

The SEC is monitoring companies’ efforts to get ready for the new leasing standard and taking questions about it.

“The staff’s involvement in the implementation of the new leases standard has focused on actively monitoring implementation efforts and continued dialogue with stakeholders to discuss emerging accounting questions identified as a result of their implementation progress,” said Michael P. Berrigan, a professional accounting fellow in the Office of the Chief Accountant.

SEC building with official seal
Image: Bloomberg

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.