The Financial Accounting Standards Board appears to be poised to delay the effective date of its new revenue recognition standard by a year, giving U.S. companies more opportunity to adapt to the changes.
Last week, FASB voted to propose to defer the effective date after hearing feedback from many of its constituents that they would like the extra time (see FASB Defers Revenue Recognition Standard for 1 Year). FASB issued the long-awaited converged revenue recognition standard last year after collaborating with the International Accounting Standards Board on harmonizing the rules for recognizing revenue under U.S. GAAP and International Financial Reporting Standards.
But FASB and the IASB’s Joint Transition Resource Group soon began hearing demands for more guidance and time to adjust, mainly from U.S. companies.
Under the proposal, public companies would apply the new revenue standard to interim reporting periods within annual reporting periods beginning after Dec. 15, 2017, while nonpublic entities would apply the new revenue standard to interim reporting periods within annual reporting periods beginning after Dec. 15, 2019. FASB also is likely to permit both public and nonpublic entities to adopt the new revenue standard early, but not before the original public entity effective date (that is, annual periods beginning after Dec. 15, 2016).
Dusty Stallings, a partner in PricewaterhouseCoopers’ Capital Markets Accounting and Advisory Services practice, has been keeping a close watch on the deliberations and believes the deferral will be helpful for many companies.
“One of the reasons that FASB decided a deferral was necessary was a result of the outreach that they performed,” she said. “They got feedback that the process was taking longer than perhaps companies had originally thought. Having the additional time to ensure that the right processes and controls are all in place for when implementation occurs is obviously a very important consideration in applying this new standard.”
However, companies should not take the deferral as an excuse to hold back on adjusting to the new standard, especially if that process is already underway.
“I do think that there are some who might see this as an opportunity to slow down and take your foot off the gas,” said Stallings. “While I think it’s OK to slow down to a more measured cadence, it’s not a good time to completely take your foot off the gas. Almost a year has passed between when the standard was issued and when the boards made a decision to provide for a one-year deferral. You currently are in almost the same place that you were last year when the standard was issued, except that thankfully we understand it better now. So it really is important that companies focus on getting their process in place, their plan in place, to be able to implement this in a timely manner.”
Early adoption may be a good approach for companies that have already begun to adjust to the new standard.
“We’ve heard some companies believe that if they have to wait until 2018, then they will incur more time and more effort than they probably would have needed to incur, just because they know they’ve got that additional bit of time,” said Stallings. “For those who had in place a solid plan to be done and ready by 2017, I think it’s a perfectly valid request that they be able to adopt early.”
Comparability might be a problem, though. “I do know that there are some who are concerned about comparability,” said Stallings. “Certainly some of the board members mentioned their concerns about comparability if you have companies transitioning in different years, but I think most of that can probably be overcome.”
The IASB is allowing companies to adopt the standard early, which could be a problem for comparability between U.S.-based companies and those based abroad that use IFRS. But Stallings thinks most U.S. companies will elect to defer for a year rather than take advantage of any early adoption permitted by FASB.
“I suspect the majority will take advantage of the deferral and use the extra year, which is probably for a lot of companies exactly what they need to do,” she said. “There are some companies who had the resources and the opportunity to progress perhaps faster than others. For them it does seem fair to allow for the early adoption. But I wouldn’t expect the majority to take advantage of the early adoption. Otherwise we probably wouldn’t have heard quite as much feedback on the need for deferral as we did.”
She noted that the IASB has not yet made a decision on whether or not to defer the standard by a year to match FASB’s effective date. “That will be interesting to see, especially for multinational companies,” Stallings added. “If a multinational company gets a deferral of one year in the U.S., but then doesn’t get a deferral for their subsidiaries that are outside the U.S. and that might have statutory reporting under IFRS, some of the benefits of the deferral are diminished because they’ll have to do a lot of the work for those subsidiaries in order to be ready for a 2017 implementation date. It will be interesting to see what the IASB does now that the FASB has held their discussions around deferring for a year.”
IASB officials have said that they haven’t heard as much demand for a deferral as FASB has. “They haven’t gotten pressure from outside the U.S.,” said Stallings. “The question then becomes, will they get pressure from multinational companies that are based in the U.S. because of the challenges that having two different implementation dates raises?”